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A proposal that has emerged as a potential alternative to Nebraska Gov. Jim Pillen's controversial property tax relief plan won cautious support from several key interest groups at a public hearing Monday, which marked Day 3 of the special legislative session Pillen called to take up property tax reform.

Drafted by a bipartisan group of lawmakers and introduced by Sen. Jana Hughes of Seward, would lower the maximum property tax rate local school districts could levy by 80 cents over the course of a decade — a 76% cut to the primary driver of high property tax bills in Nebraska.

The proposal calls for the maximum levy amount per $100 of taxable valuation of property to drop from $1.05 now to 65 cents next year before gradually reducing to 25 cents by 2034.

Such a move would require the state to increase its aid to public schools by about $1 billion next year and another $253 million every two years after that, Hughes told the Legislature's Revenue Committee at Monday's hearing.

The bill, like Pillen's preferred plan, calls for the front-loading of existing property tax credits to cover about $560 million of the initial $1 billion necessary to fund the property tax cuts. But the legislation leaves crucial questions over how to fund the remaining $440 million balance unanswered.

That's on purpose, Hughes told the committee Monday.

"I didn't want to kill the bill by putting in a revenue source," she said.

Instead, she hopes Nebraska's single-house Legislature can come to a consensus on how to fund the balance of the plan — a task that has proved difficult this year at the Capitol, where lawmakers in April sank Pillen's initial tax plan over its reliance on the elimination of numerous sales tax exemptions.

The governor has doubled down on his plan, proposing new legislation this month that relies on the same sales tax increases that have drawn steady opposition from various industry groups and lawmakers whose support he would need for his bill to become law.

But Hughes' plan — which she drafted alongside Sens. Tom Brandt of Plymouth, Danielle Conrad of Lincoln, Myron Dorn of Adams and Lynn Walz of Fremont, all of whom are co-sponsors of the legislation — has so far avoided the opposition that has plagued Pillen's plan.

At Monday's hearing, lawmakers who in April championed Pillen's proposal praised the concept offered by Hughes.

Sen. Lou Ann Linehan of Elkhorn, the Revenue Committee chairwoman who introduced Pillen's plan on the governor's behalf last week, called LB9 "impressive." Sen. Fred Meyer of St. Paul, a Pillen appointee, told Hughes: "Your plan is a good plan."

And key groups that have signaled public opposition to the governor's plan — including the Nebraska Farmers Union and Nebraska Farm Bureau — testified as proponents of Hughes' proposal or offered cautious support while testifying in a neutral capacity.

Bruce Rieker, the top lobbyist for the Farm Bureau who testified in support of LB9 on behalf of that group and eight other agricultural groups in the state, said the plan "contains several components that address our state's overreliance on property taxes" and praised its incremental approach.

"We want this to be right, even if it doesn't mean right now," Rieker told lawmakers. "And we would rather see you put the state on a trajectory that makes this meaningful and sustainable, and that you do it in a thoughtful and deliberate way."

Among others who testified in support of LB9 at Monday's hearing were representatives from the Nebraska Rural Community Schools Association, Schools Taking Action for Nebraska Childrens' Education and several school districts across the state, including Centennial Public School, which serves about 500 students in Utica.

Jason Richters, a farmer and the Centennial Public School Board president, praised the bill's maintenance of local control of public schools, to cut property taxes by putting nearly all public school funding in the hands of the state.

"Nebraskans are passionate about maintaining local control of their schools and the education offered to their children," Richters said. "I believe they're unwilling to jeopardize that for a few more dollars in tax relief."

Representatives from the Nebraska State Education Association, the Nebraska Association of County Officials and the state Association of School Boards praised Hughes' plan but withheld full endorsements as they wait for further details to be ironed out.

"There's a lot here to support," said Colby Coash, a lobbyist for the school board group and the Nebraska Council of School Administrators.

While groups from the public sector broadly voiced support of the plan, business groups lined up in opposition.

Bryan Slone, the president of the Nebraska Chamber of Commerce, said the group's "biggest issue" with LB9 is that it fails to identify the scale of the problem lawmakers were recalled to Lincoln to fix.

"Which is: How big is our property tax problem?" Slone said. "Do we need to reduce property taxes by 10 or 20 or 30 or 40 or 50 percent to be competitive with other states? It would be nice to define that before we start raising the (sales and/or income) taxes."

Income, property and sales taxes make up the "three-legged stool" that defines state revenues, which have grown increasingly reliant on property taxes as lawmakers in recent years.

In the fiscal year that ended June 30, the state's total net tax revenues included $3.6 billion in sales taxes, $4.2 billion in income taxes and $5.1 billion in property taxes.

Income tax revenues are projected to drop by $1 billion by 2027 as a result of prior tax cuts, but Pillen has made "transformational" property tax cuts the top priority of his second year as Nebraska's governor.

"I'm not saying there isn't a property tax problem," Slone said Monday. "But when we say we need to reduce property taxes by 40 or 50 percent to be competitive, that's just not true."

The Lincoln Independent Business Association and the conservative fiscal group The Platte Institute also opposed Hughes' plan Monday.

And the otherwise warm reception LB9 received at Monday's hearing could sour when new revenue streams become part of the legislation.

In an exchange with Sen. Eliot Bostar of Lincoln, Rieker, the Farm Bureau's lobbyist, acknowledged that the group would no longer support the plan if the bill included new sales taxes on agricultural inputs or equipment to fund property tax relief.

"That would be a career-ending move on my part," Rieker joked.

The exchange highlights the challenge lawmakers will face in trying to identify new revenue streams without angering influential industry groups and threatening the popularity of any property tax relief proposal.

But lawmakers will have numerous revenue-generating proposals to consider when they begin deliberations next week, including new ideas put forward Monday, which marked the last day senators could introduce legislation to be considered during the special legislative session.

Lawmakers have introduced 81 bills and 24 constitutional amendments to be considered this session, including 64 pieces of legislation put forward Monday. Among the latest batch of proposals:

MARIJUANA LEGALIZATION: Two Omaha senators proposed legalizing and taxing marijuana for recreational use.

Sen. Justin Wayne proposed (LB52) setting a 25% excise tax on cultivators who sell or transfer unprocessed cannabis to manufacturers or stores, as well as a 25% sales tax to be paid by consumers.

The proceeds from Wayne’s bill, after expenses to administer the Cannabis Control Act, would be directed into the Education Future Fund which provides an equal amount of funding for all public school students in Nebraska.

Sen. Terrell McKinney proposed (LB71) a 16% excise and sales tax on cannabis products in Nebraska.

Under McKinney’s bill, 50% of the proceeds from the sales tax would be transferred to the property tax credit cash fund and 40% would go to the Education Future Fund used to support public schools. The remainder would be used for grants tied to business development, prisoner reentry, education and youth outreach.

MANSION TAX: Sen. Carol Blood of Bellevue sponsored a bill (LB36) implementing a 1.25% real estate transfer tax on all single-family homes valued at more than $800,000.

LUXURY TAXES: Nebraskans would pay more in taxes on a slew of luxury items under a bill (LB54) from Wayne. Among the luxury items taxed at 2.25% included in the legislation are vehicles over $50,000; jewelry that costs more than $5,000; clothing that costs more than $1,000.

More expensive vehicles, watercraft, aircraft, and jewelry and clothing would also be subject to higher tax rates, under Wayne’s plan.

CAPITAL GAINS: Unrealized capital gains for individuals, corporations, or others would be taxed at 10% beginning in 2025, under a bill (LB51) from Wayne, with that amount declining to 8% in 2026 and 7% in 2027.

EXCISE TAX ON AMMO: Wayne also introduced a bill (LB65) that would add a 5% excise tax on all purchases of ammunition in Nebraska.

Half of the revenue generated would go to the Property Tax Credit Cash Fund, while 35% would go to the Wildlife Management Grant Program to be run by the Nebraska Game and Parks Commission, and 15% to the Post-Traumatic Stress Disorder Grant Program Fund.

TEEOSA SUNSET: Sen. Steve Halloran of Hastings, along with 13 co-sponsors, brought a bill (LB81) that would sunset the Tax Equity and Educational Opportunities Support Act, better known as TEEOSA.

Enacted in 1990, TEEOSA calculates the difference between what schools need to educate every child from what resources are available in property taxes to determine how much state aid a district should receive.

Halloran, who will be term-limited this year, said the sunset included in LB81 would end TEEOSA in 2027 without identifying a replacement, requiring the next Legislature to figure out a solution.

TAX LAWSUITS: Sen. Julie Slama of Dunbar introduced several proposed constitutional amendments granting individuals the right to sue political subdivisions for levying new taxes (LR7CA), increasing tax rates (LR8CA), extending expiring taxes (LR9CA), changing policies that result in a net tax revenue gain (LR10CA), or enter into financial obligations without pledged cash reserves (LR11CA) that have not been approved by voters at a November general election.

Slama also introduced constitutional amendments that would require political subdivisions to receive voter approval to levy new taxes (LR12CA), increase tax rates (LR13CA), extend expiring taxes (LR14CA), and change policies that result in a new tax revenue gain (LR15CA), and enter into financial obligations without pledged cash reserves (LR16CA).

DIFFERENT TAX METHOD: Omaha Sen. Mike McDonnell’s proposed constitutional amendment (LR24CA) would allow the Legislature to create a separate method for taxing residential properties, such as limiting the growth of valuations.