Last week I initiated a discussion on how property taxes and school financing work in conjunction with each other. As promised, this newsletter continues where I left off.
While the basic concept of LB 1059 has not changed since 1990, the statutes governing state aid have been tweaked several times. Many of those changes were made to try to direct equalization aid to districts with needs such as high transportation costs, high demand for special education or large number of students living in poverty.
Local property taxes are generated from a school district’s tax levy and the amount of value placed upon homes, businesses and agricultural property for tax purposes in its jurisdiction. School districts are among the 31 types of political subdivisions that rely on property tax dollars in Nebraska. Among these are cities, counties, community colleges, natural resource districts, and sanitary improvement districts. But school districts use 60 percent of all property taxes collected in the state.
While all Nebraska school districts receive some state funding, it is important to note that not every school district receives funding from every state source.
Since the passage of LB 1059, the Legislature has tried other ways to curb schools’ reliance on local property taxes, including the property tax limit passed in 1996. By law, the maximum property tax levy for school districts is $1.05 per $100 of property value.
The recurring message from property owners across the state is the same: they pay too much in property taxes. And the push to reduce property taxes has been a recurring theme in the debate over how schools are funded. That point was consistently raised during debate of LB 1059 in 1990 and again took center stage during the Tax Modernization Committee and Education Committee hearings in 2013.
LB 1059 tried to address these concerns by increasing sales and income taxes to take some of the pressure off property taxes as a school funding source. LB 1114 (1996) established the property tax levy limit.
Nonetheless, Nebraska today relies more on local property taxes to fund public schools than 48 other states.
The heavy reliance of local property taxes and low level of state support in Nebraska have been noted in four major tax studies in the state’s history: 1) a 1962 study (McClelland) 2) the 1988 “Syracuse Study”; 3) the 2007 Burling Commission; and finally, the Tax Modernization Committee of 2013.
In 1972 voters approved a constitutional amendment which allowed agricultural land to be valued in a non-uniform manner relative to other property. Agricultural land can be valued at its market value in agricultural use under this provision. The voters passed a subsequent amendment of this same language in 1990, after a 1987 Nebraska Supreme Court decision invalidated agricultural land valuation practices in use at that time. This amendment authorized the current practice of valuation of agricultural land at a reduced percentage of its agricultural use market value. Today, Nebraska state law authorizes valuation of such property at 75% of market value in agricultural use.
Property taxes in the rural areas of the state have increased significantly compared to the urban areas. For instance, in Hamilton County agricultural property taxes have risen 180% over the last 10 years. In some urban areas property taxes have only risen 40% over the past 10 years. With most government subsidies being phased out and producers’ margins at break even or below it is no longer a fair and equitable tax. This year there are a two bills (LB 293 and LB 350) that address the dramatic rise of agriculture valuations, which have caused significant increases in property taxes. Each bill changes the current rate of valuation from seventy-five percent of its actual value to sixty-five percent.
I don’t see these bills as an absolute answer to increased property taxes but as one way we can start chipping away at the problem. Lowering the valuation of agricultural land down to 65% provides little relief to the rural areas of the state. Schools will just raise the levy and so the money will come from the same people that pay the high property taxes. I would rather see a fundamental change in the way we fund education in Nebraska so that we might have permanent property tax relief.
Additional bills that address the property tax problem are still being considered by several committees. As proposals are advanced to the full legislative body we will start exploring other options.