June 2009

SILO is local no more, is the Local Option Sales Tax next?

by Deborah D. Thornton

On May 5, Linn County fully implemented the Local Option Sales and Services Tax (LOST). Under Senate File 44, signed by Governor Chet Culver in February, counties designated federal disaster areas were able to hold a special election to try to implement the tax, presumably, but not exclusively, for disaster recovery.  The only two counties with no LOST were Linn (Cedar Rapids) and Johnson (Iowa City).  All other counties in Iowa already have the LOST in some portion of the county.  The legislation only required 30 days notice to voters, and allowed for two potential voting dates: March 3 or May 5.  The tax was proposed as a 1-cent increase and is passed by individual areas, so that one town could pass the tax, both collecting and receiving the money – and another could not, and would not receive any.[1]

Linn County chose to vote almost immediately, on March 3, with not all areas passing the tax. Most notably, it failed in the city of Marion, 2,044 to 2,227.[2]  The Cedar Rapids City Council immediately set up a revote for May 5.  Reasons cited were that voters were confused about the tax’s use.[3]  On May 5 these towns did pass the tax, as their elected officials wanted.  While the revote was a legal option, it was not specifically outlined in SF44.

Both Linn and Johnson Counties were the last two counties to pass the School Infrastructure Local Option tax (SILO), in 2007. This tax is similar to the LOST, except specifically for the building of local schools.  Voters passed the tax increase, which had previously been turned down, because the Legislature promised that they would get to keep all the collected taxes for the first five years, instead of sharing with the other counties.  In Iowa, those counties that collect more than their “fair share” of local SILO taxes – because they have stronger retail centers – generally have to share money with counties that collect less.  This is based on a complex formula, factoring in the dates of implementation and county population.  Because both counties are strong retail centers, the ability to keep all of the money collected was enough of a bribe to induce the taxpaying workers to vote “Yes.”  Key to the implementation of the SILO tax is that it was a “local” tax, voted on by “local” citizens to fund their schools, with a sunset date of generally 10 years.[4]

Unfortunately, less than a year after Linn and Johnson Counties were bribed into passing the SILO tax, the Iowa Legislature voted to make it a permanent statewide tax, with no protection from being used for other purposes. Linn and Johnson still get to keep their extra money for the rest of the five-year period.  Those who argue that the SILO is not permanent do have a point: the official legislation provides for a sunset clause.  This means the SILO would be reconsidered by the state in the year 2029.[5]  This provision reminds one of the song from 1969 by Zager and Evans, a one-hit wonder duo from Nebraska,

“In the year 2525, if man is still alive, if woman can survive they may find….”[6]

By 2029 we may find that the SILO is now permanent and that whether or not the working, taxpaying citizens want or need the tax is irrelevant. Even if it is being used for schools, the State is in charge.  This leads to similar thoughts about the LOST.

On May 5, during the revote on the LOST in Linn County, Center Point, Hiawatha, Marion, Robins, and Walford passed the tax increase.[7]  Voters were convinced that since everyone else had the tax, they needed it too in order to get their fair share of the income generated.  In Johnson County, most of the towns passed the tax increase, including Iowa City.  The tax was defeated by substantial margins in the unincorporated area of Johnson County (36-64 percent) and the town of North Liberty (39-61 percent).  In Iowa City a very slim majority of 3,641 or 50.02 percent “Yes” votes passed the tax to 3,634 or 49.92 percent “No” votes.  The “Yes” votes were seven greater than the “No” votes.  In Coralville the tax failed by a similar margin, with eight more “No” votes.[8]  This author supports the principle that a majority is 50 percent, plus one vote.  If a majority of the voters vote “Yes” it should stand.  If 50 percent plus one vote defeat an issue, the same principle should apply.  Therefore, if the majority vote “No” it too should stand.  In Johnson County each result should stand as voted.  The voter turnout, while not large, was comparable to previous local option elections, at 15 percent of the total registered voters compared to 14 percent for the SILO turnout in 2007.

The issue of whether or not 15 percent of the voters actually voting make a valid result is not addressed by the LOST legislation. In the United States we have no legal requirement to vote in an election in which we are not interested, do not hold a strong opinion, or do not feel well informed. However, the principle of living with an election result does come into consideration.  We vote for President, Governor, and local officials – and live with the result until the next regularly scheduled vote.  In extreme cases the U.S. Supreme Court makes the final decision.  We do not vote, and revote, and revote until we reach some “correct” result.  This is a hallmark of the American democratic process.

Both supporters and opponents of the tax increase in Johnson County are still considering their options for dealing with the May 5 results. There may be not only a recount, but also a request for a “revote.”  In this case, the revote would fall under the normal LOST provisions, with a substantial lead-time before the vote and a contiguous area rule in place.  Interestingly enough the regular LOST provisions allow for a vote called by petition of the voters, not just by the call of the City Councils and County Supervisors.  A revote on the “No” results could result in a citizen petition for a revote on the “Yes” results as well, with a repeal of the tax after a minimum of only 1 year.[9]

This presents an interesting situation. According to the song,

“In the year 3535 ain’t gonna need to tell the truth, tell no lies Everything you think, do and say is in the pill you took today.”[10]

And as demonstrated in Linn County, if you don’t think, do, and say as the government says you should, you’ll vote again until you do. Of your own free will, of course.  Let’s hope elected officials in Johnson County don’t follow the same path, or the year 3535 may be closer than we think.

Deborah D. Thornton is a Research Analyst at Public Interest Institute. 

The views expressed herein are those of the author and not necessarily those of Public Interest Institute or Tax Education Foundation. They are brought to you in the interest of a better-informed citizenry.

[1] Senate File 44, <http://coolice.legis.state.ia.us/Cool-ICE/default.asp?Category=BillInfo&Service=Billbook&ga=83&menu=text&hbill=SF44s> (May 8, 2009).

[2] Special Election-LOSST, March 3, 2009, <http://www.linncounty.org/content.asp?Page_Id=934&Dept_Id=6> (May 11, 2009).

[3] “Cedar Rapids council to allow sales-tax revote in five cities,” The Cedar Rapids Gazette, March 7, 2009, p. A1.

[4] Iowa Code, Chapter 423E, School Infrastructure Funding Formula, May 8, 2009.

[5] Iowa Code, Chapter 423F, Statewide School Infrastructure Funding, May 8, 2009.

[6]In the year 2525,” Zager and Evans, <http://www.metrolyrics.com/in-the-year-2525-lyrics-zager-and-evans.html> (May 11, 2009).

[7] Special Election-LOSST, May 5, 2009, <http://www.linncounty.org/content.asp?Page_Id=934&Dept_Id=6> (May 11, 2009).

[8] May 5, 2009 Local Option Sales Tax Results, Johnson County Auditors Office, <http://www.johnson-county.com/auditor/returns/0905tax.htm> (May 11, 2009).

[9] Iowa Local Option Sales Tax Questions and Answers, <http://www.iowa.gov/tax/educate/78601.html> May 6, 2009).

[10]In the year 2525,” Zager and Evans, <http://www.metrolyrics.com/in-the-year-2525-lyrics-zager-and-evans.html> (May 11, 2009).