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University of Iowa News Release


Dec. 31, 2008

UI local government expert says income tax could help diversify city revenue

A plan floated before the Iowa legislature recently that would allow local governments to assess an income tax is worth considering as a way for money-strapped cities to avoid cutting services, according to a local government expert at the University of Iowa College of Law.

"It's always better for cities to have a more diverse revenue base," said Jeff Schott, program director of the Institute of Public Affairs. "In the end, though, how useful it is will be determined by what form the proposal takes."

The proposal would provide local governments a way to ease the burden on both city budgets and property owners by reducing the reliance on property taxes to fund municipal budgets. Schott said that in Iowa, property taxes account for 80 to 90 percent of general fund revenue in many communities, which puts a huge strain on municipal budgets when property values dip.

He said adding an income tax could provide a means for local governments to reduce property taxes for homeowners and businesses. A properly structured income tax would also be considered less regressive than other forms of taxation such as the sales tax and, would have less of an impact on the poor, he said.

However, he said a property tax is usually a more predictable source of revenue and not affected by swings in the economy.

Schott said the issue is especially timely this year, as local governments in Iowa will have to deal with a struggling national economy and a slowdown in the ethanol and biofuels industry that many depended on for economic development. He said many Iowa cities and towns are also still looking for money to repair flood damage, and will likely be doing so for years to come.

Schott recommended that local governments do more and better goal setting and strategic planning in response to the economic slowdown.

"Good financial planning is always important, but even more so now because the demand for government services doesn't diminish in hard times, it goes up," said Schott, who was city manager in Marion for 20 years before joining the UI. "This is the time governments really need to do careful goal setting and strategic planning and develop contingencies so they're not caught by surprise in the middle of a fiscal year."

The Institute for Public Affairs is an outreach organization for local governments across Iowa. The IPA sponsors numerous workshops and seminars to help elected and appointed leaders provide more responsive and efficient governments, and provides consulting services to towns and cities.

More information about the IPA is available on the Web at

STORY SOURCE: University of Iowa News Service, 300 Plaza Centre One, Iowa City, Iowa 52242-2500

MEDIA CONTACT: Jeff Schott, Institute of Public Affairs,, 319-335-7586; Tom Snee, 319-384-0010 (o), 319-541-8434 (c),