I spent this past Thursday in Lincoln at the Governor’s “Property Valuation Roundtable,” along with fellow western Nebraska Senator Teresa Ibach. This round table is a cross-section of business leaders and State Senators working on a more equitable property tax plan that better shares the tax load between property classes of real estate and equitably distributes the tax burden among all taxpayers.

As I pointed out in a previous article, three primary types of taxes in the state fund most of the needs of state and local taxing authorities. Property taxes account for the lion’s share of the $12 billion needed to achieve this funding. Approximately $5 billion is generated from property taxes, just under $4 billion from income taxes, and another $2 billion from sales taxes. The balance is raised from inheritance taxes, gas taxes, excise taxes, etc.

It is important to remember that ALL property taxes are assessed LOCALLY. The State does not receive property tax revenue.

All property taxes are assessed by local political subdivisions, the largest being the public school system. Each local political subdivision with taxing authority has a locally elected board that resides in the subdivision. Because of that, you, the local voter, can elect who represents you on that board. Those boards, in turn, select who will lead those organizations. The system was set up that way so that those living in these political subdivisions decide how much they want to spend.

Cities and villages can also charge a sales tax (referred to as a “local option sales tax”) since that tax is above and beyond the 5.5% charged by the state. The local option sales tax stays with the municipality and allows them to offset some of their property tax reliance. Counties are the sole beneficiaries of inheritance taxes, which can help offset their property tax ask. The State of Nebraska relies primarily on personal and corporate income taxes and sales tax (5.5%), as well as user fees, to fund the bulk of its funding needs.

From the time that the sales tax was first introduced in Nebraska, the plan was to have sales, income, and property taxes each generate approximately 1/3 of the total funding needs. However, over the years, sales taxes have lagged and property taxes have soared, causing the imbalance we have today. The Governor’s working group is working on a plan that will bring balance back to the system.

The Legislature has already begun this process by taking Community Colleges off the property tax rolls and by providing more direct aid to public schools to help reduce their property tax asks. Additionally, the State provides a property tax credit (shown on your property tax statement) and an income tax rebate that equaled 30% of the amount you paid in property taxes to your local public school district and community college last year. You receive the rebate even if you do not pay state income taxes. With these two credits, real progress has already been made. However, we believe that there needs to be at least another $1 billion in property tax savings to balance property, income, and sales taxes.

I know that there are some who want to abandon our current forms of taxation altogether in exchange for a consumption tax. Although I understand the appeal of this concept, I have several concerns with the EPIC tax proposal being circulated. First, this concept is totally untested, yet the ballot initiative would mandate it in our constitution. Second, there is conflicting data about how high the consumption tax rate would have to be, particularly if we begin to lose businesses that can operate for less in another state. Third, although implementation will be up to the Legislature, it has been suggested that one or two unelected commissions would decide how the revenue would be distributed across the State. I am concerned about totally eliminating local control for budgeting and spending. When the cost per student in rural schools is higher than the urban areas, can we really expect fair funding? What about our roads? Will we be forced to consolidate our county seats as well as our schools? Who would you complain to if an unelected board was in charge? If we want to consolidate to control costs, I would prefer to make that decision locally.

I am sensitive to the property tax burden felt by Nebraskans, particularly our agricultural producers. I truly believe the Legislature has made large strides in recent years in addressing this problem. We should give some time for these measures to take effect, and continue exploring ways to broaden our sales tax base before we take a drastic measure like changing our constitution.

I look forward to continuing to hear from you regarding issues that are important to you. It is a privilege to serve as your State Senator, and I will continue to give my full effort to make a positive difference for the District and the State. You can reach me at mjacobson@leg.ne.gov or by calling my legislative office at 402-471-2729.