OWH: Coverage of hearing on Tom White's bill to end the sewer double tax

City officials tell lawmakers to hold off on any tax changes tied to the sewer overhaul

Paul Hammel, Omaha World-Herald
February 12, 2010

LINCOLN — City of Omaha officials asked state lawmakers Thursday to hold off on any tax changes that might add to the city's fiscal woes.

With sales tax revenue down 3.4 percent, they said, the city's “serious economic crisis” would be worsened if a sales tax exemption were granted on utility fees Omahans are paying to finance $2.8 billion in sewer, water and natural gas line improvements.

“All we're asking is let's hold steady at this time,” said City Finance Director Pam Spaccarotella.

She was among the Omaha officials who testified in opposition to a bill from State Sen. Tom White of Omaha that would provide a total sales tax exemption estimated at $326 million over 20 years. The city's share of that total would be about $46 million.

White, during testimony before the Legislature's Revenue Committee, said it is unfair for the city and the state to levy sales taxes on what amounts to an unfunded federal mandate to revamp Omaha sewers.

“This is piling on the taxpayers,” White said.

The mandate gives Omaha 15 years to upgrade its sewer system to comply with the Clean Water Act. The upgrades would end overflows of untreated water into the Missouri River during heavy rains.

The sewer work would cost an estimated $1.8 billion. Additional work to replace outdated cast-iron drinking water and natural gas lines would cost an additional $1 billion.

Already, Omaha-area residents are paying an extra $6 a month on their Metropolitan Utilities District bills for water and gas improvements.

By 2017, White said, residents could be paying $50 a month extra to pay off the bonds to finance the project.

He called paying sales taxes on those fees “fundamentally unreasonable and unfair.”

“In my community, this is going to cause enormous economic hardship,” he said.

White has said that levying sales taxes on sewer-use fees amounts to double taxation. State Tax Commissioner Doug Ewald has said the fees are not a tax but a “charge for services received” and subject to the sales tax.

White's bill, by his own estimate, would result in the city losing about $2.3 million in annual sales tax revenue. Omaha officials said that might lead to an increase in property taxes.

“His heart's in the right place, he wants to help our residents, but it really compounds our (fiscal) problems,” said Jack Cheloha, the city's lobbyist.

The fight over White's proposal, Legislative Bill 952, has pitted two of the state's top Democrats against each other. Mayor Jim Suttle has sharply opposed the bill from White, a Democratic candidate this year for the 2nd Congressional District U.S. House seat.

White said he doesn't favor raising property taxes to replace the sales tax revenue. If Omaha needed extra money, he said, there are better ways than allowing sales taxes to be levied on sewer and water fees.

White said the vast majority of that sales tax revenue would go to the state, not the city. The state charges a 5.5 percent sales tax; the city, 1.5 percent.

MUD, which will do the water and natural gas work, and the Greater Omaha Chamber of Commerce threw their support behind White's bill.

A chamber representative said LB 952 fits with the chamber's philosophy that lower taxes attract and help businesses.

Some Revenue Committee members questioned whether the bill would have the unintended consequence of exempting sales taxes on nonmandated public works projects.

White said it shouldn't, but he said the bill could help other communities across the state soften the blow of paying for unfunded federal mandates.

Sen. Abbie Cornett of Bellevue, the committee chairwoman, said she co-sponsored White's bill to facilitate a discussion on tax policy. Cornett said White has raised good points, but she isn't ready to advance the bill to the full Legislature.

Gretna Mayor Sally McGuire, who supported the White bill, said at the hearing that Omaha had ignored complaints by Sarpy County communities that they were unfairly helping to pay for Omaha's sewer problems.

Marty Grate, the manager of the Omaha sewer project, denied that. Grate said Sarpy County communities, since they tie into the Omaha sewer system, contribute to the overflow problem, so they must contribute to its solution.

Grate said those communities are technically considered “co-owners” of the Omaha sewer system, and that results in lower sewer rates for Sarpy County residents.

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