State forecasting board projects upward trend

The Nebraska Economic Forecasting Advisory Board met last week and revised the current forecast upwards. The board projected an increase of $204 million for fiscal year 2020-21, $165 million for fiscal year 2021-22 and $93 million for fiscal year 2022-23, for a total increase of $462 million. The three-year average growth rate increased from 2.9% to 3.4%.

Under LB 1107, the property tax relief bill passed last year, property taxpayers are eligible for a refundable income tax credit based on the amount of real property taxes paid to schools during the prior year. The credit was funded at $125 million in the first year of implementation, which equals approximately 5.5% of real property taxes paid to schools. The legislation contained a trigger mechanism for growth in the program. To trigger additional dollars beyond the $125 million, certain conditions must be met. If net receipts exceed forecast by 3.5% and the cash reserve is at or above $500 million, then 100% of the excess over 3.5% is added to the income tax credit program. If the cash reserve is less than $500 million, only 50% of the excess is transferred to the program. By 2025, $375 million must be available for the income tax credit program and this amount will grow based on the percentage change in overall statewide valuations, with a cap of 5%. By 2025, the credit is projected to grow to approximately 15% of school taxes paid or approximately $2,227 per average farm. This is in addition to the Property Tax Credit Fund which offers $275 million annually as a credit on your property tax statement. The gambling initiative passed by voters last year also earmarks 70% of the taxes collected to this fund.

Based on the updated fiscal year forecast, which is above the 3.5% target level and pushes the cash reserve balance above $500 million, the funding for the income tax credit program will jump from $125 million this year to $313 million for fiscal year 2021-22.

The Revenue Committee advanced LB 408, the Property Tax Request Act, to the floor on a 7-1 vote. Under LB 408, introduced by Senator Tom Briese, a political subdivision’s property tax request cannot exceed the prior year’s property tax request by more than 3%. Such 3% cap could be exceeded with a vote of the people. The 3% increase on property tax requests would not apply to property tax dollars required to pay for the principal or interest needed to retire bonded indebtedness or property taxes raised from real growth (improvements, new construction or annexation) of a political subdivision.

LR 22 is a constitutional amendment, introduced by Sen. Lou Ann Linehan, at the request of the governor. LR 22 is similar to LB 408 but would place the provisions in the constitution, which would be more difficult to tweak if changes are needed.

Blueprint Nebraska consists of a group of state business leaders whose goal is economic growth for our state. Since 2018, Blueprint Nebraska has worked with local stakeholders to identify the state’s core challenges and to chart a roadmap toward a strategic initiative that can shape our future. At a press conference this past week with two Revenue Committee members, they talked of their vision to pass a tax modernization plan by 2022. Their vision of good tax policy is a tax system with a broad base and low rates. The intent is to come up with a plan this session, take it across the state this summer to gain support and bring it before the legislature next year.

All of the committees except the Judiciary Committee finished the public hearing process this past week. The legislature will meet in the mornings next week, allowing the Judiciary Committee to complete their work in the afternoons. Full day debate will begin on March 15.

Again, I encourage you to contact me with your thoughts and opinions on the legislation before us. I can be reached at District #40, P.O. Box 94604, State Capitol, Lincoln, NE 68509. My email address is [email protected] and my telephone number is 402-471-2801.