Voters could approve additional local option sales taxes

Senators passed a bill April 5 that will allow additional local option sales taxes but will make them subject to the approval of the local city council as well as the voters. The bill was first debated in 2011 and was carried over from last session.

The original provisions of LB357, introduced by Omaha Sen. Brad Ashford, were replaced by an amendment he introduced this year. Adopted 32-10, the new provisions allow local option sales taxes to be levied at 1.75 percent and 2 percent, with 70 percent approval of the members of the municipality’s governing body. The proposal then would be submitted to voters for approval.

Current law permits cities to impose a local option sales tax of 0.5 percent, 1 percent or 1.5 percent with voter approval.

As amended, LB357 requires that cities of the metropolitan and primary classes designate proceeds from any increased sales tax revenue to projects completed under interlocal agreements. Omaha is the state’s only metropolitan class city, and Lincoln in the state’s only primary class city.

Increased sales tax revenue in cities of the metropolitan class will be used to:
• reduce existing taxes with the first 0.25 percent of additional revenue;
• fund public infrastructure projects with the next 0.125 percent of additional revenue; and
• fund projects under interlocal agreements with the next 0.125 percent of additional revenue.

For cities of the primary class, the first 15 percent of additional tax revenue will be dedicated to funding nonpublic infrastructure projects under interlocal agreements. The remaining proceeds will be designated for public infrastructure projects related to economic development.

Cities of the first class, second class and villages will dedicate all increased sales tax revenue to funding public infrastructure projects.

If a city votes to increase the local option sales tax, it will be subject to a 10-year sunset date. If the increased revenue has been dedicated to paying bonds incurred for an infrastructure project, the tax will terminate once the bonds have been paid.

During select file debate April 2, Ashford said the recent economic downtown and the resulting discontinuation of state aid to cities have created funding constraints for city projects.

“We’ve come through a rough patch and we all know that it’s critical we do things differently,” Ashford said. “The idea of engaging citizens in this process makes a lot of sense.”

Lincoln Sen. Bill Avery supported the bill, saying it gives authority to cities that have no more room for spending cuts.

“It would force governments to engage their citizens when it comes to increasing taxes,” Avery said. “We need to invest in our public infrastructure and this bill allows us to do that.”

Elk Creek Sen. Lavon Heidemann opposed the bill. He said cities should consider raising property taxes before increasing local option sales taxes.

“We have given these cities the authority to access a certain level of property tax, but they just don’t want to do that,” he said.

Omaha Sen. Heath Mello introduced an amendment that would have dedicated Omaha’s first 0.25 percent of increased sales tax revenue to funding a combined sewer overflow project. Mello said a pending $1.7 billion infrastructure project threatens to drive up sewer utility fees and would have a devastating impact on homeowners.

“This helps meet an existing obligation before the city of Omaha embarks on any new infrastructure projects,” Mello said. “If we do nothing, residential rate payers could see an increase in sewer utility fees from $120 per year to $700 per year.”

Omaha Sen. Steve Lathrop opposed the amendment, saying citizens should be able to decide how increased tax revenue should be spent.

“We can’t give authority to every community but tell Omaha they must use it for a particular project,” Lathrop said. “It would constrain Omaha in a way we’re not constraining any other community.”

The Mello amendment failed on an 8-33 vote and senators advanced the bill to final reading 29-14.

The bill passed April 5 on a 30-15 vote.

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