Tax exemption fate uncertain

LINCOLN — By the narrowest of margins, state lawmakers gave first-round approval Thursday to legislation that would provide a sales tax exemption on the $2.6 billion-plus bill that Omaha-area residents will pay to upgrade their sewer, water and natural gas lines.

The 25-18 vote came after three days of debate in which State Sen. Tom White of Omaha, the bill's sponsor, argued it wasn't fair to impose taxes on the increased utility fees prompted by an unfunded federal mandate.

Despite the vote, final passage of the measure is in doubt.

Twenty-five votes are the minimum needed to pass a bill, and it was clear that at least two senators voted “yes” just to advance the bill to second-round debate, not because they will ultimately support the idea.

One of those one-time yes voters, Fullerton Sen. Annette Dubas, said she is concerned about where the state will make up the tax revenue if Omaha-area ratepayers get a $325 million sales tax exemption.

White, a Democratic candidate for Congress in Omaha's 2nd District, acknowledged that he had work to do if he hoped to get his bill approved.

“In legislation as in life, the first rule is to live another day,” he said.

The City of Omaha opposes White's bill, saying the loss of sales tax revenue — estimated at $46.5 million over 20 years — could force a property tax increase. Several senators, including Lavon Heidemann, chairman of the budget-writing Appropriations Committee, argue that the state, with its budget woes, will find it hard to do without its share of the expected sales tax revenue, estimated at $279 million over 20 years.

White's measure, Legislative Bill 952, was prompted by a massive public works project getting under way in Omaha.

The city is upgrading its sewer system, separating lines that carry storm water and sanitary sewage to comply with an order from the federal government to decrease releases of raw sewage into the Missouri River.

While the streets are torn up for the sewer work, the Metropolitan Utilities District plans to replace aging and obsolete pipes that carry drinking water and natural gas.

White argued that poor and elderly residents will have difficulty coming up with an extra $50 a month in fees to pay for the work. Imposing sales taxes on those fees, he said, would amount to “piling on” during a special circumstance.

“Don't compound our misery,” White said. “Refrain from taxing us as we try to deal with the federal government.”

State Sen. Steve Lathrop of Omaha compared the tax issue to “finding a wallet” on a street. Lathrop said it is wrong to keep the money in the wallet — which he compared to the windfall of sales taxes to be reaped by the state and city.

Opponents, though, questioned whether the state could afford to give up such a huge amount of sales tax revenue. Some rural senators have said that expensive wastewater projects in their towns wouldn't qualify for the exemption.

“If we support this, cuts will have to be made,” said State Sen. Deb Fischer of Valentine.

Omaha Sen. Gwen Howard, a co-sponsor of White's bill, said she struggled with the prospect of an Omaha property tax hike, though she eventually voted to advance the bill.

Only one Omaha-area senator, Beau McCoy, did not vote on the measure. He was recorded as “present not voting.”

Other Omaha senators suggested that it would be fairer for the city to impose a property tax increase to finance its operations than to use the sales taxes.

Shifting the expense to the property tax would reduce the impact on lower-income residents. Senior citizens get homestead tax exemptions that lower their property tax bills, and low-income renters would not be forced to pay the taxes on utility fees.

Gov. Dave Heineman, who must sign bills into law, has not stated an opinion on LB 952. He said Wednesday he was withholding his opinion until the bill reaches his desk.

Contact the writer: 402-473-9584, paul.hammel@owh.com

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