At the beginning of the Nebraska Legislature’s 2019 session, we stated that property tax relief would be a tough problem for the 49 senators. That opinion held up through the Legislature’s conclusion last week.
What emerged after months of deliberation was a very modest addition to the state’s property tax relief fund. Other than Gov. Pete Ricketts, it was hard to find enthusiasm for this accomplishment. Rural senators were so aggravated that they withheld support for new tax incentive legislation designed to attract business expansion, much to the consternation of their urban counterparts.
Now the question is what happens next. Unhappiness over property taxes, especially among agricultural interests, isn’t going away. Most senators agree that the issue will again surface during next year’s legislative session, and they believe that some efforts should be made to effectively address it between now and the end of this year.
How this might be done, however, is very murky. The governor is steadfast in his position that lowering property taxes by increasing other taxes is a non-starter. But with so much of school and local government dependent upon property taxes, major cuts in them would have a devastating impact unless they were replaced by tax revenues from other sources and additional cost savings.
This was the central problem facing property tax reform efforts during this year’s legislative session. While cutting or restraining spending at local levels can help, wholesale property tax reductions without replacements would result in huge disruptions for schools as well as city and county governments. The governor and senators simply could not find an effective way to address this fact.
Sooner or later, the state must come to grips with what “substantial” property tax relief actually means. For example, 2018 total Nebraska property taxes were $4.2 billion. This year the Legislature added $51 million to the property tax relief fund, which amounts to about 1.2% of $4.2 billion. While property owners wouldn’t turn down a 1.2% tax reduction, we think “substantial” means a number a whole lot higher than that.
Ultimately, property tax reform means diminishing school and local government reliance on property taxes for so much of their budgets. This further means examining other tax alternatives, as well as increasing state aid, while still retaining local controls.
All of this is a heavy lift. But if the problem is to be solved, it is time for a major assessment of Nebraska’s tax structures.