In 1989, sales tax bailed out high property tax increase

A 21 percent increase in city property tax rates?

Pshaw!

That would not come close to being the largest one-year increase in the city of Grand Island's property tax rate.

That dubious record was set during the 1989-90 budget year, when the property tax rate rose from about 52 cents per $100 of valuation to almost 71 cents per $100.

That represented a one-year increase of 35.9 percent.

Word of a possible 48 percent tax rate increase leaked in the June 11, 1989, issue of The Independent when former Grand Island City Councilman Mike O'Neill told the newspaper he had heard city officials talk about an increase of that magnitude.

O'Neill's remarks were repudiated -- but only partially -- by then City Administrator Dave Weitzel.

"It will be under 45 percent," Weitzel promised in that same June 11 article. "It will be under 40 percent."

But Weitzel adamantly refused to disclose just how large he thought the property tax rate increase would be. That was revealed on June 19 when the city budget was unveiled and a 34 percent increase was officially proposed.

The initial draft of that budget also called for a 1.5 percent city sales tax to help provide long-term property tax relief.

By the time the final budget was approved, the actual property tax increase was 35.9 percent, which translated into a hike of about $187 on a $100,000 home.

Despite that 36 percent property tax increase, city officials described the proposed 1989-90 spending plan as a "no-fat" budget that was barely maintaining existing city services.

Weitzel warned that the city had no fallback plans for buying city police cars or other crucial equipment if voters did not approve a city sales tax in the November special election.

He maintained that items would be cut from the budget if Grand Island's voters did not approve a sales tax to take effect part-way through the fiscal year as a supplement to the 36 percent property tax hike.

In dollar terms, the 71-cent levy brought an additional $1.55 million into city property tax coffers. The city collected a total of $5.82 million in property taxes that year.

Grand Island voters heeded city officials' calls to add a city sales tax on top of the huge property tax increase. On Nov. 7, 1989, they approved a 1 percent city sales tax by a healthy 60 percent to 40 percent margin.

It was a remarkable turnaround from nine years earlier, when a proposed 1 percent sales tax was buried, with nearly 75 percent of the people casting votes against the idea.

In both 1989 and 1980, Grand Island's elected officials had promoted the 1 percent sales tax as a way to lower city property taxes.

The 1980 promises fell on deaf citizen ears.

Even though then-Mayor Bob Kriz was known as a tax-cutter, citizens were reluctant to use a sales tax in an attempt to lower property taxes.

The day after the 1989 election, elected city officials said they would live up to their promises to use the city sales tax responsibly and slice property taxes the following fiscal year.

"I believe that it (the 1 percent sales tax) passed because the people believed it was going to provide them with property tax relief," said Joni Kuzma, who was then a city councilwoman.

Notes of caution also were sounded.

Then-City Councilman Jim Greer said he was glad the city sales tax was approved by voters, but he warned that many Grand Island residents would be waiting to see if their faith and trust were rewarded with a property tax reduction.

Indeed, Grand Island citizens' love for a city sales tax only went so far.

Earlier in the year, city council members decided to use only a 1 percent city sales tax as a tool for lowering property taxes, not the 1.5 percent sales tax originally proposed.

Instead, council members put a separate half percent city sales tax on the November ballot, with that money to be dedicated to building a civic arena.

By a 55 percent to 45 percent margin, Grand Island voters rejected both the issuance of $9 million in bonds to pay for a civic arena and the proposed half percent sales tax to retire that debt within the span of 10 years.

Thanks to the approval of the 1 percent city sales tax, the city's property tax rate did decrease for the 1990-91 budget year, dropping to 53.4 cents per $100 of value -- a 24.5 percent descent.

During the 1990-91 fiscal year, total property taxes collected by the city declined from $5.82 million to $4.53 million, a dip of more than 24 percent.

In the run-up to the November 1989 special election, city officials cited dwindling city cash reserves as one reason a city sales tax was needed.

At a May 1989 city council retreat, Weitzel set the stage for the rest of that year's debate. The city administrator told the mayor and council members that the city suffered from a shrinking pool of cash.

He said the elected officials needed to decide if they wanted to build those reserves back up to 10 percent or 15 percent as part of prudent budgeting.

Weitzel looked to the past to explain that predicament, contending the city's cash reserves had been drawn down by previous administrations to help hold down city property taxes.

Cutting property tax rates was a trend started by Kriz, who was elected Grand Island's mayor in 1978, the same year California voters approved Proposition 13 to lower and stabilize that state's property tax rates.

Property tax reductions were the rage all across the country.

In keeping with the tenor of the times, Kriz worked hard to lower Grand Island's property tax rate, although the reductions were relatively small because there were no other sources of revenue to replace property taxes.

Kriz's successors as mayor engaged in the same efforts to cut city property tax rates -- for a while.

The city's lowest property tax rate during that era -- prior to the creation of the city sales tax -- was achieved during the 1984-85 budget year, when the rate was 47.13 cents per $100 of valuation.

After that, tax rates began gradually climbing again.

When Kriz became mayor in 1978, Nebraska's property tax system constituted a wholly different universe. All units of local government used a "mill levy" system to collect property taxes.

In 1979-80, the first Kriz budget had a mill levy of 15.88, the equivalent of 55.88 cents per $100 of valuation today. That would have resulted in property taxes of $558.80 on a $100,000 home.

Today, city-only property taxes on a $100,000 home are $238.32, generated by a much lower tax rate of 23.83 cents. By looking at the tax rate only, it appears the city sales tax has indeed lowered the property tax burden.

But when asked, Hall County Assessor Jan Pelland told The Independent that a person who lived for 30 years in the $100,000 home of 1979 might be living in a house valued at $300,000 to $400,000 or even more today.

In such a case, that person's city-only property taxes might be in the range of $715 to $953, not a lowly $238.

That leads to questions about how much property tax relief has been achieved, even if city property tax rates have been lowered substantially.

And the city sales tax has never ever been used exclusively for property tax relief.

Despite all the concern over property tax relief in the 1989-90 budget, attention turned within a few short years to using the 1 percent sales tax to finance new initiatives, especially capital improvements.

Two of the first big capital projects were the new City Hall and Island Oasis Water Park.

Paying debt from long-ago capital improvements also consumed a good chunk of the new city sales tax. Debts included a 1972 storm sewer bond, a 1972 municipal building bond, a 1975 parking lot bond, a 1988 parking ramp bond and various purpose bonds from several years.

Paying off those debts prevented the city from lowering the city-only property tax rate even further after voters approved the 1 percent city sales tax.

Some council members thought they were not being aggressive enough in lowering the city-only property tax rate for the 1990-91 fiscal year.

Then-City Treasurer Bob Hain begged to differ.

"People are spending today for yesterday's capital needs," Hain said, explaining proposed sales tax spending at the meeting when council members were being asked to approve the 1990-91 budget.

The budget did win approval that night but only after several council members questioned why city property taxes couldn't be lowered even further than the rate of 53.40 cents per $100 of value.



HISTORIC NUMBERS

Mayor Bob Kriz was elected in November 1978 and served halfway through his second term of office. His first budget was for fiscal year 1979-80. During his years in office, Kriz worked to lower property taxes.

Kriz was succeeded by Bill Wright, and Wright was succeeded by Chuck Baasch, elected mayor in 1986.

After falling for a while after Kriz left office, property tax rates began creeping back up, with the biggest one-year increase of 35.9 percent when Baasch was mayor.

Grand Island voters approved a 1 percent city sales tax in the November 1989 special election.

Following is a history of property tax rates leading up to the introduction of the 1 percent city sales tax, plus the year after the sales tax went into effect.



Year    Tax Rate    Mayor    Administrator

1979-80     55.58    Bob Kriz    Dwight Johnson

1980-81    52.72    Bob Kriz    Dwight Johnson

1981-82    50.77    Bob Kriz    Dwight Johnson

1982-83     49.34    Bob Kriz    Dwight Johnson

1983-84     47.15    Bob Kriz    Dwight Johnson

1984-85     47.13    Bill Wright    Dwight Johnson

1985-86     50.88    Bill Wright    Dwight Johnson

1986-87    50.55    Bill Wright    Dwight Johnson

1987-88    50.90    Chuck Baasch    Dave Weitzel

1988-89    52.03    Chuck Baasch    Dave Weitzel

1989-90     70.74    Chuck Baasch    Dave Weitzel

1990-91    53.40    Chuck Baasch    Dave Weitzel