NE lawmaker compiles ‘SMART Act’ property tax relief plan

State Sen. Justin Wayne of Omaha. Aug. 2, 2024. (Zach Wendling/Nebraska Examiner)

LINCOLN — A Nebraska lawmaker said Friday that a soon-to-be-finalized amendment will expand the Revenue Committee’s ability to compile a final property tax proposal this summer.

State Sen. Justin Wayne of Omaha, speaking before that committee Friday, outlined a new plan for his Legislative Bill 63 , which is still being drafted by legislative staff. He said it would lay out the “Saving Money and Reducing Taxes (SMART) Act,” which would be a “comprehensive approach” to address property tax relief.

The outline is similar to one from Gov. Jim Pillen, though Wayne would seek to have the state take on a smaller portion of local property tax burdens than the governor has proposed. School boards could also opt out under Wayne’s plan.

Wayne’s plan folds in concepts he proposed in his bills heard by other legislative committees. He offered 24 bills and constitutional amendments, which ranged from legalizing and taxing online sports betting and recreational marijuana to providing state aid to local governments.

“I am trying to present as many options as we can to this committee to formulate a comprehensive tax relief plan,” Wayne testified.

His amendment would allow the Revenue Committee to consider those ideas instead as it prepares a final property tax relief proposal for floor debate next week. Traditionally, legislation is limited to the committee in which it was introduced.

“The SMART Act represents a major step forward in tax reform, offering substantial savings for residents while maintaining critical funding for public services,” Wayne said in a statement. “By introducing targeted exemptions, protecting renters, and new revenue sources, we are creating a more stable and predictable fiscal environment for our communities.”

State funding for education

The major difference between Wayne’s bill amendment and LB 1, the property tax relief bill introduced on Pillen’s behalf, is for the state to cover 65% of local K-12 property taxes, instead of Pillen’s proposed 80%. Wayne estimates that it would cost $1.5 billion compared to about $2.6 billion over three years.

LB 63 would reduce maximum school tax rates from $1.05 per $100 of property valuations to 35 cents. LB 1 would gradually decrease tax rates down to 0 in three years.

The 35-cent levy would be divided between administration (10 cents) and specialized “focus schools,” should a community decide to raise taxes for such local opportunities (25 cents).

Schools could also raise taxes for voter approved bonds, building and capital improvement funds and any year-to-year drop if the state doesn’t provide consistent funding.

“If we introduce property tax relief in just education, in 15 years we’ll be right back here because there will be an economic downturn, and this body has historically took the easy way out by not fully funding one thing: education,” Wayne testified.

By Oct. 1, school boards would need to decide whether to opt in to the program, requiring a two-thirds majority vote. If the board does not opt in, the $1.05 tax rate ceiling would go away and the district could raise all taxes. Federal funds would remain.

Linehan suggested that as an option after she, Wayne and State Sen. Ben Hansen of Blair attended a July 26 Omaha Public Schools board meeting.

Opting out later would require a 51% districtwide vote at a statewide presidential general election.

County and municipal governments

Wayne said he agrees with Pillen that there should be hard caps on how much property tax revenue counties and municipalities can collect each year.

But, the senator said, lawmakers could “free up revenues to allow them to have the flexibility of not having the hard caps, on the surface, be truly hard.”

Reasonable exceptions would include growth, emergencies and public health and safety. Wayne said an independent analysis should verify public health and safety needs so it is not “a free-for-all” and suggested local governments might be able to share resources.

“We can’t have a local sheriff just decide that they need two tanks for no reason,” Wayne said.

Spike Eickholt, on behalf of the Nebraska Criminal Defense Attorneys Association, said any final exception should include public defenders and indigent defense for someone unable to afford private counsel.

Freed-up funds would come in the form of reimbursements, such as for municipal infrastructure, county court staff and county jails. Wayne estimated those reimbursements could yield counties an additional $100 million each year and municipalities $25 million annually.

Lynn Rex, executive director of the League of Nebraska Municipalities, said the committee has done extraordinary work in providing property tax relief but asked for more in terms of state aid to local governments.

She said the Legislature passed legislation offering reimbursement as a means of property tax relief once before, in 1977, to offset losses as the state exempted livestock, farm equipment and business inventory from property taxes.

“Our total allocation was $17.9 million. By 2011, that was totally eliminated,” Rex said.

“Every time there was a fiscal crisis it was cut, cut and cut, and ‘We will reimburse you as soon as the state recovers,’” she continued. “That never happened. Not once. Not ever.”

Rex and Jon Cannon, executive director of the Nebraska Association of County Officials, said relief needs to be long-term and sustainable. Rex said based on past experience, it’s about preferring to provide the “fishing pole,” not the “fish.”

Natural resources districts

Wayne would also have the state take on funding for Nebraska’s 23 natural resources districts , which took in about $90 million in 2023 in property tax revenue.

John Winkler, general manager of the Papio-Missouri River NRD, testified in opposition to another Wayne bill to do that, LB 58. Winkler said NRDs are “arguably one of the best” political subdivisions in bringing in revenue from other sources rather than property taxes, though some federal funds require local revenue.

Winkler said bonds helped the state respond to the historic 2019 floods. Only the Papio-Missouri NRD had bond rates in 2023.

“Mother Nature is fickle, and we deal with that as we can, the best we can,” Winkler said. “We need to be able to have the flexibility to respond quickly. And quickly, I mean, in years, not 10 years.”

Wayne said that because the NRDs’ bonding authority is set to expire next year and because Winkler testified that Nebraska “could” or “might” lose federal funds, he wasn’t swayed.

Renter protections

Wayne said something must be done for renters, as well.

His proposal would limit annual rent increases to 5% plus the percentage change in the consumer price index, or a flat 10%, whichever is lower.

“I’ll be more than happy to work with the Realtors and anybody else to figure that out, but we can’t create a windfall where they increase rental rates by 30%, 40% and we’ve given that individual millions of dollars in tax breaks,” Wayne said.

Committee can’t ‘be in the dark’

Wayne’s proposal would eliminate fewer sales tax exemptions than Pillen’s approach. Wayne describes his philosophy as taxing “wants vs. needs,” pointing to haircuts compared to nail care services.

His plan, like Pillen’s, would increase “sin” taxes at smaller levels — raising the tax on cigarettes to $1 (instead of $1.64), consumable hemp to 20% (instead of 30%) and spirits up to $5 (instead of $14.50).

Wayne proposes basing  those taxes on health risks, like for tobacco, instead of revenue.

His proposal would also allow juries to award punitive damages, expand sports wagering opportunities and legalize and tax recreational marijuana.

Other possible funding sources Wayne outlined included eliminating the state’s franchise tax (LB 47) or imposing an excise tax on taxpayers whose net worth exceeds $100 million.

Wayne said there are parts of his own plan that he doesn’t like, “but part of a good plan is just trying to build some consistency.”

“I don’t want this committee to be in the dark and I don’t want you not to have the option to look at everything,” Wayne said. “The biggest thing is it can’t just be one solution with education.”

Linehan, the Revenue Committee chair, said she appreciated Wayne’s work, particularly as it expanded the committee’s jurisdiction.

“It’s very helpful,” she told him.

The committee is scheduled to meet Monday and Tuesday to go through the 67 bills and constitutional amendments in the committee’s hopper and craft a tax bill to send to the full Legislature. The final committee hearing is Saturday.

The Legislature is slated to begin debate on that package of legislation next Thursday.

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