Nebraska relies more on local property taxes to fund public schools than 48 other states.[1] LB 1073 — which will be the focus of an Education Committee hearing on Tuesday — could reduce our reliance on property taxes while maintaining the equalization principle of the state’s school funding formula.
Furthermore, unlike other property tax proposals, LB 1073 would not squeeze school spending by imposing new tax and spending constraints on school districts. Below we look closer at how LB 1073 makes these school finance changes.
Reduces agricultural land value from 75% to 55% in the school funding formula
Nebraska’s school funding formula — the Tax Equity and Educational Opportunities Support Act (TEEOSA) — relies heavily on local property values to calculate the resources school districts have to fund themselves. If a district doesn’t have the resources to meet its educational needs, the state fills in the difference with equalization aid. When agricultural land values spiked early last decade, many school districts saw their resources increase to the point that they no longer qualified for equalization aid despite the fact that in many cases, agricultural incomes did not increase at the same level as land values.
Under LB 1073, the value of agricultural land used to determine how much a school district could potentially collect in property taxes at the local level would be reduced from the current 75% of market value down to 55% of market value. Reducing the taxable value of agricultural land inside the formula lowers the districts resources and allows more school districts to qualify for equalization aid. OpenSky modeling shows this action would restore equalization aid to 10 districts and push the total number of districts receiving equalization aid to 94. This also would increase state aid for equalized districts that have agricultural land.
Reduces the Local Effort Rate from $1.00 to $0.99
The local effort rate is the “tax rate” in TEEOSA used to determine how much a school district could potentially collect in property tax at the local level.[2] The “yield from local effort rate” is the result of multiplying the local effort rate — which would be $0.99 under LB 1073 — by the adjusted value of agricultural, residential and commercial property to determine the local resources of a school district. Lowering the local effort rate reduces a district’s resources and provides more equalization aid. Lowering the Local Effort Rate would bring more state aid to both urban and rural equalized school districts.
Provides school districts with 7.5% of basic funding
Each school district has basic costs associated with general operations, such as employee salaries and benefits, maintenance, fuel and utilities. These costs are included when calculating the basic funding. Each district’s basic funding is based on the average actual costs faced by that district and districts with similar numbers of students. Under LB 1073, 7.5% of the basic funding of each school district would be part of the total calculated state aid. The basic funding aid is new state aid for non-equalized school districts and provides no additional funding for equalized school districts because equalization aid is reduced by the amount of basic funding aid received. The basic funding component provides a consistent level of state support for non-equalized districts.
Safeguards will prevent measure from busting the budget, compromising the equalization principle
This proposal has several important safeguards. First, it is concerning that funding for LB 1073 is reliant on projected revenue growth. However, the measure is easy to modify should revenue come in below projections in any given year, which makes LB 1073 less of a budgetary risk than some other property tax proposals before the Legislature that also rely on projected revenue growth.
LB 1073 also states that equalization aid must be fully funded pursuant to the TEEOSA formula before funding the other components in the proposal. This ensures that TEEOSA’s objective of maintaining equitable educational opportunities for all Nebraska students is sustained.
Finally, it reinstates a school finance review committee to study the financing of public schools in Nebraska.
Conclusion
LB 1073 increases state aid to all school districts, providing property tax relief for Nebraskans in a way that isn’t punitive for Nebraska’s public-school students. Furthermore, its safeguards would prevent the bill from creating fiscal challenges for the state while maintaining equitable educational opportunities for Nebraska’s public-school students.