Legislative Testimony for LB8CA: Constitutional amendment to limit the total amount of property tax revenue that may be raised by political subdivisions

Good afternoon, Chairwoman Linehan and members of the Revenue Committee. For property tax reform to deliver significant and sustainable results for Nebraskans, additional property tax limitations will have to be paired with any new revenues raised by the state and local governments.

LR8CA is one potential option that can help slow the growth of the property tax burden moving forward. If paired with broader tax reforms, it could facilitate an overall shift to reduced reliance on property taxes to fund local government.

We believe it is important to take into account the concerns raised by cities like York, which faces enormous financial distress. A hard 3 percent property tax revenue cap would be unrealistic for their circumstances.

Fortunately, there are some good exceptions in this constitutional amendment that would prevent an arbitrary situation where political subdivisions could not pay their bills. Bonds are not included in the 3 percent property tax revenue growth limitation, and voter-approved overrides of the property tax revenue growth limit are also permitted.

Even without voter approval, there is no prohibition on the total revenue of a political subdivision growing at an annual rate greater than 3 percent. In the case of school districts, for example, revenue sources like state aid, motor vehicle taxes, or fines are not included in the calculation. In cities, local option sales tax, occupation tax, and utility rates would not be included in this figure.

We think LR8CA could be complementary to LB103, which the Legislature is currently on track to approve. That bill requires a public hearing for local subdivisions to adopt property tax increases due to valuation changes. Maybe this proposal could be amended so that an election was not the only option for an override. For example, if a new development in that area would cause the property tax base to exceed 3 percent growth, it might be useful to include an option for a hearing and a supermajority board vote.

It should also be acknowledged that this policy is not the only property tax limitation that needs to be considered by the Legislature. For example, our combined current levy rates are well over $2.00 in many jurisdictions, and though this amendment would prevent the burden from growing at a fast pace, it wouldn’t reduce property taxes.

Finally, a word about ballot initiatives. Constitutional amendments have a long history in Nebraska policymaking, and the polls we’ve conducted at the Platte Institute show that Nebraskans are ready for the Legislature to advance more limitations on property taxing authority.

However, there are limits to what constitutional amendments can achieve since they have to be relatively simple proposals for voters, and there is always the risk that the constitutional amendment may fail when put to a vote.

Even if this policy is sent to voters for their consideration at the end of 2020, there are many more reforms that the Legislature can adopt in the meantime.

Overall, LR8CA is a good starting point for additional property tax limitations, and it avoids many of the unfair pitfalls of other property tax caps. But it should be the beginning, and not the end of the property tax reform discussion if the Legislature wants to reduce the overall property tax burden.