After days of deliberation and a weekend of intense negotiations to seek to secure the necessary number of votes to overcome a filibuster, the Revenue Committee advanced AM 73 to LB 34 Monday afternoon, mere minutes after receiving a draft of the bill. This sets up a General File debate on a property tax relief package to begin Tuesday, as was promised by Speaker John Arch last week.

LB 34, introduced to put a freeze on valuation assessments, has become the vehicle for a Frankenstein-eque package incorporating many proposals dealing with expansive sections of sales and property tax statutes, a departure from LB 9, a plan that gradually decreased maximum levies for school districts over the course of 10 years and which was earlier planned to be the Revenue Committee’s vehicle for their property tax relief package.

Legislators will have less than 24 hours to evaluate a 122-page amendment that makes major changes to local government budgeting, school district funding and the overall Nebraska tax code before debate starts Tuesday morning. In a regular session, legislators would likely have several weeks to seek financial modeling and consult with community groups, local government leaders and their constituents on such a complex piece of legislation. This is on top of a number of unorthodox proposals in this special session, like significant revisions to the state’s biennium budget late in its life cycle and less-than-transparent hearing procedures.

So what’s in the package?

Some provisions have changed since last week, but many have stayed the same.

  • Agricultural and manufacturing machinery and equipment are no longer included in the series of repealed tax exemptions. This was the biggest revenue raiser in an earlier iteration of the package ($123 million estimated), but met with concern from agricultural, commodity and business groups who raised the issue of fairness in taxing business inputs.
  • The plan does, however, repeal 68 other sales tax exemptions on goods and services, ranging from haircuts to pet services. These goods and services would become at least 5.5% more expensive under this plan.
  • “Sin” taxes are incorporated or increased on alcohol, tobacco, CBD and vaping. New sin taxes will be imposed on soft drinks and candy, which many have pointed out have vague definitions that may present difficulties for vendors to interpret and implement.
  • A new 10% sin tax on alternative nicotine products, such as ZYN.
  • Attempts to target tax relief to low-income Nebraskans. The legislation includes an expansion of the earned income tax credit from 10% of the federal credit to 20% and adds a new sales tax exemption on electrical utilities. Critics of the package have noted that these provisions may not be sufficient to offset the overall regressive nature of the tax shift considered in the Revenue Committee’s package, particularly for individuals with disabilities or with fixed incomes, and for renters who will not benefit from a reduction in property taxes but will be subject to the new sales and excise taxes.
  • Phasing down school district levy limits from $1.05 to 30 cents over 3 years. Some provisions included in the bill may have been intended to hold school districts harmless and attempt to allow them to connect additional revenue if the state is not able or willing to meet its commitments to school district budgets, but they are not clearly defined in scope or implementation.
  • Lowering the local effort rate from 5 cents below the maximum levy to 2.5 cents. This will increase the resources side of the TEEOSA formula, causing school districts to receive less in equalization aid as a result.
  • A fix to TIF? Section 76 of the amendment purports to prevent negative interactions between a phase down of school district levies with pre-existing tax-increment financing deals that many cities across Nebraska use as a critical mechanism for economic development projects. This new language will need careful review to ensure that economic development projects do not lose funding as a result of this legislation.
  • The state will also collect a portion of any local sales taxes levied by Nebraska municipalities or counties in order to fund the plan, further decreasing their ability to raise the revenue necessary to fill any gaps.

OpenSky’s analysis of the bill is ongoing. However, one constant in the package is that the substantial changes to K-12 funding being proposed in this special session are designed for the primary purpose of cutting taxes for property owners. We have seen in many other states, including some of Nebraska’s neighbors, that strategic and pragmatic legislative bodies prioritize the needs of schools, students and communities, establishing a baseline of what is needed to fund schools, providing balance between that investment and tax relief. For instance, recent education funding reforms in Tennessee, Pennsylvania and elsewhere have shifted the balance of funding between the state and local school districts, but these reforms had very different motivations, and led to very different policy debates, than the Unicameral is currently considering. They were also undertaken with a wide range of  stakeholders at the table, including experts in school financing, educational leadership, and economists to determine long-term sustainability of any plan. Nebraska’s legislature would do well to follow a similar course.

Join us this fall as we chart a course for continued fiscal policy that makes the Good Life possible for all Nebraskans. Register for our Fall Symposium here.  Seats are limited, so don’t delay!