Property tax reform in Nebraska won’t happen this year
May 4, 2018
Nebraska farmers and ranchers hoping for property tax relief will be waiting another year, since the Nebraska legislature failed to agree on the issue.
In the beginning of the 2018 legislative session, hopes were high that at least one of three major property tax relief bills submitted by legislators would be passed. All three bills died either in committee or on the legislative floor. More recently, a petition drive abruptly ended that would have placed one of the bills, LB829, on the ballot for the voters to decide.
The state is in the midst of a farm crisis not seen since the mid 80s, according to John Hansen, president of the Nebraska Farmers Union. According to University of Nebraska data, the average Nebraska farm pays $22,934 each year in property taxes, which is 60 percent more than the second-highest state, California, at an average of $13,299.
Nebraska farmers and ranchers are ranked first in the nation in agricultural property taxes, and Nebraska residents are rated seventh. "When 72 percent or 178 out of 244 of Nebraska's school districts do not currently receive any state equalization aid, and are forced to rely solely on property taxes, something is seriously and obviously wrong, and cries out for remedy," Hansen said. "When Nebraska is 49th in the nation in the percentage (32.5 percent) of income and sales taxes used for total educational funding from the state, it is high time the state increases the amount of income and sales taxes used to fund education," he said.
“The governor’s plan didn’t mean anything anytime soon to anybody. If you’re running for re-election and you want to say you’re for property tax relief, that’s what you have to say,” ” Sen. Steve Erdman of Bayard, Neb.
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"In the last 20 years, we have shifted about $1 billion in K-12 funding obligations from income and sales tax revenues to property taxes," Hansen said. "Property taxes have become a fail-safe mechanism by default because it picks up what income and sales taxes don't cover."
Of the three bills proposed this year, LB1084, sponsored by Sen. Tom Briese of Albion, "would have provided real property tax relief, adequately funded education, provided for a long overdue study of the state's school aid funding formula, and re-aligned the excessive overuse of property taxes by updating Nebraska's current income and sales tax exemptions," Hansen said.
Since the legislature failed to act on the bill, Hansen said the coalition plans to go back and revisit it. "We plan to update it and take another run at it," he said.
The basis for the bill came from the Nebraskans United for Property Tax Reform and Education Coalition, which is made up of organizations that represent small, medium and large schools, teacher's associations, school administrator's associations, and almost all the agricultural organizations in the state. "Instead of having education and agriculture fighting each other over this issue, we have come together to come up with something that adequately addresses the need to fund education and provide property tax relief," Hansen said.
The coalition worked 16 months to develop a package that provided real property tax relief, and was adequately funded. Some of the key ingredients of this bill were raising the sales tax base by adding a lot of services to modernize it, so it is comparable to what other states have done successfully. The sales tax rate would be increased by a penny, and some income tax exemptions would have been eliminated.
The bill also proposed pulling the plug on two state economic development programs that Hansen said were draining the budget. "In some cases, we're spending $300,000 to bring in a $30,000 job. We can not continue to finance those kinds of targeted and ineffective programs. We are not getting a good return on our investment," he said.
NO PETITION DRIVE
Sen. Steve Erdman of Bayard proposed LB829, but the bill failed to make it out of the revenue committee or to the floor for discussion. A group, Reform for Nebraska's Future, then lead a petition drive that would have empowered Nebraska's residents, giving them the right to vote on the bill that failed to be addressed in the Nebraska legislature. The petition drive abruptly ended last week.
The bill would have provided an income tax credit in 2019. The state would be required to pay all farmers, resident, commercial and industrial landowners 50 percent in property taxes they paid for education as a refundable income tax credit.
Looking at the big picture, it would amount to 30 percent of the total property tax bill, Hansen said. Under this plan, if a farmer pays $9,000 in property taxes, 30 percent of that would be refunded as an income tax credit, so the farmer would get about $3,000 back. "The total liability to the state of Nebraska would be an estimated $1.2 billion," Hansen said. "Because of this, there has been a lot of effort in the legislature to head off the citizen's initiative because it would be a huge jolt to the state budget."
THIRD BILL DIES
The third bill considered by the legislature was backed by Nebraska Gov. Pete Ricketts. The Property Tax Cuts and Opportunities Act (LB947), introduced by Revenue Committee Chairman Jim Smith, made it out of the revenue committee but the bill died on the legislative floor. The proposal would have reduced the state corporate income tax and provided for a 2 percent property tax refundable income tax credit for agriculture, and a 1 percent credit for residential taxpayers with a $25 maximum cap, which would continue for the next 10-12 years. The governor, who has pledged not to raise income or sales taxes, proposed paying for these cuts using the state's cash reserves.
Hansen called the proposal "irresponsible" and "way too little, way too late." "It is a lot like calling an ambulance 10 years after the funeral," he said. "We're in the middle of an agriculture crisis. If a farmer is going broke today, what good does it do to get some relief in 10-12 years?"
Erdman agreed. "The governor's plan didn't mean anything anytime soon to anybody. If you're running for re-election and you want to say you're for property tax relief, that's what you have to say," he said.
However, Ricketts insists he is making an effort. "Nebraskans across the state have been asking for property tax relief as farm land and residential land values have increased," he wrote. "This is why I have made property tax relief a priority every year I have been governor. I have signed into law over $840 million of direct property tax relief. Last year, I proposed major structural changes to property taxes on farms and ranches, and two years ago I worked with a bipartisan group of senators on spending caps to control property taxes. Neither of these proposals were passed by the legislature," he said.
Until the next legislative session, Ricketts said he intends to visit with Nebraskans about how to achieve property tax relief. "I stand ready to collaborate with the legislature on this issue. As governor, I have committed to working on tax relief every year, and I will be working to bring Nebraskans together around this issue in the coming months," he said. ❖
— Clark is a freelance livestock journalist from western Nebraska. She can be reached by email at email@example.com.