LINCOLN — State lawmakers advanced the second part of Gov. Jim Pillen’s property tax reduction plan on Wednesday, but its massive increase in state aid won’t happen unless funding can be found for the hoped-for $1 billion shift.
Legislative Bill 1331 would increase per-pupil “foundation aid” from the current $1,500 to $3,000, funding the hike by a combination of existing state tax credits, increases in sales taxes and elimination of some tax exemptions.
The goal is to significantly increase state funding of K-12 education. Because of caps on school districts’ revenues, that would force down property taxes by an estimated 27.5%.
Funding took a hit Tuesday
But the bill funding the increased state aid, LB 388, took a hit Tuesday when sponsors agreed to pull out the major funding mechanism for the property tax plan — a 1 cent increase in the state sales tax. Doing that takes away about $206 million in funding.
LB 1331 is dead if the funding isn’t passed as part of LB 388, senators were told Wednesday.
State Sen. Lou Ann Linehan, the main sponsor of LB 388, said Tuesday that she was open to any ideas of how to replace that revenue but said if she can’t get agreement on the new revenue, the bill — the governor’s top priority — would be dead for the session.
When asked Wednesday how the search for replacement revenue is going, Linehan responded with one word, “Yes.”
Lincoln Sen. Eliot Bostar, who introduced the amendment to remove the controversial sales tax hike, said that “everything’s on the table” in terms of replacement revenue. That includes one possibility already being condemned by the state’s business community: pausing the income tax reductions they got passed last year.
“It’s worthy of exploration like everything else,” Bostar said of delaying the income tax reductions, which are currently scheduled to drop the state’s top rate to 3.99% by 2027.
Proponents of LB 1331 used the floor debate Wednesday to tout the increase in state aid to K-12 schools, which they said addressed a long-standing complaint that Nebraska was among the lowest in the nation in state funding of local education.
State aid to local schools would rise
The bill, they said, would boost state aid to the eighth highest in the nation.
But detractors of LB 1331 said there were better ways to distribute increased state aid than giving every district an equal amount per student.
Some districts, they said, already have low taxes and don’t need property tax relief as much as districts with higher tax rates.
There seemed to be general agreement concerning one aspect of LB 1331, which is to “front load” the state income tax credits that taxpayers now must claim on their income tax filing.
The problem is that currently, many Nebraskans don’t claim their credit — more than 60% in Omaha, for instance. LB 1331 would indicate the credit on annual property tax statements, rather than deliver it via a check after income taxes are filed.
“It did not make sense to me for the government to take our money for nine months and make us ask for it back,” said Seward Sen. Jana Hughes of the current system.
LB 1331 was advanced from first-round debate on a 45-0 vote.
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