Property tax relief bills defeated

Two major pieces of legislation that would have provided property tax relief were defeated this past week. Generally, I am supportive of proposals that attempt to lower property taxes.

LR 11, introduced by Bayard Senator Steve Erdman, is a constitutional amendment proposing to replace all taxation with a consumption tax on the purchase of services and new goods. Nebraska residents would no longer pay property taxes, income taxes, sales and use taxes, inheritance taxes, or estate taxes. LR 11 was advanced from the Revenue Committee on a 6-2 vote and was prioritized by Senator Erdman.

To implement the constitutional amendment and provide more information on how the consumption tax would work, Senator Erdman also introduced LB 133. However, this bill was not advanced from the Revenue Committee.

As proposed in LB 133, taxable property and services would be taxed at a rate of 10.64%. The following items would be exempt from the consumption tax: the sale of land; the purchase of fuel; the purchase of used property; and the purchase of taxable property or services for business, investment, or educational purposes. The consumption tax would tax all services with no exemptions and would also tax only new goods. Households would receive a monthly pre-bate, which would compensate them for taxes paid up to the poverty level. The state would collect the tax revenue above the poverty level.

The consumption tax proposal is a bold idea. No other state has adopted this tax system. Some senators stated that it was not ready for prime time. After senators debated the pros and cons of LR 11 for several hours, a vote on the advancement of the proposed constitutional amendment fell short.

LB 454, introduced by Henderson Senator Curt Friesen, would adopt the School Property Tax Stabilization Act. The purpose of this act is to increase the state’s share of the cost of education in school districts that are primarily funded from property tax revenue. Stabilization payments would be directed to schools where property taxes required to fully fund formula needs exceeds 70% of formula needs. Under the committee amendments, the percentage would be lowered to 55% by the fourth year. Stabilization payments would equal 50% of the difference between the property tax requirement and the formula needs threshold.

Currently two-thirds of our school districts do not receive equalization aid through the school state aid formula. This results in a disproportionate burden placed on rural landowners when funding school districts. Under LB 454, $65 million in stabilization payments would have assisted 177 schools in the first year, increasing to $167 million by the fourth year, assisting 207 schools. After several hours of debate, the vote on the advancement of LB 454 also fell two votes short.

There is general agreement that the school state aid formula needs to be reworked. When the formula was originally developed, it was not envisioned that agricultural land valuation would increase so greatly over the years. LB 132, introduced by Bennington Senator Wendy DeBoer, would create the School Financing Review Commission. The commission would be tasked with conducting an in-depth review of the financing of public elementary and secondary schools, including methods to offer alternatives to the heavy reliance on property taxes and to provide equitable education opportunities across the state. LB 132 received first-round approval after the sponsor promised to work on an amendment to adjust the make-up of the commission.

The legislature still has some major issues to debate during the last weeks of this legislative session. I encourage you to contact me with your thoughts and opinions. 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.