Senators override veto; cities can increase local option sales taxes with voter approval

Senators narrowly overrode a veto administered by the governor April 18 on a bill that would allow additional local option sales taxes but would make them subject to the supermajority 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. LB357, introduced by Omaha Sen. Brad Ashford, allows local option sales taxes to be levied at 1.75 percent and 2 percent, with 75 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.
Senators had passed the bill April 5 on a 30-15 vote. In his veto letter, Governor Dave Heineman said the bill would allow cities to levy taxes up to an additional 33 percent more than what is currently levied.
“That is an excessive burden upon Nebraskans at this time in our current economy,” he wrote.
Asford filed a motion to override the veto, saying the bill will empower cities to fund economic development.
“We need to trust our communities and public officials to put forward a plan for their cities,” Ashford said.
Omaha Sen. Steve Lathrop supported the motion to override, saying cities need some source of revenue after recent cuts in state aid.
“We’ve not only taken money away from the cities, but we are getting unfunded mandates from the federal and state,” Lathrop said. “We have no way to pay for it.”
Fullerton Sen. Annette Dubas opposed the motion, saying the potential increase in sales tax also would place a burden on those living outside city limits. She said farmers must buy necessary equipment and supplies in cities which could be subject to the sales tax.
“You’re forcing people to pay a sales tax that they are unable to vote on,” Dubas said. “We’re creating a playing field that is not level for all citizens.”
Senators voted 30-17 to override the governor’s veto.
The bill 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 city and Lincoln is the state’s only primary class city.
Increased sales tax revenue in cities of the metropolitan class must 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 must be dedicated to funding nonpublic infrastructure projects under interlocal agreements. The remaining proceeds will be designated for public infrastructure projects.
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.