School aid increase proposed to reduce property taxes

The Revenue Committee heard testimony Jan. 22 on a proposal to reduce the state’s reliance on property taxes to fund education by increasing state aid to public schools.

Introduced by the committee, LB974 would, over the next three years, reduce the percentage at which property is valued for school tax purposes while using up to 15 percent of state tax revenue to provide foundation aid per student to each school district.

Elkhorn Sen. Lou Ann Linehan, the committee’s chairperson, said the proposal, which she called “a work in progress,” would increase school aid by approximately $520 million over the next three years.

“Regardless of where a student lives, his or her public school will receive state funding for their education” she said.

In addition to the proposed foundation aid, the bill would make several changes to the state’s school funding formula. It would limit school budget growth by tying it to the Consumer Price Index and reduce the amount that schools may levy for their special building funds.

The bill also would allow school districts that meet certain criteria to apply for transition aid, over a period of three years, if they have a budget shortfall of at least 1 percent.

Concurrent with the increase in state aid to schools, LB974 would reduce valuations of agricultural and horticultural land and real property for the purposes of taxes levied by school districts.

Farmland, currently valued at 75 percent of its actual value for tax purposes, would be valued at 65 percent for school tax purposes in 2020 and 55 percent for 2021 and after.

Real property would be valued at 95 percent of its actual value for school tax purposes for tax year 2020, 90 percent for 2021 and 85 percent for 2022 and after.

Linehan said those percentages likely would have to be adjusted higher because increased residential, commercial and industrial property valuations in 2019 caused the original proposal’s cost to balloon.

Steve Nelson, president of the Nebraska Farm Bureau, testified in support of LB974. He said more than half of Nebraska school districts receive no equalization aid, which is state aid intended to cover the needs of districts that cannot be met by other resources, such as property taxes.

“LB974 provides property tax relief for all Nebraskans and puts the state on the path of assuming more of its responsibilities for funding K-12 education,” Nelson said.

Lavon Heidemann testified in support of the bill on behalf of the Nebraska Cattlemen, the Nebraska Pork Producers Association and the Nebraska State Dairy Association. He said high property taxes have a disproportionate effect on the state’s farmers and ranchers and that the state must assume a larger role in funding public education.

“The situation is critical, as illustrated by the rapidly rising number of farm bankruptcies in Nebraska,” Heidemann said. “The time for property tax relief is now.”

Bryan Slone, president of the Nebraska Chamber of Commerce and Industry, also testified in support, saying broad tax reform is needed.

“If we’re going to remain competitive as a state and grow our economy for the next decades,” he said, “property tax relief and a business [tax] incentives bill this year are not optional.”

Several school officials testified in opposition to LB974, citing concerns that the proposed changes would reduce school tax revenue and that the Legislature would not fully fund the proposed foundation aid intended to replace it.

Liz Standish, associate superintendent for business affairs at Lincoln Public Schools, testified in opposition. She said the district’s lost taxing authority under LB974 might not be offset by increased foundation aid.

Fast-growing districts like LPS would need to make large budget cuts to qualify for the proposed transition aid intended to make up any shortfall, Standish said. Other proposed changes to the school funding formula would hurt large urban districts serving diverse populations, she said.

Marque Snow, president of the Omaha Public Schools board, also testified in opposition, saying OPS could lose $26.7 million over three years under the proposal.

Under LB974, he said, state aid would comprise 59 percent of the district’s budget. Snow said that gives the board “great concern” because of the Legislature’s history of manipulating TEEOSA, the school funding formula, to balance the state’s budget.

“We are very concerned that the state will struggle in the long term to fund its existing TEEOSA commitments along with the new 15 percent basic funding and the foundation aid elements created in LB974,” he said.

Jack Moles, executive director of the Nebraska Rural Community Schools Association, also testified in opposition to LB974. NRCSA supports the proposed foundation aid, basic funding guarantee and lowering of farmland valuations inside the school funding formula, he said.

However, Moles said, the bill’s proposed spending controls would erode the control of locally elected school boards. Current levy and spending limitations are effective at controlling school budget growth, he said.

The committee took no immediate action on the bill.