The magnifying glass is on property taxes, state budget

This week, the Legislature took up the issues of property taxes and adjustments to the state budget.

Much of the focus remained on the package crafted by the Revenue Committee and attached to LB34 by Sen. Brewer in place of LB1 and LB9.

In a long day of constant changes, LB34 was originally intended to resemble LB1 and LB9. During debate, several concerns were raised, including counties and municipalities who opposed the proposed caps, schools who were hesitant that the Legislature could maintain the proposed levels of state aid or feared losing local control, businesses and member associations who did not want a good or service of theirs taxed, and senators who argued renters would not benefit from LB34.

The bill was ultimately trimmed down and does not contain any new taxes, changes to existing taxes, or adjustments to school funding as was proposed in LB1 and LB9.

As amended, LB34 would frontload the Nebraska Property Tax Incentive Act credits from LB1107 (2020) which means people would not have to spend time trying to figure out how to claim their property tax credit on their state income tax returns.

There would also be a transfer of about $185 million to a newly created School District Property Tax Relief Credit Fund which would replace the 1107 credit program moving forward.

The $185 million comes from adjustments to the state budget and would offset about 3 percent of property taxes statewide. The changes made by LB34 would supplement the existing Property Tax Credit Act from 2007 which delivers tax relief through a credit on property tax statements. For people who have not taken the 1107 credit, they would receive anywhere from a 20 to 30 percent reduction in their property taxes. For people who do take the 1107 credit, they would only see a property tax decrease of roughly 3 to 5 percent. What LB34 would do is streamline the existing property tax credit system for everyone since approximately 46 percent of the money set aside for property tax credits remains unclaimed.

For reference, the amount of relief available in tax year 2024 through the 1107 credit program is $395 million.

LB34 would also cap the property tax request authority of counties, cities, and villages to either the rate of inflation based on the State and Local Consumption Expenditures and Gross Investment Index or 0 percent in times of deflation, whichever is greater. Spending on county attorneys, public defenders, law enforcement, firefighting, and other public safety services would not be subject to the cap. If a county, city, and village wish to collect taxes beyond the cap, they would need to get a voter approved override at the next scheduled election.

After many hours of negotiations and debate, LB34 was moved to Final Reading.

Meanwhile, the Appropriations Committee proposed a series of cuts to the state budget to shore up the state’s fiscal position while a potential tax package works through the Legislature.

LB2 would cut General Fund spending and various agencies’ budgets by about $117 million. LB3 would shift $22 million in excess fee revenue and interest collected by state agencies to the General Fund. Another $46 million would be transferred from the Cash Reserve.

These changes are necessary to help fund LB34 and demonstrate that the state has more skin in the game going into next year. Both bills were advanced to Final Reading.

Additionally, the Revenue Committee moved to advance LB2CA by Senator Brandt and combine it as a part of the Committee’s tax package.

LR2CA is a proposed constitutional amendment that would allow the Legislature to use a different process to assess the value of owner-occupied housing than it uses for other residential property.

Right now, except for agricultural and horticultural land, all forms of real property are assessed at the same rate regardless if the property is for a commercial or residential purpose.

I welcome your thoughts and opinions as this special session continues. My Capitol office telephone number is (402) 471-2801 while my email is bdekay@leg.ne.gov. My mailing address is: Senator Barry DeKay, District #40, P.O. Box 94604, State Capitol, Lincoln, NE 68509.