Sewer Rates: One Example of Challenges to Taxpayer Savings

Most elected officials campaign on saving taxpayers money. But after the election, they’re still in a race against many factors outside their control. For example, the Nebraska Legislature could decide to spend more money on the property tax credit relief fund in hopes of reducing tax bills. 


If property valuations or local tax increases rise faster than their funding, though, state senators may not get much thanks for their efforts.

A proposed 5.25 percent annual increase in the city of Omaha’s sewer rates over the next five years will also provide competition for these policymakers. It’s one more monthly bill that will be going up faster than incomes for most.

There’s a whole different discussion about federal requirements for the sewer system mandating the increases, but let’s talk about what it means for taxes.

My recent Metropolitan Utilities District bill for water, gas, and sewer was $155.40. The costliest part on the bill was the sewer rate at $69.52.

Now, sewer is an incredibly under-appreciated service that costs money to maintain, and I’m happy to have it. But if my monthly sewer rate increases to roughly $73 next year and up to about $89 by 2023, the sewer rate is only one increase I will see.

As Jim Vokal noted in the Omaha World-Herald earlier this year, utility bills in Nebraska are subject to state and local sales taxes, which are currently 7 percent for these purchases in Omaha.

On last month’s bill, I paid $10.17 in sales tax. Roughly $7.99 of it went to the Nebraska Legislature and $2.18 went to City Hall in Omaha.

To keep it simple, a 5.25 percent annual increase in the sewer rate on the same bill will mean I will pay an extra $16.80 a year in state and local sales tax by 2023, in addition to an extra $243 in sewer rates each year.

Clearly, neither the state nor the city will become wealthy from the increase in the tax bill, and the sewer rate increase is still many times larger.
 
But what it does mean is that tax policy changes that don’t take these factors into account could just be another disappointment for taxpayers.

If, for instance, the total state and local sales tax on a utility bill were increased to 8 percent along with the sewer rate increase, in 2023 I would be paying almost $37 more in sales tax a year on this bill.

Even if that tax rate increase was matched with a $100 increase to my property tax credit, I would already know that at least a third of that amount will be eaten up by just the extra taxes on one of my monthly bills, not including electricity, cell phones, household purchases, inflation, and more.  

These moving targets mean that policymakers have to look for reforms that are more significant than just using tax policy to move around money from one pocket to another. To really be worth it, senators need to be able to show how tax changes will help to make Nebraskans more economically resilient, even when difficult changes occur outside their control.

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