Nebraska lawmakers open debate on property tax relief package, defeat amendment on aid to renters

LINCOLN — State lawmakers opened debate Friday on a package of bills that proposes to deliver millions of dollars in additional tax credits to blunt the sting of Nebraska’s traditionally high property taxes.

The Nebraska Legislature adjourned for the weekend without advancing Legislative Bill 243 but appear poised to do that on Monday.

The much-amended bill is a companion to two other measures being pushed by new Gov. Jim Pillen to cut income and property taxes and to increase state aid to K-12 schools.

The Pillen administration bills it as the largest package of tax cuts in state history — adding up to $3 billion over six years. It has been made possible by the state’s ample cash reserves and a rosy financial picture that advocates say frees up plenty of funds to make tax cuts affordable.

The trio of bills has a little something for everyone; for farmers, some property tax relief; for the business community, a long-sought cut in income taxes; and for schools, a big boost in funding for special education expenses. But it does face some questions about financial sustainability.

State Sen. Tom Briese of Albion, whose Legislative Bill 243 is being used as the vehicle for the property tax proposals, said that Nebraska now ranks among the highest 10 states nationally in property taxes and that the bill will address the constant complaints lawmakers hear about that.

More credits against property taxes

It would gradually increase the amount of state property tax credits given to landowners on their yearly property tax statements from the current $315 million to $580 million by tax year 2029.

And it would remove a 5% limit on increases in an income tax credit for property taxes paid, allowing those credits to rise higher when statewide property valuations increase by more than 5%, as they are now.

It would also remove funding of the state’s six community colleges via property taxes,and shift that burden onto state sales and income taxes.

‘A very big deal’

“That is a very big deal,” said Elkhorn Sen. Lou Ann Linehan, because it is a fundamental change in tax policy, and not just more credits.

Briese said that the bill’s 3% cap on “total revenue” spending growth by K-12 school districts was a “less onerous” proposal than in past bills. He said it allows school boards and voters to override the cap, if they wish, and provides allowances for fast-growing school districts such as Bennington and Elkhorn to increase spending higher than 3% if student enrollment rises.

“We’re not going to choke off public education by this cap,” Briese said.

But critics of the bill decried that the 3% cap reduced local control by taking away the spending discretion of elected school boards. And there were questions about whether state aid increases proposed by Pillen were sustainable and whether the caps would eventually create a funding “gap” for districts that are seeing increases in property valuations.

New state aid mostly to rural districts

The Omaha Public Schools remains opposed to the bill, while the Lincoln school district is “neutral.”

Shane Rhian, the chief financial officer for OPS, also said the governor’s package doesn’t deliver the same amount of property taxes to Omaha as it does to rural school districts.

Pillen’s plan would create a $1 billion “Education Future Fund” to provide a $1,500-per-student boost in aid to mostly rural school that don’t currently get state “equalization” aid. That new aid would bypass OPS, though the district would get more money for special education.

The Lincoln-based OpenSky Policy Institute has also raised questions about whether the entire property tax package, which would provide about $1.9 billion in tax credits over the next two years, could eventually choke off funding for local schools.

“The package puts growth in property tax breaks that the state must pay for on autopilot, while at the same time placing a revenue cap on what local school districts can spend to teach our kids,” said OpenSky in a policy brief on Thursday.

One amendment approved, another rejected

Senators approved one amendment to LB 243 on Friday, while rejecting another.

On a 30-13 vote, lawmakers voted down a proposal from Omaha Sen. Megan Hunt to provide income tax credits, ranging from $200 a year to up to $1,000, to renters. More credits, under her proposal, would go to the lowest income households.

“Property tax relief never trickles down to renters,” argued Hunt, who said renters deserve some aid in affording skyrocketing bills for housing.

She said the monthly rental bill on her Benson-area home rose by $250 a month and that nationally, average rents have increased by about $200 a month.

Lawmakers did approve an amendment from Bayard Sen. Steve Erdman to add a fourth member to the state Tax Equalization and Review Commission, a tax court that hears appeals of property valuations.

Erdman said some taxpayers have to wait up to two years to be heard by TERC, a problem that has grown since the commission was trimmed from four members to three in 2011.

Debate on LB 243 is scheduled to resume Monday. After an eight-hour filibuster, senators are expected to turn to debating the school funding bill.