The city of Des Moines collected nearly $34.5 million from the local option sales tax during the fiscal year that ended June 30, $3.6 million less than was collected the previous fiscal year, a report provided to City Council members shows.

More than $40 million is expected to be collected from the penny sales tax during the current fiscal year, Nick Schaul, the city’s finance director, told council members during today’s morning workshop.

Collections will “be back to pre-COVID levels from what we’ve gotten from the state so far,” Schaul said.

In March 2019, Des Moines voters approved imposing a 1-cent local option sales and service tax on items taxed by the regular state sales tax. The Des Moines local option tax went into effect July 1, 2019. The tax was expected to generate at least $37 million annually for Des Moines.

In the year that ended June 30, 2020, Des Moines collected $38.1 million from the tax, according to the report. However, the pandemic hit in March 2020 and many retailers, restaurants and entertainment venues were forced to close for several weeks. With many businesses temporarily shuttered, goods and services weren’t sold and tax revenue wasn’t generated.

Even as the economy began to reopen, consumers were slow to return to restaurants, malls and other places where the tax revenue was generated.

Schaul told council members that signs are pointing to increasing sales tax revenue.

In August, the city received nearly $3.9 million from the state’s monthly local option sales tax disbursement, Iowa Department of Revenue data shows. In August 2020, the city received a $2.9 million monthly disbursement.

Iowa law requires that at least half of the local option sales tax revenue be used for property tax relief. In the fiscal year that ended June 30, Des Moines designated $17.7 million, or 51% of the revenue, to property tax relief. In addition, the city designated:

•$6.5 million, or nearly 19%, to street improvements and flood prevention projects such as the rehabilitation of Easton Boulevard, Keosauqua Way, Martin Luther King Jr. Parkway and the East 30th Street bridge.
•Nearly $3.5 million, or 10%, to neighborhood improvements such as expanded library hours, rental housing enhancements, matching grants, and special investment districts. The tax money was also used to create the Blitz on Blight program that rid neighborhoods of 30 nuisance properties.
•$1.3 million, or nearly 4%, to public safety. The money paid for 13 firefighter positions, according to city officials.

The remainder of the tax revenue – about $5.5 million, or 16% – was put in reserves, according to the report. Money in the reserve fund will be used to help pay for mobile mental health crisis services, flood prevention property buyouts and the property improvement program, according to the report. The reserves are also used as a financial buffer in case of decreases to the amount of local option sales tax revenues generated each year, according to the report.  

More information: To read the report, click here.