Property valuations freeze could be ‘backup plan’ during Nebraska’s tax-focused special session

State Sen. Tom Brewer of north-central Nebraska. July 26, 2024. (Zach Wendling/Nebraska Examiner)

LINCOLN — Freezing property valuations or increasing income tax credits could be a “backup plan” should Nebraska lawmakers fail to pass significant property tax relief this summer.

State Sens. Tom Brewer of north-central Nebraska and Tom Brandt of Plymouth each has legislation he has described as a “fail-safe” in case the special session falls short of expectations. Brewer’s Legislative Bill 34 would freeze property valuations for four years, while Brandt’s LB 33 would increase refundable income tax credits by $600 million, up to $1.16 billion.

“I’m not saying it’s the best solution, but I think as others fall off the radar and we don’t have them anymore, it may be something that we can embrace that will actually give us options,” Brewer told the Nebraska Examiner last week about his bill.

‘Truly a stopgap’

Brewer brought a similar measure, LB 576 in 2017, during his first year in office. Now leaving the Legislature because of term limits, Brewer said the idea could buy time for future senators.

He and at least 14 other lawmakers will not return next year, nearly all because of term limits. That includes State Sen. Lou Ann Linehan of Elkhorn, the Revenue Committee chair, who has remained firm that there is still time for a solution, including one for school finance changes .

Brewer doesn’t see LB 34 as a “primary option,” but he fears that LB 1 , championed by Gov. Jim Pillen, will fail. Linehan introduced LB 1 on Pillen’s behalf , and Brewer is a supporter.

Brewer’s point: “Do we want to leave the session with nothing? Or do we want to have something that might get us closer?”

“It is truly a stopgap to buy us time,” Brewer said. “This is the most reasonable backup plan, and that’s why I went with it.”

Pillen has remained firm that he believes the property tax “crisis” is not a valuation problem but a spending problem.

Residential, owner-occupied housing

Omaha State Sens. Mike McDonnell, John Cavanaugh and Kathleen Kauth, along with Brandt, have more targeted legislation to address or exempt property based on valuations.

McDonnell’s Legislative Resolution 24CA would carve out residential property for a different method of taxation, similar to valuing agricultural land 75% of its market value. A companion bill, LB 72 , would lock the top annual increases on residential valuations at 5%, including improvements.

Brandt’s LR 2CA would let voters carve out owner-occupied housing for a different valuation process, which would be more narrow than McDonnell’s proposal. The Legislature would then set that rate.

“Because there’s so many owner-occupied houses and that affects so much valuation in the state, you got to be careful,” Brandt said.

Two other McDonnell bills would exempt homeowners from school taxes after 10 years in the same home ( LB 77 ) and would exempt all property taxes after 40 years of homeownership in the state ( LB 75 ).

Cavanaugh introduced LB 22 , which would exempt the first $100,000 of a homestead’s valuation from taxation. He described the expanded homestead exemption as “ universal ” relief.

A California model

Kauth’s constitutional amendment, LR 6CA , was patterned after Proposition 13 in California, which passed in 1978.

Nebraska’s version would lock in property values for tax purposes at no more than 1.5% above its “full cash value,” or the initial purchase or construction value of a property after 2025. Valuations for existing properties would be locked in at the 2025 level.

Annual increases in “full cash value” could increase at the rate of inflation for that area, but by no more than 2%. Valuations could also decrease based on the rate of deflation.

Kauth said her proposal would give new homeowners a “choice” that they can plan for.

“You go in with your eyes wide open and you have a choice, whereas with property valuations you have no choice — you wait for that little postcard in the mail and you have no idea what you’re going to get,” Kauth said. “It’s always better to have a choice.”

Kauth’s constitutional amendment would also set new accountability requirements for school or community college bonds and would require any new bonds to receive 55% voter approval.

‘Reform’ over ‘relief’

Brandt said there are multiple other “backup plans,” including LB 9 , which he worked on with State Sen. Jana Hughes of Seward and three other lawmakers. Unlike Pillen’s LB 1, the “alternative” proposal would reduce maximum school tax rates, over a decade , by 80 cents.

The Revenue Committee spent last week considering 67 bills and constitutional amendments. Kauth, a member of the committee, said she’s looking for reform, not just relief.

“When I think of relief, I think, OK, it’s that Band-Aid,” Kauth said. “We need reform so that we don’t have to keep coming back here.”

The Revenue Committee is scheduled to meet Monday and Tuesday to comb through the various proposals in its hopper. It will determine what to advance to the full Legislature, and debate is expected to start Thursday on that product.

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