Nebraska property tax relief in LB 243

Nebraska lawmakers have laid out an ambitious goal of achieving historic income tax and property tax relief in 2023.  

Income tax reforms in LB 754 would accomplish Nebraska’s most significant tax improvements in generations. In addition, lawmakers are advancing property tax relief in LB 243, sponsored by Senator Tom Briese, an amendment to which incorporates LB 589. The proposal would provide property tax relief in a number of direct and indirect ways by repealing one property tax, growing tax credit programs, and partially limiting the growth in school district taxes.  

Community college property tax repeal 

The most direct form of property tax relief is the statewide repeal of the community college property tax. Community colleges account for nearly 6% of the property tax burden statewide, and LB 243 would provide approximately $300 million of direct property tax relief by replacing community college property taxation with state funding of community colleges. State funding for community colleges would increase by 3.5% per year indefinitely, and community colleges could re-introduce their property tax levies if the state failed to meet its end of the funding bargain. All else being equal, this would simplify Nebraska’s property tax code and repeal a portion of the property tax, providing direct property tax relief. 

Property tax credit fund expansion 

LB 243 would beef up Nebraska’s property tax credit program, as well, by about $250 million per year, putting $560 million in the fund by the 2029 tax year. These dollars are distributed to counties proportionate to each county’s share of statewide property value. And each county provides direct relief to each property parcel by crediting the tax relief to each property based upon the property’s value as a share of total countywide property value.  

After 2029, the value of the credit fund would increase proportionate to the increase in statewide property valuations. This form of tax relief is not as direct and transparent as the community college property tax repeal, but it provides effective relief for the dollars invested in the program. 

Uncap income tax credit program for school property taxes paid 

Nebraska provides an income tax credit for school district property taxes paid. Since its inception, the value of the credit has grown to more than 25% of K-12 school district property taxes. A taxpayer must apply for the credit on his or her income tax return or through forms available from the Department of Revenue. 

Under current law, the program can grow by 5% per year. LB 243 proposes to uncap the allowable growth in the credit program so that it can grow in line with increases in statewide property valuations. 

This relief program is more taxpayer-active than other forms of tax relief because taxpayers must apply for their tax relief. However, the proposed change would not significantly grow the program. 

School District Property Tax Limitation 

The “soft cap” proposal for school district property taxes as introduced in LB 589 was incorporated into LB 243. The goal of the program is to slow the growth in school property taxes. In the case of increased state funding for K-12 education, the “soft cap” should result in property tax reductions.  

Here’s how it works. The Department of Education would calculate each school district’s property tax request authority. This is calculated by taking the property tax request from the prior year and adding it to the non-property tax revenue from the prior year. For the following year, this total amount can be increased by the sum of: 

• 3% 

• A portion of the percentage of each school district’s enrollment growth (0.7 or 0.4, depending on growth trends) 
• A percentage obtained by taking the annual increase in limited English proficiency students divided by total student enrollment, and multiplying the quotient by 0.15 
• The same calculation for growth in poverty students as is obtained for limited English proficiency students 

This total allowable revenue is then decreased by total amount of non-property tax revenue (i.e. state revenue) the district receives for the new year in order to arrive at the allowable property tax request.  

In short, if the state sends significant new aid to school districts, it should result in property tax relief. More specifically, if the amount of new state aid is greater than the amount of allowable new revenue, the difference should come out in year-over-year property tax reductions. State leaders have proposed $1500 in new state aid per student, so it is possible that increased school aid will result in property tax decreases. 

However, a school district can override the soft cap with a vote of 70% of the district’s school board. The new maximum base growth percentage that could be approved would be the allowed base growth percentage plus:  

• 7% for districts with an average daily membership (adm) of no more than 471 students  
• 6% for districts with an adm of more than 471 students but no more than 3,044 students  
• 5% for districts with an adm of more than 3,044 students but no more than 10,000 students  
• 4% for districts with an adm of more than 10,000 students 

In other words, school district boards could vote to override even the allowable revenue growth percentage by a fairly significant amount.  

All in all, the property tax package checks many important boxes for property tax relief. The direct relief of repealing the community college property tax is compelling, and taxpayers will also appreciate reduced property taxes via credits applied at the county level. The mechanics of the school district property tax limitation are less direct and more complicated, but should result in property tax relief in the event of increased state funding for K-12 schools.  

Coupled with the income tax reforms of LB 754, Nebraska’s LB 243 would compete a 1-2 punch of income tax and property tax relief. Pending revenue adjustments based upon Nebraska’s updated economic forecast, Nebraskans can look forward to historic income tax and property tax relief in 2023.