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Property taxes have been a significant topic during my conversations with constituents. As the primary revenue raising tool for local political subdivisions, property taxes accounted for $3.565 billion in revenue in 2014, roughly 39% of all state and local taxes. Property taxes to fund government were authorized by the Territorial Legislature before Nebraska was even a state, and Nebraska’s property tax policies have evolved over 150 years into a fairly complex system of moving parts, levies, and exemptions.
This column is the first in a series of four to help taxpayers in District 38 understand what property taxes fund, how valuations are determined for property, the principles of the levy rate, and the policy issues that are at the root of so many conversations among taxpayers.
In 1966 a constitutional amendment was adopted by Nebraska voters to eliminate the use of property taxes by the state. Since that time, property taxes have been exclusively levied by political subdivisions, commonly referred to as “local government”. Nebraska statute has authorized over 30 different kinds of political subdivisions, most of which are funded, at least in part, by property taxes. The taxing rate, known as the levy, is set by the locally elected boards that govern each political subdivision. Most subdivisions have a cap or limit on the maximum levy they can charge defined in state statute.
A quick look at your property tax statement will list which political subdivisions are collecting a tax, the levy rate, and the amount of tax collected on your property for that entity. School districts collect the largest component of property taxes, around 60% of the total. On average across the state, counties and cities/villages make up roughly 17% and 10% respectively, with community colleges, natural resource districts, and educational service units comprising the majority of the remaining tax collected. Depending on your locale, the proportion of your property tax bill funding different subdivisions may vary significantly. You may have property in a fire district or sanitary improvement district that also collects taxes. I encourage taxpayers to carefully examine their property tax statement and understand which entities are taxing them and how much. Because property taxes are levied and spent locally, local and regional circumstances change the proportional distribution of your total property tax bill.
The current discussion over the property tax system in Nebraska is the result of the culmination of a number of developing trends over the past decade. Property taxes collected is a product of the valuation of the property multiplied by the tax rate, or levy. If valuations increase, the levy rate can be decreased to collect the same amount of taxes. If the levy rate remains the same or is increased as valuations increase, the total taxes collected will increase as well. Statewide property valuation from the period of 2003-2013 increased by approximately 77%. During that time period, total property taxes levied increased approximately 67%, indicating a large increase in local taxes collected. Taxes levied by community colleges have skyrocketed by 124%, while taxes collected by natural resources districts have doubled in a decade, an increase of 101%. In both cases, total taxes levied significantly outpaced even the dramatic increases in valuation over the past decade.
Moreover, agricultural land values have risen rapidly in the last decade, resulting in a 162% increase in property taxes on farmers and ranchers. Nebraska ag land owners pay the third highest property taxes in a ranking of all 50 states. During that same time period, valuation of residential and commercial real estate has increased at a much lower rate than ag land. For many rural Nebraskans, this has created a significant imbalance in the distribution of the property tax burden among property owners.
Some political subdivisions also receive public funding from other sources of tax revenue, including state general funds from sales and income taxes. Some municipalities have local sales taxes. The funding mix for local governments has historically been a reflection of the view of local control of these political subdivisions, including their budgets, as opposed to state appropriations for locally determined needs. Funding for K-12 education, the single largest component of property tax revenue, is also a complex mix of local resources via property and needs specific to a local district. In theory, the differences among districts between resources and needs is equalized through equalization aid. However, over half of the school districts in the state, located in rural Nebraska, do not qualify for state equalization dollars, shifting almost the entire funding burden to local taxpayers.
Next week I will address the process of property valuation and its impact on property taxes. As always, I look forward to hearing your ideas and concerns on the many issues facing the Legislature during the interim and in coming years, particularly regarding property tax reform. Please do not hesitate to contact my office by calling 402-471-2732 or sending an e-mail to email@example.com. For daily updates, please follow me on Twitter @JohnKuehnDVM.
Senator John Kuehn, District 38