Nebraska lawmakers handed Gov. Jim Pillen a big win Thursday by passing a trio of bills cutting taxes and boosting state school aid.
The bills together are projected to cut or offset more than $6 billion worth of property taxes and income taxes over the next six years, changes that supporters said would make Nebraska more competitive but skeptics said could prove unsustainable.
Pillen called the package "transformative" and state Sen. Lou Ann Linehan of the Omaha area, the Revenue Committee chairwoman, said the bills represent "a huge win for all of Nebraska."
"The passage of this package is an historic measure of tax relief and education funding reform," said Sen. Tom Briese of Albion. "It puts more dollars back into the hands of everyday Nebraskans. By doing so, it will generate economic activity and help grow our state."
But Sen. Wendy DeBoer of Bennington said the income tax cuts overwhelmingly benefit the wealthiest Nebraskans rather than those with more modest incomes. She noted that Pillen had just issued budget vetoes on Wednesday on several programs serving children and low-income Nebraskans.
"It doesn't seem fair to working Nebraskans," she said.
Rebecca Firestone, executive director of the OpenSky Policy Institute, warned that the tax cuts could make it harder to maintain the increase in funding for schools during economic downturns. She said the money "that the governor and Legislature committed to tax cuts thrusts instability into the state’s fiscal outlook at a time when we are enjoying a budget surplus."
The three measures are:
LB683, introduced by Sen. Rita Sanders of Bellevue and passed 44-0. It would increase state support for schools by about $305 million annually with the goal of driving down property taxes. That's a nearly 25% increase over the $1.3 billion in state support for schools estimated for the upcoming school year.
The measure would nearly double the amount of state aid for special education and guarantee $1,500 of state support for every public school student.
The bill would benefit all 244 Nebraska school districts. But the biggest property tax impact would be felt by the 160 districts that do not qualify for equalization aid under the current funding formula. Those tend to be rural districts with lower property tax levies.
Money for the increase would come from a new Education Future Fund. The state budget will put $1.25 billion into the fund during the two fiscal years ending June 30, 2025. Plans call for adding $250 million to the fund in each of the following years, for a total cost of $2.25 billion over six years.
LB243, introduced by Briese and passed 44-0, would increase Nebraska’s two property tax credit programs, cap school property tax growth and eliminate almost all community college property taxes. All told, the changes would cost $1.76 billion over six years.
The bill would ratchet up a long-standing property tax credit program, which uses state money to offset a portion of property owners’ bills. LB243 would increase the program from $313 million this year to more than $550 million by 2029, after which it would grow by the same percentage as the assessed valuation of property statewide.
LB243 also would remove a 5% growth cap on the state's other property tax credit program, which provides income tax credits to offset a portion of school property taxes paid. The change would allow the program to grow at the same rate as the assessed valuation of property statewide, even if that rate exceeds 5%. An additional $75 million would be added to the program for 2029.
The bill would limit the growth of school revenues to 3%, with some exceptions, with the goal of forcing schools to reduce property taxes when they get additional state aid. Districts could override the cap through a 70% vote of the school board or a 60% vote by the public.
Finally, LB243 would end community colleges’ ability to levy property taxes, except for building needs, starting in 2024. The bill would replace those tax revenues with state aid. State aid to the colleges would increase by 3.5% annually, with additional money available based on enrollment growth. Community colleges could levy property taxes to fill the gap if the state does not meet its funding obligations.
LB754, introduced by Linehan and passed 39-2, would cut the state’s top individual and corporate income tax rates by nearly one-third and make other income tax changes worth about $3.3 billion over six years.
The measure would gradually reduce the top rate for individual and corporate income taxes to 3.99% by 2027, bringing down the rate paid by taxpayers in the top two individual tax brackets and both corporate brackets.
The top individual rate is 6.64% this year, and the top corporate rate is 7.25%. Both had been slated to drop to 5.84% by 2027 under a law passed last year. At least half of Nebraska income tax filers could save money with the 3.99% tax rate, but the new top rate offers little for Nebraskans in the middle- to lower-income tax brackets.
LB754 also would speed up full exemption of Social Security benefits and exempt benefits paid by the Federal Employees Retirement System or the Civil Service Retirement System.
In addition, the bill would provide up to $15 million a year of tax credits for parents with children in child care — enough to help 15,000 children at most. It also would offer $2.5 million a year in credits for people who donate to child care programs and another $7.5 million in credits for child care programs and child care workers.