Bill allowing cities to increase sales taxes advances

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April 1, 2012 - 7:00pm

A proposal to let cities in Nebraska raise their sales tax by half a cent moved to one vote away from final approval in the Legislature, while Gov. Dave Heineman accepted budget changes but vetoed one spending proposal.

Cities in Nebraska can already impose a sales tax of a cent and a half on top of the five and a half cents charged by the state, making the maximum sales tax rate 7 percent. That could go up to seven and a half percent under a bill given second round approval in the Legislature Monday.

The proposal by Omaha Sen. Brad Ashford would require approval by a supermajority - 70 percent - of the city council, and then have to be approved by voters. In Omaha's case, half the increase, or a quarter percent, would have to go to offset other taxes - in that city's case, it's expected to be the restaurant tax. The rest could go to fund infrastructure costs, like a $1.7 billion dollar sewer reconstruction project being required by the federal government.

Other cities in Nebraska could use the full half cent for infrastructure, with voter approval. Sen. Mike Flood of Norfolk, who opposed the proposal last year, said cities across the state need improved infrastructure. "If this bill takes us there, provided that there's a heightened level of folks on the city council that have to approve it on the ballot, something I would like, and the people have to approve it, I'm not going to save the people from themselves," Flood said.

Sen. Lavon Heidemann of Elk Creek opposed the measure, LB357. "Anything that you do with LB357, it's still going to walk, talk and smell like a tax increase to me," he said.

A spokeswoman for Gov. Dave Heineman confirmed that the governor also still opposes the measure, considering it a tax increase. The bill got second round approval on a vote of 29-14. It would take 30 votes to override a veto if the governor issues one.

The budget includes some spending that the governor had resisted earlier, notably, $71 million towards University of Nebraska construction projects.

Earlier this year, Heineman had questioned the timing of the proposals and their use of cash reserve funds. But in a letter indicating he was signing the budget bills, Heineman said the economy is growing, and the Appropriations Committee had improved the proposal by including requirements for private fundraising. "Therefore, I have decided that we need to continue to boldly invest in Nebraska's future," he wrote.

Flood, speaker of the Legislature, said he was surprised by the lack of vetoes, and linked it to the Legislature's acceptance of a scaled-down version of tax cuts proposed by the governor. "I fully anticipated to have a long discussion of veto overrides on Tuesday and apparently that's not the case. So I appreciate the governor's action and his support of the budget," he said. "I think the Legislature did some heavy lifting to make room for the tax cut. And that means something. And it was obviously recognized by the executive branch," he said.

The university construction projects include a cancer research center in Omaha, a nursing and allied health professions college in Kearney, and a veterinary diagnostic center in Lincoln. Other changes in the budget include improvements to Armstrong Gymnasium at Chadron State College and the Oak Bowl football field at Peru State College, and improvements to Lincoln's Centennial Mall north of the Capitol. All but the veterinary diagnostic center are one-time expenses from the cash reserve fund.

There's also additional money for subsidized low income child care and child welfare reform. And the budget restores one and a half percent of a two and a half percent cut made last year in the rates paid to doctors, hospitals, and other Medicaid providers. But it reduces school aid by about $27 million from the amount projected last year, based on slower spending growth and higher property tax revenues. Overall, ongoing spending increases amount to a little over $40 million, or less than one percent of the two-year, $7 billion budget adopted last year.

The non-budget veto came on a bill to spend $2.5 million to reimburse social service providers who were left unpaid under the state's child welfare privatization.

Heineman objected to the attempt to pay subcontractors of Boys and Girl's Home, saying taxpayers should not be responsible for debts incurred by a private organization. The governor compared the proposal to payments attempted to depositors in the failed Commonwealth Savings Company in the 1980s, which the Nebraska Supreme Court found unconstitutional.

Sen. Steve Lathrop, chairman of the Business and Labor Committee that recommended the payments, said Commonwealth was different because the state had explicitly prohibited giving taxpayer money to the insurance company that was supposed to insure deposits.

By contrast, Lathrop said that in this case, the state was obliged to provide services to the children. Lathrop said he would attempt to override the governor's veto.

 

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