For months, the Trump administration has threatened to halt federal funds administered through the U.S. Department of Housing and Urban Development’s homelessness program for permanent supportive housing.
Recent reporting from Fox News and Politico shows those cuts may soon become a reality, and the funds could be redirected towards conditional transitional housing assistance.
For Shelter House in Iowa City, Director of Development Christine Hayes said that would mean a loss of $1.3 million for housing units and services for individuals exiting chronic homelessness.
“Permanent supportive housing is ultimately a proven solution to ending homelessness,” Hayes said. “It’s effective nationwide. Since we opened our first one in 2019, we shoot above the national average on efficacy and success rates.”
But Hayes said there may be a stopgap in the very near future in the form of a Local Option Sales Tax (LOST) that will appear before voters in Iowa City, Coralville and North Liberty on the November ballot.
What is a Local Option Sales Tax?
LOST would be applied as a 1% tax on many goods and services, excluding things like groceries, rent or prescription drugs. In Iowa, 93% of cities already have LOST, including several in Johnson County.
Half of the generated revenue would be spent on property tax relief, as is required by state law. How the other half is used would be up to the cities themselves. Iowa City has said it plans to direct 25% of its discretionary funds toward solving its housing needs.
Some estimates put the amount of money directed toward housing solutions from the tax at roughly $2.5 million annually.
“That’s not all for Shelter House,” Hayes explained. “That’s for affordable housing. It’s for shelter. It’s for solutions to the incredible lack of housing we have for low-income residents in our community.”
If passed, LOST would go into effect on July 1, 2026.
Spending priorities for the 3 eastern Iowa cities
Hayes said the timing of potential federal funding cuts remains unclear, but she emphasized that the additional funds would be a major boon for Shelter House’s services.
“It’s really hard to predict the timeline,” she said. “It’s always better to have it than to not have it there. We’re certainly looking at a possibility of a really difficult middle ground time period, when there isn’t additional funding and federal funding has also disappeared or dried up.”
Iowa City would use 10% of its remaining funds for capital improvement projects on public streets, parks and facilities. Another 15% would be used on establishing community partnerships that support intergovernmental and economic development priorities chosen by the city council.
Each of the three cities has identified a spending priority for the initial phases of the tax rollout.
Coralville said the money it receives would be used to build a new recreation center with a walking track, gymnasium and community meeting rooms. The new building would replace the city's current facility, which is 50 years old. Half of Coralville's discretionary funds would be used for capital projects, including the rec center.
In North Liberty, the priority would be building a new fire station. Training Captain Tina Humston said plans have not been drawn up yet, but a new station is desperately needed.
“We have outgrown the building, and it does not meet our needs for us to provide the best service that we can,” Humston said. “We need a bigger ladder truck because of the bigger buildings that are being built in North Liberty, and a bigger ladder truck won’t fit in this current station.”
Humston also said the fire department needs more bedrooms, an alarm system and more space for storing gear and vehicles.
“The building was not built to be a fire station,” Humston said. “We have our turnout gear being stored in the engine bay and in offices. We have spare gear in offices just laying around because we have nowhere else to put it. And even though we clean our gear after a fire, that stuff continues to off gas, which is not great for us.”
Does the Local Option Sales Tax help or hurt low-income residents?
Cities that implement LOST collect revenue generated in part by visitors. In 2024, visitors spent $458 million in Johnson County.
If all three cities adopt the measure, officials said it could generate an estimated $22 million annually. The revenues are pooled at the county level and distributed according to a formula based on population and property tax levies set at the state level. If one of the cities votes against LOST, the other two would get larger shares of the pool, so it isn’t all-or-none.
Some Iowa City community members expressed concern about the regressive nature of the tax. Since the surcharge is added to goods themselves, people with higher incomes pay the same amount as those with lower incomes. Some say that would create an outsized impact on people in lower income brackets.
“Sales tax really takes a big bag of the income of people who are already struggling,” said Iowa City Council member Mazahir Salih at an early meeting about the resolution. “Low-wage workers and new immigrants spend most of their income on basic needs.”
But by the time the resolution was presented to the Iowa City City Council in August, Salih and every other council member supported it.
Hayes, who is on the Johnson County Affordable Housing Coalition Board of Directors, said she played a role in developing the language for Iowa City's proposal.
“We worked to tighten the language of the Iowa City proposal, because that 25% for affordable housing would ultimately have meant nothing if the language didn’t make it clear that what they wanted to do — as a community, as a city council and as city staff — was to target it towards the folks who are struggling the most,” Hayes said.
