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Senators negotiated over the weekend and until the very last minute but could not reach a consensus on tax relief measures. There were basically 4 proposals before the Legislature dealing with tax relief this session. They were as follows:
LB 947 was the Governor’s proposal to reduce income and property taxes. As amended by Revenue Committee amendments, it created a refundable income tax credit for homeowners, starting at 1% of property taxes paid and increasing to 20% by 2030. A cap was placed on the maximum amount of credit, beginning at $25 and increasing to $500 per year. The refundable income tax credit for agricultural landowners would begin at 2% of property taxes paid and increase to 20% by 2027. No cap was proposed for agricultural landowners. LB 947 reduced the highest corporate income tax rate from 7.81% to 6.84% over a five-year period. The top individual income tax rate reduction was eliminated by the committee amendments. Finally, the committee amendments proposed an appropriation of $5 million annually for the Job Training Cash Fund. Funding for the first year would be from the cash reserve whereas funding for future years was not specified. This bill advanced from the Revenue Committee and was discussed for several hours but no vote was taken, as it did not have the 33 votes needed for a cloture motion to stop the filibuster.
LB 640 would limit the amount of property taxes to fund local school districts to 55% and would lower the maximum property tax rate a district could levy from $1.05 to $0.987. The intent was to shift more of the burden to the state income and sales taxes to fund our K-12 schools. The Property Tax Credit Fund would be used to fund the proposal initially. LB 640 was advanced from the Revenue Committee last year, prioritized both years, but never came to a vote on advancement by the full Legislature.
LB 1103 would provide a minimum funding level of state aid to school districts equal to 25% of their basic funding calculated for the district. The intent was to provide some foundation aid to every school district, regardless of whether the district qualifies for equalization aid under the current school finance formula. Under the current state aid formula, 179 of Nebraska’s 245 school districts receive no equalization aid, most of which are in rural areas, thereby requiring property taxes to primarily fund K-12 education. No funding source was indicated to pay for the foundation aid. The Revenue Committee advanced LB 1103 last month. Again no vote was taken on advancement by the full body. I had worked hard on trying to get this bill amended into LB 947, as I felt it would strengthen the bill, but could not garner enough support.
LB 1084, as amended, would fund a 30% allocated income tax component of the school finance formula. When TEEOSA was originally crafted, it directed 20% of income taxes paid by residents to the district, but this has since been reduced to 2.3% over the years. It would also offer $500 of per pupil aid to each public school, regardless of whether they qualify for equalization aid. The proposal would increase state reimbursement for special education from 45% to 61.5% and restore cuts passed last year in state aid to schools. The Earned Income Tax Credit would increase from 10% to 15% of the federal credit and any remaining dollars would increase the funding going to the Property Tax Credit Fund. The proposal would place a cap on the amount of property taxes a school district could collect. If state school aid increased, a school would have decreased ability to collect property taxes. To fund the legislation, the sales tax rate would be increased by 1 cent, the cigarette tax by $1.50, a surcharge would be applied to the state’s highest earners, the alternative minimum tax would be reinstated, and the personal property tax exemption would be eliminated. LB 1084 is still being held in the Revenue Committee, however it was offered as an amendment to LB 1103.
I am disappointed that an agreement could not be reached. The Governor and some senators would not support any type of tax increase or tax shift to fund property tax relief. Other senators felt it was irresponsible to provide for tax relief without identifying how it would be funded. Some senators and the governor strongly supported income tax relief, whereas other senators prioritized property tax relief. I supported the concept of foundation aid, which would lessen the burden placed on property taxes to support our K-12 schools. With the divided opinions, none of the proposals garnered the necessary 33 votes to allow for a vote on advancement of the legislation. I was also frustrated that my priority bill did not pass. LB 44 would have allowed the state to require out-of-state online retailers to collect sales taxes immediately, should the Supreme Court overturn an outdated ruling this summer. Considering the Legislature had to make substantial cuts again this year, I felt that it was irresponsible to not take advantage of this potential source of revenue, which has been estimated to be as high as $65-$95 million annually.
This leaves us with the pending petition drive, which is similar to LB 829, a bill stuck in the Revenue Committee. This proposal would enable property owners to get a refundable income tax credit equal to 50% of the portion of their property tax bill that goes to fund K-12 education. Since property taxes for K-12 schools is approximately 60% of a property tax bill, the proposal would represent an estimated 30% reduction in property taxes. The proposal would result in lost state revenue of approximately $1 billion and neither the petition nor the legislation specifies a funding source. The total budget for the state is approximately $4.4 billion.
The Legislature did protect the current tax relief measures that have been put in place over the last 12 years, such as the Property Tax Credit Program, personal property tax exemptions, and indexing income tax brackets for inflation, which provide approximately $700 million of tax relief annually. However, I will not give up on working for property tax relief.
Three of the bills that I introduced this session were passed by the Legislature in the past week. LB 745 would help cities plan for local option sales tax refunds. LB 861 would help Johnson County with prosecution costs arising from incidents at Tecumseh State Correctional Institution, if they reach a certain level. Finally, LB 980 would allow 12-foot wide loads of hay bales on the Interstate, as is currently allowed on state highways.