Nebraska’s Property Tax Request Act and Truth in Taxation
Nebraska’s 2021 Property Tax Request Act added Nebraska to the list of states with a comprehensive Truth in Taxation property tax law. Four types of local taxing jurisdictions–counties, cities, school districts, and community colleges–will comply with the provisions of the new law every September, creating an opportunity for the public to be fully informed about property tax increases before they are voted on.
A Truth in Taxation law brings a new level of transparency to local government by engaging the public on local property tax policy decisions. Inaugurated in Utah in 1985, Truth in Taxation quietly served the Beehive State for decades. In 2021, concerns about rising property taxes led both Kansas and Nebraska to adopt similar laws.
Nebraska’s new law serves the broad interests of public transparency. In practical effect, it particularly tackles the issue of property tax levy increases that occur due to increased property valuations. It built upon Sen. Lou Ann Linehan’s 2019 law that required local governments to hold public hearings in order to collect additional property tax revenues due to valuation increases.
The comprehensive new Truth in Taxation law can be thought of as containing two key elements: a property tax levy limit that triggers a public process, and then the public process itself. The levy limit is the amount the property tax levy can increase before triggering the public process. This limit is defined in Section 2 of the law as the “allowable growth percentage.” The process for levy increases is the crux of Truth in Taxation, defined in Section 4 of the law.
Property Tax Request Act’s levy limit
The property tax levy is the total number of property tax dollars a local government collects. If a local government wants to collect 3.5% more property tax dollars than in the prior year, then that subdivision might need to go through the public Truth in Taxation process. But whether or not a 3.5% levy increase triggers the process is a technical matter explained below.
Nebraska’s “allowable growth percentage” is the sum of 2% plus the political subdivision’s “real growth percentage.” The “real growth percentage” is defined as an increase in real property valuation due to:
- Improvements to real property as a result of new construction and additions to existing buildings.
- Other improvements to real property which increase the value of the property.
- Annexation of real property.
- A change in use of the real property.
- An increase in value due to a tax increment financing project in the political subdivision.
Therefore, the local government’s allowable growth percentage is 2% plus the “real growth percentage” defined in the bullet points above. If, for example, the local government annexes nearby real property that increases the local government’s real property valuation by 3%, and all else remains equal, then the local government’s allowable growth percentage is the given 2% plus 3% for annexation for a total of 5% allowable growth. In such a case, a 3.5% increase in total property tax collections will not trigger the Truth in Taxation process because that increase is below the allowable growth percentage.
Of course, in reality the “allowable growth percentage” will be impacted by some combination of the five factors listed above, not just annexation.
In contrast to the example above, if the same local government wanted to increase the property tax levy by 6%, that amount would exceed the “allowable growth percentage” and would trigger the Truth in Taxation process laid out below.
Property Tax Request Act’s Truth in Taxation process
If a local government seeks to increase its property tax levy by more than the “allowable growth percentage,” then the local government must go through the Truth in Taxation process. The process involves a notification for a public hearing, the actual public hearing, and passage of an ordinance.
The public hearings are consolidated across each county at a centralized joint public hearing for the jurisdictions within that county. The hearing shall occur on or after September 17 and before September 29. Each hearing must be held after 6 p.m. local time. The proposed property tax increases are the only items allowed on the agenda, and every local government that seeks a levy increase beyond the allowable growth percentage must participate in this joint public hearing.
At these hearings, a representative from each taxing subdivision will present:
- the amount of its property tax request
- information about the year-over-year growth in the total assessed value of property,
- the tax rate that would apply under for the proposed levy,
- the implied year-over-year change in the local government’s budget, and
- a point of contact to find out more information.
Members of the public are allowed to speak to each levy increase request.
Notice for this public hearing is provided in a specific way. Like other meetings, notice is posted on the county’s website homepage, and published in a newspaper that circulates in the county. But most importantly, a postcard marked with NOTICE OF PROPOSED TAX INCREASE is sent to each property owner. It contains the following information:
- The local governments that are proposing property tax increases beyond the allowable growth percentage.
- An estimate of the proposed tax increase on each property owner’s property.
- Various other information about the individual parcel’s past and present assessed value and tax liability.
- Contact information for the local government.
After the hearing, local governments are required to pass ordinances or resolutions to effectuate any property tax increase, and these public documents must contain information about changes in property valuations, tax rates, and a record of votes.
The Property Tax Request Act creates an opportunity for taxpayers to organize around a centralized time and location for property tax increases. It is a reasonable way for state policymakers to create protocols around property tax increases without state policymakers being directly involved in property taxation.
One consideration to focus on is whether the ceiling of the “allowable growth percentage” simply becomes the floor in how much property taxes increase each year. For example, if local governments consistently go right up to the limit for the allowable growth percentage without going over it, that creates an argument to lower or eliminate the growth percentage altogether. Kansas’ Truth in Taxation law requires local governments to go through the process for any increase in the property tax levy, regardless of other considerations.
September 2022 will be Nebraska’s first turn through this process, and will undoubtedly be a valuable learning experience for both public officials and the tax-paying public. No longer will property taxes simply rise along with any major increase in property values. Transparency will create fairness and better tax policy, which is especially important during an inflationary cycle that is driving up property values.
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