Papillion's gain a loss for Big O

Since the opening of Shadow Lake Towne Center in 2007, the open-air mall has given Papillion residents the long-awaited ability to head practically down the street for back-to-school clothes, that new pair of shoes or a dinner out.

Papillion’s gain has been Omaha’s loss.

Those Sarpy County shoppers don’t cross the county line as often to hit Omaha’s malls — nor are they filling the City of Omaha’s coffers with sales tax revenue. The development of Shadow Lake Towne Center and other shopping destinations across Sarpy County and in Council Bluffs has contributed to a gaping hole in the Omaha city budget, say urban planners and public finance experts.

A fundamental shift is under way in the metro area, and it’s cutting into Omaha’s status as the dominant city center.

Despite Omaha’s own strong growth, an increasing share of the metro area’s retail sales, home construction and tax base is falling outside the Omaha city limits. New population figures from the U.S. Census Bureau indicate that, if not for the historic annexation of Elkhorn, Omaha’s share of the two-county population would have declined this decade.

Those new realities help illustrate why Omaha is facing a $5 million shortfall in the current budget and a projected $11 million shortfall next year. City officials have blamed the recession, in part, for cutting into city sales tax revenue.

When the recession eases, people will go back to shopping more often.

But other conditions will not return to what they were before, and the city’s outgoing finance director, Carol Ebdon, said Omaha must address a structural problem with its reliance on sales tax.

To plug the immediate gap, Omaha Mayor Jim Suttle is considering several options: increase taxes by tapping Omaha residents, perhaps through higher property taxes, or by tapping the region through an entertainment tax or a tax on anyone who works in Omaha. City officials may approach the Legislature about longer-term solutions.

Ken Kriz, a University of Nebraska at Omaha associate professor of public finance who studied Omaha’s financial system, said Omaha’s finances have proven highly sensitive to the shift in population and spending habits.

Omaha hadn’t had to face up to the limited finances of other large cities for years, because of its broad ability to expand the city limits, Kriz said. Now, he said, Omaha must take new steps to resolve its situation.

“It’s not going to be easy,” he said.

By many indications, Omaha and the metro area are healthy, even in the midst of the recession. The city posted a gain in the 2008 population estimates.

For years, Omaha was able to gain market share among the broader metro population as well. But the ability to grow through annexation has stalled along with the slump in new housing and commercial development.

At the same time, a greater share of building permits for new single-family homes was going outside Omaha and its extended zoning area, according to statistics from the Metropolitan Area Planning Agency. The housing trends are reflected in a growing share of the property tax base sitting outside Omaha.

Population growth in Sarpy County as well as the Iowa side of the Missouri River also formed enough of a critical mass to attract new retailers, and that has contributed to a drop in Omaha’s share of local retail sales revenue every year since 2000.

If Omaha retailers had the same market share today as in 2000, the city would have collected $3.9 million more in revenue for 2008. Do the same for the current property tax base, and Omaha would be up an additional $14.3 million.

“It’s something we’re going to have to live with and budget for,” urban planning consultant Marty Shukert said of the shopping shift. “We’ve had a nice deal for a while, but we’re not going to continue to gain market share.

Steve Jensen, Omaha’s outgoing city planning director, said he’s not surprised by the population trends.

If Omaha is able to even maintain its population share in the future, that will be an amazing accomplishment considering the declines in other large cities, Jensen said.

He said the trends facing Omaha show a need for the city and its neighbors to cooperate more on growth matters, such as the construction of a proposed Interstate beltway in the metro area.

Jensen said Omaha needs to continue to focus on redeveloping areas such as midtown and Benson and revitalizing north and south Omaha.

While Omaha has major redevelopment efforts under way at Aksarben Village and the Mutual of Omaha area, those projects have not yet produced the shopping options currently available west of 72nd Street, in Sarpy County or across the river in Council Bluffs — the favored destination of many midtown residents.

“There are still a lot of people east of 72nd Street,” said Bob Blair, an associate professor at the University of Nebraska at Omaha and director of its urban studies program. “There’s no place for them to shop.”

Ebdon said the city’s sales tax problems go beyond new suburban shopping and include a growth in online sales and a narrowing of the items subject to sales tax.

She said Suttle is interested in working with the region and the Legislature “on tax reform on a broad scale.” Ebdon, however, didn’t cite any specific new policy ideas.

“We have a more serious long-term issue that needs to be addressed,” she said.

La Vista Mayor Doug Kindig said he wants Omaha “to be strong and growing and attracting new business.”

“I think they’ll come out of this and continue to be the leader,” Kindig said. He also said he believes it is important for cities across the region to work together.

But the Sarpy cities also will be leery if any regional discussions turn beyond cooperation to redirecting local tax revenue toward Omaha. That’s what the Legislature approved for metro school districts — to Sarpy County’s ire — in response to the Omaha Public Schools’ shifting demographics.

“I want Omaha to be strong,” Kindig said, “but not at the expense of my city.”

Kriz, the UNO public finance professor, said Omaha needs to diversify its revenue sources. Among the options he suggested are increasing property taxes or implementing an occupation or income tax on Omaha workers, which Denver and Kansas City, Mo., use.

“Something has to be done to address it,” he said. “Maybe this is the point in time when something can be done.”

Contact the writer:

444-1128, jeff.robb@owh.com