Governor Jim Pillen has announced his intention to call the Legislature into special session starting July 25, with the goal of lowering property taxes in Nebraska. While a specific call has not been issued yet and specific legislation is pending, the OpenSky team has been laying the groundwork to understand the potential impact of the tax and education funding proposals being floated. A few things to look out for:

One State, One School District?

Among the more ambitious proposals being floated is for the state to assume the entire operational cost of K-12 education across all 244 school districts, estimated at $2.6 billion. This approach mirrors LB783 from 2023, which eliminated most taxing authority of the state’s six community colleges. Those colleges’ governing boards retain the authority to levy building funds as well as to backfill any shortages relative to the state budget.

The proposal for the state to take on much of the local share of school funding has generated more questions than answers, including how funds would be distributed to school districts and whether each district would be required to make an annual appeal to the Appropriations Committee of the Legislature for funding. Concerns also center around potential erosion of local control and whether the state stepping in to pay for schools could lead to the consolidation of rural school districts. Community colleges and the state University system also have the ability to generate revenues through tuition, where K-12 would not.

Sales Tax Exemptions on the Chopping Block?

To generate the revenue necessary to fund K-12 education at the state level, the Governor has outlined more than 120 currently-exempt products and services  to add to the sales tax rolls. Some of the exemptions being targeted for elimination include veterinary services for household pets, agricultural machinery, legal services and admission to zoos and aquariums. The current plan would leave in place exemptions on groceries, medical equipment and sales by religious organizations.

It remains to be seen whether each current exemption will have the support necessary to advance and whether the sum total will generate enough revenue to achieve meaningful property tax relief. Sales taxes on necessary goods and services can have an outsized effect on working families, who are already paying higher effective tax rates than Nebraska’s high income earners. 

Sin Tax, Sometimes?

Nebraska currently has in place four categories of taxes on specific items believed to be harmful to the user, both as a means of reducing consumption and to raise revenue. These are commonly known as “sin taxes.” They include tobacco and vape products, alcoholic beverages, gaming and gambling, and controlled substance taxes. To generate the revenue necessary to fund K-12 education and achieve property tax relief, many have suggested moderate to extraordinary increases in these sin taxes, including those outlined in LB388, which stalled on final reading last legislative session. This legislation originally included a 100% sales tax on CBD and consumable hemp products, as well as an increase in the cigarette tax to $1 per pack, up from the current 64 cents. It doubled both tiers of electronic cigarette taxes and flavored nicotine solutions.

The OpenSky team will continue to provide updates on the special session as more information becomes available, including on our social media channels.