Every time you sit down for a whiskey steak at The Drover or snag an ice cream cone at Ted & Wally’s, you’re contributing a small sum to a once-controversial stream of revenue for Omaha’s government.
The restaurant tax, a 2.5% levy on food and drink prepared at eateries, bars and catering businesses, came on the books during a recession-induced budget crunch.
The tax quickly helped stabilize the city’s finances. It also rankled restaurateurs and sparked an effort to oust the mayor who championed it. For most Omahans, the hot issue cooled over time, fading into an unnoticed line at the bottom of receipts.
Where did the tax come from?
The tax on dining out is often associated with former Mayor Jim Suttle, but he wasn’t the first Omaha officeholder to back the idea.
In 2007, Mayor Mike Fahey floated a 2% entertainment tax on restaurant meals and movie tickets to help pay for a new downtown baseball stadium. Amid industry backlash, Fahey abandoned the plan and instead supported a hotel tax increase.
Suttle, a fellow Democrat, revived the concept shortly after becoming mayor in 2009. With the city facing a projected $11 million shortfall brought on by the Great Recession, he presented the entertainment tax as one of the few options for fending off imminent library and swimming pool closures.
“When I was elected … the city’s finances were going in the toilet faster than a speeding bullet,” Suttle recently told the Flatwater Free Press.
In the messy budget fight that ensued, then-Councilwoman Jean Stothert emerged as a leading opponent of the proposed tax. A late-game property tax hike muffled the debate, but only for a year.
A shortfall in the police and firefighter pension fund hung over city finances, and Suttle insisted a new source of revenue would be needed to fill the gap. The City Council approved the 2.5% restaurant tax along with other tax increases in 2010 over Stothert’s protests.
How did the tax impact city politics and finances?
When the tax passed, restaurant lobbyists predicted it would deter diners and drive some struggling establishments out of business. One western Iowan who commuted to Omaha for work told reporters she would “never shop or eat in Omaha again.”
La Casa Pizzaria co-owner Nicole Jesse anchored a group of restaurateurs that unsuccessfully sued the city over the tax, arguing it unfairly targeted their industry.
“We felt like we were treated as expendable,” Jesse told Flatwater.
A coalition of Republicans, landlords and angry restaurant owners, including Jesse, mounted an effort to recall Suttle, citing “excessive taxes (and) broken promises.”
Looking back, Suttle said the recall campaign’s howling about the restaurant tax was “a smokescreen” by political enemies who wanted him out for other reasons.
“I always said it was a non-issue — 25 cents on $10 is just an eye blink,” Suttle said.
Omahans opted to keep Suttle by a narrow 2,300-vote margin in the 2011 recall election, but the incumbent’s close call signaled vulnerability. Stothert and five other candidates jumped into the 2013 mayoral primary.
Suttle drew heavy criticism for the restaurant tax but defended the levy as the city’s savior from bankruptcy. In its first full year, the tax generated $23.8 million in city revenue, far exceeding forecasts and quashing fears that it would depress the local restaurant industry.
Stothert campaigned on eliminating the restaurant tax, but the Republican acknowledged it would be difficult to do right away.
“To repeal it, we will have to replace that $25 million with something else. With smarter budgets, decreasing spending and the city running more efficiently, we can accomplish this,” Stothert said in an Omaha World-Herald candidate survey.
Stothert beat Suttle after the two emerged from the primary and served as mayor for 12 years. The restaurant tax stayed on the books and featured in every budget she proposed.
The biggest change to the tax during Stothert’s tenure came in 2016 when she supported expanding it to food trucks.
Stothert told Flatwater it would’ve been “financially irresponsible to ask the Council to repeal it,” noting that cutting tens of millions of dollars from the budget would hinder the police and fire departments.
Slashing property tax levies, she said, was more beneficial than nixing the restaurant tax, which didn’t end up hurting restaurant owners as she had initially feared.
“Property owners must pay property taxes. If (people) don’t want to pay the 2.5% restaurant tax, they have the option to not eat in Omaha restaurants,” Stothert said in a text message.
Mayor John Ewing, a Democrat who defeated Stothert this year, included the restaurant tax in his first budget proposal. He told Flatwater the tax was needed when it was proposed and has since helped ward off increases to property tax rates.
“To take the restaurant tax out now would create a hole that would most likely have to be filled by an increase in property tax,” Ewing said in an emailed statement.
Jesse still feels the tax was “an injustice done to our industry,” but she has accepted that it’s here to stay. Omahans moved on, she said, and have bigger problems to worry about today.
Suttle said the fact that tax is still around and generating little attention feels like vindication of a good idea.
“It’ll never be taken out of the budget,” Suttle said. “The city cannot exist without … strong revenue mathematics, and that’s what we have. The restaurant tax closed the deal.”
