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Nebraska has continued its tilt toward relying upon property taxes to fund its K-12 education system for years, leading state senators to claim the system for providing state aid to schools is broken beyond repair.

The Tax Equity and Equalization Support Act, or TEEOSA, which at its most basic calculates the difference between a school's needs and its local resources, has been tinkered with a few dozen times since it was enacted in 1990 following another property tax crisis.

State lawmakers have not always appropriated enough funds to keep pressure off property owners, particularly in smaller school districts in rural parts of the state, resulting in dramatic increases to their tax bills in recent years.

While debate continues over several proposals geared at generating additional state income or sales tax revenue to provide property tax relief, lawmakers are also examining what changes could be made to the state aid formula to restore it to its original intent.

Tuesday, the Legislature's Education Committee heard three of those options: Make sweeping changes to the formula itself, cap how much districts can collect in property taxes each year, or scrap the formula altogether.

Sen. Mike Groene of North Platte, who led a working group of senators last summer in an informal study of the issue, offered a bill (LB695) he said would provide long-term property tax relief for all Nebraskans and re-balance the state formula's funding sources.

"I've come to an understanding that the TEEOSA formula has flaws, but it's still the best option we have to address equal access to instruction in the common schools of our state as the constitution says," said Groene, chairman of the committee.

His plan would use 25 percent of the state's income tax — both individual and corporate — and sales tax to provide foundation aid to all schools, meaning schools would get a set amount based on their enrollment.

This year, Groene's bill would provide each school $3,474 per student, which gives automatic property tax relief to non-equalized districts.

LB695 would also lower a school district's maximum property tax levy from $1.05 to 95 cents per $100 of assessed valuation, further reducing a school district's ability to collect property taxes and increasing the amount of equalization aid it receives.

School districts would be limited to as much as 2.5 percent budget growth after the 2020-21 school year, with the inflation calculations within the consumer price index used as a guide.

Groene's proposal would also adjust how much money schools received from the state to compensate for students who option into the district.

Liz Standish, Lincoln Public Schools' associate superintendent for business affairs, said Groene's plan did not account for growing numbers of special-education and English language learners that entered the state's second-largest school district.

Many districts are already butting up against their levy lid and spending lid, Standish said, adding that Groene's proposal "tries to go across all these variables and get to a net sum game that could have huge implications."

She also warned that shifting to foundation aid and treating all schools the same ignores the ability of a district to fund its own local education needs, which differ across the state.

Connie Knoche, the education policy director at Open Sky Policy Institute, said while LB695 reduced the "over-reliance on property taxes by increasing state aid," other provisions in the bill could hurt districts.

She warned that regular issues school districts deal with — increases to health insurance premiums, salary and benefit hikes, or Court of Industrial Relations rulings — could make it near-impossible to stay inside of a consumer price index-aligned budget growth model.

The committee took no action on LB695 on Tuesday, and also heard two other proposals for limiting how much school districts can collect in property taxes.

Setting 33 percent limit 

Through a proposed constitutional amendment (LR3CA) from Sen. Tom Brewer, school districts would be limited to using property taxes for 33 percent of their total budget.

"The Legislature has no incentive to correct this problem," said Brewer of Gordon. "There is no constitutional limit on how much property tax can be used for schools."

Brewer said while the original state constitution and its subsequent iterations has included the provision that the state "shall provide" a free K-12 education, courts have found that means the Legislature can pass the buck onto political subdivisions.

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He said his amendment wouldn't require schools to make cuts or cap budget growth, it would simply reduce the use of property taxes.

Renee Fry, executive director of Open Sky, and John Skretta, superintendent of Norris Public Schools, said while they did not oppose the concept of capping the amount of property taxes that could be collected, Brewer's proposal did not have a mechanism to replace the funding, which could result in massive tax increases or devastating cuts to schools.

Eliminate state aid 

Finally, in the most dramatic plan (LB662), Sen. Curt Friesen of Henderson said eliminating the state aid formula at the end of the 2021-22 school year would force lawmakers to fix the problems that plague it.

"If it's truly broken, let's set a deadline when it goes away and let's come up with a fix," Friesen told the committee. "If it's not broken, then let's find a way to send our money around the state in a little more equitable fashion."

Friesen hinted several times the bill was introduced to make a point — only 69 school districts receive equalization aid under the current iteration of the formula — but said his plan would restore the equity originally intended by TEEOSA.

It would also bring the state's public schools in line with the state Constitution, which says the Legislature "shall provide for the free instruction in the common schools."

"The state should have obligation to every child's education," Friesen said. "They don't. They have an obligation in 69 school districts, but not in the others."

Abolishing the formula would also inject nearly $1 billion more into the state's general fund that currently goes into K-12 education, which Groene pointed out could be used to benefit higher education, the Department of Health and Human Services and other state programs.

No one testified in support or against Friesen's bill, which he noted sardonically in his closing — "I suppose a noncontroversial bill like this should just sail out of committee" — before shifting tone once more.

"If we don't set a deadline, nothing will ever happen here," he said. "Nobody is willing to tackle tough problems. In my four years here, this is a way more complicated problem than I ever imagined it would be."

Reach the writer at 402-473-7120 or cdunker@journalstar.com.

On Twitter @ChrisDunkerLJS.

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Higher education reporter

Chris Dunker covers higher education, state government and the intersection of both.

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