A big idea on property taxes has some seeing big problems

The Nebraska Capitol will be the site of property tax debate when the Legislature reconvenes in January (Photo by Fred Knapp, NET News)
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November 28, 2017 - 6:45am

An idea for cutting Nebraskans' property taxes is being promoted as finally doing something major about a longstanding issue, but critics say it could do more harm than good.


For what seems like forever, Nebraskans have complained about property taxes. In recent years, farmers and ranchers have complained the loudest, as rising land values coupled with low commodity prices caught many in a squeeze.

Sen. Steve Erdman of rural Bayard has heard the complaints loud and clear. Erdmen mentions that at a recent meeting in Sidney “there were two farmers that visited with me and said ‘If you don’t do something or the state doesn’t ease on this property tax, we’re not going to make it.’”

Sen. Steve Erdman (Photo courtesy Nebraska Legislature)

 

So Erdman, after talking to farm and other groups, plans to introduce a bill when the Legislature reconvenes in January. It would not lower property taxes directly. But it would have the state refund half of what everyone pays in property taxes for schools, when people file their income taxes.

Since schools account for about 60 percent of property taxes, Erdman says, that will result in about a 30 percent property tax cut for every property owner, rural and urban.

“Local units of government who collect taxes will be able to collect their taxes just like they normally do. And it’ll be up to the state to find the funds to refund or credit these people,” he said.

And where does Erdman think those funds can be found?

“We have a lot of things that can be cut. And no one wants to talk about making cuts. And so consequently we need to look there first. We’ve got to make some cuts. That’s the only way you can lower taxes is make cuts,” Erdman said. “And then we have to look at the way we fund schools and how we collect sales tax, and all kinds of things will be on the table. It’ll be up to the Legislature to decide.”

Sen. Jim Smith of Papillion, chairman of the Revenue Committee, which oversees tax legislation, said he agrees taxes are too burdensome. But he is critical of Erdman’s proposal.

“I think it borderlines on recklessness if we have a proposal that has such a sizeable fiscal note without some explanation or understanding or idea of how it’s going to be paid for,” Smith said.

“Fiscal note” refers to the estimated cost of the proposal. Last year, Nebraskans paid nearly $4 billion in property taxes, so 30 percent of that would be $1.2 billion.

For details of property taxes by county, click here.

Lincoln Sen. Kate Bolz, a member of the budget-writing Appropriations Committee, said she agrees attention needs to be paid to property taxes. But she, too, is concerned by the proposal.

“I don’t know how we will fill a $1.2 billion gap in our budget, and to date I have not heard any proposals as to how Sen. Erdman and others working with him propose to do that,” Bolz said.

That $1.2  billion is a little over one quarter of what the state spends in a year. Bolz said something else will have to give if that money goes to reduce property taxes.

“I don’t see a path forward on that without harming or endangering some serious commitments and institutions,  ranging from nursing facilities to institutions of higher education to roads,” she said.

Gov. Pete Ricketts is also critical of the plan.

“The proponents of this plan need to say how they are going to pay for it before it can be taken seriously. Otherwise, the proposal is just fantasy. Ideas such as eliminating tax exemptions are a tax shift, not tax relief,” Ricketts said.

For details of property taxes by county, click here.

Smith also said the proposal could lead the state into the kind of trouble that hit neighboring Kansas when it cut taxes without fully planning for the consequences.

“I think what we do by embracing that approach is create a crisis that will possibly lead us down the road of a Kansas-style response,” he said. “At some point you get yourself put into a corner where there’s no way out for the state rather than to increase taxes on some element of its families or businesses.”

Erdman says he’s not interested in raising taxes. And he doesn’t expect that his fellow senators will act on a proposal that entails major cutting. So he and supporters of the proposal have a Plan B.

“I’m not naïve enough to think that this Legislature will have the intestinal fortitude to do anything. So that’s why we have to have a petition drive to put it on the ballot and the people will say ‘Enough is enough,’” Erdman said.

The plan could still change, the Legislature could approve an alternative proposal, or a lawsuit over school finance could change things. Otherwise, sponsors would have to collect about 84,000 valid signatures by next July 5 to put the issue up to Nebraska voters next November.

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