Nebraska considers property tax relief
January 25, 2018
There may be relief on the way in Lincoln, Neb., for the high property taxes paid by property owners in the state.
Several bills have been introduced for the 2017 Unicameral session, which will have a sixty-day session, ending April 18.
Those bills attempt to address one or both factors affecting property owners in the Cornhusker state: extremely high property taxes, ranking Nebraska seventh in the country in the percentage of property taxes paid, and the inequities within public education funding. In Nebraska, public schools receive 49 percent of their funding from local property taxes, while the national average is 29 percent.
Nebraska farm and ranch ground is taxed on a three-year average of its market value, not its productivity, and while land values have plateaued and commodity prices have plummeted, taxes have decreased very little. Farmers can pay anywhere from $22 per acre for irrigated ground in Box Butte County to $105 per acre for irrigated ground in Seward County.
Sen. Steve Erdman from Morrill County has introduced Legislative Bill 829. The bill, according to Bruce Rieker, vice-president of governmental relations for the Nebraska Farm Bureau, would create a 50 percent refundable income tax credit for the property taxes paid for K-12 education. That tax credit would be for farm, residential and commercial property owners. From a half-dozen to ten senators were involved in creating the bill, but the thing missing from it is a way to replace the funds not collected. It is estimated the tax credit would equal about $1 billion. One advantage to the bill which may appeal to the public is its simplicity, Rieker said. "You can directly calculate what's in it for me," he said. "If you have a $10,000 property tax bill, of which approximately 60 percent goes to fund K-12 education, you would receive $3,000 of that as an income tax credit."
Legislative Bill 947, which was introduced by Sen. Jim Smith of Papillion, is endorsed by Gov. Pete Ricketts. Ricketts, who has declared he will run for a second term this fall, has emphasized he will not increase taxes, possibly limiting what property tax reforms he will support. LB 947 takes the money in Nebraska's property tax credit fund (about $221 million), and repurposes it to create a refundable income tax credit for residential and agriculture property owners. The bill also increases the refundable income tax credit in the future using triggers based on future state revenues. The governor has said this will create a starting point for negotiation, and the bill will create a larger tax credit for ag land in the long run.
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Rural legislators, producers and other groups have worked for several years on property tax relief and education funding reform, running up against either "deaf ears" in Lincoln or pushback, they say. When the agricultural interests push for relief, Rieker said, some elected leaders and urban interests say "property taxes are a local issue and the state can't do anything about it." As a wake-up call, Sen. Curt Friesen, District 34, has introduced two bills to offer property tax relief, both with a sense of applying pressure, to stir those who are less affected by high property taxes. Legislative Bill 1103 requires the state to pay 25 percent of the basic education costs in each school. Each district would figure its costs; there would not be a state-wide average. Public education funding in Nebraska is inequitable; the state has 245 school districts and 178 receive no state funding. The total cost of public education in the state is $3.4 billion, including both property taxes and state aid, so the state would be required to come up with a quarter of that, approximately $850 million. For schools already receiving state aid, they would receive the greater amount of the two (either the 25 percent or what they were already receiving in state aid).
Friesen's second bill, LB 1077, is another attempt to rouse those not alarmed with the high property taxes in the state. LB 1077 states all public education will be paid for by local property taxes. The bill eliminates the property tax levy limits and mandates all K-12 education should be paid by property taxes. That would get the attention of residential property owners, Rieker said. For instance, in Lincoln and Omaha, about half of K-12 education is funded through property taxes and the rest comes from state and federal sources. If property owners in those cities were forced to pay one hundred percent of the costs of education like property owners do in the 178 school districts that receive no state aid, their property taxes could skyrocket fifty to sixty percent, Rieker said. If LB 1077 would pass and become law, it would bring a whole new perspective to the argument that property taxes and school funding are a local issue. "It's Friesen's way of saying, if you want to play this game, I'll play it, too," Rieker said.
What is perceived as an "anti-ag" bill was introduced last week to "start a discussion," according to Sen. Paul Schumacher, District 22, who proposed the Irrigation Tax Act, LB 1022. For every well that produces at least 5,000 gallons a day, LB 1022 would collect one cent per 10 gallons. Applying 12 inches of water to an acre would imply a tax of about $326 per acre, "trumping any tax ever imposed on irrigated land in Nebraska," said Terry Kastens, a Nebraska landowner who lives in Kansas. In an interview on KRVN radio in Lexington, Neb., Schumacher said, "The intention is to put this idea in the hopper with about fifty other ideas, of how to grapple with the tax problem. If we do massive property tax cuts, we're going to have to come up with the money to cover maybe $1 billion" (as proposed in LB 829). Schumacher's intent to start a conversation with LB 1022 has worked, Rieker said. "He ticked off so many producers across the state. We're getting a flood of emails, texts, and calls. We're going to do everything we can to make sure his bill goes nowhere."
Probably the most thoughtful bill, Rieker said, is LB 1084. Introduced by Sen. Tom Briese, District 41, the bill works to generate $700 million in revenue by eliminating preferential tax treatment for people who make money in out of state interests, streamlining preferential tax income, eliminating some sales tax exemptions, and increasing cigarette taxes. It caps property taxes being spent on education and restores some cuts made to education, including a fully funded provision to TEEOSA (Tax Equity and Educational Opportunities Support Act), which originally required 20 percent of income tax returned to the school district but only has two percent returned now. The bill would push between $80 and $85 million of state money to those schools that get no state aid. The most remarkable part of the bill is that both property owners and education people came to the table in agreement over most of it. Several agriculture groups, plus both large and small schools are part of the effort behind the bill, which also includes a study of how to reform how taxes are raised and distributed, a study "with some teeth in it," Rieker said.
If nothing is done legislatively, a ballot initiative, which is already in the works, can go in front of the people on the general election ballot in November. LB 829, introduced by Senator Erdman, has been written in the mirror image of a ballot initiative, put together by a group of Nebraskans created to address the problem of high property taxes. Reform for Nebraska's Future is behind the initiative, and if property tax relief does not occur in the state legislature this year, there is a chance that the initiative could be put to the people. Kelly Brunkhorst, with the Nebraska Corn Growers Association, thinks that the ballot initiative is a very viable option, should legislation not pass this session. It "has put a lot of pressure to provide meaningful property tax relief and to start the discussions on reform and how we look at funding K-12 education, so it isn't so reliant on property taxes."
The proposed bills are steps towards property tax relief and reform, not substantive reform, which Rieker doesn't think will be seen this year. There is a "lack of political will," Rieker said, to totally reform the system, and some of the introduced bills reflect that. "Until there is a crisis, until you create so much pressure on the Legislature and Governor to act, they won't do it. They aren't going to tackle substantive reforms until the pressure becomes too great because of something like a ballot initiative."
Rieker does believe a property tax bill will pass this year because the ballot initiative is real. The initiative "has such appeal to the property owners, that our elected leaders would rather solve it and make it go away than suffer the consequences. With this an election year, political pressure, the fear of the unknown, and potential of the state facing a billion-dollar deficit, leaders may finally give property owners relief."
Producers can help in several ways. They can come to Lincoln to testify in support of bills, and if they can't travel to Lincoln, they can submit letters of support. Property owners need to "weigh in on the bills," Rieker said. "Apply pressure and be engaged." Nebraska Farm Bureau and other ag groups send emails and newsletters with information on legislative activities; interested people can keep updated through those communications.
Property owners, especially ag producers, believe that something needs to change, and change is coming. "The burden of continuously rising property taxes has now become unbearable for far too many property owners," Erdman said, and there are many Nebraskans who agree with him. F