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LB695, which is my Property Tax Relief/TEEOSA Stabilization bill, was heard in the Education Committee on Tuesday. The bill is a result of the TEEOSA Study Group we formed last summer. Below is an abbreviated version of my opening remarks.
“LB695 will provide long-term property tax relief for all Nebraskans, stabilize the TEEOSA formula’s proportional funding of state income, sales and local property taxes, plus make the formula reflect the reality of real-life economic factors.
LB695 addresses Nebraska’s overburdensome reliance on property taxes to fund our public schools. I have come to an understanding that the TEEOSA formula has flaws, but it still remains the best option we have to provide ‘free instruction in the common schools of this state’ for children in our 244 school districts with varying student populations from 60 to 51,000.
A) Foundation Aid: (property tax relief for Wallace, Hershey, Brady, Maxwell, Sutherland) Establishes a stabilizing factor in the amount of state aid given to each school district by using a base per student funding amount. LB695 proposes to dedicate 25% of the State’s prior year total income taxes (both individual and corporate) plus sales tax revenues to be distributed equally to school districts on a per K-12 student basis. In 2018, total state income and sales tax revenues were $4.28 billion. There are 307,753 K-12 students enrolled statewide in our public schools, which would equate to a foundation aid factor of $3,474.40 per student. Creating a reliable state aid funding source through foundation aid will give long-term stable property tax relief to taxpayers in the 175 districts that receive no equalization aid, as well as those hovering towards receiving none. Foundation aid will replace the income tax rebate.
B) Property Tax Relief for Equalized Districts (North Platte): All districts will receive foundation aid as a resource. Districts lacking enough local resources to fund their schools will still receive equalization aid. LB695 proposes lowering the max levy from 1.05 to .95; therefore, the local effort rate used in the formula will be lowered from 1.00 to .90, giving those property taxpayers a 10% reduction in their school general fund property taxes. State equalization aid will fill in the created funding gap.
C) Local Property Valuation Distortion: LB695 proposes to slow growth of the ‘local effort yield’ from property taxes by creating a base year yield (.90 LER) in the 2020/21 school year. In subsequent school years, growth will be limited by new construction growth and the CPI-calculated inflation rate. In the future, this provision will stop the funding shift to property taxes by alleviating the distorting effects of unreasonable valuation increases on the taxes paid by local property owners.
D) Growth of School Needs: LB695 uses factual economic data to adjust needs growth. Instead of the present arbitrary base limitation that is used as the 2.5% allowable growth rate factor, in the future we will use the most recent available year’s CPI-calculated inflation rate. The inflation rate used for the allowable growth rate will not be allowed to go below 0% or above 2.5%.
E) Net Option Funding: With the enactment of LB695, the foundation aid ($3,474.40) follows the option student; therefore, because the net option school district is now only lacking the property taxes paid by the students’ parents, the correct thing to do is for the state to assist the school with an amount equal to the statewide average property tax cost. The average general fund property tax expenditure per student would be $6.194.51 for the 2019/20 school year.
LB695 will balance over time the ratio between state and local funding. State revenues have had a healthy annual 4.8% increase over the last 38 years. As those revenues grow, so will the state’s 25% contribution to foundation aid, causing the reliance on property taxes to continue to ease over time.”
Thursday, property tax relief bills from Senators Friesen (LB497) and Briese (LB314), and my LB677 will have hearings in the Revenue Committee. I believe to achieve property tax relief, it will be necessary to join forces and create one bill out of many. To quote President Lincoln, “A house divided against itself, cannot stand”.
Contact Sen. Mike Groene: email@example.com or 402-471-2729.