Local government spending dominates Nebraska’s state General Fund

Your local property taxes go to your local community, and your state income and sales taxes pay for state services, right?

Sometimes. But did you know that a significant amount of your state taxes are also redistributed back to local governments across Nebraska?

According to a new report from the Nebraska Department of Revenue, in the last five years, aid to political subdivisions like school districts, cities, counties, and community colleges, has grown from $1.8 billion in 2014-15 to $2.2 billion in 2019-20. This includes funds from state income tax, sales tax, and miscellaneous tax revenue.

The state’s General Fund expenditures for fiscal year 2019-20 were $4.5 billion, which means that the state spent nearly 50% of its general fund budget on aid to local governments.

In total, local taxing subdivisions levied $4.4 billion in property taxes in 2019. The total levied property taxes plus the aid to local governments from the state is $6,609,636,733, or $6.6 billion.

The breakdown of state aid to local government is primarily property tax relief programs and funding for education. This is partly because most times the Legislature enacts property tax relief legislation, it is usually writing a check to local governments, or in the most recent case of LB1107, to taxpayers, and does not actually reduce the property taxes local governments are allowed to collect.

The governor recently praised the amount of money, claiming it “offset a portion of local property taxes.” However, as legislative critics have pointed out, there is a big difference between reducing property taxes and reducing the potential increase in property taxes.

When property tax issues are discussed in the Legislature there is always a debate on who is really responsible for the problem, the local taxing entities or the state. On one hand, it is clear there is no actual reduction in taxes occurring in Nebraska, and local governments are getting more money than ever before. But the responsibility for the high property tax burden in Nebraska lies with both local governments and the Legislature.

While the local entities are the ones taxing, the state has the power to limit local taxing authority and the amount of money they choose to send subdivisions.

Failing to exercise this authority leaves taxpayers in Nebraska paying more while local governments receive record levels of funding to spend. To truly change course in a way Nebraskans will notice, the state must change the way it structures Nebraska’s tax system and spending.

There are many ideas on how to fix this and every plan has its pros and cons. But it is clear there is a financial relationship between the state and local governments while taxes are being pushed higher and higher. One option is for the state to take on more responsibility for government functions and relieve the locals, such as roads and transportation.

But when it comes to property taxes, education is the primary driver. Do we need a new funding formula? Does the state need to pick up more of the cost of education? These questions have been central to many of the property tax bills that have failed to be enacted in recent years and will need to be answered once and for all. But one thing is clear, “relief” programs do not work and only drive the tax burden higher for everyone.