House Begins Debate Over Redistribution of Sales Tax

A bill introduced this week by 14 members of the Iowa House would make the 1-cent local option sales tax for schools permanent and lead to a more equitable distribution among rural and urban school districts.

But before the bill is passed, it faces a contentious debate in the statehouse, particularly among some Republicans who worry that the change in state law will allow Democrats to divert the money away from schools.

Voters in all 99 Iowa counties have approved local referendums allowing for the collection of a 1-cent tax on goods and services purchased locally with the money being used mainly to maintain and improve school facilities. The original law allowing voters to implement the 1-cent sales tax was passed in 1998.

Some school district administrators favor the plan because it would assist them in long-term spending strategy. That’s because extra money collected from the tax won’t disappear if voters fail to renew the tax. In addition, it would result in more money being funneled to rural schools, reducing the disparity between large and small school districts.Although the 1-cent sales tax has been approved in all 99 counties, administrators at rural districts say they lose money because more shoppers across the state are gravitating toward urban areas to do much of their shopping.

The new tax would bring in about $400 million during its first year, according to estimates by the Legislative Services Agency. The money would be distributed based on the number of students enrolled in a district.

The legislation would allow school districts to use the money to pay for construction projects or for the reduction of property taxes.

Some taxpayer groups have complained that because the bill would end local approval of the sales tax, it would erode some local accountability. However, one aspect of the bill would allow taxpayers in a district to petition for reverse referendums, which would allow them to overturn spending plans through a majority vote of taxpayers.

House Minority Leader Christopher Rants, R-Sioux City, opposes the SILO legislation because he fears that Democrats will eventually use the tax for general spending.

But state Rep. Royd Chambers, R- Sheldon, said he and other Republican co-sponsors will vote against any amendments that would result in the money being used for anything other than infrastructure expenses and property tax relief.

Chambers said he’s been working on the bill for nearly a decade and that the current version includes several features that will ensure the money is spent on education. They include: an amendment that would require two-thirds of the Legislature to approve any change in the use of the money for anything other than property tax and infrastructure.

“The agreement we have with the majority party is that if you mess with any of those things the Republicans will pull their support,” Chambers said.

One of the primary benefits for rural school districts, Chambers said, is that it will allow rural schools more resources to pay off long-term debt quicker. “As the pool of available money gets larger and larger over time, the schools will be able to pay down their bonded indebtedness faster,” Chambers said.