Eliminate ESU and TPP for the Next $300mm of Property Tax Relief

K-12 school districts account for over $3 billion of all Nebraska property tax collections, making up 60% of the whole. So if lawmakers are looking to deliver tax relief, school district property taxes are a natural target. 

Lawmakers have used tools from tax credits (beginning with 2020’s LB 1107) to new education funding (such as the $1 billion Education Future Fund) to curb and cut school property taxes. Yet at the same time, an alternative strategy for tax relief has emerged: elimination of smaller property taxes. And this year they can target the elimination of property taxes for educational service units (ESU) and tangible personal property (TPP). 

Lawmakers voted in 2023 to eliminate the community college property tax, which accounted for roughly $300 million in property taxes statewide. This makes the community college tax just one-tenth the burden of K-12 school district taxes. But it’s a portion that can be eliminated entirely, leaving no doubt on whether the state funding would translate into local tax relief. 

Now, as lawmakers hunt for additional vehicles for property tax relief, two more targets are clear: educational service units (ESUs) and tangible personal property taxes (TPP). Like the community college property tax, both property taxes can be eliminated in full.  

Nineteen ESUs are spread across the entire state. They provide supplementary services to school districts such as staff development, technology and materials.  

LB 389, sponsored by Senator Dave Murman, would eliminate the property tax that funds ESUs and replace it with state funding. This would follow upon the community college model of eliminating smaller property taxes, simplifying the tax bill, and backing statewide education services with state funding. The cost would be $65 million per year in Fiscal Year 2031. Although it is not a gusher of tax relief, it is tax relief that will certainly hit the target because a tax will be eliminated. 

The second property tax that lawmakers can target for total elimination is the tangible personal property tax (TPP). While the TPP is statewide, it is distributed irregularly based upon where businesses hold tangible personal property.  TPP is one of the more aggressive and harmful forms of property taxation which contributes to Nebraska uncompetitive business rankings. While real property includes land and its improvements (structures, etc), TPP includes a business’ machinery and equipment.   

The TPP collects a total of $251 million statewide as of 2024. $136 million of the tax is levied on commercial entities, $60 million is on agriculture, $11 million is on railroad and $44 million is on public service corporations. Revenue permitting, Nebraska lawmakers should target the complete elimination of TPP.  

Nebraska’s first $300 million of direct property tax relief came through elimination of community college property taxes. The next $300 million should come from eliminating ESU and TPP property taxes. 

Not only will this approach yield direct property tax savings, it will also accomplish two additional goals.  First, it will balance business and homeowner property tax relief by providing some to both. Second, it will create a track record of fully removing line items from property tax bills, delivering concrete tax relief. 

While lawmakers have appropriated massive sums for property tax relief, those appropriations do not translate perfectly into direct property tax reductions. This problem can be solved by eliminating smaller property taxes, which already began through the elimination of community college property taxes. ESU and TPP should be the next two targets on the list for elimination.