Proposed property tax breaks designed to match the dollars that the state would commit in income tax cuts could restrict what’s available to fund programs that all Nebraskans rely on.
The framework for property tax cuts, LB 243, and a bill amended into the package, LB 242, commit the state to spending $1.97 billion over the next two years to fund direct property tax credits as well as income tax credits for property taxes paid. That commitment grows to $2.24 billion over the two years to follow.
As proposed, the package puts growth in property tax breaks that the state must pay for on autopilot, while at the same time placing a revenue cap on what local school districts can spend to teach our kids.
With senators expected to begin consideration of the property tax package on Friday, we looked at LB 243 and other bills included in the package by the Revenue Committee.
LB 243 would incrementally increase what the state sets aside to provide direct credits to land and home owners from the current $315 million to $388 million in 2024 and eventually to $560 million by 2029. In later years, annual increases would match growth in assessed valuations statewide, irrespective of the state dollars available to pay for the credits.
Similarly, LB 242 would allow funds distributed through income tax credits for property taxes paid to public schools and community colleges to accelerate in correlation to growth in assessed valuations. The credits, now capped at 5% growth each year, could expand rapidly. Ag land values across Nebraska alone grew 14% last year, the Omaha World-Herald reported.
While eliminating the cap on growth in what the state would pay out in tax credits for property taxes levied by public schools, the tax package establishes a revenue cap on school districts linked to major changes in how the state funds K-12 education as proposed in a separate package, LB 583.
LB 589 caps what a school district can receive in property tax revenues at 3% over the prior year, with some flexibility based on student growth and other factors, without an override vote by school board members or district patrons.
Basing growth on the prior year’s property tax request and non-property tax revenue as proposed in LB 589 means the cap would apply not just to property taxes, but to all sources of state revenue. That means a district’s property tax request would need to go down any time it received an influx of non-property tax revenue like state aid.
Polling consistently shows that Nebraskans want strong schools, and the state’s business community benefits from a K-12 education system on solid footing. With inflation rising, capping schools’ ability to increase their spending over time could curb their ability to recruit and retain staff and bolster student outcomes.
Other bills included in the package propose to change how property under appeal to the Tax Equalization and Review Commission is valued while an appeal is pending (LB 28) and increase the interest rate on property tax refunds from 9% to 14% (LB 309). It’s unclear what revenue impact LBs 28 and 309 could have on cities, counties, school districts and other political subdivisions.
LB 783, included as part of the proposal, strips community colleges of authority to levy a property tax, shifting that share of funding responsibility to the state. Original estimates put the cost at over $100 million a year.
The marriage of the income tax cuts and property tax breaks comes with a significant cost at a time when state revenues are bolstered by economic stimulus.
If approved, these cuts could restrict what’s available for important programs, including health care for aging populations, unemployment insurance and nutritional support.