Nebraska Examiner Press Release
By: Aaron Sanderford and Zach Wendling
LINCOLN — Nebraska Gov. Jim Pillen pivoted Monday from his own property tax relief proposal to embrace a hodgepodge plan emerging from a broad swath of special session bills.
Pillen acknowledged the shift during a news conference with law enforcement leaders and firefighters announcing that the new plan would not cap local spending on public safety.
The plan, cobbled together by State Sen. Lou Ann Linehan of Omaha and the Revenue Committee she chairs, seeks to offset about $1.8 billion in school-related property tax revenue. The committee plans to use Legislative Bill 9 to outline the compromise elements instead of Pillen-backed LB 1. LB 9 was introduced by State Sen. Jana Hughes of Seward.
As in Pillen’s proposals, much of the plan would be paid for by applying the state sales tax to items and services not taxed today. More than 70 goods and services would be added to the state tax rolls, including personal services such as lawn care or swimming pool maintenance.
The new plan would raise taxes on alcohol and would begin taxing candy, gambling and soft drinks – as Pillen’s plan did — but the new plan wouldn’t add quite as much to the cost of such goods as the governor proposed.
Changes from Pillen’s plan
A big shift from Pillen’s proposal: which items and services would keep their sales tax exemptions. Pillen, for example, would have taxed home and auto repairs and legal and accounting services. The new proposal wouldn’t.
The new plan would get rid of a proposed tax on advertising and cloud or data services.
It would, however, extend a 2% sales tax to new agricultural or manufacturing machinery and equipment, instead of Pillen’s push to tax all machinery or equipment. The 2% sales tax would replace the personal property tax paid on any new versions of those items.
Much like the Legislature did recently with community colleges, the new plan would use state tax dollars to take the state’s 23 natural resources districts off the property tax rolls.
It would have the state take over $181 million in funding for county jails. And it would protect the homestead exemption, which Linehan said would cost less than the homestead program does currently because of state education funding.
Pillen didn’t respond directly when asked whether he was still pushing to reduce property taxes by a specific percentage. He said he wants structural relief and spending caps that create lasting relief. He also still wants spending cuts.
“This is not the governor’s plan,” he said about the ideas being combined. “This will be a plan of the peoples, and the Unicameral working together to fix the problem.”
Law enforcement pushback answered
Another change Pillen embraced Monday was based on feedback from police, firefighters, prosecutors, sheriffs, city councils, county boards and mayors that his previous proposal set too hard a cap on vital local spending.
Pillen’s original LB 1 and the new version of LB 9 include hard caps on local government property tax collections, with few exceptions. The original proposal sought to carve out funding for new public safety services and vacant positions.
Kearney Police Chief Bryan Waugh, Lancaster County Attorney Pat Condon, Douglas County Sheriff Aaron Hanson and other firefighter and police union leaders backed the new plan, which would remove state caps on public safety personnel, equipment and training.
Waugh said he feared that under the original proposal, the state could backslide from recent efforts to increase funding to help local law enforcement agencies recruit and retain talent. Hanson agreed.
“The original language — very well-intentioned,” Hanson said. “But it was more narrow … in terms of the pathway to achieve or exceed spending when needed.”
Pillen had no direct answer for why city councils and county boards could be trusted to handle spending on public safety, which makes up half or more of many local budgets, yet school boards and NRD boards wouldn’t be given the same latitude.
He said people have been clear that property taxes need to be reduced so they can stay in their homes, but they also need to feel safe.
Pillen’s political gamble
The governor has staked his political reputation and future on steering the Legislature toward addressing rising property taxes. He held months of town halls across the state, pitching his own proposal.
Pillen started the conversation in December by arguing that Nebraska might need to increase the sales tax rate and broaden the sales tax base, a big-picture plan that lawmakers shot down.
He has pointed to research by Creighton University economist Ernie Goss, who concluded that the states growing the fastest have higher sales tax rates and lower property tax burdens.
Pillen has faced resistance from the left and right, with Democrats concerned about local government and school needs and Republicans worried about raising sales taxes to offset property taxes.
But his willingness to shift again, shown Monday, reinforces that he was more interested in swift action by lawmakers to make changes than in the specific shifts from property taxes to other revenue sources.
The committee’s next steps
Linehan introduced LB 1 at the beginning of the special session on behalf of Pillen. It will be one of several property tax relief bills that are expected to be combined into LB 9 on Tuesday afternoon.
That measure, as proposed by Hughes, sought to phase in the maximum amount a school district could tax for its operational expenses to 25 cents per $100 of property valuation over a decade.
The current state cap on school levies is $1.05 per $100 of valuation. Hughes’ original proposal and the revised version would have the state replace those local funds with state tax dollars.
The Revenue Committee’s new version of LB 9 would reduce the levy lid much quicker, in year two instead of year 10. And property taxpayers would feel the relief in year one.
Linehan said the bill would include a proposed property tax relief credit that would use state funds to buy down the effective cost to property taxpayers in the first year.
Pillen had earlier floated capping the school district tax rate authority at 15 cents in the first year, followed by 7.5 cents in year two, before having the state take over all school operational expenses in year three.
Linehan said Hughes and others were right when they cautioned that schools needed to “have some skin in the game.” Linehan sought an acceptable tax rate during multiple public hearings on various proposals.
Hughes, reached Monday by text, said she was “happy that the Revenue Committee chose LB 9” for a way forward and called it “the right way to push state funding toward our schools.”
A bipartisan group of senators helped her craft LB 9: State Sens. Tom Brandt of Plymouth, Danielle Conrad of Lincoln, Myron Dorn of Adams and Lynne Walz of Fremont.
Not all LB 9 coauthors pleased
At least one of those crafting LB 9 opposes the new plan.
Conrad, in a text, criticized “procedural shenanigans” that she said Pillen’s supporters have engaged in to “hijack other bills and cobble together a Frankenstein version of the same reverse Robin Hood scheme.” She said Nebraskans “will not be fooled.”
Conrad said she looks forward to stopping “one of the largest tax increases in history” while fighting to expand other relief programs, such as homestead exemptions.
She said she would also advocate for legalizing and taxing online gambling and recreational marijuana.
Taxes on online sports betting, proposed by Sens. Justin Wayne of Omaha and Eliot Bostar of Lincoln, in two constitutional amendments, are estimated to generate about $30 million in tax revenue annually if approved by voters at the ballot box, while taxing recreational marijuana, proposed by Wayne and Sen. Terrell McKinney in Omaha in two bills, could generate more than $100 million each year.
Linehan said the committee’s new plan would not include expanding gambling for tax revenue or legalizing and taxing marijuana.
She said the committee amendment to LB 9 is based on feedback during dozens of Revenue Committee hearings hosted last week on 67 bills or constitutional amendments.
She said she would not call the overall plan a “tax shift.”
Consumers, she said, have control over how much they pay in sales taxes, based on what they choose to purchase, unlike with property taxes.
“We’re taking a tax off people’s backs that they have no choice but to pay or they lose their home,” Linehan said Monday night.
People would prove the plan’s critics were wrong, she said.
“By the time we get to Friday,” she said, “I’m pretty sure a lot of Nebraska is going to think it’s a very good idea.”
