Checking in on Gov. Jim Pillen's property tax cut plan — a lot to do and little time left

Gov. Jim Pillen has found agreement among Nebraska lawmakers on the goal of his property tax plan — making a significant cut in what property owners pay.

But with the legislative session two-thirds done, almost every other aspect of his proposal remains up in the air. The prospects for pulling something together and getting it passed before session’s end are uncertain.

Lawmakers have spent weeks negotiating several interlocking pieces of legislation, many of which face stiff opposition from powerful interest groups.

“As far as coalescing around a package, that has yet to happen,” said State Sen. Eliot Bostar of Lincoln, a member of the Revenue Committee who said there have been multiple entities involved in the discussions.

Sen. Lou Ann Linehan of the Omaha area, the Revenue Committee chairwoman, expressed confidence about getting the job done this session. She said she expects it will come down to a group of key lawmakers getting together and hashing out a solution as the April 18 end-of-session deadline nears.

“This will all come down to the end,” she said. “We’ve got a month.”

Pillen started the year by calling for a $2 billion reduction in property taxes, equal to about a 40% cut. He has stuck to that goal, even vowing to call senators back to Lincoln “every day until Christmas” if they don’t achieve it during their current 60-day session.

He outlined a plan to combine about $1 billion dedicated to property tax relief last year with another $1 billion of proposed new state revenue this year. The plan includes hiking sales taxes and other state taxes, changing how property tax relief is delivered and tightening tax caps on schools and other local governments.

The governor has said he is open to ideas, however, as long as the 40% mark is reached. Here are some of the key issues that need to be resolved.

Searching for $1 billion

The idea of raising state sales taxes has been a particular sticking point. Opponents include state business organizations as well as advocacy groups from both the left and right.

Pillen floated the idea of bumping up the state sales tax rate by 2 cents, to a total of 7.5 cents on the dollar. Linehan introduced a bill that would raise it 1 cent instead, which would bring in about half of the revenue sought.

Sen. Joni Albrecht of Thurston, a Revenue Committee member, said senators have been searching for ways to find $1 billion without increasing the sales tax. She said everything is on the table, including Pillen-backed measures that would extend the sales tax to new items and raise taxes on cigarettes, vaping, skill games and some types of advertising.

Ensuring that property taxes go down

Linehan, meanwhile, has focused on figuring out a mechanism to ensure any new revenue actually produces property tax cuts. She said it would be easier to argue for increased taxes if people knew what benefit the taxes would provide.

Toward that end, she has been looking at a revamped state school aid formula to distribute the additional revenues. The goal would be to drive down property taxes by replacing them with state funds.

“We can’t fix property taxes if we don’t fix school funding,” she said. Nebraska has historically ranked near the bottom for state support of K-12 education.

But Linehan argues that new aid needs to be coupled with tighter caps on schools to ensure the state money translates into property tax cuts, rather than increasing school spending.

She is exploring ideas drawn from two bills that propose major changes in the current aid formula.

LB1231, introduced by Sen. Justin Wayne of Omaha, would end the complicated formula that determines how much aid goes to each school district now. In its place, the bill would provide a flat payment per student, with additional amounts for students in poverty, students with limited English proficiency and students in sparsely populated districts.

LB1150, introduced by Sen. Tom Brandt of Plymouth, would increase the amount of money going into the current aid formula and direct more of the aid to agricultural-based districts. The bill would reduce farm and ranch land valuations from 72% down to 42% when calculating state aid. Valuations of residential and commercial property would be reduced from 96% down to 86%.

Linehan said she hasn’t ruled out distributing some of the new revenue to cities and counties, as Pillen had proposed, along with imposing tighter caps on the taxing authority of local governments. But local government officials opposed the caps, saying they would force cuts in services and lack flexibility to meet local needs.

Deciding which property owners benefit most

The governor’s plan would divvy up money to cities, counties and schools based on the amount of property valuation within each subdivision, relative to the state as a whole.

Linehan prefers to use a method that takes into account the variations in property tax levies. It’s an approach that would be similar to the current income tax credits offered for property taxes paid to K-12 schools and community colleges. Those credits are given based on a percentage of the taxes paid, which accounts for both valuation and levies.

Depending on whether the Legislature wound up with Pillen’s approach or Linehan’s concept, the reduction for an individual taxpayers would be different.