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The Legislature debated a number of important issues this past week. LB 640 was up first. This bill proposed to cap the property tax portion of total general fund revenue supporting K-12 school districts at 60%. It also sought to lower the maximum levy for school districts from $1.05 to $1.00 per one hundred dollars of taxable valuation. Although LB 640 would have resulted in property tax relief, the revenue needed to fund the legislation would have been transferred from the Property Tax Credit Fund. This fund currently disperses $224 million in dollar for dollar property tax relief annually. Senators generally saw it as robbing one pot and putting it in another, making it doubtful that the bill will be on the agenda again.
LB 409 seeks to revise the state school aid formula (TEEOSA) by reducing the base limitation rate from 2.5% to 1.5%, which would reduce the amount of increase in TEEOSA aid provided to school districts for the next two school years. It changes the local effort rate from $1.00 to $1.02, which also reduces the amount of state aid provided to school districts because the formula assumes a district has increased resources. Furthermore, LB 409 reduces net option funding by 4.5%. This legislation was necessary due to the significant revenue shortfall that the state is facing. Since TEEOSA school aid represents 69% of total general fund aid to local governments, it was not feasible to leave it off the table when considering budget cuts. Even with LB 409, the amount appropriated to TEEOSA represented the largest increase in the Appropriations Committee’s recommendations for the next biennial budget.
The Legislature also discussed LB 622, which would legalize marijuana for certain medical conditions, and LB 661, which would provide for confidentiality of lethal injection drug sources. Both bills were given a couple hours of debate and now the bill’s sponsor must show the Speaker of the Legislature that he/she has the 33 votes to overcome a filibuster in order for the bill to be placed on the agenda again.
Senators also discussed numerous bills on consent calendar this past week. Consent calendar is limited to non-controversial bills that don’t contain a lot of changes and do not have a general fund impact. This procedure gives bills that don’t warrant a priority designation the chance of passage. An example of this is LB 463, the bill I introduced that would allow a village chairperson to appoint cemetery board members from the county, as well as the village. I introduced this legislation because some villages were having difficulty finding people to serve on the board.
The week ended with discussion on LB 461, the governor’s proposal for tax relief. LB 461 would change the way agricultural land is valued from the current market based approach to an income-producing approach. Capitalization rates would be derived using estimated net income divided by the market value of land as determined using comparable sales. Capitalization rates would be adjusted to assure that aggregate taxable values fall between 55% and 65% of market value. The percentage growth in aggregate taxable value statewide for agricultural land would be limited to 3.5%.
LB 461 also decreases the top individual and corporate income tax rate to 5.99% over a number of years when the expected rate of growth in general fund receipts is at least 3.5% and 4% respectively. The Earned Income Tax Credit would be increased from 10% to 12% of the federal credit. The personal exemption would be reduced for the higher income and a new credit would be created for the lower income. However, calculations reflect that when fully implemented, wealthier Nebraskans are the biggest beneficiaries of this tax relief plan, which offers approximately $10 in income tax relief for every $1 in property tax relief.
I am working on an amendment that alters the trigger mechanism for income tax reductions by increasing the percentage and requiring that it be based on actual rather than expected growth rates. It also would require any increased revenue above the trigger level to be distributed to the Property Tax Credit Fund, with a smaller portion directed towards lowering the top income tax rate. I spoke on the floor that I am opposed to LB 461 as it currently stands because my constituents overwhelmingly favor property tax relief over income tax relief. Although some senators questioned why we were even discussing tax decreases when facing an approximate $1 billion shortfall in revenue projections, many senators support the governor’s efforts. It will be an uphill battle to substantially change this legislation.
Next week will be devoted to budget deliberations. By legislative rule, the 2017-18/2018-19 biennial budget has to be passed by the 80th day, which falls on May 10 this year.
Again, I encourage you to notify me of your thoughts on legislation that senators are discussing. I can be reached at District #1, P.O. Box 94604, State Capitol, Lincoln, NE 68509. My email address is firstname.lastname@example.org and my telephone number is (402) 471-2733.
The Revenue Committee advanced a package of tax cuts to the full Legislature on a 6-2 vote after several months of work. However, LB 461 contains approximately $10 in income tax relief for every $1 in property tax relief. Earlier, I had stated that I could only support income tax relief if it provided $1 in income tax relief for every $10 in property tax relief.
The total annual cost for this package in ten years would be approximately $450 million. During the upcoming two years, when the state is facing a significant budget shortfall, any loss in revenue would be countered with the suspension of two tax credits – the New Markets Job Growth Investment Act and the Nebraska Historic Tax Credit.
Beginning next year, agricultural land would no longer be valued using market value based on comparable sales. Instead, valuation would be based on the income-capacity of the land. The legislation would ensure that the capitalization rate established resulted in an aggregate agricultural use value that is between 55% and 65% of its actual value. The state average agricultural use value would be capped at 3.5% over the previous year.
In 2019, the top corporate income tax rate would be reduced from 7.81% to 7.59%. The two lowest individual income tax rates of 2.46% and 3.51% would be combined at a rate of 3.25%. In an effort to help low-income workers, the Earned Income Tax Credit would be increased from 10% to 11% of the federal earned income tax credits, further increasing to 12% in 2020.
Beginning in 2020, LB 461 proposes to reduce the top individual income tax rate of 6.84% and the top corporate income tax rate of 7.59% to 5.99%. This would occur over a number of years if the projected growth in state revenue is at least 3.5% for the individual income tax rate reduction and 4.0% for the corporate income tax rate reduction.
Although not part of the package, the Revenue Committee advanced another bill that deals with property taxes. As amended, LB 640 proposes to cap property taxes at 55% of a school’s general fund revenue. However, the funding for this would come from the Property Tax Credit Fund, which now provides $224 million annually in property tax relief to taxpayers. Although I believe that there is a disproportionate burden on property taxes to fund our schools, particularly in rural areas, I also believe that the Property Tax Credit Fund is a good way to provide dollar for dollar relief to property taxpayers.
I am disappointed with the options that have been placed before the Legislature dealing with tax relief. I will work with other senators to determine if alternative measures can garner sufficient support.
The Governor signed LB 46 this past week, the bill I introduced authorizing “Choose Life” license plates. He emphasized that this is the first pro-life legislation passed in the last 6 years.
The Appropriations Committee is finishing its work on the next biennial budget. This has been a very difficult task due to the significant shortfall facing the state.
As we begin to discuss tax relief measures and budgetary issues, I encourage your input. I can be reached at District #1, P.O. Box 94604, State Capitol, Lincoln, NE 68509. My email address is email@example.com and my telephone number is (402) 471-2733.