Term-limited Nebraska lawmakers mount what could be last push for more property tax relief

Lawmakers who are term limited or not seeking election in the fall meet together on the last day of the 2024 legislative session. Not pictured: State Sens. Joni Albrecht, John Lowe and Tony Vargas. April 18, 2024. (Zach Wendling/Nebraska Examiner)

LINCOLN — Like a phoenix from the ashes, term-limited Nebraska lawmakers made what could be their last ask Thursday to revive more substantial property tax relief plans before their time in the Legislature ends.

State Sen. Justin Wayne of Omaha outlined three options for his colleagues to consider Thursday afternoon, ahead of an expected second-round debate on Legislative Bill 34 . LB 34 is the evolving effort put forward by the Revenue Committee to address rising property taxes, the major goal of the special session.

Almost immediately, lawmakers from Wayne’s class of senators elected in 2016 began jumping on board, again demanding more options than what they were left with Tuesday.

Tuesday was the day when LB 34 first faced a 122-page amendment but then landed at 43 pages , with three components:

• “Front-loading” income tax credits for property taxes paid so they appear on property tax statements, rather than property owners needing to file for the credit on their tax form.
• Expanding allowable credits for property taxes paid to fund K-12 schools to $750 million in the first year.
• Capping annual growth in property tax collections for municipal and county governments, at the greater of inflation or 0% in times of deflation.

Last months in office for some

At least 15 lawmakers won’t return in January, including 13 who are term-limited after eight years in office, including Wayne. Many of those say that LB 34 could be the last train out of the station on property tax relief but that they want more.

State Sen. Joni Albrecht of Thurston: “I am not leaving here with what we have now. How do you go home? We’re going to do what we need to do.”

State Sen. Lynne Walz of Fremont: “I don’t think it’s enough, but I think a whole other picture that we have not talked about is economic development.”

State Sen. Carol Blood of Bellevue: “My regret is that I’m not here next year, because I would keep fighting, but I don’t want to leave without doing something.”

State Sen. Mike McDonnell of Omaha: “It doesn’t have to be those three options. We can be as creative as we want.”

‘We should do something special’

Wayne has said if the current version of LB 34 is all the Legislature passes, it could have been done “over email” or a conference call. He and others have suggested going home if that’s what’s left on the table.

Instead, his new ideas would expand LB 34, which currently would provide approximately 3% in new relief ($185 million), to providing 25% or 40% total relief on top of existing programs. If his proposals are not supported, he asked lawmakers to target existing tax credits to those who need it most.

“The entire state of Nebraska is looking for us to do something at this point,” Wayne said. “We’re in a special session, we should do something special.”

State Sen. Steve Erdman of Bayard has also fought for what he sees as a “solution,” not just a “Band-aid on an amputation,” which is how he describes LB 34 and other plans pushed from the Revenue Committee.

Erdman has encouraged lawmakers to embrace his EPIC Option Consumption Tax proposal, to eliminate property, income and sales taxes outright.

A path forward, with caution

Walz and Blood have urged caution and asked that lawmakers work with local governments, such as municipalities and counties, so services aren’t impacted and new unfunded mandates aren’t passed on.

“There’s absolutely no way that we can solve the property tax problem if we don’t grow our state and bring in new revenue,” Walz said.

Blood said that includes bumping up the local cap on annual property tax collections to the greater of 3% or inflation, instead of just 0% in times of deflation. She also criticized the Legislature for not embracing other revenue generators, such as creating a new income tax bracket.

Much of the frustration built after LB 34 was drastically narrowed from an approximate 30% cut in property taxes to just 3% halfway through debate Tuesday. At that time, lead lawmakers pivoted to a “skinnied-down” plan with its “absolute minimum” components.

Each of Wayne’s three plans would build upon the current LB 34 in the following way and would build upon one another in successive motion. Changing school funding was not part of any of the plans that Wayne distributed.

“This may not be the answer, but I think it’s the first time that people can sit down and figure out what we’re doing,” Wayne said.

Option 1 (a “better way to do the 3% new relief”)

Owners of different property types would see a different percentage of available tax credits. Wayne said that would help differentiate “grandma down the street” from commercial property owners, businesses and out-of-state land owners:

• “Owner-occupied” residential: 100% of applicable credit.
• Agricultural land: 100% of applicable credit.
• Residential rental: 95% of applicable credit.
• Commercial property: 50% of applicable credit.

That option would also value residential property at a lower rate than actual market value, with one rate for owner-occupied housing and another for residential rental housing. That would require a constitutional amendment.

Option 2 (a 25% reduction in property taxes)

New tax credits to cover funding for the state’s 23 natural resources districts (about $95 million annually) would be created, and the state would reimburse county jails for operating and maintenance expenses. It would also have the state reduce assessed valuations and pay for the change in value. That would leave the state on the hook for:

• Owner-occupied: 5% of assessed value.
• Agricultural land: 27% of assessed value.
• Residential rental: 5% of assessed value.
• Commercial property: 0% of assessed value (no adjustment).

That option would also embrace LB 73 and LB 39, from McDonnell and State Sen. Kathleen Kauth of Omaha, respectively.

McDonnell’s LB 73 would expand income eligibility to include adjustments by changes in the Federal Housing Finance Agency’s House Price Index, which is greater than inflation in the Consumer Price Index.

Kauth’s LB 39 would restore homestead exemption eligibility to some Nebraskans who qualified in the past three years but, because of rising valuations, became ineligible.

With the expanded relief, Wayne would have the state increase “sin” taxes on six goods:

• Cigarettes — $1 per pack of 20 (up from 64 cents).
• Spirits — $5 per gallon (up from $3.75 per gallon).
• E-cigarettes (vapes) — 30% wholesale (up from a bifurcated 5-cents per milliliter excise tax on disposable vape liquids and 10% wholesale on other electronic nicotine products).
• Keno (lottery) — 20% of gross proceeds (up from 2%).
• Games of skill — 20% of net operating revenue for each cash device (up from 5%).

New sales taxes would be added to 33 services, ending various exemptions on goods and services including tattoos, skin care services, lobbying work and chartered flights.

A new sales tax exemption would be added on residential electricity.

Option 3 (a 40% reduction in property taxes)

Decreasing corporate and individual income tax bracket rates, by 2028, would be paused for one year to save an additional $250 million. Those rates would still reach 3.99% by 2029.

The third option would also include LB 47, from Wayne, to remove the franchise tax on financial institutions and instead have them pay the corporate income tax. Candy and soft drinks would also be taxed under the plan.

Renters would see additional relief with an income tax reduction up to $2,200, or the full amount of rent paid during the taxable year. That is similar to LB 740 in 2022, from State Sen. Wendy DeBoer of Omaha in 2022, which proposed a deduction of up to $3,000.

The earned income tax credit would also be increased from 10% of the federal credit allowed, to 15%.

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