Gov. Jim Pillen vowed to keep Nebraska lawmakers in Lincoln if they failed to cut property taxes 40% by the end of their regular session.
鈥淲e are going to get to 40% if we have to have a session every day until Christmas,鈥 he told Lincoln business leaders in February.
Now, state lawmakers are poised to vote on passage of a property tax plan that falls far short of his announced goal. The vote on LB388 will come Thursday, the last day of the 60-day regular legislative session.
And speculation is rife about whether the governor will carry through on calling a special session to continue pursuing the 40% goal.
Pillen spokesperson Laura Strimple declined to answer questions Friday about the governor鈥檚 thinking on the matter, whether he has made a decision already and what factors he has been considering. She said the governor will provide guidance when the regular session concludes.
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Some legislative leaders said they would not be surprised if Pillen brings lawmakers back. Sen. Robert Clements of Elmwood, the Appropriations Committee chairman, called a special session 鈥減robable,鈥 while Speaker of the Legislature John Arch of La Vista noted the governor鈥檚 determination on the issue.
鈥淕ov. Jim Pillen is very, very committed to getting to 40%,鈥 said Sen. Lou Ann Linehan of the Omaha area, the Revenue Committee chairwoman, who has worked closely with the governor on a tax plan.
But one veteran lobbyist put the odds at 60-40 against a special session. Walt Radcliffe pointed to the difficulties of finding a politically palatable way to reduce property taxes and the decades of attempts by previous politicians to address the issue.
鈥淭here鈥檚 only so much you can do,鈥 said Radcliffe, whose nearly four dozen lobbying clients have varying positions on tax legislation.
Pillen started out the year floating the idea of a 2-cent increase in the sales tax rate, plus adding taxes to several goods and services, to reach the 40% goal. The Revenue Committee advanced LB388 with a 1-cent sales tax hike and a shorter list of goods and services, which would have achieved about a 30% property tax reduction.
But the proposed sales tax increase became the target for heavy lobbying from business groups, anti-tax advocacy groups and think tanks of varying political stripes. The strong opposition threatened to sink the bill.
On Wednesday, lawmakers advanced a version of the bill without the sales tax increase. The bill would replace an existing property tax relief program with new property tax credits, which Pillen鈥檚 staff said would bring down property tax payments by about 22%.
Property owners who take advantage of the current program, which offers income tax credits to offset school property taxes paid, would see no net savings, although they would see the savings upfront and avoid the hassle of claiming the income tax credits months later.
No easy solutions for longstanding tax battles
There鈥檚 no guarantee that a special session would bring greater consensus on a way to pay for additional property tax relief. Battles over taxes have been raging in Nebraska for nearly 60 years, dating back to the enactment of the state sales and income taxes to replace property taxes that used to pay for state government.
鈥淭he struggle we鈥檙e all having is identifying the source of the revenue to do (property tax relief),鈥 Arch said. 鈥淭hat has really been the heart of the debate.鈥
He said a plan with broad support should be worked out before a special session is called, given the costs and the sacrifices that would be required to hold one. He said estimates put the cost of a 10-day special session at about $175,000.
In a statement, Strimple, the governor鈥檚 spokesperson, expressed confidence that policymakers would 鈥済et this done鈥 on property tax relief. She said the scaled-back version of LB388 would represent 鈥渁 step in the right direction鈥 even if it does not achieve the 40% goal or provide new relief for many taxpayers.
The current bill would cap property tax collections by city and county governments and tighten the revenue cap on schools that was passed last year. Property tax increases for cities and counties would be limited to 3% annually or inflation, whichever is greater, with exceptions for revenue from new construction, emergencies and pay increases for understaffed law enforcement, fire and corrections departments.
Pillen鈥檚 initial proposal did not have any provision for annual increases or for needs of public safety agencies. Those were included after negotiations with city and county government officials.
For schools, the cap on state and local revenue would remain at 3% plus cost growth factors and they could authorize additional property taxes with a supermajority vote of the board or of voters. But LB388 would prevent districts from saving up unused tax authority for the future. Most Nebraska districts took the additional tax authority for this year, although many did so as a hedge against tight budget years and did not plan to use the authority immediately.
Strimple said those changes would protect taxpayers from seeing their property tax bills shoot up when valuations rise and would prevent large spikes in school property tax requests.
鈥淭hese updates are huge to ensure families have certainty when they open up their property tax statements,鈥 she said.
LB388 also would ensure that all property taxpayers benefit from previously approved tax credits. Those credits have been provided as income tax credits for school property taxes paid. But in the three years they have been offered, up to 40% of the available credits have gone unclaimed.
Tax savings would differ; some taxes would rise
The bill would replace the income tax credit program with one reducing the amount of property taxes owed. The school property tax credits would appear as a deduction on the annual property tax statements, similar to the state鈥檚 oldest property tax credit program.
The majority of property owners who have been taking the income tax credits would see no change in their bottom line. Those who have not claimed the income tax credits would see a benefit for the first time.
But both groups, along with Nebraskans who don鈥檛 own property, could pay more in taxes on some goods and services. They would have to pay sales taxes to buy a Snickers bar and Diet Coke, take their pet to get shots or keep their off-season clothes in a storage locker.
LB388 would add taxes to pop and candy, lottery tickets, veterinary care and other services for pets, storage services, dry cleaning, games of skill, vaping products, cigarettes, CBD and hemp products and digital advertising services offered by businesses with gross revenues of more than $1 billion.
Strimple described those changes as part of the 鈥渇oundation for property tax reform鈥 and a 鈥済reat first step.鈥
鈥淲e must continuously look at closing tax loopholes and not catering to the lobby to solve our tax problem,鈥 she said.
The current version of LB388 also would benefit lower-income families, many of whom do not own property, by increasing the state鈥檚 earned income tax credit. The credit has been at 10% of the federal level since it was passed in 2007. The bill would boost that amount to 15%, helping an estimated 121,000 households, according to the OpenSky Policy Institute.
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