The legislature adjourned on Saturday around noon after a debate on LR2CA. LR2CA is a constitutional amendment introduced by Sen. Brandt. If passed, voters would be able to vote on whether the Legislature should be allowed to value “owner-occupied” residential real estate differently than other classes of real estate. A similar constitutional amendment was passed for agricultural land many years ago and we now value ag land at 75% of market value. The goal of proponents is to assess owner-occupied residences at a lower value than other types of property. However, the definition of “owner-occupied” and the percentage of assessment for each class of real estate would be up to future Legislatures.

The challenge with this idea is that lost revenue would simply shift to the other classes of real estate unless there is a funding source to make up the difference. That could have a negative impact on other types of primary residences – like rented homes, duplexes, and apartments – as well as commercial property. And, given the number of Senators in support of LR2CA, it is very likely the voters would not see it on the ballot until the 2026 election. Modeling is not yet available for the Legislature to see exactly what the impact might be and changing the proposal later is challenging from a procedural standpoint. There are many Senators who support providing targeted relief to homeowners – who have seen an alarming rise in property taxes in recent years – and would like more time to fully evaluate the best path forward.

It is important to remember that assessed values in a taxing district are added together to determine the local property “tax base.” This value is then divided into the tax ask by each political subdivision to determine the mill levy. Capping values does not reduce taxes because the mill levy simply goes up to make up for the loss of value to raise the funding needed. Likewise, capping the mill levy does not reduce taxes if the values rise. The only way to hold property taxes down is to place caps on the amount of tax dollars requested by the political subdivision. If we want to be able to change valuation levers to make the property tax burden more equitable, then we will need to explore a number of categories and combinations.

The Legislature will reconvene at 9:00 a.m. on Monday, August 19. Our only business will be to check in to allow for the constitutionally required layover day between Select File and Final Reading for LB34 (which essentially replaced LB1), LB2, and LB3. We will then take up those bills on Final Reading on Tuesday. Both LB2 and LB3 are appropriations-related bills dealing with fund transfers and state spending reductions to help fund the gap in funding that could be created by LB34.

LB34, if passed, restricts cities and counties from increasing their property tax requests by more than the sum of an inflation index, with certain exceptions. The tax request can also be increased when there is real growth in the tax base (increases that do not involve value increases for existing property), increased spending for public safety (including police, fire, and the court system), to respond to declared emergencies, or by a vote of the people. No other revenue sources are capped. So, cities and still collect local option sales taxes, charge fees, and raise funds from locally operated utilities, garbage services etc. Counties still have inheritance taxes and fees generated from services they provide to the public. Both can also issue voter approved bonds.

LB34 also frontloads the LB1107 fund and converts the return mechanism from an income tax credit to a property tax credit that will appear on your property tax statement. This credit will be in addition to the existing property tax credit you currently receive. All the sales tax exemptions that were originally proposed to be repealed in LB1 were eliminated along with all so called “sin tax” increases and other new taxes. Since the new funding sources were eliminated, no additional property tax cuts could be provided.

Clearly the original plan was very aggressive and was always destined to be reduced. However, there were too many in the body who were unwilling to embrace any broadening of the sales tax base. While some tax exemptions, like the one for legal services, as never been exempt, many were put in place by prior legislatures. As the state allowed the TEEOSA formula to systematically eliminate smaller rural schools from receiving state aid, those schools were forced to rely on funding from local property taxes. If the state were able to increase the revenues available for school funding, our property taxes can be reduced. That was the goal of the Governor’s plan.

I do, however, believe that the debate during the special session did sort out many of the issues some had with sales tax exemptions. We had some important discussions about taxing “needs” versus “wants” for consumers, as well as end user taxes versus business-to-business transactions. It is likely that the next session will bring back many of those exemption will be back on the table as possible revenues to reduce property taxes, but at a more measured pace.

It is hoped that the special session will end this week and we all can return to our districts. It is my intention to hold a town hall meeting in North Platte soon to share information from the special session and get input for bills for the session beginning in January.

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 402-471-2729.