Photo by Nebraska Unicameral
LB 640 is legislation we have introduced to address Nebraska’s property tax inflation problem.It is directed towards the largest cause of property tax increases, the way we fund public education. The state aid to education formula, TEEOSA, dictates that local property taxes come first in the equation of how we pay for public schools. It does not take into consideration the ability of a community to pay those taxes.
Property taxes make up 48% of total taxes collected in the state.
The heaviest burden of property taxes statewide is levied by the school districts. Per the 2016 Department of Revenue report, 60% is levied by the schools, statewide. In our District 42 (Lincoln County), it is nearly 63%.
School funds comes from three major sources -- property taxes, state aid (generated from income and sales taxes), and federal aid.
Since property taxes are counted first, when property valuations go up, state aid goes down. Currently, 175 out of 245 school districts receive no portion of their income and sales taxes back to them through Equalized State Aid to Schools. That includes the district 42 schools of Hershey, Brady, Maxwell, and Wallace, which are considered non-equalized districts.
The 1990 authors of the TEEOSA formula believed if we limited the tax rate, a school district could levy to $1.05 per $100 of property value and it would keep property tax increases to a reasonable inflationary factor. Apparently, they were not good math students; controlling only one variable in an equation is like building a fence with only three sides.
The intent of LB 640 is to close the fence. Instead of controlling the variables, we put a limit on the sum of the equation.
LB 640 caps the maximum local effort (property tax contribution) in any school district at 60% of all revenue sources, including state aid, federal money and even speeding tickets. For districts that are above the 60% threshold, such as North Platte Public Schools, LB 640 also lowers the maximum levy rate to $1, thus giving all citizens a tax cut.
Here is an example: If a school district has $100,000 in total funds (property taxes, federal funds and state aid), the portion from property taxes would be capped at $60,000.
In 2015 the Wallace school district, for example, received no equalized state aid and funded 72% ($72,000 in the example) of their school with property taxes. Of the $12,000 difference ($72,000 - $60,000), they would receive 75% ($9,000) from the state.
Some or all of the remaining amount ($3,000) could be recaptured from property taxes by a two-thirds majority vote of the school board, after holding a public hearing.
How do we pay for it? We earmark that the first dollars in the Property Tax Credit Fund (proposed $204 million annually) to fund the Public School Property Tax Relief Act. LB 640 would put property tax relief in statute, where it could not be easily raided.
LB 640 will bring long-range tax equity to school funding. It eliminates the effect of valuation inflation; it puts local control into local school funding by making local school boards justify additional property tax-asking to fill any gaps above the 60% factor.
It will also eliminate some of the shielding effect that the property tax credit gives local government entities, which raise your taxes by not lowering tax rates in the face of increasing valuations.
There are other property tax proposals by other senators. We will see which combination of proposals can make it into law.
LB 640 is tentatively scheduled for a public hearing on Feb. 16.
Also, here is a partial list of upcoming public hearings for bills we have introduced.
• Jan. 26: LB 479 – Change public hearings provisions and redefine a term under the Nebraska budget Act.]
• Jan 31: LB 404 – Require a train crew of at least two individuals.
• Feb. 7: LB 595 – Student Discipline Act.
• Feb 15: LB 218 – Provide for installation of ground water pumps by public entities, and LB 488 – Water Conservation Grant Act.
We need your input in Lincoln and welcome your testimony at the hearings.
Please do not hesitate to contact my office firstname.lastname@example.org or 402-471-2729 with any comments, questions, or concerns.