Thoughts on property tax reform history

January 13, 2024 3:00 am

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I want to applaud Gov. Jim Pillen’s focus on reducing property taxes, because high property taxes are a huge problem. They are driving retired persons out of our state. Property taxes on my home have gone up more than 44% in two years. My neighbors tell me they have had a similar experience.

Gov. Pillen is correct that the property tax problem is caused by uncontrolled spending by school districts, cities, counties, natural resources districts and other local governments. Former Govs. Pete Ricketts, Dave Heineman, Mike Johanns, Ben Nelson, Kay Orr and others made the same observation when in office.

Having served as director of the Governor’s Policy Research Office (1979-80), assistant to the governor (1981), director of the Nebraska Department of Administrative Services (1982), attorney general (1991-2003), state treasurer (2011-19) and as a private attorney who worked on initiative property tax lid campaigns in the 1970s and 1980s, I have a historical view of the problem.

My first observation is that if state funds are used for property tax relief, they need to be sent directly to the property taxpayers.

Historically, “tax relief funds” sent to local governments, by and large, are used for increased spending, rather than property tax relief.

This happened again last year when a majority of school districts not only received increased state funding, but also increased property taxes.

Several years ago, the Omaha World-Herald performed and published a careful examination of the history of large state aid to education increases and found that most of the money went to increased spending, rather than property tax relief. Nebraska history clearly demonstrates that state aid to local governments does not meaningfully reduce property taxes.

Paying the property tax relief funds directly to the property taxpayers as a refundable income tax credit does provide real tax relief. “Front-loading” this credit, as suggested by Gov. Pillen, makes sense so that every eligible property taxpayer actually receives the promised benefit.

My second observation is that property tax lids are needed, but have not worked well.

Sometimes local governments have agreed to spending lids in exchange for increased state aid. Then, a few years later, they convinced the Legislature to modify or eliminate the spending lids.

Last year, many school district boards used a super majority vote loophole to override the property tax spending limits adopted by the Legislature last year.

To be effective, a lid on property tax revenue must be one that cannot be overridden by a local government board.

For example, an effective lid on local government property tax revenue would allow an increase of one half of the previous year’s inflation plus the tax revenue generated by new construction the previous year. Any additional local revenue needed would come from a local sales tax or user fees. Construction for government infrastructure would come from bonds issued after a vote of the people.

This, or any similar proposal, can be expected to be very strongly opposed by local government lobbyists. Similar efforts have failed in the past. Strong leadership will be needed to enact effective local property tax revenue spending lids.

To summarize, first, the only effective way to use state tax dollars for property tax relief is to give the state dollars directly to the property taxpayers. Second, property tax lids that can be raised by local government officials have not been, and will not be, effective. Third, enacting an effective local property tax revenue lid will require strong state government leadership to overcome the strong opposition from the local government spenders’ lobby.

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Don Stenberg
Don Stenberg

Don Stenberg is an honors graduate of Harvard Law School. He served for 12 years as Nebraska’s attorney general and has argued several constitutional law questions in the Supreme Court of the United States, including the partial-birth abortion case Stenberg v. Carhart. He is also the author of a Christian book entitled, “Eavesdropping on Lucifer.” He and his wife, Sue, reside in Gretna, Nebraska.