Unicameral Update: Transformational Tax Relief?

It’s been a busy few days for senators. On March 26, they gave final approval to the state’s budget and the Revenue Committee advanced its tax package to the floor. Senators were given a briefing on the tax package early in the morning on March 27 and debate on the proposal began in the afternoon.

A quick reminder of why we are here. The Legislature didn’t have to make budget changes this session since they passed a two-year budget last session. However, Governor Pillen announced his intent to provide “transformational” property tax relief and to do this there had to be some adjustments made to planned spending. 

The budget that passed on March 26 represents a nearly 3 percent increase in state spending and will provide more than $500 million in general funds that can be used for property tax relief.  This relief will, in part, come from additional state aid to K-12 education. The most controversial part of the budget was the “sweeping” of more than $200 million from cash funds in a variety of state agencies and programs -- controversial because it represents “one-time” money and won’t be there next year to cover any shortfalls caused by the proposed tax relief.  Many wonder how there could possibly be that much money sitting somewhere long enough to be swept.  Enter my soap box… There shouldn’t ever be that much money sitting around. It is sitting there because agencies aren’t spending it as directed by the Legislature. This problem has been getting worse over the past several years and has caused reduced provider payments for important services like behavioral health and developmental disabilities. Now we find ourselves in a service access crisis that will only get worse unless changes are made. Senators made one small step in the right direction by adopting an amendment that requires the Department of Health and Human Services to spend all of funds appropriated for developmental disability services on those services. Behavior health providers weren’t as lucky, and a $15 million sweep stood without protection for providers. The Legislature did see fit to appropriate $20 million to cover rising costs for foster care and $15 million to fund a much-needed increase in nursing staff at the Lincoln Regional Center.

Now, the plan to pay for all of this:  LB388 became the Revenue Committee’s general tax package for the year and would make several changes in our current tax system. First, the bill would increase the state sales tax rate by as much as 1 cent (from 5.5 to 6.5 cents). I say “as much as” because the bill includes a “trigger” that would be based on total state revenue and increase or decrease accordingly. The proposal would also eliminate the sales tax exemption for advertising services offered by businesses with gross revenues of more than $1 billion, pet veterinary care, other pet services, dry cleaning, moving and storage services, lottery tickets, soda pop, candy, hemp products, CBD products, and games of skill (aka, the pseudo slot machines popping up at your local convenience stores and bars). Sales tax rates would be increased for cigarettes and vaping products. There was one tax reduction in the proposed elimination of the sales tax on residential utility bills.  All told, this package is expected to raise just over $650 million.

But, if they raise it, will it just get spent? Senator Linehan has said numerous times that she will “not keep pouring money into a bucket with a whole in it.” She and Governor Pillen have long lobbied for a zero-based hard cap for local taxing authorities. Zero-based caps did not get traction, but there are proposed caps that should limit the growth of county, city, and school spending.

There is one remaining piece to the puzzle that Senator Linehan has been working on with the Education Committee, and that is tweaking the school funding formula by adjusting levy limitations for school districts. We should see that proposal soon. 

All told, it is estimated that property taxes paid for schools would be cut nearly in half.  Property taxes paid for county and city services would be reduced to a lesser extent. 

The fireworks will start soon. If you would like to tune-in, click here. 

Korby M. Gilbertson
Radcliffe Gilbertson & Brady
625 S 14th Street, Suite 100
Lincoln, NE 68508
(402) 476-7272