The Marshalltown city council spent the final 45 minutes of last Monday night’s regular meeting discussing Local Option Sales Tax (LOST) expenditures as one councilor warned that the long-term stability of the fund could be in jeopardy if substantial reductions are not enacted.

According to City Administrator Carol Webb, annual LOST revenues are projected at $4.3 million for FY 2026 and 2027, of which 75 percent goes to property tax relief and the other 25 percent can be designated for any authorized use by the city council. She highlighted areas of discussion for possible reductions, the cash flow reserve fund and how much should be allocated to balance the general fund deficit, which currently sits at just over $1 million based on the most recent council discussions.

Councilor Gary Thompson asked if monies could be moved from other funds with substantial balances into the cash flow reserves, and Webb said she would need to check with the city’s legal counsel for a firm opinion. Fellow Councilor Greg Nichols felt that overall, the numbers showed a need to cut spending because out of LOST, the city is basically spending twice the amount of revenue it receives in a year.

“That means, in my book, if we don’t cut our LOST spending, we have about two years until we hit a brick wall, and then, we have no cushion to bring things down in an organized, controlled manner. It’d just be cold turkey,” he said. “So between this and the general budget overall, we need to figure out ways to cut more spending and make our budget balance. Depending on how much we cut, in as little as two years, we won’t have any extra reserves period and we will have a hard stop.”

Nichols recommended not transferring any money from LOST to the cash reserves (in FY26, the number was $205,192) and exploring whether a contribution could come from another fund instead. From there, Webb moved on to the $5,000 annual July 4 fireworks contribution, which prompted a joke from Thompson that the Des Moines Register may be paying for fireworks on the night RAGBRAI comes through town, eliminating the need for a show on the fourth. Marshalltown Area Chamber of Commerce President John Hall clarified that the Red, White and Blue Committee still intends to hold a fireworks show on the fourth.

Councilor Melisa Fonseca recommended leaving the fireworks contribution in place, and without any objections, Webb then moved to the contract with the Arts + Culture Alliance (ACA). Currently, the city is paying $130,000 annually to the nonprofit organization annually for creative placemaking and the implementation of the Arts and Culture Master Plan, and at the last meeting, ACA Executive Director Amber Danielson suggested lowering that figure to $104,000 (a 20 percent reduction) for the upcoming fiscal year due to city budget concerns.

While the council directed staff to go along with the recommendation, Webb noted that the commitment for fiscal years 2028 and 2029 is still $130,000 and asked if that should also be reduced.

Nichols commented that Danielson was doing “a good job” but wasn’t sure if the city had the luxury of funding the ACA given the current fiscal situation. Councilor Jeff Schneider expressed support for accepting the 20 percent decrease and continuing the process, and Fonseca shared a similar viewpoint, suggesting revisiting it before FY2028.

Conversely, Thompson and Councilor Mark Mitchel recommended cutting the funding out completely, citing a desire to “take care of our own house” and putting a stop to funding nonprofit organizations in general.

“We’re talking about Band-Aids right now, and we need to talk about solutions,” Thompson said.

Schneider countered that the ACA was part of the city’s larger growth plan, and Councilor Sue Cahill felt the organization was an integral aspect of the community’s fabric. Fonseca also hoped to see some of the current projects the organization has in progress come to fruition, and Councilor Marco Yepez-Gomez said he agreed with the position of Cahill, Fonseca and Schneider to reduce the amount for one year and reassess before the next budget.

Webb then brought up the “Make Marshalltown Home” buyer incentive in partnership with the Chamber, and she said the council could explore reducing the number of incentives — $10,000 is budgeted in FY2026, and the remaining $205,000 is currently budgeted for FY27.

Fonseca pointed out that the Chamber provides 75 percent of the funding for the $10,000 incentive on newly constructed homes with a market value of at least $180,000 and felt it was a good deal for the city, and Hall added that private businesses and individuals have raised about $292,000 to be put toward the program. Thus far, 18 home incentives have been provided.

“What I’ll say is the city really, ultimately gets a great deal out of this. The alternative that’s out there is a tax abatement program for individuals to take advantage of that ends up costing the city significantly more over the life of that abatement,” Hall said. “This $2,500 from you all… becomes a really flexible resource for individuals who may not otherwise be able to afford a down payment or the like and gives them some tools and resources to be flexible.”

With the city working on a housing needs assessment and a comprehensive plan, reducing the incentive would send “the wrong message,” in Hall’s view. He did, however, feel that the $205,000 number could be reduced to a “pragmatic middle ground,” suggesting a number of $15,000 to $20,000.

“I would love nothing more than to be back in front of you later in the next fiscal year saying ‘Guys, we sold too many houses. You’re out of budget in this Local Option Sales Tax. Let’s figure out do we need to float you? Do we need to ask for additional budget allocations?’ That’d be a great problem to have,” he said.

Thompson asked about how the incentive has been utilized and who the buyers are, and Hall said it has been a combination, with some high net worth individuals choosing it over a tax abatement. Down payment assistance, he said, is likely the biggest need it addresses.

Describing the incentive as “a great program” in helping renters move into home ownership and not costing the city much, Thompson expressed his support for continuing it but wondered if there were any alternative funding sources as opposed to LOST. Webb said she could explore it further but didn’t believe she would find another way to fund it beyond possibly an urban renewal program.

Hall reiterated his suggestion to scale the number to something like $20,000 for FY27 with the realization that the full $205,000 was highly unlikely to hit, freeing up substantial funding for the coming year. Thompson also asked him if foreclosures could be tracked on the homes where the incentive is utilized.

“Certainly, we’ve tracked where every dollar has gone and which property that it’s gone to specifically, so it wouldn’t be any issue for us to pull a foreclosure list. Even in 10 years, we could just run through each of those properties and probably pull that,” he said.

With an agreement reached on the $20,000 number, Webb said a line item for Community Development Block Grant (CDBG) grant administration funding had already been reduced by $5,000 then brought up the doghouse repair at 21 W. Main St., for which $200,000 is currently budget in FY2026.

The downtown building is currently owned by the city after a court-ordered sale, and the last bid for the repairs came in significantly over the engineer’s estimate, prompting the council to reject it. It is currently reposted for bids to see about a better price, but Webb asked if the council would be willing to sell the building as-is.

Nichols shared his support for selling it as is, and Fonseca asked about implementing a specific purchase agreement with stipulations similar to the ones imposed on In Stitches for the former Angels Building. Yepez-Gomez also recommended a Request for Proposal (RFP), and Webb said that would be issued as part of any prospective sale.

Marshalltown Central Business District (MCBD) Executive Director Danielle Lekin said an architect was recently inside the building and projected a needed investment of over $2 million in all, and Thompson clarified that 21 and 23 W. Main St. would have to be sold together.

He instead recommended splitting them off into two buildings and selling them separately.

Ultimately, the council agreed to proceed with selling 21 and 23 W. Main St. as is through an RFP process. The next item was the police department’s Flock camera contract, which prompted a comment from Thompson that they may be violating their own council manual because the matter had already been decided through a formal resolution at a prior meeting.

Schneider said a new council had been seated since the vote, but he wasn’t interested in revisiting the issue without another formal resolution to undo the previous action. Thompson’s issue was that it was brought back administratively as opposed to by an individual councilor, and Webb noted that it came from Nichols’s request to go line by line through LOST budget items.

City Clerk Alicia Hunter clarified that while the city has a two-year contract with Flock, the second year has not yet been approved via resolution and funding has not been finalized. Thompson then motioned to fund Flock at $190,000 in FY2027 through LOST, and it passed by a 6-1 tally with Yepez-Gomez opposed.

The next discussion item was the sidewalk improvement plan, budgeted for $50,000 but not yet implemented, and Public Works Director Heather Thomas explained that there weren’t any funding sources available for sidewalks other than local taxes or bonding. Councilor Jeff Schneider said he would like to see the item go away as he felt sidewalks should be the responsibility of homeowners, but a resolution would be needed to undo it.

A motion to come back with a formal resolution to undo the program passed by a unanimous 7-0 vote. The council then quickly agreed to reduce the LEAD grant match commitment from $100,000 to $50,000 by a unanimous vote. Nichols then asked Finance Director Diana Steiner about the funding source for the $250,000 toward Bridges 2-5 on the Iowa River’s Edge Trail and whether they could be moved to being paid out of an existing bond and motioned as such. It passed unanimously, and before the meeting went into closed session, Schneider asked how much had been reduced through the discussion — at least $400,000, according to Nichols.

“That gives us more room from my perspective to wind things down, but we’re still spending more than we’re bringing in,” Nichols said.

Thompson then quipped that the councilors weren’t taking the windfall of LOST revenue they’re about to receive from the new mall once the renovations are complete, and a motion was quickly made to move into closed session.