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In-lieu-of-taxes’ mixup causing budget angst at Douglas County

Officials wrestle with less tax revenue as Douglas County entities try to work out under- and overpayments
Money
Posted at 12:21 PM, Jun 11, 2022
and last updated 2022-06-11 13:21:07-04

LINCOLN, Neb. (Nebraska Examiner) — The mistaken distribution of millions of dollars of “in lieu of taxes” by the Douglas County Treasurer’s Office is causing some budget headaches in the state’s largest county.

Douglas County Board members P.J. Morgan and Mike Friend, who serve on the county budget committee, said the county is facing a shortfall of about $5.5 million going into the next year’s budget.

The two officials said the recently uncovered distribution mistake is a major contributor to the budget angst, though rising inflation and the need to increase worker salaries to remain competitive are also factors.

Long-term concerns

Morgan said Friday that he expects the budget gap for the 2023-24 budget to be resolved. But both officials said the county likely faces some budget challenges beyond that due to the loss of in lieu of tax revenue.

“It could have some have long-lasting impact. We’re not really sure yet,” Friend said.

“In the years ahead, we’re probably going to see some things take place,” Morgan said.

Last month, a state audit revealed that the Douglas County Treasurer’s Office, for six decades, had been miscalculating how much funding in lieu of taxes paid by the Omaha Public Power District was due to taxing entities in the county.

OPPD pays about $26 million a year in such taxes, which are then divided among the taxing entities in the county. But the distribution system that had been used, according to the auditor, did not follow state law. It shorted some taxing entities, such as the Elkhorn, Ralston and Westside school districts, by up to $4 million in revenue a year, the auditor said, and overpaid other entities, such as Douglas County, by more than $5 million.

Some were overpaid

The amount of overpayments identified in the audit included $5.6 million to the Omaha Public Schools, $4.4 million to the City of Omaha and $2.7 million to Douglas County. 

Those entities now must do without those funds. Since the revelations, Douglas County Treasurer John Ewing has held regular talks with the entities involved to try to work out a resolution and determine whether any funds need to be redistributed.

In Sarpy County, where similar miscalculations were discovered a year ago, it has spawned a lawsuit by the Omaha and Millard school districts, which are seeking tax revenue they hadn’t been receiving.

Sarpy and Douglas Counties are the only counties in the state being impacted.

A spokesman for the Douglas County Treasurer’s Office said officials may know more in a week or two, but they are not aware of other entities having budget issues. A City of Omaha official has said that reserve funds will be used to handle the shortfall there. The Omaha Public Schools did not respond to a request for comment Friday.

Honest mistake

Ewing has called the mixup an honest mistake and a continuation of a practice that had been used for 61 years.

Friend said it’s hard to tell whether Douglas County might have to return tax revenue that was just recently found to be sent to the county by mistake.

“It’s not Armageddon,” Friend said. “But we need to be prepared for the ramifications.”

He added that if Douglas County has to return some tax funds, it could have implications for the formula used to distribute state aid to schools, which is based on a local district’s tax collections. 

A lawsuit such as the one filed in Sarpy County is possible in Douglas County over the in lieu of tax issue.

Avoiding levy increase

Morgan said the loss of tax revenue due to the recalculation of in lieu of taxes was about $1.8 million for the upcoming budget.

He and Friend said the county has had to increase wages for county corrections officers and nurses to keep pace with salary increases offered by other employers.

Friend said that while residential property valuations have risen 6.2% across the county, inflation has increased by more than 8%.

Morgan said the county’s budget goal is to avoid a hike in the county’s tax rate.

Both officials said Douglas County’s allocation of American Rescue Plan Act funds ($111 million) and CARES Act funds ($166 million) have provided only minor assist because those monies are for pandemic-related expenses and cannot be used for typical budget items.

Nebraska Examiner is part of States Newsroom, a network of news bureaus supported by grants and a coalition of donors as a 501c(3) public charity. Nebraska Examiner maintains editorial independence. Contact Editor Cate Folsom for questions: info@nebraskaexaminer.com. Follow Nebraska Examiner on Facebook and Twitter.

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