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Education is the foundation of a successful democracy. Education promotes social mobility for individuals, improves the quality of life for families, and stabilizes communities. In addition to developing an educated electorate and a well-trained workforce, Nebraska’s schools serve as an anchor in our communities, providing a common gathering place and a sense of identity.
According to Article VII of the Nebraska Constitution, “the Legislature shall provide for the free instruction in the common schools of the state all persons between the ages of five and twenty-one years.” Throughout Nebraska’s history, legislation, ballot initiatives, public referendum, and litigation have attempted to define how taxes fund free instruction in the common schools and how educational outcomes are evaluated.
Discussion about how education is paid for, school spending, and evaluation of student achievement is an important one. However, debate over how schools should be funded is not new. For the next several weeks I will address the fundamentals of how Nebraska funds K-12 education to provide you context for tax policy and school finance in Nebraska.
1966 was a defining year in Nebraska tax policy and school financing. Dual ballot initiatives passed by voters eliminated the state property tax and repealed the state income tax, which had been established the prior year. Without a source of state revenue, the Legislature in 1967 had to create a state sales tax and revise the income tax. Also in 1967 the Legislature passed the School Foundation and Equalization Act. Prior to that year, K-12 education was funded almost entirely by local property taxes. The Act was the first attempt to replace local property tax revenue with state General Fund dollars for education. Under this Act, state support for K-12 education topped out at 13% of total costs.
Over the following two decades, significant differences in per pupil spending developed across the state. Many of these disparities were due to the difference in property tax base between districts. Nebraska Supreme Court rulings held that education must be free, but funding did not need to be equal. This led to a major reform of the school funding structure in 1990 with the passage of LB 1059, the Tax Equity and Educational Opportunities Support Act, commonly referred to as TEEOSA. A product of a multi-year School Finance Review Commission convened in 1988, LB 1059 established the basis of the school funding mechanism Nebraska schools operate under today.
The TEESOA Formula established in 1990 was an attempt to equalize the funding available to all K-12 students across the state. School districts with a lower property tax base would receive “equalization aid” from the state to meet financial needs. Levy limits were put in place to create similarity in tax bills for property owners in different districts. Over time this formula calculation has expanded, with a number of special interest carve outs and exemptions, as well as additional considerations for poverty, special education, and option students to name but a few. The school funding formula that has evolved is complex, confusing, and no longer addresses the property tax base disparities between rural and urban districts.
As we debate what the future of school funding in Nebraska, it is valuable to understand the history about how our system has changed over time. While the today’s discussion can be contentious, it is actually part of an on-going issue for the past 50 years. In the next several weeks we will exploring the TEEOSA formula and its impact on your property, sales, and income taxes.