By Deena Winter | Nebraska Watchdog
Updated 10 a.m. Friday
LINCOLN — Despite Nebraska’s general disdain for big government and taxes, the state sure has a lot of both.
Nebraska ranks 14th in the nation for number of local governments, according to the U.S. Census Bureau, with 2,659 governments ranging from cities to counties to villages.
“We do have too much government,” said Doug Kagan of Nebraska Taxpayers for Freedom. “There are counties in Nebraska where there’s more livestock than people.”
Nearly half of the local governments in Nebraska are “special district governments” with the power to tax with much less scrutiny and accountability than traditional governmental entities. They do everything from run airports to build cemeteries to organize county fairs to fight rural fires.
The number of special districts in Nebraska has nearly tripled since 1952. In the early to mid 1960s, more than 200 special districts were created in Nebraska. By 1992, Nebraska was one of just nine states with more than 1,000 special districts. As of last year, only seven states had more special districts than Nebraska – despite the state’s small population.
A good chunk of those special districts are sanitary and improvement districts, created to finance infrastructure in new developments. The vast majority of Nebraska’s SIDs are in Douglas and Sarpy counties. Of 843 SIDs created in Nebraska, about 550 have been annexed by Omaha or other cities. There are now about 300 SIDs in Douglas and Sarpy counties, according to Douglas County Treasurer’s office.
Developers use SIDs to bring infrastructure to new housing or business developments. The SID has the authority to borrow money for streets, sewers, streetlights and parks and repay it with property taxes charged to homeowners. SIDs fall into the category of municipal government, and so many of them have gone bankrupt in Nebraska that Bloomberg christened Nebraska “King of Municipal Collapse” last year.
Bill Lock, research analyst for the Legislature’s Revenue Committee, said about one-fourth of the residential value in Douglas County and 47 percent in Sarpy County is in an SID.
“I was startled by how much value was in SIDs,” Lock said.
And the property tax rates in those SIDs are much higher than in most cities – about 25 percent to 35 percent higher, according to Lock.
Property taxes are higher in SIDs because the cost of infrastructure is borne by such a small tax base, rather than spreading it out to a large tax base, like Omaha’s. Cities assume the debt of an SID upon annexation, so Omaha doesn’t usually annex SIDs until their debt is low or paid off.
Lock recently told lawmakers on a Tax Modernization Committee working to update the state tax code that if they want to provide property tax relief, they should take a look at SIDs. He thinks the prevalence of SIDs in Sarpy and Douglas counties could be contributing to the number of complaints lawmakers get about high property taxes, given they are the first- and third-largest counties in terms of residential value.
While the average total property tax rate in Nebraska cities is about $2.05 per $100 of value, SIDs weigh in at $2.75 to $3, Lock said. Douglas County SID No. 479, for example, levies a whopping $1.40 per $100 of valuation, compared to 50 cents that the city of Omaha charges, for example.
Douglas County SID No. 425 has $94 million worth of residential value, and charges $1.05 per $100 in value.
“Turning a cornfield into a residential subdivision costs money,” Lock said.
If lawmakers increase state aid to schools to offset high property taxes, people living in SIDs aren’t helped as much.
“There’s always going to be a higher property tax burden in Douglas and Sarpy counties,” Lock said.
Even if state aid to schools is increased, it doesn’t have as big an effect on a person in an SID paying 80 cents more than city dwellers, he said. Some states have adopted so-called “circuit-breaker policies” where if the property taxes as a percentage of household income exceed a certain threshold — usually 4 percent to 5 percent — the excess is credited against the property owner’s income tax liability.
This circuit-breaker idea is included on the Tax Modernization Committee’s recently released list of options being considered for reform.
“There’s a whole class of people in Douglas and Sarpy counties who pay a much higher tax rate on their income,” Lock said. “This targeted approach might take some of the heat off politicians.”
By contrast, the city of Lincoln doesn’t use SIDs; developers must ask to be annexed if they want to get city services. The city charges developers impact fees to help cover the cost of major infrastructure to subdivisions, such as arterial streets and major water and sewer lines. Lincoln Planning Director Marvin Krout says that promotes orderly, contiguous growth and discourages sprawl.
And he doesn’t think the state should offer tax relief to people who choose to live in SIDs.
“That’s a market choice, not a cause for taxpayers in the rest of the state to subsidize those subsidize developers, builders, and homeowners in SIDs,” Krout said.
Brian Doyle, an Omaha attorney who represents SIDs, said every residential and commercial subdivision west of 90th Street in Omaha was developed with an SID, which he calls “an incredibly beneficial tool to allow Omaha and surrounding jurisdictions to grow in an orderly fashion … but without the city taking on a high level of risk.”
Omaha Sen. Pete Pirsch lives in an SID nearly surrounded by the city of Omaha. The Nelson’s Creek SID has been around since the 1980s, Pirsch said, but it hasn’t been annexed by the city, likely because it’s still paying off debt. The SID is policed by the county sheriff and each homeowner hires their own garbage hauler.
“It is local government at its purest,” he said. “If anybody’s got a beef with the government, it’s your neighbor.”
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