Neb. legislators debate property tax relief
February 1, 2019
With the Nebraska Legislature starting back up last month, property tax reform is on the top of the list for senators from agricultural areas of Nebraska, and for their urban counterparts as well.
Unlikely bedfellows have joined together with Senator Tom Briese, District 41, to come up with Legislative Bill 314.
Nebraskans United for Property Tax Reform and Education includes ag groups and education groups from across the state, working together for a twofold purpose: to alleviate the heavy property tax burden faced by landowners in Nebraska, and to make funding for K-12 public education in the state more equitable.
According to Nebraska Farmers Union president John K. Hansen, Nebraska is forty-eighth in the nation in the amount of income and sales taxes used to fund K-12 education. In Nebraska, 49 percent of public education is funded with property taxes; the national average is 29 percent. The state has the seventh highest property taxes of all fifty states, and in agriculture, the highest for the amount of property taxes used to fund a public entity.
“The governor has not been on our side, working on our behalf. He goes his own way and doesn’t consult with us. We have just decided to take the responsible position of how do we rebalance income, sales and property taxes to get a more equitable mix.” John K. Hansen, Nebraska Farmers Union president
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LB 314 is loosely patterned after LB 1084, a bill Briese introduced in the 2018 legislative session that did not pass. Broadly speaking, says Edward Boone, legislative aide for Sen. Briese, "the bill is intended as comprehensive property tax relief."
LB 314 promises to generate an estimated $741 million in funding for property tax relief, with a shifting of taxes. Sales tax exemptions that would be eliminated under the proposal include candy, soft drinks, bottled water, tangible personal property repair (motor vehicles); pet-related services; real property remodeling, painting, and repair for residential housing; personal care services (hair care, massage, tanning, etc.); storage and moving services; parking fees, and more. LB 314 would eliminate itemized deductions, increase sales tax by a half-cent; add a 7.84 percent surcharge on income above $250,000 for individuals; repeal the special capital gains and extraordinary dividends exclusion; end the tangible personal property tax exemption; and more. LB 314 would also increase the cigarette sales tax by $1.50 per pack, and increase the tax on alcohol.
The bill faces several challenges. First, there are thirteen new senators in the Unicameral this year, and it's unclear where they stand on property tax relief. Secondly, last November, on the ballot, the state voted for Medicaid expansion, which will need to be funded. And thirdly, Governor Pete Ricketts hasn't shown a strong interest in property tax relief. The property tax relief bill he endorsed last year, LB 947, got ten fewer votes than LB 1084. "The governor has not been on our side, working on our behalf," Hansen said. "He goes his own way and doesn't consult with us. We have just decided to take the responsible position of how do we rebalance income, sales and property taxes to get a more equitable mix."
In the past, urban senators may not have felt the pressure of property taxes like the rural areas have. That may be changing, Hansen said. "They have a very mild case of the tax flu that we have, but it's high enough that it's getting their attention. We're clearly talking to urban folks. They're home owners."
Of the three revenue streams, Hansen said income tax is the most fair; property tax is the most regressive. "If you're making money, you can pay an income tax," he said. "Property tax has the weakest link to the ability to pay. Property doesn't necessarily generate income. The joke in agriculture is you live poor and die rich." Taxes should be business-friendly, he noted. "We have clear guidelines for tax policy, that it shouldn't disrupt normal business decisions and that you shouldn't tax inputs. We argue, in my organization, that land is an input. You have to have land to be able to transform sunshine and moisture and other things into either grass for cows to eat, or corn or soybeans or alfalfa or wheat or sugar beets or whatever else you're going to produce."
Monies raised from LB 314, if it were to pass, would be distributed to several things. Over half of it would go to increase the Property Tax Credit Cash Fund. Every property owner in the state gets a credit for their property taxes. In a real world example, Boone said, a house worth $100,000 currently gets $86.50 credit for property taxes; if LB 314 were to pass, that same house would have a credit of $267.36. For $100,000 worth of ag property, the current credit is $103.81; if the bill passes as it's written, the credit would be $320.84.
Funds raised from LB 314 would also go towards increasing the reimbursement rate for special education, restoring the allocated income tax returned to school districts, and conducting a school funding study.
One of the best assets of LB 314 is the strong support it has from a wide base of backers. Twenty-two organizations, from farm commodity groups to the Nebraska State Education Association, have worked together to propose a solution. It's a coalition that raises eyebrows and interest. "Just seeing (Nebraska) Farm Bureau and (the Nebraska) Farmers Union on the same side of the bill makes people do a double take," Boone said. Having farm groups and education groups work together is a good thing, he said. "Those groups have sometimes unwittingly been portrayed as being pitted against each other, when, at the end of the day, their interests are aligned. They all want a good education for the kids of Nebraska and they want property taxes to not be such a massive burden."
The bill is a compromise among many, and not an ego boost for any. "The coalition developed what went into the bill," Boone said. "It's not going to benefit any group more than another." There is no pride of ownership with the bill, either. "This isn't a bill that this or that group wrote and asked a senator to introduce. Compromise is difficult in the political process, and it's especially difficult when there is too much pride of ownership on one side."
Boone says Sen. Briese is "cautiously optimistic" about the bill. "Every senator on the revenue committee has expressed a desire to deal with property tax relief," he said.
Hansen is also optimistic. "This bill stands a good chance, with so many diverse groups supporting it. This is my thirtieth year (in the Nebraska Farmers Union) and the thing I know for sure is, if ag is divided, it loses.
"If ag and education are not in the same room and working together, we're going nowhere on tax reform."
More information on Nebraskans United for Property Tax Reform and Education can be found at http://www.nebraskansunited.com.