Nebraska’s New Truth in Taxation Law

Nebraska’s New Truth in Taxation Law

The property tax transparency law called Truth in Taxation is new to Nebraska, but a similar law has been on the books in Utah since 1985. Two Utah-based experts, Rusty Cannon of the Utah Taxpayers Association, and former Utah state Sen. Howard Stephenson, join Jim to discuss how the policy has worked in the Beehive State and what pointers they have for Nebraska taxpayers.

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Jim Vokal: In 2022, cities, counties, school districts, and community colleges in Nebraska will have to directly notify taxpayers before seeking a major property tax increase under LB644, also known as Truth in Taxation.

These subdivisions will be required to mail notices with information about proposed tax increases, as well as a public hearing taxpayers can attend to express their concerns. This process is new to Nebraska, but my guests today are joining me from Utah, which has had Truth in Taxation for decades.

Joining us today to give us some pointers on the new transparency law are Rusty Cannon, President of the Utah Taxpayers Association, and former Utah state Senator Howard Stephenson, one of the original advocates for Truth in Taxation and past chairman of the Utah Senate’s revenue and taxation committee.

Gentlemen, thank you both for joining me today.

Rusty Cannon and Howard Stephenson: Thank you.

Jim Vokal: All right, Senator, we’re going to start with you. Your state has required Truth in Taxation since 1985. Can you take us through the history of the law, what events prompted Utah to adopt it in the first place, and how it has worked out so far?

Howard Stephenson: Yes. You remember in the late 70s and the mid-80s that we had runaway inflation in the United States, and property values were just soaring year after year, and it seemed that taxing entities were keeping their rates where they were and just taking the windfall from the higher values of existing properties, without “increasing taxes” so to speak, they say “Oh, our rates are the same.”

And so, there was a revolt going on in Utah about property taxes, and both the legislature and the local governments recognized that this could not continue. So, initially they put in place a cap on property taxes revenues to say that your revenues couldn’t increase more than 6% per year.

Well, as you could imagine, the ceiling became the floor, because if you didn’t take the 6%, you would lose that capacity, and so we were getting even worse property tax increases because of the so-called cap. And so, in 1985, when things started to unravel with people showing up to local government budget hearings with pitchforks and hanging ropes they got the message and they were willing to work with the Taxpayers Association, and the legislature, and the tax commission, in getting a law in place that was kind of patterned after Florida’s law at the time, but improved upon it.

And we basically said that no taxing entity can get more revenue than the year before except for what we called “new growth” unless they went through a Truth in Taxation hearing, and at the time newspaper ads were a popular way of getting information, so we required what was called a tombstone ad—a quarter page ad with a half inch black border around it. And when local entities would make that decision to exceed those property taxes, they called it the tombstone ad not just because it looked like it, but because it was the end of their political careers.

And so, over the years, back then we were 24th highest in property taxes based on personal income, and now I think we’re down to 43rd in the nation, and yet property tax revenues have increased faster than inflation in spite of that.

So, we haven’t been starving local government or schools, but we put a reasonable cap on it.

Jim Vokal: Appreciate that perspective. Rusty, I’m going to move to you now. At the Platte Institute, we find ourselves looking to your state, Utah, a lot because we see a lot of commonalities between our states. We both have an overall stable economy, our populations have a high level of educational attainment, and participation in the workforce is at a high rate.

But when we look at our taxes, Utah almost without exception ranks better than Nebraska, even though on paper we levy most of the same kinds of taxes. What do you attribute that difference to, between the two states?

Rusty Cannon: That’s a great question. There’s probably a few different factors, but the major factor with what we’re talking about today in our Truth in Taxation law is that while decisions can be made to raise taxes, the law simply requires that it’s done in the sunlight—that you essentially need to make your case to voters, to taxpayers, as to why the increase in revenue is needed.

You do it in a public setting, you notify them of what their liability increase will be on a parcel-by-parcel basis, so everybody has that full disclosure. So there’s no automatic inflation that creeps in. There’s no automatic step-up. There’s no automatic windfall if property values increase. It keeps a lid on those property taxes. However, if they do want to raise them, they simply have to do it in that public process.

And having that process in place has made elected officials through the decades that this has been in place to think twice or three times about getting a plan together, substantiating that plan, making it clear to voters, “here’s why we need this, here’s what we’re going to do, and when they make their case, oftentimes taxpayers will show up to these hearings and walk away convinced that this is something that’s needed, whether it’s every 5 to 8 years and recapturing inflation, or for some other reason that, you know, it needs to be done.

But simply having that public process and that transparent process shines that spotlight on government, which is what you know is typically needed and avoids backroom deals or automatic increases that voters get surprised with or taxpayers get surprised with. So I think that’s been a key difference in what’s set us apart, and as Howard mentioned, you know our property tax burden relative to other states since this has been in place has gotten better and better and better, to where now we’re one of the better ones in the nation as far as total property tax burden.

Jim Vokal: Well, hopefully we can see some of that same success in Nebraska now that we have this law on the books. Senator, one of the arguments against Truth in Taxation in Nebraska was the belief that taxpayers simply aren’t interested in property tax hearings and since no one in local government can force them to care, it wasn’t worth the expense to notify them about these hearings by mail. But seemingly, our taxpayers have cared when they’ve received postcards informing them of significant valuation increases in the mail, so what do taxpayers need to do to make sure that the information contained in Truth in Taxation postcards don’t go to waste?

Howard Stephenson: Yeah, that argument that taxpayers don’t care sounds like a liberal mantra, that we shouldn’t inform the people, we shouldn’t be transparent. But those postcard notices—and we have a mailed notice showing the exact amount of increase on your particular property value each year—and that notice telling people that there will be a hearing, that there will be the opportunity to be heard, has always paid off in Utah.

People are interested, and when the taxing entities have made their case appropriately to recapture inflation—because in Utah we don’t give the two percent annual allowance that the Nebraska law does and I would suggest that you might want to look at how that works over time—but people do care, and especially we’ve had as many as 2,000 people show up to a school board hearing in Jordan School District, and the hearing room was only big enough for 150. And the school board got the message and did not increase those taxes to the degree that they were going to, and so I think transparency is always good, and if people aren’t interested, the elected officials will find out when people don’t show up or do.

Jim Vokal: Appreciate that, Senator. Rusty, coming back your way, in Nebraska this last legislative session, to secure support for Truth in Taxation, it was necessary to scale the bill back a bit. The notification requirement applies only to cities, counties, school districts, and community colleges, which do make up the majority of our local property tax bills, and hearings now in the legislation only have to be held if the property tax increase exceeds 2% plus real growth. That sounds pretty reasonable, but are there any risks that we need to watch for with local governments trying to circumvent or conceal the need for Truth in Taxation because of these changes?

Rusty Cannon: You know, that’s a good question. Our observation would be fairly straightforward, that if those loopholes are allowed, that’s exactly where they’ll go typically. You know, if the hearing is not needed—if it’s below 2%—you’ll often find some increases going forward, most likely of just under 2% pretty consistently, and we feel the strongest form of the law would be simply what Utah has.

Which is that if there is an increase—no matter, what it is—above what is that approved certified rate for that year, a hearing is needed with any entity. As Howard had that example from back in the 80s where a ceiling becomes a floor, Nebraska could be in that situation going forward, where that 2%, even though it might be small every year, that’s going to add up if they take that opportunity.

And so, the one thing that we would say is after this law goes into effect, over time we think taxing entities will sort of get the hang of it and see that this is not something that’s too, you know, out of the ballpark. It’s easy to manage, easy to get through, and if you make your case properly to taxpayers, it’s a good process and everybody can learn to live with it and use it as best as they can.

And perhaps that opens the way for you to include everybody and include any increase, whether it’s 2% or less, or more.

Jim Vokal: Appreciate that feedback, I think you’re right.

So, looking at Utah’s population, it’s grown considerably in recent decades, and oftentimes with growth comes greater demand for government services. Yet your property taxes, as you both mentioned earlier, remain pretty reasonable. Do either of you have any thoughts on whether over time this has given Utah an advantage in attracting residents or businesses relative to other states—meaning keeping your property taxes at a reasonable level—has that translated into the growth and population?

Howard Stephenson: I would say it has been one of those elements of our attractiveness. In fact, when people come from Texas, which as you know has only two taxes—doesn’t have an income tax—so their property taxes are really high.

When they come and buy a home in Utah, and they come to the closing and they see that the property taxes are $2,000, they say “Wait a minute, in Texas, our monthly property taxes are less than $2,000.”

And we say, well, that’s one a whole year of property tax for $2,000. So they kind of get a sticker shock at first, and then they realize they’re much better off. We have found that having the three-legged stool actually works, whereas the states with only two taxes tend to rank really well on comparisons, because we have also put pressure on limiting the income tax—in fact we’ve reduced the income tax year after year—and we’ve also put some good limits on the sales tax, so that balance is important. And we have been, as Art Laffer and the Rich States, Poor States analysis done by ALEC show, that for the last 14 years, Utah has ranked number one in economic outlook, and we think it’s because of keeping a good balance and limitations on our taxes.

Jim Vokal: Rusty, any thoughts?

Rusty Cannon: You know, Utah has done a great job at being managed in a very conservative way, and that’s partially why we’ve seen such a strong population growth. Not only do we have beautiful scenery, but people can come here and know that generally the tax burden is low, whether it’s sales tax, income tax, or property tax, we sort of kind of kept all three at a similarly low level, and not one stands out in particular.

And I think that goes back to just the way that Utah has been managed in a very conservative way, and what we’re talking about today with our property tax and Truth in Taxation, has been a standout. That’s what gets the most attention with taxing entities around the country, because everybody wants to know, you know, how can we manage property taxes, you know, because a lot of places are seeing out of control growth in property tax burdens, and the Truth in Taxation law—whether it’s the form that Nebraska has taken on or what Utah has—is a good way to go about putting some sort of curbing and control on it.

Jim Vokal: Well, I think it’s fairly clear why Truth in Taxation might be of interest to taxpayers watching their bills closely—Senator, I’m going to address this question to you now—do you have any advice for our elected officials or aspiring elected officials listening about how this policy might give them an opportunity to take a leadership role in their community?

Howard Stephenson: Yes. In fact, what we have found is that so many people when they’re running for public office, they point out that they support the Truth in Taxation law, and those that don’t those, who want to undermine it…you have some who want to give an automatic inflationary increase or to diminish the public notice requirements or the public hearing requirements. We find that those officials who are candidates who support Truth in Taxation have a much easier job getting elected and re-elected.

Jim Vokal: I would imagine so. Rusty, any thoughts from your perspective, sitting on the sidelines?

Rusty Cannon: Yeah, you know, one phrase that we often tell elected officials—it’s a little bit colorful—but, you know, just as someone who doesn’t want to be seen in a swimsuit should avoid the beach, those that don’t want to make decisions in public should not run for public office.

And that is the idea behind Truth in Taxation, is that you can make the decision, you just have to do it in the open.

Jim Vokal: Yeah, I appreciate that. And gentlemen, thank you both for paving the way for Nebraska with Truth in Taxation, and thank you for your time today and sharing your insights with us today on Nebraskanomics.

Mentioned on this episode:

Utah Taxpayers Association

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