The Omaha City Council is currently pushing for the passage of a new ordinance that would add an occupation tax of 35 cents per pack of cigarettes purchased within the city of Omaha, Nebraska: this increase will be in addition to the 64 cents in state taxes. The annual revenue generated from this proposed ordinance is estimated at $35 million over ten years, and will go towards funding the construction of the University of Nebraska Medical Center and Nebraska Medical Center campus.
The total cost of the project is estimated at $370 million. The state of Nebraska has already agreed to provide $50 million towards the project, and Douglas County has also agreed to contribute a total of $5 million. Nebraska University President J.B. Milliken has gone on record stating “… we expect that the cancer center will be supported by some $200 million in private funds, plus $120 million in debt assumed by The Nebraska Medical Center.” With roughly $200 million in private funds supposedly earmarked for the project, Omaha City Council’s sudden insistence on new taxes certainly doesn’t jive with the legislature’s original intent.
The increase of cigarette taxes in Omaha will only further hurt retail owners in the city: consumers will look to avoid paying the additional tax increase by going outside the city for their cigarette purchases. We know this will happen considering retail owners in the state of Illinois are currently facing the same problem with the recent $1 cigarette tax increase:
William Adams, owner of Metro Speedy Mart in Metropolis, predicted the hit he would take when Illinois raised its tobacco tax… "I'd say roughly $11,000 or $12,000 a month in loss of sales…totally lost." Kim Overby is also making changes to her business plan. She’s the president of Cigarettes for Less in Paducah (Kentucky). "We've done advertising in Illinois, billboards, that kind of thing. We're looking for those opportunities again," she said. That's because about 80% of her business already comes from Illinois and because the taxes are lower in Kentucky she's hoping to capitalize even more.
Cigarette consumers in Illinois are more than willing to cross state lines to avoid higher taxes; Omaha should expect its smokers to act in similar fashion by taking a short drive to a neighboring city. The upshot, of course, is that revenues will likely fall short of the $35 million projection, leaving a hole in funding for the UNMC cancer center. This is consistent with what we have seen with targeted excise taxes in other states: Between 2003 and 2007, 57 state cigarette tax hikes went into effect. Only 16 of them met their initial revenue targets. In fact, New Jersey and Washington, D.C. recently saw a net revenue decline after a tax increase. Omaha should be wary of such an unstable source of revenue.
Fortunately for residents of Omaha, the cigarette tax increase has not gone into effect yet. A public hearing is being held on Tuesday September 25, 2012. Make sure your voice is heard and the 5 councilmen in favor of this new ordinance do not ignore your views on the matter.
To contact your councilman, click here for their respective information.