Stripped-down Nebraska property tax plan, a 'first little baby step,' crawls toward finish line (2024)

LINCOLN — Nebraska lawmakers advanced the remains of Gov. Jim Pillen's property tax plan to the final round of consideration Friday, as a special legislative session limped toward a conclusion next week.

Legislative Bill 34 would ensure that property taxpayers benefit from an existing tax relief program, while capping property tax collections by cities and counties. The bill cleared second-round debate on a 39-8 vote.

Lawmakers rejected major changes to the proposal, including a bid to ease the local government caps, which faced a public veto threat from the governor. They never reached a vote on a series of amendments that would have put sales taxes on some services.

Pillen sent out a press release part-way through the debate warning that he would veto any bill with weaker caps than those in LB 34 as it had cleared first-round debate. Caps on local spending were a key part of his original property tax plan.

"While the current state of the property tax relief plan will deliver real relief to real, hardworking Nebraskans, any further compromises would fall short of Nebraskans’ minimum expectations of the Legislature for this special session," he said. "Nebraskans know that unchecked government spending is a major driver of our spiraling property tax crisis. I will therefore veto any watered-down caps.”

Also Friday, lawmakers gave first-round approval to a proposed constitutional amendment that would allow owner-occupied homes to be assessed at a different rate than other types of property. Supporters said Legislative Resolution 2CA, introduced by State Sen. Tom Brandt of Plymouth, would give options to future Legislatures.

Holding down the growth of local tax collections

As advanced, LB 34 would limit growth in property tax collections by local governments to the greater of inflation or zero, after accounting for newly built homes and businesses and newly annexed property.

The bill would measure inflation using an index based on government expenses, rather than the Consumer Price Index, which is based on household expenses. The government index has generally been higher than CPI over the past 20 years.

Taxes collected for public safety, such as law enforcement, fire fighting, emergency medical services, prosecutors and public defenders, would be exempt from the caps, as would money needed for emergencies and bond payments.

State Sen. Merv Riepe of Ralston had filed an amendment, sought by cities and counties, to allow governments at least a 3% increase each year, rather than setting the floor at zero. His amendment did not come up for a vote but lawmakers rejected a separate amendment from Sen. Justin Wayne of Omaha to allow a 2.5% increase each year.

The other portion of LB 34 would offset about 3% of property taxes statewide. It would create a new School District Property Tax Relief Credit program to replace an existing tax relief program that offers income tax credits for school property taxes paid.

The new credits would appear on property tax statements as a deduction from the final tax bills. The change would benefit property taxpayers who do not claim the income tax credits now while providing no new savings to those who have been claiming the credits.

Several senators said the bill is not enough but is the minimum that can get passed during the special session. They vowed to use the lessons learned and the ideas proposed during the session to craft better legislation for the regular session that starts in January.

"I see this special session as a first little baby step with a lot more to come," said Sen. Jana Hughes of Seward.

Pillen's original plan would have reduced property tax bills an average of 50% by taking over funding of school operations. He proposed imposing or raising sales taxes on more than 100 goods and services to pay for the change.

The Revenue Committee advanced a scaled-back version that would have reduced property tax bills an average of 30% by cutting the maximum school property tax levy and filling the gap with increased state funding. It narrowed the list of goods and services to be taxed.

But lawmakers never took a vote on the Revenue Committee version. Sen. Lou Ann Linehan of the Omaha area, who introduced the governor's plan as chair of the Revenue Committee, acknowledged it lacked support to advance. She offered the stripped-down amendment to LB 34 instead.