Nebraska’s budget for fiscal year 2021-2022 is $4.8 billion, and, according to Gov. Pete Ricketts’s Sine Die address on May 27, a significant portion of it is going toward property tax relief over the next two years.
Sen. Steve Erdman of Bayard said allocating a significant portion of the budget toward tax relief is necessary.
“If we focus on those who collect the tax dollars … on making sure they get as much or more revenue every year, and we don’t take into regard those people who are paying the taxes, all of a sudden we find that our tax system is a burden that people can’t pay,” he said.
The majority of the money that went toward property tax relief this year was the result of bills that were passed last year, Erdman said.
In particular, LB1107 created the Nebraska Property Tax Incentive Act, in which the amount of relief one receives is based on how much of one’s property taxes went toward schools.
According to Erdman, LB1107 also requires the Property Tax Credit Fund to pay out at least $275 million in credits each year. He said the money from the Property Tax Credit Fund goes directly to those who collect it, including schools, doctors and cities.
The Property Tax Credit Fund is estimated to be at $300 million during fiscal year 22 and $313 million during fiscal year 23, according to the 2021 general fund budget summary.
According to the Census of State and Local Finances, Nebraska ranked 10th highest in the nation for property tax as a share of personal income and 12th highest for property taxes as a share of gross domestic product.
“When we talk about giving property tax relief … in a lot of cases, probably the majority of cases, property tax still went up because property taxes are increasing higher than the relief we get,” he said. “So, basically what we get is a decrease in the increase.”
Erdman said property taxes are a major issue for people on a fixed income and lower income because they take a higher percentage of low incomes and place a smaller burden on the wealthy.
“Consequently, the issue was this: people who bought their house 30 years ago for $40,000 or $50,000, and paid their mortgage taxes and insurance back 30 years ago, was less than their property taxes today,” he said. “Property taxes are the number one issue for people on a fixed income and lower income.”
Sen. Lou Ann Linehan of Elkhorn said Nebraska not only has enough money to pay for the tax relief but also has $800 million stashed in the rainy day fund in case of bad times.
She said the increase in revenues was due in part to Nebraska’s economy not fully shutting down during the pandemic. Many of Nebraska’s top goods and services, such as food production and banking, are essential. Additionally, sales tax revenues were up due to citizens spending money from federal stimulus checks. Linehan also said the Legislature had held back on some spending in previous years, so there was money saved up.
“We’re in really good financial shape, so I don’t think you can justify keeping money that you don’t need,” she said.
Renee Fry, executive director of the Open Sky Institute, said that while Nebraska has had more federal funding this year, that funding won’t last forever. As the refundable income tax credit is raised with LB1107, it is built into the base for the next couple of years, during which it may become more difficult for the state to afford.
“To the extent that we have state dollars available that can be used for property tax relief, and it doesn’t result in cuts to education or other services that Nebraska families really rely on, that’s probably a good thing,” she said. “To the extent that federal funding is really lifting up state revenue, federal funding goes away, and then all of a sudden we sort of have this cliff, and that’s going to create really difficult decisions.”
Fry said Nebraska families are proud of the state’s public education system, and she is concerned that, if federal funding drops off, Nebraskans will have to decide between cutting property tax relief or cutting funding for public schools. She said she is also concerned because Nebraska ranks low in the percentage of state funding that goes toward local government services such as roads and public safety.
“I hate to say it, but property taxes have been a really complex, difficult issue for a long time, and the influx of federal funds sort of made it easy to go to property taxes without doing the hard work,” she said. “And, the hard work is really trying to determine how we fund K-12 education, how we support our other local government services so we’re providing the services that Nebraska families really want.”
According to census data, Nebraska is neither a high tax state nor a low tax state. Linehan believes that while lowering property taxes is a good start, taxes should be lowered overall.
This year, bills focused on other types of tax relief were also passed, including tax relief for veterans’ retirement income (LB387), social security tax relief (LB64) and eliminating sales tax on tap water (LB26).