During the upcoming special session, Governor Jim Pillen has shared that he plans to introduce the concept of “hard caps” as a means to provide property tax relief for Nebraskans. Whether the caps in the plan would include cities, counties, school districts or other government subdivisions remains to be seen when specific legislation is introduced.
The concept of a hard cap is not new to the legislature, as many versions have been considered and iterated over the years. Last session, OpenSky took a deep dive into the concept in a webinar exploring how policymakers have navigated their implementation. Hard caps work in a variety of ways across the country, but broadly break down into three categories:
Assessment Limits place a cap on how much an individual homeowner can see an increase in taxes due to an assessment. This can reduce sharp increases for those homeowners due to market fluctuations or home improvement projects. However, assessment caps often have the undesired effect of diminishing options for local governments to raise funds, which often results in increased fines, fees and local sales taxes. They can also introduce inconsistencies in assessments, such that homes with similar valuations have drastically different taxes. Nebraska does not currently use assessment limits.
Levy Limits cap the overall rates or levies that individual governing bodies of subdivisions set. Nebraska currently has a limit of $1.05 per $100 of assessed value for each school district, not including bonds for capital expenses like building construction and improvement. School boards may ask their voters to override the cap by placing it on a ballot in a special, primary or general election. If a majority of voters in the district approve of the additional spending authority, the Board may choose to levy the additional amount for 5 years, after which they would need to ask for re-authorization. Other municipalities, such as cities and counties, have levy limits in state statute as well.
Spending Limits Nebraska also has expenditure limits that place limitations on growth of general fund expenditures between 2.5% and 4.5%. The specific limitation is determined district by district based on the spending of the local school system compared to other local schools. A district can increase spending by 1% after a special meeting and three-fourths vote of the school board.
For school districts, hard caps are likely to have significant impacts on public school education, including ability to compensate educators competitively amid a national teacher shortage, initiate and maintain career development and skilled trades training programs, and/or meet the needs of an ever-changing student population that includes increasing rates of English learners, among a number of unique needs for each individual district and community. Researchers found that for every $1,000 increase in per pupil spending, graduation rates increased by nearly 2%, and college-going rates to 2.65%.
For cities and counties, tax restrictions including hard caps can hamper their ability to maintain critical services, including health and human services, road maintenance, waste collection, water infrastructure, and economic development, as well as reducing efficiency of all services. Governor Pillen has signaled intent to “carve out” police and fire services from city budget restrictions that limit growth to 0% percent or the Consumer Price Index, which reflects inflation. However, hard caps can make it incredibly difficult for cities to weather economic downturn, as was the case in Michigan, where cities showed an average reduction of 24% in parks and recreation, an 11% reduction in local housing development, and 39% in arts and cultural expenditures. These types of drastic reductions can harm the local economy and perpetuate geographic and racial inequality.
OpenSky’s long-standing concern with revenue caps is rooted in the fact that Nebraska has limited local control on financial decisions for decades through levy limits and spending limits. Additional restrictions are likely to only further erode the power of local elected officials to make the best decisions for their neighbors and the children in their communities.
