State audit finds millions in dollars of mistaken payments by Douglas County treasurer

Editor’s note: This report was updated at midday Tuesday to include additional comment from the county treasurer and others.

Douglas County Treasurer John Ewing said Tuesday that he will be meeting later in the day with school districts and other taxing entities in the county to begin sorting out how to reconcile decades of mistaken tax distributions involving millions of dollars.

On Monday, a state audit revealed that the Douglas County Treasurer’s Office had wrongly calculated the amount of tax revenue due to several local taxing entities, overpaying the Omaha Public Schools by nearly $6 million last year but underpaying the Elkhorn School District by $4 million.

Douglas County and the City of Omaha were also among those losing out on millions in tax revenue, according to the audit, released Monday.

City got $5 million less

Officials with the Omaha Public Schools and City of Omaha told the Examiner Tuesday that they will work with Douglas County to sort out the mistaken distributions.

Stephen Curtis, the city budget director, said that the city got about $5 million less this year than in 2021 from the in-lieu of tax payments but is managing it with a small budget surplus maintained by the city.

Ewing said the Treasurer’s Office had been using the wrong calculation for the tax distributions for 61 years. He said the Douglas County Board will also be involved in sorting out how to reconcile the under- and overpayments.

“We didn’t understand the state statute as clearly as we should have,” Ewing told reporters Tuesday. 

The mistakes involved the distribution of about $26 million a year in in-lieu-of-tax payments made by the Omaha Public Power District. A year ago, the distribution mistake was uncovered by the State Auditor at the Sarpy County Treasurer’s Office.

Ewing said a review in Douglas County was launched following the audit in Sarpy County.

Same problem in Sarpy County

In Sarpy County, Treasurer Brian Zuger was fired by the county board in the wake of the mistaken payments there, and several school districts have taken the Sarpy County office to court, seeking repayment of the in-lieu-of-taxes funds owed to them. Millard Public Schools maintains it was underpaid by $2.4 million by Sarpy County, and the Omaha Public Schools says it is owed $1.4 million.

Ewing said that his office in 2019 had reviewed how the in-lieu of tax revenue was distributed, a review that included some consultation with the State Auditor’s Office, but had not changed its policies until this year.

“We are not happy that we just discovered this,” Ewing said Tuesday, adding that his office had no reason, until now, to believe it was distributing the tax revenue incorrectly.

He emphasized that it wasn’t a case of money being “misappropriated,” but one of a  mistaken interpretation of the state statute.

Ewing said Monday that it will likely be up to the various taxing entities to get together and decide how to reconcile the under- and overpayments over the past several years. He said he doesn’t expect a lawsuit, such as the one filed in Sarpy County.

‘Everyone makes mistakes

“Everyone makes mistakes,” he said, adding. “It’s a mistake versus a knowing, wrong distribution.”

The office’s official response to the audit was that the mistaken payments were “a good-faith mistake.”

Ewing said that Douglas County, and Sarpy County, are the only two counties in Nebraska that distribute the in-lieu of tax payments to multiple school districts in the same city.

Process corrected

The Treasurer’s Office said that it had begun reviewing its practices prior to the auditor’s review and that its calculation method had been corrected for 2022 payments of the OPPD tax.

Instead of paying property taxes, the Omaha Public Power District pays “in-lieu-of” tax payments based on 5% of its annual revenue from electric sales. Last year, that amounted to $26 million, which was then distributed to the county, cities and school districts in the county.

 The money, according to the state audit, is supposed to be distributed to the various school districts in Douglas County based on the tax levies of each individual district.

Instead of doing that, the Douglas County treasurer had utilized the tax levy of the Omaha Public Schools and distributed the funds based on the student enrollment at each of the districts. That was the same mistaken formula used in Sarpy County, according to the State Auditors Office.

Overpayments/underpayments

The amount of overpayments identified in the audit:

• $5.6 million to the Omaha Public Schools.
• $4.4 million to the City of Omaha.
• $2.7 million to Douglas County.

The amount of underpayments were:

• $4.2 million to Elkhorn Public Schools.
• $4 million to Ralston Public Schools.
• $3.7 million to Westside Community Schools.
• $818,000 to Millard Public Schools.

Also on Monday, the State Auditor’s Office released a review of the practices of the Sarpy County Treasurer’s Office from July 1, 2021, to the end of 2021, which would be after the county treasurer had been replaced.

Deputy State Auditor Craig Kubicek said procedures at the Sarpy County Treasurer’s Office had improved considerably since the critical 2021 audit by his office.