Editor’s note: This report has been updated, including with reaction to the governor’s speech.  

LINCOLN — Gov. Jim Pillen pitched his proposal for “transformative” property tax relief on Thursday, calling for a broader sales tax, a “hard cap” on local school spending and the elimination of tax breaks won “by the best lobbyist.”

“We must lower our overall tax burden, widen our tax base, and end the era of special interest tax breaks,” the first-term Republican said in his annual “State of the State” address.

Pillen used his speech to tout the accomplishments in his first year in office, which included passage of a billion-dollar trust fund for K-12 education and passage of an income tax cut that will eventually reduce the state’s top rate to 3.99%.

He also called for increased efforts to cut spending and attract more workers to the state. Pillen added that it was “common sense” to pass a controversial “Sports and Spaces” bill that would bar biological males from participating in K-12 sports designed for females and would block trans students from using a bathroom designated for other than their gender at birth.

‘Crisis’ of high property taxes

“First and foremost,” he said, the state needs to address the “crisis” of high property taxes, which Pillen maintained was pricing seniors out of their homes and has been “hurting Nebraska farmers, ranchers, homeowners, and businesses for most of our lifetimes.”

“High property taxes hurt every Nebraskan in every part of our state and must be fixed now,” he said.

Without providing specifics on all the steps he supports, the governor praised state lawmakers for introducing bills this week to control spending by K-12 schools, eliminate excessive boards and commissions and end sales tax exemptions “created for special interests at the expense of the middle class.”

While Pillen wouldn’t say it, it appears he has abandoned a 2-cent increase in state sales taxes he floated two weeks ago as part of the solution — a hike panned by conservative and progressive groups that would give Nebraska the highest state sales tax rate in the nation at 7.5 cents.

At a briefing with reporters Wednesday night, he also demurred when asked whether he supported the latest sales tax proposal — a 1-cent hike proposed by State Sen. Lou Ann Linehan, a Pillen ally on tax issues — as part of his goal of reducing property taxes by a total of 40%.

But he made it clear he’s OK with shifting the load of taxation more heavily onto sales taxes.

Supports ‘all options’

“I’m supportive of all options,” he told reporters. “We have to have a funding shift to get that done.”

Pillen pushed back on criticism from some conservatives, including former Gov. Pete Ricketts, that it was wrong to raise one tax — sales — to decrease another: property taxes. The Tax Foundation, which ranks states on their tax climate for businesses, recently called the governor’s plans to increase sales taxes “not sound tax policy,” adding that it should focus more on spending cuts.

“If someone wants to call me a tax raiser, they’re smoking something funny,” he said at the briefing.

Lobbying groups rose in indignation the last time a governor tried to eliminate tax exemptions on things that have been proposed this year, including business spending on accountants, legal advice and advertising, as well as soda pop and candy.

And school groups fought hard against a proposal last year to make it harder for school districts to increase property taxes.

Pillen said he would work with state legislators on the exact package of new taxes on formerly exempt items but supports a “hard cap” proposed by Linehan that would require voters to vote on proposed tax hikes and would eliminate a school board’s power to do that. That sets up another fight over local control of spending on K-12 education.

Father died from smoking

Pillen did say that he supported a $2-a-pack increase in cigarette taxes, recalling that he watched his father die from smoking.

When asked what he would say to someone who has to pay an extra 1-cent sales tax on a new car, Pillen said, “that’s their choice, that’s their decision.”

“Tax policy must benefit our state as a whole, not whoever has the best lobbyist,” he said during his speech.

Pillen also touted an effort to “sweep” $274 million from cash reserve funds kept by state agencies and funds — including the state’s unemployment insurance fund — and devote that to property tax relief.

“It is not the job of government to hoard cash and we must give it back to the people,” he said.

The address included calls for efforts to address the state’s workforce shortage, in which thousands of jobs go unfilled due to a lack of labor.

One initiative would provide reimbursement for moving expenses of new residents who take jobs that pay $70,000 or more. Another would invest an additional $25 million workforce housing in rural communities, which is often cited as a barrier for new workers.

Overall, the governor said that the state’s tax incentives need to be more “people focused” and not aimed at “companies that are takers, not givers, and that do not share our values.”

Pillen also used his speech to tout his administration’s efforts to cut government red tape, reduce spending on contracts and eliminate unnecessary boards and commissions.

He outlined his goal of reducing spending in the current fiscal year by 0.5% and seek further spending cuts in future years.

Reduce ‘duplication’ in higher education

Pillen, a former member of the University of Nebraska Board of Regents, said as part of that effort he wants to “eliminate needless duplication and inefficient competition between state-supported schools.”

“Nebraska government remains too big at every level,” he said.

The annual State of the State speech includes a dose of ceremony, and Pillen used his speech to recognize visitors attending the address, including state workers who plowed snow last week, two private-school students who received “Opportunity Scholarships” via a bill passed last year, and former Nebraska football coach Tom Osborne, who Pillen called one of his mentors.

During his speech Thursday, the governor also threw a dart at the state’s current, edgy tourism slogan, “Honestly, it’s not for everyone.”

Pillen said he supports a bill that would end the independent status of the state tourism agency and move it back under the Department of Economic Development. 

‘Nonsense’ state tourism slogan

“Speaking of attracting people to Nebraska, it’s tough to do that with nonsense slogans like we’re ‘not for everyone,’ “ Pillen said during his address.

Pillen also used the speech to urge passage of a controversial bill to block transgender athletes from competing in school sports in other than their gender at birth.

He said it’s just “common sense” that Omaha Sen. Kathleen Kauth’s “Sports and Spaces” bill should be passed.

“I don’t want my granddaughter to bear the fundamental unfairness of competing against a boy,” Pillen said. “And I certainly don’t want her to suffer the indignity of showering next to a boy.”

Several senators have urged the Legislature to steer clear of such “culture war” issues this year and focus on the state’s larger problems of workforce and housing shortages, along with high property taxes.

Recently, the Nebraska School Activities Association reported that since 2016, when it adopted several requirements and approval by the NSAA before a trans athlete could compete, it had approved seven applications.