Legislature passes slimmed-down property tax relief package, ends Nebraska’s special session

State Sen. Lou Ann Linehan of Elkhorn smiles at the newly signed Legislative Bill 34, the culmination of her eight years in the Legislature to address tax relief and six as chair of the Revenue Committee. Aug. 20, 2024. (Zach Wendling/Nebraska Examiner)

LINCOLN — Nebraska taxpayers are likely to see a small bump in property tax relief on their tax statements for next year, but much less relief than Gov. Jim Pillen requested.

Legislative Bill 34 , which passed 40-3 on the final day of the Legislature’s special session Tuesday, provides $185 million in new tax relief , or about 3.5% over the $5.3 billion in local property taxes collected in 2023. Some Nebraskans might see their first relief as LB 34 repurposes the existing income tax credit for property tax paid to appear on property tax statements, rather than requiring property owners to request a refund later.

‘A lasting impact’

Lawmakers have described that package as the “absolute minimum” and a “skinnied-down” proposal from one that sought to reduce K-12 school tax rates through increased sales taxes .

Pillen sought to cut property taxes by a total of 50%, including all relief programs. He and multiple lawmakers said the total available relief will amount to roughly 20%.

I think to be able to call another session on property tax right now, before the end of the year, before Christmas, would be a mistake.

– Nebraska Gov. Jim Pillen

LB 2 and LB 3 , two budget-related bills, also passed Tuesday. With budget cuts, cash fund transfers and increased fees, those bills represent about $139 million to fund the new property tax relief. The remaining $46 million is expected to be paid through state cash reserves.

State Sen. Brad von Gillern of Elkhorn, vice chair of the Revenue Committee, said he agreed with some senators that the amount of relief the Legislature passed was “pathetic” and “a 10th” of what he had hoped to get done.

But he also pointed to caps on how much more in property taxes municipal and county governments can take in from the year before. LB 34 sets that restriction as the greater of the Consumer Price Index for inflation or 0%, as a floor during times of deflation.

“Don’t convince yourself that we’re doing nothing here today,” von Gillern told his colleagues. “There are parts of LB 34 that will have a lasting impact on property taxpayers in Nebraska.”

State Sen. Lou Ann Linehan of Elkhorn, Revenue Committee chair, agreed LB 34 wasn’t enough but, in her final year as a lawmaker, praised the changes to how relief is delivered.

‘The fourth quarter’

State Sen. Justin Wayne of Omaha urged his colleagues to pass two similar amendments that would add back sales taxes on a handful of items and exempt residential electricity from sales taxes. He said the vote could “break the dam” and lead to the consideration of additional proposals.

“It’s the fourth quarter. It’s time to call a timeout,” Wayne said. “Give us the opportunity to run the set play we have to run to score, which changes the momentum in the game, and it starts with this vote.”

Both those amendments were defeated . Wayne later proposed adjourning the Legislature until Nov. 18 before continuing its work, but the move was also rejected .

State Sen. Tom Brandt of Plymouth said lawmakers shouldn’t “quit at halftime,” and if they had to come back another day, “so be it.”

‘Push the reset button’

State Sen. Mike Moser of Columbus disagreed and said it was more like the Huskers playing against Oklahoma but behind 42-7.

“Let’s go home and play them again next year,” Moser said.

Moser said the process had “many faults” from the beginning, such as inviting too few senators to participate in the 17-member “ task force ” that met with Pillen this summer.

“I think we should push the reset button,” Moser said “When your computer gets all discombobulated and nothing works, turn it off, turn it back on, start over.”

State Sen. Steve Erdman of Bayard, who was part of that task force, said there were too many senators involved, not too few, and that the group never actually got to a consensus.

State Sens. Mike McDonnell of Omaha, Erdman and Wayne, all of whom are term-limited, asked their colleagues to keep working, but there was little appetite for that among the full Legislature.

Owner-occupied housing valuations

For example, Brandt brought Legislative Resolution 2CA this session, which would have let voters decide whether owner-occupied housing could be valued below 100% market value. All property except agricultural land is valued at or near that 100% level; ag land is valued at 75%.

State Sen. Mike Jacobson of North Platte continued his opposition to LR 2CA, and Brandt fell short of the necessary 33 votes to end debate on his measure. It failed 26-16 .

Erdman, who has described changes to Nebraska’s tax code as “insanity” for trying the same tactics but expecting a different result, said Tuesday it was like communism.

“They say communism hasn’t worked because no one has done it right yet,” Erdman said.

He applied the same reasoning to the state’s “three-legged stool” for taxes, consisting of sales, income and property taxes. They have been perpetually adjusted for the past six decades, but LB 34 was a “decrease in the increase” that isn’t enough to offset the rise in taxes for next year, Erdman said.

Linehan said that she was willing to stay but that everyone needed to take a pause, whether it was permanent or temporary, and go home to recoup.

She was one of 15 senators to vote against ending the session, or adjourning “sine die,” including State Sens. Wayne, Erdman, McDonnell, Steve Halloran of Hastings and Tom Brewer of north-central Nebraska, from her class of senators. The adjournment motion passed 29-15 .

No more special sessions

Pillen confirmed to the Nebraska Examiner earlier Tuesday he would not call more special sessions this year to address property taxes . He previously said if he didn’t get his desired relief, he would call sessions “‘til Christmas.”

“I think I understand the math, and I understand the power of … who’s drawing the lines in the sand, that’s crystal clear,” Pillen said at an afternoon news conference, where he signed the legislation. “I think to be able to call another session on property tax right now, before the end of the year, before Christmas, would be a mistake.”

The 17-day special session is the second longest in Unicameral history, second only to a session in 1963, and is expected to be the most expensive .

LB 4, also passed Tuesday, appropriated $126,860 toward the session costs. A “very, very rough estimate” from the Legislature’s Accounting Office indicates a total cost of $178,350.

The true amount won’t be finalized for a couple of months as there are a few lingering variables, such as final senator per diems, staff overtime and printing costs.

Legislation passed this special session

The Legislature’s property tax package has taken many forms this special session, starting with LB 1, moving to LB 9 and ultimately landing at LB 34. While LB 1 and LB 9 proposed tackling K-12 school tax rates directly, LB 34 as passed did not.

The final LB 34:

• Provides $185 million in new property tax relief.
• “Front-loads,” or repurposes, existing income tax credits for property taxes paid to appear on annual property tax statements. Taxpayers must currently request that refund, which would now be automatic.
• Caps municipal and county governments to collecting the greater of inflation or 0% (in times of deflation) over property taxes gathered the year before. There would be exceptions, including for public safety services (plus public defenders and county attorneys), emergencies, votes of the people and growth.

LB 34 was passed without any new sales taxes on goods or services — a draft plan targeted up to 120 exemptions earlier this summer — or increased “sin” taxes, as Pillen and lawmakers had originally pitched.

To pay for the measures in LB 34, LBs 2 and 3 were approved. LB 2 included $117 million in budget cuts, and LB 3 included $22 million in cash fund transfers and increased fees. Another $46 million would come from state cash reserves to fund LB 34.

LB 34 passed 40-3 . LB 2 passed 33-11 . LB 3 passed 36-9 . Gov. Jim Pillen signed each measure Tuesday afternoon, so they will take effect Wednesday.

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