NTF Issue Paper: ccwatch40.doc. 6-09.

NEBRASKA TAXPAYERS FOR FREEDOM ISSUE PAPER:

STOP TAX HIKES IN THE CITY OF OMAHA.

BACKGROUND. There exists a $520 million shortfall in City of Omaha police and fire pension funds, a gap caused by the last two mayors who offered overly generous pay raises and benefits to these 2 unions in return for political support. Now that this fiscal crisis has forced the city to react, these 2 mayors conveniently are gone from office, leaving Mayor Jim Suttle to handle their financial mess. Former Mayor Fahey appointed a task force to suggest recommendations to adequately fund these pensions but invited no advocate for taxpayers. His task force conveniently examined but rejected budget cut suggestions, some of which our taxpayer group routinely had suggested to previous city councils. It warned that additional budget cuts could undermine our quality of life or public safety. It cautioned that bankruptcy could tarnish our financial reputation. Such advocacy is the usual liberal ruse, to frighten citizens into supporting tax hikes. Public schools often engage in this chicanery, threatening to end art and music classes or sports teams. Task force recommendations included only new and/or higher taxes on already overtaxed Omahans. The deal would gouge taxpayers to pay $15 million annually, and the police and fire unions through their decisions to contribute $15 million annually, to fill the pension gaps. Taxpaying citizens must mobilize to fight higher and/or additional taxes and alternatively press both Mayor Suttle and the new city council to implement both short-range and long-range, strategic budget cuts.

PROPERTY TAX HIKE. The task force advocated a temporary property tax hike. Citizens must recall that previous temporary tax hikes become permanent ones, e.g., the temporary city wheel tax, which city councils not only have not terminated but also have raised in amount, or the 2002 state income and sales taxes temporarily raised during the previous recession. Proponents argue that the city should raise the property tax, because the rate stands at only half the permitted levy limit. The committee justifies this suggestion by stating that the city property tax rate decreased 35% between 1994 and 2001 and has remained static since. True, but it conveniently ignores that property valuations have risen by double digits, so property owners annually have paid higher property taxes! The task force advocates a 6c per $100 property tax hike, taking effect in January, 2011. Owners of a $200,000 home would pay $120 more per year. Hiking the city property tax by this amount would generate about $15 million in additional funding for the pension funds. Though this tax hike would include a mandatory, automatic sunset clause, so that the property tax would lower to its present rate after another funding mechanism takes effect, there is no guarantee that the other 2 alternatives will win sanction from the state legislature, and the city council could negate the sunset provision, leaving us with a permanently higher property tax rate. The sun never has set on many tax hike provisions. The city council must vote on property tax hikes.

SALES TAX HIKE. The committee also recommended, in addition to the property tax hike, that city lobbyists convince the state legislature to allow the city to raise the sales tax rate from 1.5% to 2%. The city finance director estimates that this measure would accrue about $44-45 million yearly in additional revenue, yet only $15 million does the additional funding require. If state senators consent, the city would place the measure on the Nov. 2010 ballot for citizen approval. The city could contribute an amount equal to 15% of pensionable earnings to the pension fund yearly, then divide the rest of the revenue equally between the General Fund for debt service and property tax relief. The higher sales tax would begin in 2011. The additional tax would tack $100 onto a yearly grocery bill. The task force assumes that this new sales tax will bring in $44 million in revenue annually, but if the recession worsens or remains, fewer dollars may materialize. Moreover, state senators may not vote for this allowance, as evidenced by the recent objections of several. Many senators consider the sales tax as part of the state revenue base. Not publicized is that a portion of this higher sales tax would help pay off the convention center/arena debt (remember when its proponents promised taxpayers that this complex would not require a tax hike?), feed other parts of our bleeding budget, or go into the reserve fund. The state sales tax currently is 5.5%, so, if the local tax rises, Omahans will pay a total of 7.5c per dollar in sales tax! Commercial bleeding will accelerate, as Omahans and their neighbors who shop in our city spend their dollars in adjacent communities and Iowa.

NEW GARBAGE TAX. The task force recommended, as an alternative to the above tax hikes, that, in 2010, the city request legislative approval to authorize a city garbage collection fee. Now, the city pays $15 million annually for garbage collection from the General Fund. The city finance director estimates that a $10 monthly charge per customer would generate $15 million yearly. Assessing this fee, the city could take $15 million from the General Fund to make additional pension contributions. This tax is really only an additional property tax, because such tax now pays for our garbage service. After approval, then the increased property tax rate would sunset to its present level. The city could and should allow citizens to vote on this suggested tax alternative.

OCCUPATION TAX. Authority to levy this tax is already allowable, since 1983, but never implemented or repealed. The mayor could enact this tax without city council approval. An occupation tax would inflict itself on all city residents plus thousands who commute into Omaha to work. One reason that so many commuters into Omaha live in satellite communities or rural areas surrounding Omaha is to avoid the burdensome taxes Omaha residents pay already. This tax, like the $35 annual wheel tax, constitutes taxation without representation, because non-residents who would pay this tax cannot vote for Omaha elected officials. Commuters are not responsible for the Omaha budget mess. Non-residents utilize fewer city services that Omaha taxes fund. This tax would add another incentive for businesses to locate elsewhere and existing businesses to expand elsewhere, because this tax would poison our already poor state business climate (#46 in the nation). Current occupation taxes now inflict on areas already having poor business tax climates, like New York City and Baltimore. Most of these cities situate in states in the bottom half ranking in the Tax Foundation 2008 State Business Tax Climate Index. Occupation taxes in cities in Michigan and Pennsylvania rank these 2 among 10 states with the most people moving out, according to the United Van Lines 2005 Migration Study. Anecdotal evidence shows that moving to escape local level income and wage taxes is probable. An occupation tax would burden citizens and businesses with higher compliance costs. Albion, MI. taxpayers must fill out a city income tax form of 16 pp. with instructions.[1]

FUN TAX. A 2% entertainment tax would raise the cost of restaurant meals, bar tabs, and venues like movie theaters. This tax would require city council approval. After former Mayor Fahey suggested this tax to fund his baseball park scheme, entertainment site owners banded together and killed the proposal.

OUR ALTERNATIVES. NTF members tirelessly have assembled a still growing list of short-range and long-range strategic suggested budget cuts to offer Mayor Suttle and city council members. We believe that implementation of a number of these suggested cuts would free up sufficient monies to adequately fund the fire and police pension funds and general fund budget and avoid a tax increase.

BUDGET CUT & EFFICIENCY SUGGESTIONS:

· To recoup $500,000 expended for demolition of substandard structures, implement an urban homestead program for vacant lots (see NTF issue paper).

· Freeze mayor and city council salaries.

· Instead of spending $125,000 on a new police auditor, restore the civilian review board, which seemed to work well with unpaid appointees.

· Retired police and firefighters pay none of their health insurance premiums until age 65, when they become eligible for Medicare. Reconfigure the retiree supplemental pension benefits system, which we believe much too generous. Prevent police and fire division employees from loading up on overtime, working extra shifts, or cashing in comp time shortly before retirement in order to boost their pension benefits, spiking. Match comp time to that given police officers and firefighters in similar cities. The pension system is imbalanced; financial problems will arise for the next 27 years unless remedied. We incur added pension imbalances each year, because benefits approved by contract do not become paid for on a current basis, causing about an 11% deficit annually. 6% of this deficit can disappear by removing spiking. Pension payments base on the highest 12 months of pay during the last 5 yrs. of service. Spiking constitutes $33.3 million, 75% of the expanded gap between assets and amount needed to pay future benefits. Police and firefighter spiking rose 18% in 2006. It will raise pre-retirement pay 10% above regular salaries. Police and firefighters are earning higher salaries than actuaries anticipated. More police and firefighters are retiring early to take advantage of spiking largesse. Those who retire with at least 25 yrs. of service can collect 75% of yearly pay, up by 2-3%. In one egregious case, an Omaha policeman who earned a base salary of $54,136 retired in 2006 with a $124,906 inflated pay by spiking, earning him a $90,000 annual pension. More police officers and firefighters are retiring after 25 yrs. of service, because they have no incentive to remain. Under the 2004 contract, those who retire after 7-1-2007 get 75% of their regular pay. Contracts also allow our police to retire at 45, firefighters at 50, with 25 yrs. of service, younger than in most other depts. Requiring retirees to pay a part of their health insurance costs would eliminate another 1-2%. New accounting standards required of cities will force Omaha to carry long-term unfunded pension liabilities on the balance sheet. Then the pension problem could impact our city bond rating. The worst part of this problem is that our city loses many of its knowledgeable and veteran police officers and firefighters earlier in their careers, before future contracts lessen their pensions. From 2001 to 2007, budget hikes for the fire dept. have risen by 33%, 32% for the police division, while only 3% budget growth accrued to other depts.

· End the practice of banking holidays eligible for later payout, as now done in the Police Dept.

· For pensions, change the final average salary calculation to 5 yrs. base pay for civilian employees and 3 yrs. base pay for fire and police employees.

• Require that money earned for work performed by the current 350 employees retired for disability reasons from the city offset city disability payments. In 2006, the civilian pension system paid out $1,112,836 in disability payments, $5,760,896 from the police and fire pension systems.
• Offer voluntary employment termination packages with severance benefits.
• End automatic pay escalators in labor contracts.

· Health insurance hikes of $6.4 million (17%) over the FY 2007-08 budget should give the city incentive to force employees to pay at least 30% of health care premiums, as do many other government employees.

· Make police and firefighters pay an increasing percentage of their health care premiums, like other city employees.

· Retiree health insurance costs rose by 13.7%, in FY 2008-09, so rework retirement benefits to lower taxpayer funding. The unfunded actuarial liability is about $300 million now. The largesse bestowed persuaded many more than usual to take early retirement, so the city is paying premiums on more retirees plus their replacements. Remove the incentive for early retirement.

• Trim Police and Fire Division overtime, which causes cost overruns because of early retirements. The city pays overtime now when not mandated by federal statute.
• Hire lower-paid civilian employees to respond to police calls regarding parking violations, abandoned property, etc., freeing sworn officers for dangerous duties and saving $1.6 million annually, according to the Matrix study. Other cities have rerouted up to 30% of calls to civilian employees.
• Require new city employees to work 30 years, such as at least to age 55, before qualifying for retirement benefits.
• Establish a minimum retirement age of 62 for all civilian employees.
• End cashing in payoffs for sick and annual leave balances carried from year to year to increase pension benefits.

· Pension systems for union employees seriously are underfunded, so employees should pay more into this fund.

· All retiree employee benefits increased by almost 11% FY 2008-09, so rework these benefits to lower taxpayer funding.

· Shift the pension systems to defined benefit retirement plans, like 401(k)s.

· Institute a rigid hiring freeze.

· Implement alternative work schedule, 4-day work week, and work from home options.

· Ask employees to take unpaid leave days.

· Paid holidays only after first 6 months of employment.

· Use free volunteers and interns to handle office work.

· Utilize volunteer adopt-a-park programs.

· Increase the mowing cycle in city parks.

· Offer financial bonuses to dept. heads who cut dept. spending by 5%.

· Privatize the Parks & Recreation and Public Works Depts.

• Privatize public works assignments to stem dept. increased expenditures, specifically on street improvement and restoration. More privatization means less spent on health care benefits.

· Urge the Convention & Visitors Bureau to solicit funding from the private sector, from businesses benefiting from bureau publicity and advertising. Reduce city funding here. Terminating support would save $500,000.

· Delete funding for homeless shelter day services, saving $100,000.

· Delete funding for Women Against Violence, saving $50,000.

· Delete funding for county violence coordinating commission, saving $25,000.

· Delete funding for Downtown Celebration Lights, saving $10,000.

· Delete funding for the Latino museum, saving $2,500.

· Delete funding for Omaha by Design, saving $50,000.

· Delete funding for the food bank.

· Sell city golf courses.

· Cut funding for subsidized housing.

• Implement the Back to Basics initiative voiced by Mayor Suttle during his election campaign. Concentrate on funding basic city services first, like the library system. North Star Economics, Inc. in Wisconsin did a study showing that each $1 spent on public libraries led to a $4.06 return on the investment.[2]

· Spend the $$ earmarked for homeless assistance on expanding city library hours, as citizens want to use these facilities more hours and additional days. Libraries historically are a necessary function of city government. Private entities already fund homeless shelters, e.g., Alegent contributed $1 million to programs that aid the homeless (Omaha World-Herald 7-23-07).

• The budget shows that the percentage of expenditures returned by Riverfront Marina revenue is steadily dropping. Similarly, the percentage of operating expenses of the city parking facilities covered by revenues has dropped since 2006. Privatize both, with private lease arrangements guaranteeing revenues.

· Restrain spending on projects funded by Community Development Block Grants, because federal funding is decreasing, and local property taxpayers should not face picking up the funding slack. In the Planning Dept., CDBG grant funding has decreased by $300,000 already.

· Lock in lower costs over a longer time in fuel contracts.

· As the city soon will abandon Rosenblatt Stadium, delete the $50,000 for minor ballpark renovations there.

· Lobby state and federal governments to fund or end unfunded mandates on local governments.

• Add several hours to firefighter shifts.
• Save $700,000 by reducing top-heavy managerial staffing of the fire division, as recommended by the Matrix study.

· Drive city vehicles more years.

• Reduce travel costs of city employees.
• Reduce the number of city vehicles that employees take home at night or on weekends.
• MECA has failed to attract the projected number of conventions and other events to the Qwest Center, leaving property taxpayers the duty to pour in additional funding in future years, yet its operating budget grows. Allow a private company to publicize our entertainment centers and solicit conventions, sports events, etc., with a stipulation that it garner a minimum number of events or forfeit a percentage of its contract payment. Terminate the annual MECA subsidy.

• Decrease or end dues paid for Chamber of Commerce membership.
• Stop participation in state and national organizations that charge membership dues.
• Solicit nearby communities to join together in a larger workers compensation pool.
• Establish additional interlocal agreements with neighboring government entities, e.g., sharing equipment, training, ambulance service, and building inspectors. Follow the example of the Printing Services & Graphics Division.
• Place paid advertising on police cruisers and public works vehicles.
• Sell advertising on the city web site.
• Sell excess and surplus city-owned land and city equipment, using www.govdeals.com.
• Go Green!

a. City buys products that meet EPA Energy Star Efficiency Standards. Portland, OR. saves $35,000 annually.

b. Buy energy efficient office equipment and appliances.

c. Conduct energy audits of all city facilities.

d. Give city building roofs and windows reflective coating to save energy costs.

e. Shut off unused lights and equipment at night.

f. Turn down thermostats on water heaters.

g. Overland Park, KS. replaced 2,023 red traffic lights with LED fixtures. Annual savings: $160,000+. This investment paid for itself in less than 18 months.

• Dissolve the Human Relations Dept. State and federal agencies can handle this work.
• Privatize services to access expertise and technology resources available in the private sector for savings and more efficient delivery of services. After opening provision of services to the private sector, with competition, cost savings and increased responsiveness will occur.
• Increase use of computerization. Computerized services for police can allow them to enter information from vehicle accidents and traffic tickets to reduce time handling paperwork and reduce clerical staff time. Citizens could more easily access city information and services.
• Such increased computerization usage could bring collaborative agreements with other municipalities to jointly purchase software and share specialized equipment, software, networks, and software specialists.
• Outsource management of this computerization. Private companies in Minnesota developed GovOffice to allow cities to administer their web sites easily, post information on city services, and provide easy ways for citizens to submit information, saving citizens the hassle of driving downtown and finding parking spaces.
• Double fines for traffic tickets paid late.
• Fees levied should equal the total cost of providing a service, e.g., overhead, salaries, time, equipment.
• Increase EMS fees to reflect the current Medicare allowable rates for this region, adding $182,950 in revenue, and implement an electronic patient care reporting system to save $49,000-$64,000 annually (Matrix Study p. B-8).
• Use community service organizations and non-profits to help deliver services or administer programs.
• Encourage volunteer groups to help, such as handling paperwork at the Police Division, thus allowing officers to spend more time on the street.
• Hold citizen forums to set appropriations priorities to help city government make budget cut decisions. Distribute a list of all services. Break attendees into groups and allow them to list services in priority order for cuts. Begin an incoming email survey from citizens for the same purpose.
• Terminate the services of city lobbyists, saving over $126,000. The mayor and council can lobby.

CONCLUSION. The task force generated its numbers to estimate the size of the financial gap by noting the falling value of monies invested, because of the current recession. However, as the recession fades, these investments will accrue higher earnings, helping to fill the gap. Theoretically, Omahans could find themselves stuck with all 4 tax hikes. The property tax hike, though creating a supposed reserve position for the city, while it tries to win the 3 other funding sources, could become permanent with one or all of the others. Tax hike proponents contend that a tax hike is the only way to solve the pension fund cataclysm. They word the situation in terms of which tax citizens would prefer, instead of offering a no-tax hike alternative. Grosse Point, MI. and Rochester, N.Y. both faced budget shortfalls of large magnitude but did not raise property taxes. Note that using any of the 4 tax hike alternatives would allow some police and firefighters to continue to spike their salaries, earning more in retirement than during service. Finally, many have seen a drastic drop in the value of our retirement savings, yet taxpayers are not bailing us out. We should not have to pay more tax to bailout 2 union pensions, whose shortfall we did not cause. The city council could approve a higher property tax by late summer, so act quickly! Send the mayor and city council a clear message that we want no temporary or permanent tax hikes and will vote NO on proposed ordinances to generate more revenue.

Research, analysis, and documentation for this issue paper done by Nebraska Taxpayers for Freedom. This material copyrighted by Nebraska Taxpayers for Freedom, with express prior permission granted for its use by Citizens for Local Control, Cherry County Taxpayers, Dawes County Taxpayers, and Nebraska Advisory Group. 6-09 C

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[1] County and City Income Taxes Clustered in States with Poor Tax Climates, by Joseph Henchman, Tax Foundation, 7-11-08.

[2] The Economic Contribution of Wisconsin Public Libraries to the Economy of Wisconsin, May, 2008.