Legislators didn’t vote on a $520 million property tax relief bill after three hours of debate, and with senators split on its merits it’s unclear if there will be enough support to pass it.
Sen. Lou Ann Linehan of Elkhorn, chairwoman of the Revenue Committee, is leading the charge for property tax relief with a plan that would lower property taxes and increase state aid to school districts.
“We have a crisis in Nebraska because our K-12 education depends on an overreliance on property taxes,” Linehan said.
Lawmakers will need to demonstrate sufficient support for a cloture motion before the bill, which is an amended version, could be debated again. A cloture motion requires 33 votes, which is two-thirds of the legislative body.
During the third day of debate of the summer session, lawmakers had concerns about the $520 million funding for LB1106 over the next three years since the financial implications of COVID-19 are still unknown.
Sen. Wendy DeBoer of Bennington filed a motion to delay consideration of LB1106 until Aug. 13. DeBoer is resistant to passing LB1106 because Nebraska’s financial situation and economic outlook is still unknown.
“I don’t think we have the money for this bill,” DeBoer said.
Even though DeBoer agrees something needs to be done about property taxes, she doesn’t agree that LB1106 is the solution because it would restrict local spending on education.
“I care about property tax relief but I’m not going to do it on the backs of our students,” DeBoer said.
Sen. John Stinner of Gering, chairman of the Appropriations Committee, said that the Legislature needs to make critical decisions on where to spend money.
“We have to have flexibility in this Legislature depending on what revenue we have,” Stinner said. “I believe in property tax because it has flexibility.”
Stinner also said that lawmakers may need to separate from the Coronavirus Aid, Relief, and Economic Security Act, referred to as the CARES Act enacted by the federal government. The CARES Act includes a $250 million tax break for businesses. This $250 million would be added to other revenue losses caused by COVID-19, which are estimated to be between 10% to 25% of state revenues. If lawmakers choose to adopt these tax cuts, there may not be room in the state budget to cover property tax relief.
Property taxes are collected locally; the state does not collect property taxes, but Nebraska has some of the highest property taxes in the nation. Linehan, citing the U.S. Census Bureau, said Nebraska ranked 49 out of 50 states in 2018 for funding for schools from state revenues.
LB1106, as introduced by Speaker Sen. Jim Scheer of Norfolk, would have repealed outdated sales tax provisions. A Revenue Committee amendment would replace LB1106 with a modified version contained in LB974, which didn’t advance after debate in February.
In the amendment to the bill, taxable property valuations for school districts would be reduced over a three-year period. Residential, commercial and industrial would drop from the current 100% of taxable value to 87%. Agricultural land would drop from 75% to 55%.
TEEOSA, the Tax Equity and Educational Opportunities Support Act, is the current school finance formula for Nebraska public schools. The school finance formula under TEEOSA is a district’s estimated needs minus its estimated local resources, which are primarily property taxes. The gap between educational needs and available resources is filled by equalization aid, which accounts for the bulk of school funding.
Linehan said that with fewer local resources, which are primarily property taxes, they would be able to provide more equalization aid to schools.
“If we don’t address property taxes, it gets worse and worse,” Linehan said. “As your residential and commercial values go up in Lincoln, Omaha, Grand Island and Norfolk, the schools TEEOSA aid goes down.”
Linehan said that Lincoln Public Schools this year will get almost $20 million less in equalization aid than it got last year because valuations have increased.
The bill would also create foundation aid, which would provide state support for every school district in Nebraska. The state aid would be on a per student basis and begin in 2021 with $703 per student, then $1,557 in 2022 and $2,341 in 2023.
Opponents of LB1106 in the education community are concerned about the 2% growth limit for districts saying it impairs their ability to grow their budgets. In response, Linehan said for the last 10 years growth has averaged 1.45%, but in her bill there are exceptions to the budget limitation.
Sen. Sue Crawford of Bellevue said that education groups aren’t engaged in the property tax relief discussion. She said there needs to be collaboration with taxpayers and school interests at the table.
“All education groups in Nebraska are in opposition to this current plan,” Crawford said. “We can move forward but in a collaborative way.”
Sen. Tom Briese of Albion said that LB1106 is a generational opportunity to address the property tax crisis in Nebraska.
“If everyday Nebraskans could vote on this it would pass overwhelmingly, but instead we are voting on it,” Briese said.
Some equalized school districts – districts that receive funds through the TEEOSA formula – aren’t in favor of LB1106 because they are concerned about the shift away from equalization aid. According to Briese, after full implementation, foundation aid would comprise about 50% of total state aid and the equalization formula would remain in place. He said that foundation aid would merely be a resource in the computation of the equalization aid formula.
“As I look at the items in LB1106, I just don’t think we are asking anything unreasonable to our partners in the education community,” Briese said.