OpenSky Column – Keeping budget growth low not the solution some claim it is

by Renee Fry, OpenSky Policy Institute Executive Director

Some suggest that if budget growth can be kept near the unusually low levels achieved in the current state budget, there will be plenty of revenue to lower taxes.

However, it was our state’s high reliance on property taxes to fund K-12 schools that played a key role in the budget’s low growth rate of 3.5 percent. Furthermore, if budget growth is to remain at current levels, it’s highly probable that property taxes will need to increase even further to avoid cuts to our schools.

Under Nebraska’s school funding formula, when property values increase in a school district, so does the taxpayers’ perceived ability to pay for their schools, thereby reducing the amount of state support the district receives. Significant increases in property values brought growth in state funding for K-12 schools down to 2.5 percent in the current budget — about half the average annual growth rate experienced in the past 15 years. Had K-12 funding grown at the historical average, budget growth would have been much higher. The Legislative Fiscal Office projects school funding growth will return to normal levels in the next budget cycle. If that occurs, it won’t be possible to keep budget growth to the level seen in our current budget without increasing property taxes or cutting funding for education, roads, or other vital services.

Nebraska historically has relied heavily on property taxes to fund K-12 schools and that remains true today. In fact, we rank 49th lowest in the country in the percent of K-12 funding that comes from state sources. Our high reliance on property taxes and low state support regarding K-12 funding has been noted in every major study of Nebraska taxes since 1962.

In response to concerns from Nebraskans, members of the Legislature’s Revenue and Education committees are examining the financing of public education and developing recommendations for improving school funding in Nebraska this interim.

To sustainably reduce reliance on property taxes to fund schools, revenue to replace property taxes will need to be found. Not doing so would leave our schools vulnerable to major cuts and our lawmakers faced with politically impossible choices.  For example, if the legislature increases state support to school districts that are heavily reliant on property taxes without finding a revenue source to increase total state aid, many school districts that already tax property owners at the maximum levy would see their state aid decrease and would be unable to raise more funding locally.

Property tax and school funding challenges aren’t new for Nebraska and finding real solutions will not be easy. Open minds and a spirit of understanding and cooperation will be essential. Slowing state budget growth, however, will likely force us to become even more reliant on property taxes.

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