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Friday, Apr. 29, 2016

Ross Rambles: Change in law was needed

Tuesday, May 27, 2008

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Few people in the state understand the difference between the new statewide one-cent sales tax for school infrastructure and the tax it replaced, the School Infrastructure Local Option (SILO) sales tax.

Similarities include that facts that SILO was in effect in all 99 counties in Iowa, it raised prices on items subject to sales tax one cent for every dollar spent and the use of the revenue was restricted to school infrastructure, equipment or (as in the case of the Cherokee District) paying off bond debt which lowers the overall property tax in the district.

The new tax revenue will be evenly distributed throughout the state on a per pupil basis while the SILO, as originally passed, resulted in tax revenue being distributed within the county where it was collected.

However, even this difference was being phased out of the old law through changes that went into effect in 2003. All counties that passed or renewed SILO since 2003 contributed to a pool that is divided among all counties. The counties with major retail centers had, until the new law was passed, been grandfathered into the original formula, allowing them to keep the revenue collected in those counties until expiration of the 10-year sunset required for all county SILO taxes.

Students who live in those retail rich counties have generated a greater per pupil amount for their districts than students who live in more rural counties. There are eight major retail centers in the state and the counties where they are located generate several times the per-pupil revenue for students in the county than is generated in retail poor counties.

Now this grandfathering is ending with per pupil revenue having nothing to do with where a student resides.

The sunset is also being modified. The new law lasts for 20 years rather than having a 10-year sunset based on when the county residents voted to pass the tax.

Therein lies the practical difference between the previous law and the new one. We can expect an outcry from places like Polk County, where Des Moines is located, when it sinks in that the county will only get a fraction of the per-pupil revenue that it previously received.

Polk County was initially reluctant to institute a SILO, voters there rejecting a referendum on the tax until the voters there were sold on the idea that the revenue would not only come from Polk County residents but also from everyone who shops in Polk County.

It is quite possible that if the SILO continued, Polk County voters might have rejected a vote to renew the tax as modified in 2003. Other metropolitan counties might have followed suit with a devastating effect on the goal of equitable distribution.

Woodbury County, the first county to pass a SILO tax in 1998, did renew the SILO, an action that has no practical effect since the SILO has been replaced.

Woodbury County residents might not have been fully aware that the per-pupil revenue would be going down when they approved the renewal. Woodbury County educators supported renewal of SILO and subsequently the statewide tax because a reduced per pupil amount is better than no revenue at all from a source other than property tax

In our coverage area, the River Valley District has been receiving revenue from Woodbury County for students who reside in Woodbury County and from Cherokee County for students who reside in Cherokee County.

Under the new law, River Valley will receive less total sales tax revenue than previously but this loss will be partially offset by more per-pupil revenue for its Cherokee County students. The impact will be greater for districts in which all or almost all of its students are Woodbury County residents.

The per-pupil revenue will increase considerably for the Cherokee, Marcus-Meriden-Cleghorn, Aurelia, South O'Brien and Galva Holstein Districts in our coverage area.

So, is it fair that a retail rich county share some of the sales tax collected in the county with retail poor counties? Yes it is. The reason that some counties are retail rich is because people from out of the county shop there, so the even distribution of the sales tax throughout the state more accurately reflects where the tax originally comes from.

Despite the fact that the new tax is more fair, there is potential for an effort to repeal the statewide tax coming from metropolitan counties.

The lopsided nature of where sales tax is collected in the state underscores the need to try buying locally as much as possible, but that's another issue for another column.