State senators wrestle with property tax reform

April 13, 2019

LINCOLN — Part of the time in all sessions of the Nebraska Legislature is taken up to consider proposals that would bring real property tax relief to residents.

A recent editorial in the Omaha World-Herald urged senators representing urban and rural school districts to find common ground when tackling the big issues, realizing that no one will get everything they want.

The central issue is that the majority of property tax dollars go to support local school districts. The question is always how the state allocates those dollars.

The current formula in use was created in 1990, called the Tax Equity and Educational Opportunities Support Act (TEEOSA). The formula calculates a school district’s ability to meet its own needs before providing equalization aid. Currently, only 69 of the state’s 244 school districts receive support.

While metro school districts are experiencing strong growth in student population, they share concerns with the rural schools. They include the number of students from lower-income families and the number of English as a second language learners.

District 48 State Sen. John Stinner of Gering said they might have some success by offering something that will appeal to rural and urban senators.

“One of the discussions in the Revenue Committee is about the TEEOSA formula and how many dollars go to ag land and how much to commercial and residential properties,” Stinner said. “Trying to get that mix right to offer something for both urban and rural districts will take some magic to make it work. It’s a heavy lift but I’m hopeful we can come to an agreement.”

Many different pieces of legislation are being considered during this 90-day legislative session. One is LB 483, introduced by District 47 State Sen. Steve Erdman of Bayard. It wouldn’t change the way ag land is valued for property tax purposes, but would change the valuation from the current comparable sales model to a productivity-based system.

“I think that looking at productivity as one of the indicators of valuation has a lot of merit,” Stinner said. “Other states around us use that system. Plus it will take some of the volatility out of ag land values.”

Erdman said he’s encountered some opposition from urban senators and he thinks it’s mainly a misunderstanding over what the bill would accomplish.

“This is a fair way to value agricultural land,” Erdman said. “If we had this valuation procedure in place for the last 20 years, agriculture wouldn’t have seen a 250 to 300 percent run-up in value.”

He emphasized the bill keeps property tax values the same so no county government, including the school districts, would suffer a loss of revenue. The productivity system is a simple process based on the land’s ability to produce, not on what someone is willing to pay for the land.

“In most counties, less than one-half percent of ag land is sold on an annual basis,” Erdman said. “Then they base all the rest of the county ag values on those few sales.”

Another piece of legislation would cap valuations at the county level at 3% annually. The Revenue Committee hasn’t gathered the needed votes to advance the bill out of committee, but the process is still underway.

“I’m quite sure the bill they’re considering won’t be the final draft,” Erdman said. “The jury is still out on a final version and committee members are still negotiating.”

The Legislature is currently hammering out its budget as it awaits the latest report from the Nebraska Economic Forecasting Board, which meets on April 25.

The State Department of Revenue reported Friday that the state had collected more taxes than expected in March. That number was $344 million, a 3.5 percent hike from the projected $332 million.

The current legislative session wraps up on June 6.