NTF Issue Paper: ccwatch80.2003doc. 7-10.
NEBRASKA TAXPAYERS FOR FREEDOM ISSUE PAPER:
STOP TAX HIKES IN THE CITY OF OMAHA: NTF ALTERNATIVES.
BACKGROUND. There exists a $33.5 million shortfall in the City of Omaha General Fund, a gap caused by this and the last administration allowing expenditures to rise at a faster rate than incoming revenues. The Suttle budget increases spending by 11%. His tax hikes would raise $44 million, though the city debt equals $33.5 million, and $20 million of this windfall would pay for administration pay raises. Also factor in a yearly hike in our sewer tax. City officials warn that additional budget cuts could undermine our quality of life or public safety and lead to library and swimming pool closings. They caution that bankruptcy could tarnish our financial reputation and credit. Such alarmism 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. Taxpaying citizens must mobilize to fight higher and additional taxes and alternatively press both Mayor Suttle and the city council to implement both short-range and long-range, strategic budget cuts. There are no sunset provisions in these proposed taxes. The mayor claims that he had no knowledge during his mayoral campaign of how indebted was the city, but serving on the city council for several years gave him access to all financial information. The most egregious problem in our city budget is the spending. The downtown stadium budget shows $18 million in expenditures over concrete revenues (p.66). The biggest hike in spending is in “other budgetary accounts,” 40.42%, much of it for discretionary spending (p. 15). In the General Fund, appropriations for this account would rise from 17.9% to 23.7% of the budget (p. 135). Community service programs in this account would see a 90% increase (pp.136 & 159). In his budget presentation, the Mayor repeatedly refers to maintaining the “quality of life” in Omaha, but higher taxes will lower our standards of living. He ridiculously refers to his tax hikes as “investments.” The return on our investments would see lower living standards. The Mayor is not fulfilling his campaign pledge to manage city government as “Back to Basics.”
PROPERTY TAX HIKE. A mayoral task force in 2009 advocated a temporary property tax hike. Citizens must recall that previous temporary tax hikes became permanent ones, e.g., the temporary city wheel tax, which city councils not only have not terminated but also have increased in amount, or the 2002 state income and sales taxes temporarily raised during the previous recession. Suttle argues that the city should raise the property tax, because the rate stands at about half the permitted levy limit. The committee justified this decision by stating that the city property tax rate decreased 35% between 1994 and 2001 and remained static until 2009. True, but it conveniently ignores that property valuations have risen by double digits, so property owners annually have paid higher property taxes! Suttle wants a 9.33% property tax rate increase, or 4.44c more per $100 of valuation, in addition to the 1.8c hike in his 2010 budget (p. 18). This tax would total 52.027c per $100 valuation (p. 108). Owners of a $150,000 house would pay $66 more per year. This property tax hike would provide a 17% hike in property tax revenue for the General Fund (p. 16) but will impair the local real estate market, already depressed because of the recession and loss of tax credits. Recall that Mayor Suttle aired a campaign TV ad showing him with a sign reading “Lower Property Taxes.” The city council must vote on a property tax hike following the public budget hearing on Aug. 10.
RESTAURANT & BAR TAX. Suttle seeks a 4% tax on restaurant tabs to fund increased advertising by the tourist bureau. This tax would compute on a tab after the regular sales tax added on, so patrons would pay a tax on a tax. Patrons already pay a 7% sales tax and now would pay 11% on their bills! Higher restaurant and bar tabs will not encourage tourists and visitors. This tax would raise about $23.5 million next year (p. 29). Patronage will drop, causing unemployment in this industry. Profit margins for area restaurants already are thin. More bureaucratic paperwork for owners, as they fill out tax forms monthly or quarterly (p. 115). Restaurants at the casinos across the river and in other parts of Council Bluffs will benefit. Instead of cutting spending further, the Mayor offers only the alternative of a sales tax hike to replace this tax. He dangled the prospect of a 7% sales tax on groceries to substitute for a restaurant sales tax that would sunset, but new taxes never disappear. Business taxes in Omaha without this tax would comprise 18.5% of the total budget compared to 12.4% in 2010 (p. 107). The city would assume $250,000 annual costs to administer this tax (p. 228).
WHEEL TAX. Vehicle registration fees already will rise 37% in 2011. Raising the wheel tax from $35 to $58, a 66% hike, a rise of 20% in total revenues (p. 14), will encourage fleet owners to license their trucks and cars in neighboring states, lowering revenue gleaned from this tax. Total projected vehicle registration fees would increase by 58%. Raising the temporary wheel tax would only aggravate financial stress among Omahans in this deep recession. Contact your city council member instead to lobby state senators to revise the state gas tax formula, so that Omaha receives $2 million more annually, lost under the formula altered in 2008. Also, lobby council members and the mayor to enhance the guarantees that private contractors must offer when constructing and repairing streets. Currently, asphalt and concrete paving degrades within 2-3 years on some projects. The city must alter the way in which it maintains its streets, to save taxpayer money. For example, in early spring 2010, a crew spent a week meticulously drilling and patching potholes on 42nd Street between Woolworth Avenue and Leavenworth Street. Several weeks later, another crew appeared and stripped off all the old asphalt and laid new asphalt pavement. Weeks later, crews drilled into the street to repair storm drains. Furthermore, the city must use better technology in its street maintenance. Laying new asphalt over seriously cracked concrete or asphalt works temporarily, until the cracks and holes appear in the same place in the new pavement. Oklahoma cities and other municipalities require using better grades of concrete and asphalt for paving and felt-like rolls between old and new pavements to prevent old cracks and holes from working up through the new pavement. We would need no wheel tax increase, if the city mandated better quality street construction, maintenance, and repair. The city should privatize much more of its public works street work.
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. A $2 monthly occupation tax would raise $12 million annually. It 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 annual wheel tax, constitutes taxation without representation, because non-residents 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 it would poison our already poor state business climate (#43 in the nation). Nebraska ranks among the 10 worst states already for business tax climate. Current occupation taxes 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 seeing 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 occupation tax form of 16 pp. with instructions.
MORE REVENUE. The mayoral budget expects a 65% increase in business taxes next year and a 48% hike in “other budgetary accounts” (p.16). Miscellaneous revenues would rise from $991,000 to $2.6 million (p. 29). Revenue from fees and permits would increase by 77%, from $30 million to $53 million (p.106). The Mayor expects an increase in sales tax revenues of about 7% in 2011 (p. 109), though sales tax revenue dropped in 2009 (p.19). The sales tax figured for FY 2011 is a lesser % of total revenues (p. 107). The Mayor conveniently ignores these projected windfalls.
FEW POSITIVES. There exist scant crumbs of conservative fiscal policy in the mayoral budget. Among them are placing a bit in the cash reserve annually for emergencies and saving $500,000 in police and fire court costs yearly by monitoring and coordinating appearances. Mayor office staff will take furloughs in 2011 to save $40,000 (p.173).
NTF ALTERNATIVES. NTF members conscientiously have assembled a 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 provide sufficient monies to adequately fund the general fund budget and avoid tax increases and new taxes.
BUDGET CUT & EFFICIENCY SUGGESTIONS:
· To recoup dollars expended for demolition of substandard structures, implement an urban homestead program for vacant lots and decrepit housing (p. 241) (see NTF issue paper). Beatrice already has implemented this program. Our city would save dollars on code enforcement and mowing and plowing expenses. The city should remove itself from home construction and leave such to the private market.
· Cut funding for subsidized housing.
· Freeze mayor and city council salaries. The Mayor’s office budget increased again this year, by 4.41% (pp.15 & 136). His office would have 4 additional full-time employees, a 33% increase (p. 164), one an “after-school coordinator,” a duty outside city government purview (p. 173).
· Freeze city employee salaries, as employee compensation costs would rise by 11% in 2011 (p. 468).
· The Mayor cut employees and increased computerization, but he used monies saved to pay higher salaries to dept. chiefs. The Convention Bureau chief receives a 9.7% pay hike to $126,500, Parks Dept. head receives a 19.35% pay hike, the Finance director a 38.6% hike, and the Police Chief an 18.18% raise. The Finance Dept. would see a 15.11% increase (p.15), the Planning Dept. a 10% hike (p. 136). Stop this shell game!
· Delete 4 new Finance Dept. positions, employees who would administer the new restaurant tax. Such would alleviate the hike in Finance Dept. employee costs.
· Offer financial bonuses to dept. heads who cut dept. spending by 5%.
· 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. Furloughed employees retain their insurance and other benefits.
· Diligently monitor overtime costs. Wastewater plant overtime is rising by 58% in 2011 (p. 435).
· End several paid holidays for all employees. Civilian employees receive 13 such days (Civilian Bargaining Benefits, May, 2010).
· Paid holidays only after first 6 months of employment.
· Perform efficiency audits on each city dept.
· Use free volunteers and interns to handle office work.
· Contract with a private law firm specializing in labor negotiations to handle city union negotiations.
· Pensions and insurance premiums are raising personnel costs the most:
· The retiree health insurance 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.
· Pension and insurance costs for the Finance Dept. Administration almost doubled, reason to demand that civilian employees pay a larger share of retirement and insurance costs (p. 220).
· Retiree COBRA health insurance costs are up 16.5% (p.158). 2011 health and accident appropriations for retiree health insurance are up 17% (p. 158).
· $7 million would go to police and firefighter pay hikes. The Wage Adjustment Account holds $20.5 million for police and fire division salaries and their unfunded pension liabilities (pp. 136 & 487). A 74% increase in overtime for 2011, $1 million more. Police longevity pay would rise from $814,428 to $1,135,148. Insurance costs here would rise by 10% (p. 268). 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 is 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 has raised 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 $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 police to retire at 45, firefighters at 50, with 25 yrs. of service, younger than in most other depts. 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. Requiring retirees to pay a part of their health insurance costs would eliminate 1-2% of the deficit.
· Police Div. employee compensation has risen by 5% (pp. 150 and 256). 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.
· Privatize the impound lot (p. 266).
· Cut Fire Dept. public safety education activities, like parades, public immunizations, fire safety web pages, public presentations, health fairs, hydrant parties, and coloring contests, costing $1.5 million in the 2011 budget (p. 282).
· Cut Fire Dept. recruitment activities like job fairs, billboards, mailings, videos, web pages, and movie theater announcements (p. 285).
· 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.
· Benefit costs rise by 11.91% in this budget (p. 15). Base pensions on employee contributions throughout years working for the city.
· End cashing in payoffs for sick and annual leave balances carried from year to year to increase pension benefits. End the practice of banking holidays eligible for later payout, as now done in the Police Dept.
· Pension systems for union employees are seriously underfunded, so employees should pay more into this fund.
· Shift the pension systems to defined contribution retirement plans, like 401(k)s.
· City employee health care costs rose by 25.5% in 2010, 13% of the total budget. Health care spending approached $15,000 annually per enrolled employee and retiree in 2010. The city pays 80% of civilian union employee major medical insurance costs for PPO coverage and 90% of 1 dental plan (Civilian Bargaining Benefits, May, 2010).
· Reduction in health care insurance costs for civilian retirees and fire dept. personnel may not withstand court appeal, so the city debt may become larger, necessitating further cuts. Costs for their health insurance might rise by 15.5% in 2011 (p. 470).
· Make police and firefighters pay an increasing percentage of their health care premiums, like other city employees.
· The city must insist on a drug price list from all bidders. The city cannot audit itemized spending without a price list and auditable invoices.
· Perform a background check on prescription drug bidders to verify their records.
· Civilian employees pay only up to $5 for generic prescriptions. The city bidding policy on prescription drugs has not controlled health care spending, so perhaps negotiating would work better. NE K-12 schools and the NE Assoc. of County Officials already negotiate. The city attorney could investigate this option.
· Verify that city drug claim information is not sold to national data bases for resale to drug manufacturers.
· Verify that the city is not absorbing markups on medical and drug claims while providers paid less.
· Verify eligibility of dependents at enrollment time.
· Utilize volunteer adopt-a-park programs.
· Increase the mowing cycle in city parks, saving $500,000.
· Parks Dept. machinery and equipment repair and maintenance costs will rise by 19% in 2011, so privatize these duties and parks maintenance, costs of which also will rise 19% (p. 301).
· Save $200,000 by not constructing the Keystone Trail connector and spending $100,000 on trail corridors and $15,000 on “green” street master plan.
· Stop construction of water parks and renovate existing pools instead.
· Ice arenas will cost 21% more in 2011, the cost per customer will rise by 50%, and attendance has dropped in 2010, so sell the ice rinks (pp. 306 & 308)
· Solicit additional private contributions for the Sun Dawgs program (p.306)
· City tennis operations revenues are less than expenditures (p. 81). Tennis costs would rise by 8% in 2011, so privatize this function (p. 315).
· Lobby to change state law in order to sell city golf courses, 3 18-hole courses and 5 9-hole courses. Golf course operations are $693,563 in debt (p. 79) as revenues drop by 10% (p. 115). It is not realistic to fund these operations with General Fund dollars at the expense of cutting basic services or raising taxes. This continuous debt negatively impacts the city borrowing status. Golf concession revenues have fallen by $200,000 (p. 146). The Omaha metro area has 30 private golf courses open to the public.
· Better synchronization of traffic signals, so that drivers can save time and gas, and so traffic flows better.
· Privatize the Parks & Recreation and Public Works Depts.
· Cut the almost $2 million increase for the Convention & Visitors Bureau to advertise in other cities, a 66% increase. Its marketing budget would rise by 180%+, over $2.2 million (p.356). This bureaucracy already has received $500,000 in each of the last 2 yrs. It wastes taxpayer $$ to attempt to bring tourists and visitors to Omaha with our higher hotel and restaurant taxes. Urge this bureau to solicit funding from the private sector, from businesses benefiting from bureau publicity and advertising. This bureaucracy spends taxpayer $$ to aid local hotels to market themselves, an unwarranted subsidy (p. 357). The number of expected definite trade shows and room bookings are lower this year. Expected room reservations in 2011 peg at 85,000, though only 60,000+ reserved rooms in 2009 (p. 359). Divert hotel/motel taxes instead to support the library system and lower the deficit.
· Convention Center hotel expenses have outpaced revenues by $26.2 million, yet the Mayor wants to spend $30-35 million to expand the hotel (p. 23). We already have a $109,750,000 million debt on the hotel (p. 496). Private developers are not taking such risk in this recessive economy (p. 84). This hotel may not glean sufficient revenues to make debt payments. The Hilton Omaha profit in 2009 was over $4 million less than in 2008; occupancy rates dropped over 5%. Expenses for this hotel outreach revenues by $26 million in 2011 (p. 84). The hotel/motel tax supposedly would bring in $200,000 less in 2011, another reason to not expand (p. 110). The city would issue revenue bonds to build the addition. If the Hilton does not generate sufficient revenue, property taxes or the entire cash reserve would pay off the bonds.
· Delete funding for homeless shelter day services, saving $100,000 (p. 41). Private entities already fund homeless shelters, e.g., Alegent contributed $1 million to programs that aid the homeless (Omaha World-Herald 7-23-07).
· Delete funding for Downtown Celebration Lights, saving $15,000 (p.41).
· Delete $15,000 funding for the Millennium Celebration (p. 477).
· Delete funding for Omaha by Design, saving $50,000 (p. 41).
· Delete funding for Clean-up Omaha, saving $120,000 (p. 40).
· Delete funding for neighborhood grants, saving $90,000 (p. 477).
· Delete $50,000 funding for Women Against Violence (p. 477).
· Delete $700,000 in funding from keno-lottery proceeds for the Humane Society (p.40).
· Delete the $1.25 million appropriation from the Parks Dept. to the Omaha zoo (p. 301).
· Delete $1.5 million in funding for at-risk and truant youths. This problem belongs to parents & schools (p. 477).
· Stop all discretionary spending.
· Sell public parking facilities (8 garages and 7 surface lots). Their revenues are less than expenditures, which will rise by 6% (pp. 82, 342, 345). In 2009, only 60% of operating expenses in parking garages and lots were covered by revenues.
· Prioritize spending, concentrating on basic services, such as expanding city library hours, as citizens want to use these facilities more hours and additional days. The library budget would suffer cuts of thousands of dollars (pp. 136 & 157), though libraries historically are a necessary function of city government.
· 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.
· Lobby state and federal governments to fund or end unfunded mandates on city governments. Obtain a waiver on ADA street alterations.
· Drive city vehicles additional years.
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 lights and unused 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.
TAKE ACTION NOW. The mayor claims that we cannot afford to cut further, but he never asks taxpayers if we can afford higher taxes. Grosse Point, MI. and Rochester, N.Y. both faced budget shortfalls of large magnitude but did not raise property taxes. Note that passing any of the Suttle tax hike alternatives would allow some police and firefighters to continue to spike their salaries, earning more in retirement than during service. We should not have to pay more tax to bail out union pensions, a shortfall we did not cause. Many have seen a drastic drop in the value of retirement savings, yet taxpayers are not bailing us out. Raising taxes will not attract businesses to locate here. Send the city council a clear message that we want no temporary or permanent tax hikes or expansions. Use our bullet points. Tell them to conserve and save instead of tax and spend, to manage the city like a private business. Refer to the NTF city council contact sheet.
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, and Dawes County Taxpayers. 7-10 C
 Tax Foundation, State Business Tax Climate Index Rankings, 2008.
 County and City Income Taxes Clustered in States with Poor Tax Climates, by Joseph Henchman, Tax Foundation, 7-11-08.
 Omaha Convention Hotel Corp.
 The Economic Contribution of Wisconsin Public Libraries to the Economy of Wisconsin, May, 2008.