Buying Cigarettes
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City says proposed cigarette tax will need to shrink

The scope of a proposed Omaha occupation tax on cigarettes will shrink dramatically, though the lower tax rate would still fund a $35 million city contribution to a University of Nebraska Medical Center construction project.

Instead of imposing a 7 percent local tax on gross sales of cigarettes, the City Council will instead consider a 4.5 percent rate to help pay for a proposed $370 million cancer research and treatment center.

The 4.5 percent tax would generate roughly $5 million off the sale of cigarettes and other tobacco products this year - and a total of $40.7 million by 2021, according to a revenue forecast compiled by the city's Finance Department.

City Finance Director Pam Spaccarotella said the council's finance committee agreed to lower the proposed tax rate Tuesday after seeing revenue models that used updated state cigarette sales data.

The sudden adjustment to the tobacco tax proposal came as NU Medical Center officials and public health advocates squared off against business owners, industry groups and lobbyists during a lengthy public debate on the proposal.

Funding the project with new taxes on tobacco sales still appears to have the necessary votes for approval. Council President Thomas Mulligan dismissed calls to find money for the project within a tight city budget.

"To insinuate or believe that we left $3.5 million on the table that can be used annually to help fund the University of Nebraska Medical Center, to me, is not even a realistic question," said Mulligan, who is one sponsor of the proposal.

But the concept of using a tobacco tax to help pay for the cancer center was rebuked by a steady stream of opponents who testified in front of the council.

Many who spoke against the proposal said they support the idea of the cancer center, but some opponents said imposing a cigarette tax to pay for it could harm local businesses if smokers flee the city to purchase cheaper tobacco.

Others said the revenue should be pulled from the existing city budget, or that the city could hardly afford to make such a large investment in an economic development project.

"You will legislate me out of business," said Bob Wagner, owner of a Tobacco Outlet store near the intersection of 76th and Cass Streets. "The minute (the tax) goes into effect, I will arguably have to let go of two employees, and then I will have to get on my knees and pray that I don't go out of business."

University officials, during part of their testimony, said the cancer center project could stall without city funding.

"We are in a fragile phase of fundraising right now," said Bob Bartee, UNMC vice chancellor for external affairs. "There is only a limited capacity for the private donors in this community.

"This would put a damper on fundraising if there's a sense that the City of Omaha is not going to make a commitment."

Spaccarotella said initial plans to tax tobacco sales at 7 percent relied on incomplete data from the Nebraska Department of Revenue website. That tax rate originally was expected to generate less than $6 million and also avoid a public vote under state law.

The city's updated 4.5 percent cigarette tax revenue model is based on an average per-pack price of $5.10 - a figure that includes wholesale state taxes of 64 cents per 20-cigarette pack and $1 in federal taxes.

The model assumes that sales of cigarettes and other tobacco products will continue a downward trend and that the city would collect 100 percent of all tobacco occupation taxes levied on local retailers. It doesn't account for the potential that local tobacco users might leave the city limits to get their fix for a few pennies less.

With those factors in mind, the model predicts the city would generate $40.7 million during the 10-year period the tax is intended to exist.

Spaccarotella said local retailers will share a fraction of the annual revenue generated by the tax to offset the cost of its collection. Extra cash would also help pay costs the city would incur to collect and audit the new tax collection, she said.

Councilwoman Jean Stothert said she favors building the cancer center.

"My issue and the issue with the opponents is how it should be funded, and if imposing a new tax on some Omahans is the way to do it," Stothert said.

Councilman Chris Jerram, a sponsor of the cigarette tax proposal, said he understood the opposition.

"But as I see it, you can say and talk until you're blue in the face about supporting the project, but you don't support the project with a pat on the back and well wishes," he said.

"Make no mistake, this is an investment in jobs. This is an investment in our community."

Published: Tuesday, September 25, 2012

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