The writer, of Omaha, is executive director of the OpenSky Policy Institute in Lincoln.
State tax policy doesn’t operate in a bubble. Fiscal and tax decisions made at state levels have direct budget ramifications for local governments like cities, counties and school districts.
This has been illustrated recently by budget crunches in Omaha and La Vista.
Both cities recently announced that they were hit hard by more expensive-than-anticipated business tax breaks that local companies get as part of subsidies the Nebraska Legislature approved decades ago.
The state requires cities to pick up some of the bill when businesses take advantage of sales tax refunds. But the companies have flexibility about when to claim the refunds, so cities have no way to know how much it will cost them each year.
“In order to run a city, you have to be able to plan for the future. And to not know when the ax is going to drop, it just makes things very difficult,” La Vista City Administrator Brenda Gunn told The World-Herald.
The problem faced by Omaha and La Vista is just one aspect of how state policy can affect local budgets. Decisions by state officials also directly influence Nebraska’s local tax rates. As the state cut funding to cities, counties and school districts in recent years, many of these local governments had to raise property taxes and local sales taxes — and cut services — to compensate.
These increases in local taxes were needed to make budgetary ends meet, not to accommodate increased spending. In fact, local government spending as a share of the economy has dropped in recent years.
State fiscal policy has the power to help at the local level, too. The Legislature in the 1990s sought to decrease property taxes for Nebraskans by funding K-12 education at a higher rate. This took funding pressure off school districts and helped significantly decrease property taxes in the state temporarily. The state has since regularly shorted K-12 funding, and property taxes have steadily risen in the past several years.
The fact that the state can drastically affect local budgets and taxes means the state has inherent responsibility to consider the ramifications that its policies have for our cities, counties, school districts and other local entities.
We urge lawmakers to consider that as they conduct their review of the state’s tax code.
There is plenty of room to improve our outdated tax laws, but decisions that neglect to consider how state policies affect other entities can create significant problems for our local governments and for Nebraska’s taxpayers as a whole.