The mediators face a difficult task.

A group of state lawmakers examining Nebraska's school finance and property tax pictures found little consensus on the issues during eight hours of closed-door meetings Thursday and Friday, the first of three monthly sessions planned before a public hearing in November.

The discussions are taking place with the help of four mediators from The Mediation Center of Lincoln, who hoped to leave Friday with a set of common goals.

Even that proved challenging.

Most but not all of the 16 senators present appeared to share the objective of lowering the state's reliance on property taxes for funding schools. But opinions varied wildly on how that should be accomplished.

Some want the burden placed more on income and sales taxes. Others think overall spending on education should be cut.

Two senators even questioned the extent of the Legislature's obligation to fund schools, noting that the state Constitution only requires it to "provide for the free instruction" — not "education" — of young people in Nebraska.

Mediator Jim O'Hanlon said he plans to work on a "decision tree" for the group before its next meeting in September.

"I'll try to," he said.

Friday's meeting started with a briefing by Andrew Reschovsky, a University of Wisconsin professor emeritus and fellow at the Lincoln Institute of Land Policy. His research has focused heavily on property taxes, and he is advising the World Bank on a study of school financing in developing countries.

"Nebraska really has a good public finance system" that avoids some of the worst pitfalls experienced by other states, Reschovsky told lawmakers. However, he said, "no tax system is without its problems."

Of the "Big 3" sources of revenue for state and local government in Nebraska — property, sales and income taxes — property taxes are by far the biggest, accounting for $3.46 billion of the $7.68 billion raised during the 2013-14 fiscal year. That's about 45 percent of the total, compared with 28 percent for sales taxes and 27 percent for income taxes, according to the Legislative Fiscal Office.

"People hate the property tax," Reschovsky said, but it's more stable than other forms of taxation and allows for local control of how money is spent.

And its visibility — "really big bills twice a year" — contributes to government accountability, he said.

Nonetheless, if senators want to lower property taxes, they basically have four options, he said.

* Reduce costs through cuts; school consolidation, which can only go so far; or distance learning.

* Increase state aid to lessen schools' reliance on property taxes. That would require cuts elsewhere in state government or increasing other taxes.

* Change the formula used to calculate state aid to schools, possibly by adding "sparsity" aid for rural districts that isn't directly tied to transportation. This approach could leave lawmakers caught in the usual funding tug-of-war between urban and rural school districts. 

* Change tax policy in other ways, like creating a property tax "circuit breaker," or a tax deferral program that would allow people to spread their property tax payments out over a period of years. Tax deferral programs have struggled to catch on in other states because landowners are concerned about passing on debt to their heirs.

The senators present — members of the Education and Revenue committees along with the legislative speaker and the chairman of the Appropriations Committee — didn't immediately coalesce around any one idea.

Reschovsky said later he's sat in faculty meetings and "seen this sort of going around in circles that we observed this afternoon."

But property taxation is a complex issue, he said.

He cautioned lawmakers against crafting policy in response to political pressures — particularly short-term, extreme circumstances such as the rapid rise in agricultural land values Nebraska has witnessed in recent years, which has led to higher property tax bills for farmers and ranchers.

Speaker Galen Hadley, former chairman of the Revenue Committee, wondered whether people calling for lower property taxes will ever be satisfied.

"It's an issue that's been around forever," he said. "We still have the problem that people don't like property taxes. ... It's just a tax that people don't like.

"The expectation is out there that this committee is going to take care of the problem. ... You will be absolutely shocked at the number of dollars that we have to come up with to make that happen."

Those dollars can come in cuts or in higher taxes, he said.

"When everything boils down," Hadley said, "those are the two things that you have to work with."

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Reach the writer at 402-473-7234 or zpluhacek@journalstar.com. On Twitter @zachamiLJS.


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