Components of LB 461: Nebraska speaks up about property tax reform
May 3, 2017
The bill labeled "LB 461" currently moving through the Nebraska legislature is composed of two other bills, "LB 337" and "LB 338." An agricultural coalition of various commodity and communication groups from across the state have joined forces working to adjust the current property tax changes and land valuation formulas in 461.
"LB 461 does not lower our property taxes," said John Hansen, Nebraska Farmers Union president. "It lowers our income tax, which means that we are going to be shifting more property tax in the future if we are going to adequately fund education."
Nebraska currently funds education through a combination of property, sales and income taxes, while the rest of the support for schools is supposed to come from state-aid. Nebraska ranks as the seventh-highest in property tax payments and 49th in the efficient use of income and sales tax for covering the cost of education, Hansen added.
"Presently, we have an over-reliance on property taxes, carrying almost half the burden for funding state services," said Steve Nelson, Nebraska Farm Bureau president. "We need a better balance of the tax burden in the state."
“There are certainly opportunities within 461 for some property tax relief. It is minimal compared to the big picture and that is with the best-case-scenario. If we move to less than the best-case-scenario, there is very little in this for property taxpayers.” Steve NelsonNebraska Farm Bureau president
Education and agricultural associations representing a majority of the Nebraska population are working together to help balance the burden of funding state services through amendments of 461.
"You do not see these agricultural entities working with the educational sector very often but they see that if we do not find a solution we will be in a big bind," said Sen. Al Davis. "Obviously we have to educate our kids so these local schools will only have one choice and that will be to go back to property taxes."
Gov. Pete Ricketts is pushing 461 as a tax-relief package, however, it focuses more on income tax reduction subsequently adding pressure to the already exhausted property-tax reliant education system. Additionally, he has proposed changes to the valuation formula for farmland.
"LB 338 takes the current formula from using strict representative sales to a system where you use an earning-capacity formula that uses income," Nelson said. "It has a state-wide floating cap, but you still have huge variability with only a 3.5 percent cap."
Nebraska Farmers Union believes this cap could possibly be unconstitutional, they conclude the valuations of farmland will only see marginal reductions.
"It would result in some reduction in value for ag land," said Jay Rempe, Nebraska Farm Bureau senior economist. "It would be a one-time reduction, one year and then after that the values will change according to the underlying market condition limited by the cap."
This new formula would estimate an income for the different types of land across the state, divide this by a capitalization rate to find the taxable value, Rempe added. This is similar to the formula other states use in regards to it being an income-approach to valuing ag land.
"It will vary depending on the county it is in and the type of ground whether that be dryland, irrigated, or pasture," Rempe said. "They will also change each year depending on what is happening in the underlying market."
The education system is linked to the changes in farmland valuation because of the correlation between valuation reductions and levee increases. The Nebraska Department of Revenue estimates a possible $147 million in property tax reductions, this is accompanied by some interesting stipulations.
"If all 2,000 or so local government entities can make a commitment to keep their levees where they are at," Rempe said. "In other words, they are going to have to reduce the spending necessary to deal with the revenue loss from this."
Rough estimates show Cherry County would not see any reduction in property taxes while Thayer County would get about a 10 percent reduction and Hall County only a 1 percent reduction, Rempe added.
"As soon as you tie it to the market, which this bill does, you have eliminated most of the components that our members believe make an income-based property tax policy good," Nelson said. "This bill falls short in a lot of areas, not just in the very small amount of property tax relief it provides."
INCREASE IN TAXES
In the last 10 to 15 years, property taxes have increased 150 to 200 percent, Nelson added.
"We are at a huge competitive disadvantage with all of our neighboring states," Nelson said. "Agriculture is the largest single business in the state. Yet, our governor is doing his best to make us even less competitive than we already are and to increase the total amount of property taxes we pay over time when we are already in financial crisis."
A wheat farmer owning ground in both Western Nebraska and Colorado pays seven times more in property taxes in his home state than he does in Colorado. His best ground in Nebraska does not even compare to his land in Colorado.
"There are certainly opportunities within 461 for some property tax relief," Nelson said. "It is minimal compared to the big picture and that is with the best-case-scenario. If we move to less than the best-case-scenario, there is very little in this for property taxpayers."
Nebraska's revenue is a combination of income and sales tax. The state is currently a billion dollars short of meeting the states' financial obligations.
"Income tax relief is not very helpful to a bunch of folks who are loosing money and have no income," Hansen said. "Farmers and ranchers are going broke and are under tremendous financial pressure so the governor decides to give the richest people in Nebraska a tax break." ❖
— King is a freelance writer from Oakland, Neb., and a graduate student at Oklahoma State University in Stillwater. She can be reached at email@example.com.