LR2CA Emerges as partial solution to property tax problem

LR2CA, a constitutional amendment proposed by Senator Tom Brandt, emerged as an interesting option with significant support during Friday’s special session.

While this proposal would not immediately change property taxes, it would open a constitutional door for legislators to tax different property types differently.

Article VIII of the Nebraska Constitution defines the types of taxes in Nebraska and how they should be used. Because this special session concerns property taxes, we will only discuss Section 1 of Article VIII.

The eight existing sub-sections of this article of the constitution consist of:

1. Taxes on real property to be levied uniformly and proportionately “except as otherwise provided in or permitted by” the Constitution. (This is important to keep in mind)
2. Provides for the taxation of tangible real property
3. Allows the Legislature to provide different methods and different classifications for different types of motor vehicles
4. It allows the Legislature to provide that agricultural and horticulture land is a “separate and distinct class of property for purposes of taxation” and allows the Legislature to provide a different method of taxing of this property that is not uniform and proportionate with other real property methods. (This is important, too)
5. Allows the Legislature to enact laws to designate tax rates for land currently used for agriculture to be taxed as such, regardless of the value it could have under other circumstances
6. The Legislature can provide standards and methods for the determination of real property at uniform and proportionate values
7. If the federal government creates special property classes, the Legislature can change state laws to be consistent.
8. Livestock can be a separate and distinct property class for taxation purposes.

The Legislature has defined the valuation of agricultural and horticultural property at 75% of value. To simplify it, if a piece of farmland has an assessed value of  $200,000, it will be taxed as if it had a value of $150,00. Every other type of real property–residential and commercial–are assessed taxes based on 100% of their valuations.

Senator Brandt’s LR2CA would do two things:

1. It would propose adding a 9th subsection to Article VIII, Section 1, to provide that “owner-occupied housing, as defined by the Legislature, shall constitute a separate and distinct class of property for purposes of taxation and may provide for a different method of taxing owner-occupied housing which results in values that are not uniform and proportionate with all other real property and franchises but which results in values that are uniform and proportionate upon all property within the class of owner-occupied housing.” This would be similar to the provision found in sub-section 4 described above–creating a new class of property that could be treated differently (as a class) for purposes of property taxation.
2. Send that language to voters of Nebraska for purposes of ratification into the constitution (or not)

The proposal ran into some procedural hurdles. Typically, proposed constitutional amendments sent to a vote of the people, by the Legislature, have to be filed at least 4 months before the election. An effort to change that requirement to 2 months was turned away.

Ultimately, the proposal was advanced to Select File with 32 votes. Proposals for constitutional amendments typically need to pass Final Reading with a 3/5 (30 vote) majority. However, in order to be considered in the General Election in November, it will need to pass on Final Reading with a 4/5 (40 vote) majority, and will be classified as a “special election” operating concurrently with the General Election.

Forty out of forty-nine votes may be a high mountain to climb in a special session that has been contentious.

If the constitutional amendment were to pass in the legislature, and be voted on by the voters and passed, then it would rest with the Legislature—next year and beyond—whether to take any action. Mostly likely, there would be some efforts to lower the property tax assessment levels for owner-occupied properties (the new class created). Rental properties, as well as commercial properties, would be treated differently as the amendment is written.

Reducing the taxable assessed values of properties will change the dollars and cents flowing into local taxing authorities, like schools, cities and counties—so any change actually proposed will be carefully examined when bill are proposed in the Legislature.  The key with LR2CA, though, is it is permissive. If forwarded to the voters for ratification, and passed by the voters, it would provide one more tool consistent with the state constitution for the Legislature to use as it attempts to solve the property tax problems Nebraska faces.