Legislature advances property tax relief, not reform
On August 5, Nebraska lawmakers debated and advanced LB1107, a comprehensive tax and economic package including new property tax relief measures.
The Legislature previously debated a separate plan, LB1106 in July, which failed to receive the required 33 votes to overcome a filibuster.
LB1107 is a compromise in every sense of the word. Both Republicans and Democrats were not pleased with numerous provisions in the bill – but with the conclusion of the session quickly approaching, 43 senators decided it was better to vote for some type of property tax legislation than none at all.
Here are some of the major points of LB1107:
- Sets a minimum requirement of $275 million per year in the Property Tax Credit Fund.
- If the gambling initiative expected on the November ballot passes, any funds generated will go into the Property Tax Credit Fund in addition to the $275 million floor.
- Creates a new property tax refundable income tax credit, meaning if you pay no income tax, you will still get money back when you file your taxes.
- The new income tax credit begins in the 2020-21 fiscal year and starts at $125 million.
- Increases in the state tax credit are triggered if state tax receipts exceed the forecast and meets Cash Reserve requirements.
- The new income tax credit fund is planned to grow over 5 years to $375 million.
- Once the fund reaches $375 million, it is intended to increase annually by the percentage of overall statewide property valuations.
- Income tax credits will be available to both resident and non-resident property taxpayers.
- Repeals the personal property tax exemption.
While this looks promising on the surface, there is no spending or taxing limitation on local political subdivisions to limit the growth of property taxes. The local property tax burden will continue to grow.
Under this new policy, the continued growth of the refundable tax credit will crowd out state spending as more revenues are allocated to the credit. This means there will be less money for things like corrections, capital improvements, health and human services, and other state responsibilities.
This is the danger of continuing to only provide relief instead of reform. While many in the Legislature tried to enact property tax reform with LB 1106, it was not politically possible in this session.
LB1107 received a favorable first-round vote of 43-2, surpassing the required 33 votes. While passing this bill will provide some relief, there is still work that needs to be done.
True property tax reform cannot occur until the state places greater limits on how much more property taxes can increase at the local level.