Fix Nebraska’s Truth In Taxation Timeline and Tax Rate Rollback

Nebraska’s property tax ranks 45th in the nation for overall property tax competitiveness, according to the Tax Foundation’s annual state rankings. One reason that Nebraska’s property tax is so uncompetitive is because the overall property tax burden is so high and because Nebraska’s property tax caps are too loose.  

These problems are interrelated. Over time, effective property tax caps slow the growth in the overall property tax burden. On the other hand, taxes grow more quickly when property tax caps are ineffective. LB 575, introduced by Senator Brad Hallstrom, addresses these two interrelated problems by making Nebraska’s Truth-in-Taxation law more effective and by adding a “rate rollback” provision to Nebraska’s property tax caps.  

Truth-in-Taxation Timeline 

Nebraska’s Truth-in-Taxation law is an important policy tool to develop community buy-in for property tax increases, and to bring greater transparency to decisions to increase property taxes. The Truth-in-Taxation law requires local governments to hold public hearings when taxing authorities will raise property taxes beyond a certain amount. Taxing bodies must explain their proposed tax increases to the property owners who will pay the taxes, and those property owners can provide feedback.  

One weakness to the Truth-in-Taxation law is that the Truth-in-Taxation public hearing date is too late in the budgetary process. Under current law, Truth-in-Taxation hearings occur between September 14th and September 24th each year. However, many budgetary decisions are made earlier in the year. As a result, Truth-in-Taxation hearings, which reveal the tax increases that are a result of spending increases, can occur after spending decisions are already made.  

LB 575 will improve this process by moving the Truth-in-Taxation hearings to July 14th – July 24th each year. As a result, public hearings on tax increases will be better synced with the spending decisions that drive the tax increases. This improves transparency and taxpayer buy-in to local government fiscal decisions. 

Rate Rollback 

LB 575 also requires an automatic rate roll-back when property values increase.  

Every property tax increase should occur through an affirmative vote of local government authorities. But under current law, property tax increases can occur “automatically” when home valuations increases unless taxing authorities affirmatively vote to lower the taxing rate proportionate to the valuation increase. This is upside-down. Tax increases should only occur if taxing authorities vote to raise the rate, not because they fail to vote to lower the rate. 

For example, suppose a local taxing jurisdiction is filled with identical $300,000 homes that are taxed at an effective rate of 1.5% for an annual tax bill of $4,500 per home. Over time, the average home increases in value to $360,000. If the rate is left at 1.5%, the tax burden on the average home will automatically go up to $5,400 from $4,500. In fact, such valuation changes have occurred in a single year in some areas across Nebraska. The same has occurred in the rest of the country, as well. 

But the average tax bill should not rise from $4,500 to $5,400 unless the local taxing authority affirmatively votes to increase taxes. Under the automatic rate rollback in LB 575, when property valuations increase, rates automatically decrease to the level that collects the same property tax revenue that was brought in the previous year. In the example described above, if every home increased in value from $300,000 to $360,000, the tax rate would decrease from 1.5% to 1.25% so that every home would still have a $4,500 tax liability. If taxing authorities want to bring in more revenues, they need to affirmatively raise the tax rate. 

LB 575 makes two important changes that will increase transparency in local government taxation and spending decisions. As a result of LB 575, Nebraskans will have greater buy-in to local government decisions and spending programs, and the property tax burden will rise more slowly over time.  

Most importantly, LB 575 connects property tax increases to explicit votes to raise tax rates. A tax increase should occur only through a specific vote to raise rates and revenues by specified amounts, not because property valuations increased.