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The overwhelming concern I hear from constituents is burdensome property taxes, of which the largest portion goes to public education (50 to 70%).
Therefore I sought and was appointed to the education committee. During this last legislative session I supported an effort to have a joint interim study by the Education and Revenue Committees to look at the source of the pool of tax dollars that funds public education. The committees have met five times over the last three months and on November 12th there will be a public hearing held in Lincoln. The discussions so far have been productive and probably will result in proposed legislation.
Back in 1990, the Unicameral looked at this same issue. Their answer was the “Tax Equity and Educational Opportunity Support Act” (TEEOSA), a “three legged stool” plan, that would fund education with equal shares of Income, sales and property taxes.
They attempted to equalize property taxes statewide by limiting local school tax rates to a high of 1.05 with a minimum of .95 or lose state aid. What they did not take into consideration was property valuations skyrocketing out of proportion on agriculture land statewide and housing and business property in certain cities. That miscalculation has led to 159 rural school districts out of 245 receiving no state equalization aid, including Hershey and Wallace.
Of course when there are losers, there are also winners. The state aid lost by rural schools has allowed more dollars to go to urban school districts where valuations have not increased as rapidly. 24 large school districts with 65% of Nebraska’s students receive 85% of all state aid. North Platte is one of those districts, but over time, stagnate enrollment numbers and a rising valuation due to a good housing market has curtailed gains in state-aid for the district.
What I believe should happen:
1) Originally the TEEOSA formula guaranteed 20% of personal income taxes collected in each school district be returned in state aid, but with each budget crisis that came along the legislature diminished it to the point that it is now a non-factor. The basic idea still has merit; even a 10% income tax allotment would make a huge difference in Wallace’s and Hershey’s school property taxes. In order to add funding stability, it should be calculated on statewide collections and allocated on a per-pupil basis.
2) Property tax relief to citizens in equalized districts such as North Platte, Brady, Sutherland and Maxwell could be gained by lowering the max tax rate a full 10 cents to .95, thus shifting a portion of funding back to the state. Also by eliminating the minimum levy requirement we could put local control and taxpayer pressure back into school board fiscal decisions.
Those adjustments would cause a shift of around $160 million from property taxes back to income and sales taxes.
We must address the problem of rapidly rising valuations, double digit increases are expected on farm land the next two years. A freeze on valuations at 2015 levels for at least a couple of years would be a good start. Presently, valuations are based on a three year average for farmland and two years on residential sales history. Long term, one answer to stabilizing valuations could be to use five years of history with a provision to throw out the highest. If we do not address rising valuations the underlying cause of the problem will remain.
There are strong political interests that do not want change. School districts that get the majority of their funding from state aid like the present outcome, high income earners who pay a larger portion of their overall taxes on income would prefer income tax relief, other state funded government entities do not want to compete for tax dollars with increased aid to public education, and some local taxing entities like to hide behind rising valuations without having to face angry taxpayers when they raise tax rates.
The reality is in the long run if we do not slow down overall government spending nothing we do will please taxpayers. In 2005, for example, Nebraska taxpayers supported public education with $1.9 billion; 10 years later the cost has increased to $3.1 billion.
Property taxes are a regressive tax; owning property is not always related to the ability to pay. I believe there is a solution; we will see who agrees in Lincoln.
If you have any comments or issues that you wish to discuss, please contact our office at 402-471-2729.