K-12 funding shift from property taxes would be multiyear effort, Nebraska lawmakers say

Gov. Jim Pillen addresses attendees at a property tax town hall in Plattsmouth on Thursday, May 30, 2024. (Zach Wendling/Nebraska Examiner)

LINCOLN — Some Nebraska lawmakers working with Gov. Jim Pillen on property tax reforms this summer said Monday if lawmakers do move to take over most K-12 school funding, it would be a multiyear process.

A group of 17 lawmakers has been meeting with Pillen regularly since the Legislature adjourned in April. The governor has spoken publicly as those meetings have progressed. But senators confirmed to the Nebraska Examiner that many details remained to be ironed out before a special session could begin July 25 .

‘Figure out what we can afford’

Property tax working group members

The 17 lawmakers who have been part of the property tax working group discussions with Gov. Jim Pillen are State Sens. Joni Albrecht of Thurston, Eliot Bostar of Lincoln, Rob Clements of Elmwood, Wendy DeBoer of Omaha, George Dungan of Lincoln, Steve Erdman of Bayard, John Fredrickson of Omaha, Ben Hansen of Blair, Teresa Ibach of Sumner, Mike Jacobson of North Platte, Kathleen Kauth of Omaha, Lou Ann Linehan of Elkhorn, Mike McDonnell of Omaha, Fred Meyer of St. Paul, Dave Murman of Glenvil, Merv Riepe of Ralston and Brad von Gillern of Elkhorn.

Thirteen Republicans and four Democrats make up the working group for the officially nonpartisan Legislature. Three are from the 1st Congressional District while seven each are from the 2nd and 3rd Congressional Districts.

Among Pillen’s most ambitious ideas is the state assuming control of most local K-12 funding, the “operational” side of school funding. Property taxes would remain a “backstop” if approved by a vote of the people, including for bonds and two other funds .

With school budgets already in motion for the upcoming school year, lawmakers who were briefed on the closed-door meetings said they would likely need to clean up the proposals, if enacted this year, in the 2025 legislative session.

The model would be similar to how the state began funding community colleges after 2023 legislation was passed. However, the state has six community colleges, which have tuition power, compared to 244 school districts, which don’t have such a funding option.

“I think the governor is committed to being a good dance partner for the schools, and he wants to fund them. That doesn’t mean the Legislature always will,” said State Sen. Wendy DeBoer of Omaha, a task force member. “But I will give him credit that I think he does want to.”

“We need to figure out what we can afford, keep some skin in the game, if you will, from the local property taxpayer, and let’s make sure that we get the right funding levels,” said State Sen. Mike Jacobson of North Platte.

Many funding details of the joint proposal still need to be worked out, several senators said. That includes deciding which of more than 120 sales tax exemptions would be removed and which of various “sin” taxes, on alcohol, cigarettes and vaping, would be increased.

Final product is not ‘the plan’

The “task force” of lawmakers had originally planned for Monday to be the group’s last meeting, but many said they had “homework” and would meet again at least once, likely July 22. That would be three days before Pillen signaled a special session would commence.

State Sen. Merv Riepe of Ralston said after Monday’s meeting that “we have work to do.” He  said he has concerns about releasing a plan within five days of the special session, likely under the assumption it would be the final version.

“I just need time to digest it and, quite frankly, read it and study it and put it aside and then come back and read it again and study it,” Riepe said.

State Sen. Lou Ann Linehan of Elkhorn said she didn’t have concerns if a plan isn’t released until then as during a regular legislative session, bills are introduced and then sent for a hearing at least a week later. She also said Pillen has been sharing parts of the eventual proposal publicly.

Jacobson said the task force set out to bring bold ideas and a framework to a special session and see whether a majority of lawmakers would agree to it.

“But I want to be clear that this is a working group and then what we bring forward is not ‘the plan,’ it is ‘a plan,’ ” Jacobson said.

State Sen. Joni Albrecht of Thurston said she hopes Nebraskans will do their due diligence once the proposal is formally released and participate in public hearings, which are tentatively slated to begin July 29 .

Monthly tax savings or a ‘wash’?

Throughout the summer, task force members have been asked to keep conversations private. Linehan confirmed they are at a point where they need to start talking with other senators, who agree high property taxes are pushing old people out of their homes and preventing young people from buying a home.

Linehan said the ideas would make a difference in a family’s monthly budget, pointing to an example of a the property tax portion of a monthly mortgage payment of $300, where a 60% reduction in property taxes would save about $180 each month.

“That’s a trip to the grocery store. And then, over a year of course, it’s enough that people would notice it,” Linehan said.

“I think if people realize you’re going to be saving, I don’t know, anywhere from $1,500 to thousands of dollars a year of property taxes, people will be willing to pay sales tax on things that aren’t essential,” Linehan continued.

DeBoer said Nebraskans will need to consider whether they are willing to pay more in sales taxes if property tax bills go down, even if they’re paying the same amount of taxes in the end.

“If it’s a wash, is that a wash they want?” DeBoer asked.

Spending as key focus

Jacobson said the state can’t continue to allow elected officials to have no limits on spending, though what that “cap” should be on additional property taxes year to year hasn’t been determined. Pillen has floated either keeping the amount of local property taxes each year flat during inflationary times or at a rate that increases as a measure of inflation.

Also to be determined are certain exceptions, Jacobson said, including how to account for real growth like building construction or land annexation, what happens if there is a declared emergency and funding for law enforcement or critical infrastructure.

Public votes could be used to override those increases, which Jacobson said should occur during regularly scheduled elections.

Albrecht, a former city council member from Papillion and former Sarpy County commissioner, said that spending is the key issue. She said there is urgency to act before she and at least 14 other lawmakers leave the Legislature this year, leaving a significant learning curve for the next Legislature.

Jacobson said school population growth is another factor that will need to be considered, including the number of students learning English as a second language and students with disabilities, similar to factors that currently help determine a school district’s level of state funding.

He pushed back on concerns that schools would lose local control because they would retain authority over curriculum, the hiring or firing of school leaders and school district policies.

“Local control is still about the local taxpayers having control, not necessarily the local boards having control of the tax dollars,” Jacobson said. “The local boards would have control over how the dollars are spent. That would not change.”

‘EPIC light’

Jacobson said the proposal would be “EPIC light,” a nod to the ballot initiative that fell short in seeking to eliminate property, income and corporate taxes in place of a broad consumption tax.

State Sen. Steve Erdman of Bayard, who led that petition effort, confirmed the EPIC model will be introduced again this summer in the special session. He said the similarities between EPIC and the working group’s proposal end at a broad sales tax base.

“This broken system is not going to get fixed by anything that we’ve tried to do,” Erdman said, describing the working group’s discussions as open, fair and robust.

Erdman said that broadening the sales tax base has been needed for a long time and that it might be painful for some people. However, he said, if overall taxes are lowered, it will be valuable.

“But getting the public to, what shall I say, believe that we’re going to lower property tax will be the hard thing,” Erdman said, pointing to decades where lawmakers haven’t fixed the problem.

Finding enough votes ‘doable’

Pillen, in his monthly radio call-in show Monday afternoon, pushed back on criticism of his plan and reiterated that he’ll get the votes he needs in the special session. If there is a filibuster on any of the reform measures, the governor would need 33 of the Legislature’s 49 members.

“We’ll have the plan in black and white before the special session comes,” Pillen said. “It’s not going to be rocket science.”

He continues to face pushback from senators who are farmers and represent more agricultural communities and who are hesitant to taxing agricultural inputs , or the raw materials used in directly producing a finished product.

Among those is State Sen. Teresa Ibach of Sumner, who confirmed the group is still seeking solutions, but she said the governor wanted “transformational” ideas, and that’s what they’re working on.

Linehan said lawmakers still have to figure out the “how” of the ideas, which she said is “doable.” She agrees with Pillen that 33 votes can be achieved.

“We need a new way to fund schools, and we need to move away from property taxes and find a more equitable way to fund our schools and make sure that every kid in Nebraska, every kid, is getting treated well by the state,” Linehan said.

Erdman said determining whether a proposal has enough votes depends on the final version of the legislation.

Jacobson said multiple senators plan to bring their own proposals this summer, which he is encouraged by so the ideas can be combined so Nebraskans get meaningful tax reform.

“No one’s going to be happy with all the pieces of this plan, or any plan that will be ultimately adopted, but we all, I think, are going to have to take a look at the state as a whole and try to come up with a plan that is more equitable to everyone, no matter where you live and no matter what your income may be,” Jacobson said. “And that’s going to be challenging.”

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