Nebraska could put a record $1.1 billion into the pockets of property taxpayers next year, and, thanks to a bill passed last week, that amount would keep growing.
In fact, an Omaha World-Herald analysis showed that the amount of state dollars devoted to direct property tax relief could approach $1.6 billion within 10 years.
“That’s a big number isn’t it?†said State Sen. John Stinner of Gering, a retired banker and chairman of the Legislature’s Appropriations Committee. “That’s what you have to be wary of, moving forward. The number is a potentially huge number.â€
Sen. Tom Briese of Albion, a farmer and champion of property tax relief, said the number is significant. But he said he hopes to do more in the future, noting that Nebraskans will still pay more in property taxes than in either sales or income taxes.
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“There’s been substantial progress, but I’m not into taking victory laps because there’s work yet to do,†he said.
The number represents the accumulation of legislative efforts over several years. Legislative Bill 873, passed Thursday, was the latest bill to address the most-hated tax in Nebraska.
With the bill and others before it, the amount of direct property tax relief statewide would equal about 21% of projected property taxes for 2023. The World-Herald analysis showed that the proportion of relief would remain at the same level through the next 10 years.
The amount of relief provided to homeowners and other property owners would vary, however, depending on their location and circumstances.
Gov. Pete Ricketts is expected to sign LB 873 into law this week. Along with the increased property tax relief, the measure would reduce the top income tax rate for corporations and individuals and phase out income taxes on Social Security. The package is expected to reduce state tax revenues by close to $900 million when fully implemented.
The property tax portion of the bill includes creating a refundable income tax credit equal to a portion of what property owners pay in community college property taxes.
It would become Nebraska’s fourth property tax credit or exemption program.
The newest credit program would be similar to the LB 1107 program created two years ago, which offsets a portion of school property taxes. That program will provide $548 million worth of credits this year, enough to cover about 25% of K-12 property taxes, and grow to $560.7 million for 2023.
The community college credit program would start at $50 million this year and ramp up to $195 million by 2026. At full implementation, it could offset about three-quarters of community college property taxes.
Under LB 873, both credit programs would grow by the same percentage that property valuations grow statewide, up to a 5% maximum. The growth factor would kick in for the K-12 credits in 2024 and for community college credits in 2027.
In addition, Nebraska has a longstanding property tax credit program that reduces the amount of tax that property holders have to pay. The credits are based on the property’s valuation and appear as a line on the annual property tax statement.
The program provides $313 million a year in credits now, up from $105 million when it began in 2007. Proceeds from the yet-to-begin casino gambling are earmarked for the credit fund.
Finally, the state provides homestead exemptions for low-income elderly and disabled homeowners. The program has grown along with the number of older Nebraskans and as lawmakers have expanded it to cover additional people. Homestead exemptions are budgeted at $131.7 million for 2023.
Sen. Lou Ann Linehan of Elkhorn, the Revenue Committee chairwoman who led the push for LB 873, said she would rather give property tax relief through school aid than through the current variety of programs.
But she has long argued that increased school funding needs to be coupled with tighter limits on school spending, which has proved politically unpopular.
“This is not the ideal way to do this,†she said. “This is what we’ve been able to do. It’s not perfect, but it’s relief.â€
Sen. John Cavanaugh of Omaha also argued that there are better ways to ease property taxes than Nebraska’s current approach. While the current programs can help taxpayers, they do not lower the actual tax levies.
“It’s just a tax shift,†he said. “It’s not actually alleviating taxes.â€
In addition, they can be complicated. Property owners claimed only 60% of the LB 1107 school tax credits when they filed their income taxes last year, the first year that the credits were available. Many were unaware of the credits or how to claim them.
Sen. Wendy DeBoer of Bennington raised concerns that the growth factors in the two newer programs could put the state in a fiscal pickle down the road. She said capping growth at 5% will help, but she would like more safeguards.
“We will have to be vigilant and continue to watch what’s happening,†she said.
But Stinner offered cautious optimism about the sustainability of the current programs, at least over the long term. He said the 5% cap should keep the property tax relief programs from growing faster than the historical average of state revenues.