LINCOLN — A soon-to-be revamped property tax relief proposal in the Nebraska Legislature would use an existing school aid formula to funnel at least $1.8 billion to the state’s 244 school districts.
That change would be made largely to replace local property taxes with state funding, dropping maximum school tax rates for operational expenses from $1.05 per $100 of property valuations to a 25-cent lid.
Operational expenses represent about 80% of local school district budgets, the bulk of which Gov. Jim Pillen originally this summer considered having the state assume complete funding authority over.
The existing state “equalization aid” formula, which is used to give more state investments to schools, would be used as the vehicle to distribute the funds in place of property taxes.
“If you don’t vote for this, you’re voting for an increase in property taxes,” State Sen. Lou Ann Linehan of Elkhorn, the Revenue Committee chair, said at a Wednesday news conference. “It’s clear as day.”
‘More than enough money’
Linehan introduced LB 1 on behalf of Pillen, which ultimately did not include any direct language that would change future taxing authority to address Pillen’s outlined goals.
Instead, State Sen. Jana Hughes of Seward introduced LB 9, which would also drop maximum school tax rates to 25 cents per $100 of valuation, but her bill proposed reducing the tax rate gradually over 10 years. She crafted the bipartisan proposal with four lawmakers: State Sens. Tom Brandt of Plymouth, Danielle Conrad of Lincoln, Myron Dorn of Adams and Lynne Walz of Fremont.
Linehan, however, is ushering through the final Revenue Committee amendment to LB 9. She told reporters that the 25-cent tax rate was a result of that bipartisan work and because she asked many school leaders and senators last week what level of taxing authority would satisfy them.
Hughes and other state senators had said some level of taxing authority was needed so districts would not be entirely dependent on the state for funding.
The 244 school districts would retain roughly $1 billion in operational expenses from property taxes. That does not count bonds or two funds that go toward building projects or other specialized needs, which schools could still raise taxes for.
“We’ll have more than enough money to do this, plus some other things for counties,” Linehan said.
TEEOSA changes
Linehan said the committee would use LB 9 to significantly modify the existing “equalization aid” formula — the Tax Equity and Educational Opportunities Support Act, or TEEOSA, created in 1990, that would also be used to reduce local property taxes.
TEEOSA aid will be determined by the difference between a district’s 18 “needs” and six “resources.”
“Needs” include student growth, poverty and English as a second language. “Resources” include net option enrollment, allocated income tax funds and base aid per student.
Anger at Gov. Jim Pillen’s property-tax push spills into legislative debate
Another “resource” is based on possible property tax collections, assuming a $1 hypothetical tax rate across each school district. That is the amount the state assumes a district could raise if it had that high of a tax rate, based on its annual valuations.
The proposal would reduce that rate to 25 cents, dramatically increasing state aid.
An estimated $501 million in equalization aid is expected for the upcoming school year. The amendment would increase that total to $2.294 billion.
Under the current funding method, for the 2024-25 school year, 75% of school districts likely wouldn’t receive “equalization aid” because their “resources” outweigh their “needs.” All school districts do receive some state aid, largely through “foundation aid” — roughly $1,500 for each student in a district, which was established in 2023.
Hughes, who isn’t a member of the Revenue Committee, declined to comment until the committee amendment to her bill was finalized.
Reform needs to be careful
Walz said part of the reason she liked the original LB 9 was it was to be done in phases over a longer term. Every two years, lawmakers would have needed to find additional revenue to continue decreasing school tax rates, beginning at 65 cents per $100 of property valuations, then decreasing by 10 cents every two years.
“We were not disrupting services. We were not disrupting people’s lives. We were not creating a panic,” Walz said of the original plan. “It was a solid plan that could be paid for. We could find the money for that.”
Walz, a former chair of the Legislature’s Education Committee, said that her constituents want property tax relief and that she does, too. However, most of her constituents want any changes to be made carefully.
LB 9 will be considered by the Revenue Committee for one final vote at a closed-door executive session meeting Thursday morning, which is open to reporters but closed to the public.
“I don’t want to see reckless property tax relief that hurts Nebraskans, that hurts our education system, that takes away from vital services for people,” Walz said. “We don’t have to do everything today.”
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