Iowa City staff pitch LOST-funded levy cut, $3.5M for housing and doubled street rehab in FY2027 proposal

City staff presented a recommended FY2027 operating budget that leans heavily on a new 1% local option sales tax (LOST) to provide property-tax relief, boost housing investments and shore up infrastructure.

Jeff Ruin, the city manager, told the council the city anticipates about $14,000,000 in LOST revenue beginning 07/01/2026 and that the initial plan would allocate roughly half of that for property-tax relief and the rest across affordable housing, community partnerships and facilities. "Fifty percent of that is for property tax relief," Assistant City Manager Kirk Laman said when describing the ballot-directed spending categories.

Staff recommended a hybrid property-tax approach: a 20¢ levy rate reduction (funded in part by LOST) and investments that avoid future rate increases. The packet proposed using $1,000,000 of LOST to directly fund the 20¢ reduction and redirecting other LOST dollars to both short-term relief and longer-term avoidance strategies.

On affordable housing, staff proposed $3,500,000 over two years for programs and projects. The largest single item is $2,500,000 for the Summit Street affordable housing development, a two‑year effort to create up to 36 units on city-owned property acquired with ARPA funds. Other items in the housing package include $300,000 for a neighborhood home-ownership purchase/rehab pilot, $100,000 added annually for down-payment assistance and scaling support for StudentBuild and emergency repair programs.

Staff also proposed doubling pavement rehabilitation by reallocating $2,000,000 of LOST to the pavement program to restore prior productivity levels, and named other capital uses such as a Highway 6 viaduct extension and library furnishing and flooring work. Chris (finance staff) flagged large streets projects on the CIP list, including Dodge Street ($15.8M) and Taft ($8.0M).

Ruin warned that LOST receipts do not arrive immediately: "We're not gonna receive our first LOST check until September," he said, noting that many LOST-funded expenditures could not begin until calendar year 2027. Staff asked the council to use the time between the presentation and the April 21 adoption request to refine metrics and consult partners.

The proposal does not assume final state action on property-tax reform. Staff repeatedly cautioned uncertainty from pending state proposals that could cap revenue growth, noting the city must remain flexible in the face of possible changes.

Next steps in the budget calendar remain: councils must set some levy deadlines by Feb. 17, set the property-tax hearing on March 10, hold the hearing April 7 and consider budget adoption April 21 to meet the county filing deadline on April 30. Councilors asked staff to return with clearer outcome metrics (for example, units or households served by housing allocations) and more detailed expenditure plans before final adoption.