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Governor Heineman Vetoes Sales Tax Increase


Location: Lincoln, NE

Gov. Dave Heineman today vetoed LB 357, a bill that would increase sales taxes by up to 33 percent in 86 Nebraska cities. This bill would increase the sales tax by a half-cent on working men and women in the City of Omaha and potentially other Nebraska cities.

An increase in the sales tax will make the State of Nebraska less competitive for jobs and potentially hurt Nebraska's Tax Foundation ranking because state and local sales taxes are part of that calculation.

The Governor's veto letter follows:

I am returning LB 357 without my signature and with my objections.

LB 357 authorizes local governments to enact a 33% increase in the local option sales tax. I take exception with arguments of proponents that this legislation is about nothing more than local government control. Local control is a value that I cherish; however, LB 357 is a state authorization of a sales tax increase.

State law authorizes cities to tax. State law authorizes how much cities are allowed to tax. LB 357 authorizes cities to tax up to 33% more in sales tax than they already are imposing. That is an excessive burden upon Nebraskans at this time in our current economy.

LB 357 is stated to have protections because residents of a local community would have the right to vote on this tax increase. Current law already requires cities to conduct a public vote in order to add any local option sales tax. Thus, the bill offers no new safeguard in that respect.

LB 357 is stated to have protections because the bill purportedly limits the use of new proceeds from the sales tax increase. On this issue, the bill is flawed in several respects.

First, the definitions in the bill leave large loopholes for uses of any new tax proceeds. The bill appears to require new taxes to be spent primarily on "public infrastructure projects" but these are defined very broadly to mean almost any public project. The specific definition in the bill "includes, but is not limited to" a long list of spending authorities; therefore, the list is illustrative but not definitive.

Next, for the City of Lincoln, local officials argue that LB 357 authorizes up to 15% of the new tax increase to be used for operating expenses or to lower property taxes. The plain language of the bill, however, does not allow for those uses. Instead, the bill authorizes the expenditure of up to 15% of the proceeds from the sales tax increase to be expended on private infrastructure projects. Either the bill is defectively drafted or it improperly authorizes the expenditure of public funds for private purposes.

Proponents have also made a point to note that the new tax increases authorized in this bill will terminate after 10 years. There is, however, no termination date for some of these new tax dollars whenever they are used to finance certain interlocal or joint public agency agreements or when the new tax dollars are pledged for the payment of any bonds or refunding bonds.

Also, while LB 357 deals primarily with increasing local option sales taxes, it also authorizes a city to issue bonds "for any municipal purpose" without a separate vote of the people and to pay off the bonds with the increased sales taxes or with a dedicated portion of the property tax levy.

Finally, the bill states that the non-earmarked sales tax increase proceeds can be used solely for public infrastructure or economic development purposes. However, cities may easily create a shell game with these funds by shifting existing expenditures made for public infrastructure to other operating expenditures and using the new sales tax increase funds to cover or replace their existing costs. LB 357 simply allows a city to substitute these funds for any existing expenditure made on public infrastructure and use the freed up funds for any other spending.

No matter how this bill is viewed, it is clearly a new state law authorization for local governments to tax our citizens more than they are being taxed now.

Above the building in which we are privileged to work each day as public servants, stands a statue of The Sower. We often say that he is "sowing the seeds of prosperity" over our beloved State.

Prosperity does not happen by accident. Working together, throughout the past eight years, we have purposefully and methodically labored to lower the tax burden and to modernize our approach toward a shared vision of long-term economic vitality. This bill will damage Nebraska's competitiveness in national rankings which do take into consideration local taxes as well as state taxes when assessing our total tax burden. The large new tax increase authorized by LB 357 will only make Nebraska's ranking worse.

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