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If Nebraska’s governor were a corporate CEO and the Legislature were the corporation’s board of directors, labeling the Revenue Committee’s Legislative Bill 289 as a price increase to customers (sales taxes) and a major spending jump in a service (public education), would be accurate.
But government is not a corporation. State government doesn’t compete with local government and vice versa; the interest of citizens shouldn’t be subservient to the politics of government.
Thoughtful Nebraskans understand that LB 289 is an effort to rebalance the overall government budget and is not a tax increase. The bill addresses our embarrassing eighth-highest national property tax rating by correcting its over-reliance on property taxes to fund public education. Nebraskans do support public education; at $12,379 per student, we rank 17th nationally. The inequity lies in the fact that we rank 46th in state support (income and sales taxes); meanwhile, support by overburdened property taxpayers is third highest.
Historically, governors and legislatures have controlled state spending by shifting their constitutional duty to fund public education to local property taxpayers. No matter who the property owner is — middle-class homeowners, retirees, small businesses or those in production agriculture — when asked what tax is the most regressive and worrisome to pay, the answer is overwhelmingly property taxes.
At the forefront of LB 289 is property tax relief. On average, property owners would receive an immediate 10-15% reduction in property taxes, plus $115 million will remain in the Property Tax Credit Fund to be disbursed to them. Mechanisms in LB 289 would guarantee tax relief through fairness in school funding; a per-student foundation aid is created based on 25% of state tax revenues. Including foundation aid, no school district would receive less than a third of its funding needs from state aid (213 currently do not). The maximum general fund levy would be lowered from $1.05 to 96 cent and local property valuations would decrease 10% within the state-aid school funding formula. Finally, large property valuation increases would no longer drive up school taxes because LB 289 limits growth of local property tax revenue for schools to new construction growth and CPI-calculated inflation, thus removing future effects of unreasonable valuation increases.
LB 289 controls the growth of spending by eliminating factors that encourage it. To address the needs of 244 diverse school districts varying in enrollment from 60 to 51,000 students, Nebraska’s school funding formula is, by necessity, complicated. Long-term cost savings are achieved by removing from the formula an unwarranted funding adjustment for per-student cost that only the largest 19 districts receive. Resetting unused budget authority accessed by smaller schools would also slow down spending, and any growth in school needs over and above increases in enrollment, poverty, language barriers and other factors would be limited to the inflation rate in lieu of the current 2.5% arbitrary factor. These changes will assure taxpayers no less than a dollar-for-dollar decrease in their property taxes from the new sales taxes collected.
Nebraskans are demanding needed property tax relief along with reliable, predictable and equitable school funding. The answer is achieved by addressing the unbalanced three legs of our income, sales and property tax stool. Presently, Nebraskan’s tax burden is split 44% property, 30% income and 26% sales. Raising the sales tax levy by a half-cent and plugging some of the obvious exemption holes in our tax-collection bucket can level the stool’s legs and achieve appreciable property tax relief.
We can’t afford the taxation path we are on. This critical public policy debate shouldn’t be decided by simplistic and misleading political one-liners such as “the largest tax increase in Nebraska history.” If LB 289 fails, candidates for state office will have to answer some hard political questions: Should voters angered by legislative inaction support a 35% property tax credit initiative on the 2020 ballot? When offered, did they support the good state policy and long-term property tax relief of LB 289? And if they did, why isn’t there a recorded vote, to prove it?