Leaders from Omaha, Lincoln, York and other cities urged the Legislature's Revenue Committee to advance a measure that would give them the option to raise rates to as high as 2 percent.

Supporters said it would allow cities to offset property taxes and collect revenue from out-of-town residents who benefit from city roads, businesses and other amenities.

Current state law caps the city sales tax rate at 1.5 percent.

Under the bill, at least some of the revenue collected beyond the 1.5 percent would have to go toward partnership projects with a county or school district.

Omaha Sen. Brad Ashford, who declared the measure his priority bill for the session, said the mandatory vote requires cities to win public backing for property tax relief, construction or other projects.

Ashford said his bill seeks to address a statewide problem of cities needing the revenue, but also encourages partnerships with counties and school districts.

The measure seeks to revive an issue that advanced through a first-round vote last year but fell short of a veto-proof majority.

Republican Gov. Dave Heineman has said he would veto a bill that could lead to tax increases, and called on cities to trim their budgets.

Unlike the previous measure, Ashford's new bill would impose a 10-year sunset for any tax increases beyond the 1.5 percent, unless the revenue is used to repay bonds for a specific project. At least some of the revenue would have to go toward long-term development projects, in partnership with a county or school district.

Lynn Rex, executive director of the League of Nebraska Municipalities, said 86 of the 194 cities with sales taxes have reached the 1.5 percent maximum. Nebraska has 530 cities.

Rex acknowledged that the bill might not help small cities in rural areas that are far from larger metropolitan areas. But "it really does assist those cities that are in a position to be economic drivers for this state," she said.

Omaha Mayor Jim Suttle's chief of staff, Steve Oltmans, said his city is still struggling with $22 million in expenses from last year's Missouri River flooding.

Lincoln Mayor Chris Beutler pointed to cuts that his city has made in library hours, senior center services, and a retirement match for municipal employees. But he said cuts to state aid last year have created pressure to raise property taxes, which hit homeowners but not people who live outside the city's borders.

"From my perspective, as a person running local government, I'd like to have the most flexibility to let the community decide the fairest combination," he said.

Lincoln is also scheduled to lose $1.5 million in federal funding this year for its popular Community Learning Centers.

Beutler said the city is looking at a funding partnership with the schools to keep the centers afloat. Increasing Lincoln's sales tax to 2 percent, up from its current 1.5 percent limit, would generate an estimated $19 million for the city.

York Mayor Chuck Harris said the taxing authority would allow the city to retire about $8.5 million in water revenue bonds, which could stabilize the water fees that users now pay.

Marlene Johnson, the mayor of West Point in northeast Nebraska, said her town of 3,400 has reached its levy limit and would have a hard time raising property taxes. She said the city adopted a 1 percent sales tax a few years ago, but is still working with a "skeleton crew" in which every city employee is trained to work in at least two departments.

"I don't know at this point in time if the city would ever go after a half-cent sales tax," she said. "But thought is, if it is there, and we're in desperate times, it would be a nice thing to present to voters."

The bill is LB956.

(Copyright 2012 by The Associated Press. All Rights Reserved.)