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 firstname.lastname@example.org and my telephone number is (402) 471-2733.
The Legislature gave first-round approval to the budget package this past week. Senators also stopped a measure that proposed to repeal the motorcycle helmet law for riders 21 years of age and older.
Progress has been made this past week on property tax relief, although it isn’t as comprehensive as hoped. LB 958, introduced on behalf of the Governor, sought to slow the increase in agricultural land valuation by capping statewide agricultural land valuation growth at 3% per year. It also aimed to slow the growth of property taxes levied by political subdivisions. After significant opposition was encountered from representatives of cities and other political subdivisions, the committee eliminated most of the bill, except for the portion that limits the unused restricted fund authority for community colleges to 3% of their prior year’s restricted funds. In the amendment proposed by the Revenue Committee, instead of the 3% cap on valuation, the committee is proposing an increase in the Property Tax Credit program. This program provides direct property tax relief for property owners through a credit on their property tax statement. Last year, funding for this program was increased by $64 million to $204 million in annual funding. This year, the proposed increase in credits would be directed to agricultural land owners. Since this is a new concept, the Revenue Committee will hold a public hearing on the proposed amendment on Thursday, March 24. After calculations are completed, an amount of funding will be added to the amendment.
A companion bill, LB 959, also introduced on behalf of the Governor, intended to slow the growth of spending and property taxes levied by school districts. It was advanced from the Education Committee, after being substantially amended. The bill now proposes to eliminate the minimum levy adjustment, which takes away state funding from schools with levies below $0.95. Additionally, it would tighten limits on a special project fund that schools use to address safety, environmental hazards, accessibility barriers and mold in existing buildings.
Two other bills promising property tax relief encountered roadblocks this past week. LB 717, introduced by Senator Mike Groene, proposed to use a 5-year history of comparable sales, excluding 20% of sales with the lowest valuation to sale price ratio, in an effort to remove abnormal high priced sales. It also would have frozen 2016 valuations at the 2015 level. An attorney general’s opinion stated that the bill is likely unconstitutional as it would appear to result in property within the same class being assessed at values that are not uniform and proportionate relative to their market value.
LB 883, introduced by Senator Jim Scheer and eleven other senators, including myself, was killed by the Education Committee. This legislation proposed to add a per student foundation aid component to the K-12 school funding formula, in an effort to reduce property taxes by giving every school district some base funding through the state aid formula. Currently, almost two-thirds of our school districts don’t receive equalization aid because their resources from property taxes exceed their needs, which illustrates the high dependence on property taxes in our school funding formula. This concept would require additional revenue to implement and I feel that this is a discussion that needs to take place.
According to calculations made by Senator Scheer’s office, under LB 883, schools in District #1 would have seen substantial increases in state aid. Following is the projected amount of additional state aid that schools would receive over the current amount, with the addition of $3,000 per student in foundation aid. Sterling Public Schools – $587,467; Johnson County Central Public Schools – $1,515,000; Johnson-Brock Public Schools – $389,596; Auburn Public Schools – $198,681; Syracuse-Dunbar-Avoca Schools – $2,123,988; Nebraska City Public Schools – $580,394; Palmyra District OR 1 – $1,135,510; Pawnee City Public Schools – $306,458; Lewiston Consolidated Schools – $37,773; Falls City Public Schools – $2,455,119; and HTRS Public Schools – $1,029,000.
Property taxes bear a disproportionate burden in support of our school districts, especially in our rural areas. I believe the concept of foundation aid has merit and I am hopeful that it plays a major role in the Legislature’s continued discussion of property tax relief this year and in following years.
As we begin late night sessions, I encourage your input on legislation of interest to you. 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.
The Platte Institute, initiated in 2008, was Nebraska’s first free market think tank. It is a non-partisan, non-profit research and educational institute. It was founded on the belief that protection of the freedoms and quality of life that Nebraskans enjoy is best served by encouraging free enterprise initiatives and promoting individual responsibility and dialogue. The institute’s staff and scholars study public policy issues and develop proposals to increase economic opportunity, while protecting the individual rights of Nebraskans.
The OpenSky Policy Institute is also deemed a non-partisan think tank, focusing on tax and budget issues. OpenSky began its work in 2011, after three years of organizational planning. OpenSky’s mission is to improve opportunities for every Nebraskan by providing impartial and precise research, analysis, education and leadership.
Both the Platte Institute and the OpenSky Policy Institute have worked on proposals for tax relief. Senator Jim Smith of Papillion introduced LB 357, on behalf of the Platte Institute. Senator Al Davis of Hyannis introduced LB 280 for OpenSky.
LB 357 proposes to invest $40 million a year over the next two years from the Cash Reserve Fund to provide immediate income tax relief to families and businesses. The proposal would gradually reform Nebraska’s income tax system with a goal of reducing the top rate to 5%, down from the current rate of 6.84%, and replacing the bottom rate of 2.46% with a 0% tax bracket. It also lowers the top corporate income tax rate from 7.81% to 5%. The proposal would freeze property tax rates while relieving local governments of unfunded state mandates. It is envisioned that income tax relief would be achieved entirely with state spending restraint, primarily by reducing the rate of growth in state spending. Since the cash reserve will be used for the first two years of the proposal, spending reductions are delayed until 2017.
The Platte Institute developed their long-term tax plan to provide more opportunities for Nebraska families and to create a business environment that is more competitive with other states. They believe that more savings for families and businesses will ultimately result in accelerated business creation, greater job growth and a vibrant, expanding state economy.
LB 280 aims to better balance the three major sources of taxes in our state – property, sales and income taxes. OpenSky recognized that the agriculture community is picking up a larger portion of funding for schools, without a corresponding growth in population or income, as agricultural income hasn’t risen as fast as land values. Their proposal would allow for the reduction of property taxes statewide, placing an emphasis on agricultural land owners.
As proposed in LB 280, agricultural land valuation would be reduced for purposes of calculating the school state aid formula from 75% to 65% of actual value. Furthermore, the bill would reduce the property tax levy cap on local school districts from $1.05 to 80.5 cents. To compensate for the lower property tax revenue, the proposal would impose a local income tax of at least 19.4% of a person’s state income tax liability. This revenue would be included as part of the resources calculation in the state aid formula, thereby assessing a community’s ability to pay. Finally, the bill establishes a foundation aid component for the state aid formula, which is a per-pupil amount that would go to every district, to guarantee a minimum level of support.
The public hearing on LB 280 and LB 357 has been scheduled for February 18 before the Revenue Committee. These are just two of the many bills that have been introduced by senators regarding tax relief. During the next several weeks, the Revenue Committee, the Education Committee, and the Appropriations Committee will be working on which proposals to advance to the floor of the Legislature. If you would like to voice your opinion on either of these two proposals or other legislation, I encourage you to contact me. I can be reached at District #1, P.O. Box 94604, State Capitol, Lincoln, NE 68509. My telephone number is (402) 471-2733 and my email address is firstname.lastname@example.org.