Fallout From Proposed Pension Fixes Has Broad Reach
Retailers: Sales Tax Increase Could Be ‘Last Straw’
POSTED: 4:24 pm CDT May 20, 2009
UPDATED: 5:19 pm CDT May 20, 2009
OMAHA, Neb. — Omaha faces a $500 million shortfall that could bankrupt the city and dry out pensions unless $30 million a year is generated for the next 30 to 40 years.
“We have a major problem here in the city of Omaha,” said Mayor Mike Fahey Wednesday morning as he and a task force outlined their proposed solutions.
The 11-person panel proposed three funding options, including a sales tax hike that officials said would be a last resort. Under the sales tax proposal, a rate increase of 6 cents would be proposed on property taxes. For the owner of a $100,000 house, taxes would increase by $60.
A second option is a half-percent increase in the city’s sales tax. That option would need approval by the state legislature and also a public vote.
The final proposal would be a $10 monthly fee on garbage collection, which would also require legislative approval. That option would generate about $15 million per year in revenue. It could also be established the quickest — as early as 2010.
If the city does nothing, the pension fund could run dry in 21 years.
Officials said it was time to stop placing blame and time to start acting on solutions. They cited California as an example of how not to respond to the crisis.
“Unlike the state of California, that rejected the tax increases yesterday, we believe the Omaha way is a much better way,” Fahey said.
On Tuesday, California voters killed budget measures designed to shore up the state’s finances amid a $21 billion shortfall.
The Omaha way, apparently, is to equally divide the responsibility among the city and the police and fire unions. Even Sigerson, a Republican city councilman, agreed there was no more room for budget cuts.
“How deep do you cut? Do you start mowing every 21 days instead of every 14 days? Pretty soon the city begins to fray around the edges,” he said.
Omaha’s mayor-elect commended the task force.
“Notice the beauty of it,” said Jim Suttle. “We built consensus. We didn’t have all the answers, but we built consensus,” he said.
Suttle will need to nurture the consensus-building as he prepares to take office within 19 days and work out the details with all involved parties.
Unions React
The task force’s plan distributes the burden among the taxpayers and the unions. The plan will be tough for the unions to swallow, according to their leaders.
Members would have to wait an extra 10 years to retire with the maximum pension benefits. The current pension system kicks in at age 45 for police and fire union members. The proposal would raise the age to 55.
The proposal also deals with pension spiking, the practice in which members spike their overtime hours during their last 12 months of work to create a higher average pension payoff.
Under the proposal, retirement benefits would be based on a broader average of salaries, not just an average of a person’s highest income in a 12-month period. The broader time frame would likely be five years.
The unions must approve the plan.
Fire Union president Steve LeClair said agreement on the plan would be “difficult.”
“These are drastic concepts that are being recommended. They’re so vastly different than what we currently have,” LeClair said.
Police Union President Aaron Hanson said he felt “confident” about an agreement.
“As long as there is an emphasis on a 50-50 joint problem solving, I feel confident we can find a solution both sides can live with,” Hanson said.
Retail Industry Reacts
Many Omaha shoppers said they’d consider shopping outside the city if the sales tax proposal passed.
Retailers, already reeling from a drop in sales, reflected shoppers’ sentiments, saying any more pressure on the industry could be the last straw.
“I won’t be able to afford it here if it goes up even a little bit,” said Kenna Shearman, who works at L’Occitane, a body-care boutique shop.
Shearman said her customers are loyal, but she’s concerned about the situation in general. Her dad owns a small business.
“It will affect him a lot because people can’t afford healthcare or things of the sort, so they cut back on other products,” she said.
If passed by the Legislature and Omaha voters, the increase would bring Omaha’s sales tax to 7.5 percent. Nebraska Furniture Mart’s Bob Batt said raising the sales tax percentage is a bad idea.
“You make Omaha uncompetitive … people are very smart shoppers and they’re going to say, ‘Where can I get the most value for my dollar?'” Batt said.
Others said an increase would be OK.
“If you’re going to have to run a deficit to support the pensions, then you’ve got to do something to take care of that,” said shopper Barbara Strominger.
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I know all those options suck(at least for the citizens(Omaha), but the Property tax increase is the cheapest! It is also the easiest to pass and get back on track.