Bill would prevent school tax credit reduction

The Revenue Committee heard testimony Jan. 19 on a proposal intended to prevent a tax credit based on school property taxes paid from falling below its current amount.

The Nebraska Property Tax Incentive Act, passed in 2020 as part of LB1107, created a refundable income tax credit based on the amount an eligible taxpayer paid in property taxes to their school district during the previous year.

The credit is equal to a percentage set by the state Department of Revenue multiplied by the amount of school district taxes paid.

The act authorized $125 million in credits for the 2020 tax year, and the total amount of credits may increase each year based on growth in the state’s net tax receipts and the level of its cash reserve.

Albion Sen. Tom Briese, sponsor of LB723, said “substantial” growth in state tax receipts in 2020 increased the amount of credits available for the 2021 tax year to approximately $548 million.

The act allows that amount to grow for the next two years, he said, but it limits total credits for the 2024 tax year to $375 million.

Briese said his proposal would strike that limit and allow the credit to grow by the prior year’s amount increased by an allowable growth percentage beginning in tax year 2024 rather than 2025, as currently allowed.

“LB723 would keep Nebraska taxpayers whole by stopping this roughly $200 million tax increase on our constituents,” he said.

The allowable growth percentage is equal to the growth in statewide real property value and cannot exceed 5 percent in any one year.

The state Department of Revenue estimates that the change would reduce state general fund revenue by $205 million in fiscal year 2024-25, $212 million in FY2025-26 and $220 million in FY2026-27.

Al Junhke testified in support of LB723 on behalf of the Nebraska Pork Producers Association. He said LB1107 supporters did not expect that a provision intended to prevent the credit amount from falling below a “floor” actually would force a reduction.

The credit amount was projected to grow in future years, Juhnke said, not decrease.

“I don’t remember anybody mentioning this’ll be a rollercoaster,” he said.

Tiffany Friesen Milone opposed the bill on behalf of OpenSky Policy Institute. She said it would require Nebraska to further fund an already large tax credit at a time when state revenues are inflated by federal pandemic relief funding.

“Obligating future funds to this tax credit now while our revenues are heavily propped up by federal funding has the potential to force tough decisions by future legislators,” Friesen Milone said, “particularly if we see a drop in revenues after the federal funding ends.”

The committee voted 7-0 to advance LB723 to general file.