Monday, October 15, 2012

No Need or Justification for Cancer Center Tax

Click below for the Omaha Alliance for the Private Sector's Sep. 24 news release on the proposed occupation tax on tobacco sellers.

  • It’s not needed for the project to go forward.  
  • UNMC has other options and Omaha is not in a fiscal position to make gratuitous contributions to state projects.  
  • It’s time to stop the occupation tax in its tracks. 
In deciding on the proposed $35 million occupation tax ($3.5 million for 10 years) on Omaha tobacco sellers to fund cancer research, city leaders must decide whether they serve the University of Nebraska Medical Center or the taxpayers of Omaha.
UNMC leadership is adept at working high-level donors and the levers of government to keep hundreds of millions of dollars flowing into UNMC annually. This time UNMC is overreaching. So is the city if it cooperates.
The UNMC chancellor would not have announced his retirement to take over the cancer center if there was any doubt about the success of the project. It will go forward regardless of whether the proposed city tax is approved.
The $35 million is only 9 percent of the cost of the project. It could be covered with an annual 0.25 percent sliver of the $1.4 billion in the University of Nebraska Foundation. Typically donations to the foundation are earmarked for certain projects, but there must be some discretionary funding available.
Another option is to expand the bond issue part of the funding package by 30 percent to $155 million.
UNMC receives about $11 million annually from the 1998 settlement of a national lawsuit against the tobacco industry. It’s a perfect fit for cancer research.
UNMC might say those funds are spoken for. Then UNMC must reprioritize rather than reach deeper into the pockets of taxpayers who already help fund UNMC’s $600 million annual budget through state sales and incomes taxes, including the extra $50 million from the state this year for the cancer center.
Not every dollar of state funding for UNMC comes from Omaha, but Omaha taxpayers do their fair share. The proposed tax would complete a triple tax on Omahans – state, county, and city – since $5 million of our county tax dollars also have been committed to the cancer center.
Omaha faces huge fiscal liabilities – and new taxes and fees to pay for them – because of failed leadership at city hall on police and fire contracts, and on updating our sewer system. Yet some at city hall want to jab another fiscal tap into Omaha taxpayers to produce another stream of revenue – and for a project outside the scope of city government.
Consider what $35 million over 10 years could buy. A fleet of new police cruisers. Dodge Street repaved from downtown to Elkhorn. No more scrambling for benefactors to upgrade and keep open city libraries, parks, and pools. And of course there are police/fire pension and sewer bills to pay.
That’s a partial list of city priorities that should be more important to city leaders than funding the cancer center. Instead, some would pull $35 million out of the city economy to subsidize a project for a state agency that Omaha taxpayers already heavily subsidize.
Advocates of the tax tout projected economic benefits for Omaha, including increased tax revenue. Great. We need it. But we shouldn’t have to fiscally bleed ourselves some more with another tax to get the economic benefits we deserve for providing an environment that allows UNMC to thrive.
Some voices are calling for the city to contribute to the project by cutting the city budget to free up the required amount of money. They argue that it’s penny wise and pound foolish to say the city should stick to funding basic city services. They believe a city contribution to this and possibly other projects from a regularly budgeted economic development fund would be appropriate.
But that does not appear to be an option. No one is presenting a concrete plan to subsidize the cancer center with $3.5 million in annual savings for 10 years from the regular city budget. A new tax is the only option in play.
That’s a big part of the problem. The Alliance isn’t just concerned with this proposal. The city seems to have discovered a new toy, the double sales tax disguised as an occupation tax. First restaurants. Now tobacco sellers. Who’s next?
State statutes and the Nebraska Supreme Court say the occupation tax is a tax on businesses for the privilege of doing business, not an additional sales tax. It sure feels like a double sales tax when you pay it on your restaurant tab.
Advocates of the occupation tax say businesses don’t have to pass it on to the customer; they can absorb the cost themselves.
That’s the attitude of people who don’t know – or don’t care – what it’s like to run a small business. The Alliance was formed to fight this attitude at city hall. The private sector is not an ATM for government.
That raises another concern – that Omaha could lose revenue because of this tax. Suppose smokers go to Ralston or Council Bluffs or somewhere else on the periphery of Omaha to buy their cigarettes. While getting their smokes, they gas up the car and buy other items that they would have bought at Omaha businesses where they used to buy cigarettes. The desire to save $3.50 per carton and stick a thumb in city hall’s eye make this scenario possible, even probable.
City leaders should send the following letter to UNMC:
We decline your invitation to help fund this project with a new city tax. Given our calamitous fiscal situation and pressing funding priorities, we cannot justify putting an additional tax on our businesses and their customers to fund this project, which is outside basic city responsibilities. We are confident that with your government resources and fundraising capabilities you will find a solution for this small piece of the project. We look forward to its success.
That response would cost the city a sheet of paper and a stamp.

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