Andrew Wegley
,
Chris Dunker
Captured using a double exposure, state senators register their votes with red and green lights during a motion to end debate. Fierce opposition from a bipartisan group of lawmakers to Gov. Jim Pillen’s tax plan kept the Legislature from ever voting directly on the proposal on Tuesday.
KENNETH FERRIERA, Journal Star
The sweeping property tax cut package championed by Nebraska Gov. Jim Pillen and his allies in the Legislature died Tuesday afternoon after it became evident the plan did not have the votes to advance.
Fierce opposition from a bipartisan group of lawmakers, who cast the plan as the largest tax increase in state history and blasted what they described as a chaotic process to bring it to the floor, kept the Legislature from ever voting directly on the 122-page tax plan.
The bill (LB38) would have cut the state’s collective property tax bill by more than $1 billion, replacing locally collected tax revenue with approximately $700 million in new sales taxes on previously untaxed goods and services, and increased “sin taxes.”
Championed by Sen. Lou Ann Linehan of Elkhorn, one of Pillen’s chief allies in the Legislature, the plan proved unpalatable to most urban lawmakers who argued that the plan’s reliance on sales tax revenue amounted to a tax increase on all Nebraskans to fund tax relief that would most benefit the state’s largest landowners.
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Sen. Lou Ann Linehan of Elkhorn, who has championed a plan to cut property taxes by Gov. Jim Pillen, speaks during debate at the Capitol on Tuesday.
KENNETH FERRIERA, Journal Star
Joining the opposition from Democrats in the officially nonpartisan Legislature were a handful of conservatives from more rural areas of Nebraska, including Sens. Julie Slama of Dunbar, John Lowe of Kearney, Ray Aguilar of Grand Island and Rob Dover of Norfolk.
“When you hear, ‘We need to raise taxes to cut taxes,’ that just seems strange to me,” Dover said amid debate Tuesday.
Needing 33 votes to overcome a filibuster on Day 11 of a special session called by Pillen to cut property taxes, the plan appeared well short of that mark heading into Tuesday afternoon, leading Linehan to substitute an alternative, more narrow plan before opponents could defeat the bill.
Sen. Julie Slama of Dunbar waits for a roll call vote to take place after a motion to end debate during the legislative special session at the Capitol on Tuesday.
KENNETH FERRIERA, Journal Star
“Huge indictment of Pillen’s failed leadership to watch his plan go down in flames,” said Slama. “Big win for Nebraska taxpayers to have the largest tax increase in state history fail before the cloture vote.”
Omnibus tax bill stalls
The plan that died on the floor — filed as an amendment (AM73) to LB34 — called for incremental cuts to the maximum property tax rate school districts could levy from $1.05 now to 30 cents in the 2027-28 fiscal year, a 71% cut to the primary driver of high property taxes in Nebraska.
The state would have increased its state aid to schools to make up for lost revenue.
The plan also called for the state to take over 50% of the cost of operating county jails and the entirety of natural resources districts, both of which are currently funded by local property taxpayers.
It also would have relied on state budget cuts, the frontloading of more than $1 billion worth of property tax credits and increased sales tax revenue to fund the shift away from property taxes.
Under the plan, Nebraskans would have paid the state’s 5.5% sales tax rate on previously untaxed goods and services, including lawn care and landscaping, dry cleaning, taxis and transportation, soda and candy, movers and storage facilities, nail and hair care, and marketing and public relations services.
Before sending the plan to the floor of the Legislature, Linehan’s Revenue Committee axed other new sales taxes that Pillen had sought to enact under his initial tax plan, which called for the taxation of home and car repairs, zoo memberships, admissions to statewide sports events and accounting and tax preparation services.
In another effort to appease critics, Linehan and the committee included proposals eliminating sales taxes on residential electric bills and a doubling of the earned income tax credit — which helps subsidize low-income working families by providing tax credits equal to a portion of their earnings — from 10% to 20%.
But the plan proved too unpopular among too many lawmakers Tuesday.
Sen. Danielle Conrad of Lincoln, among the plan’s most vocal opponents, said lawmakers had all agreed upon a “laudable and important” goal: to provide property tax relief to Nebraskans.
Sen. Danielle Conrad of Lincoln speaks during debate Tuesday morning at the Capitol.
KENNETH FERRIERA, Journal Star
“But we have a fundamental, sincerely held difference of opinion in regards to how to do that,” she said. “And I simply disagree with sales tax-based approaches, which are regressive” and “a bad deal for Nebraska — and it’s particularly a bad deal for my district.”
Some of the bill’s proponents, including Sen. Mike Jacobson of North Platte, accused urban lawmakers of filibustering Tuesday in an attempt to kill the tax package rather than improve it.
Sen. Brad von Gillern of Elkhorn cautioned that inaction Tuesday would guarantee Nebraskans’ property tax bills would rise next year.
“If this body does nothing to have the courage to do something this week, you will pay more in property taxes next year,” he said.
Sen. Justin Wayne, a Democrat from Omaha who has at times voted for conservative policies throughout his eight years in the Legislature, chastised both camps in an impassioned speech shortly before noon.
“Neither side really wants to move off their idea,” he said, adding: “Let’s be honest and have a real conversation. And if we can’t, let’s just go home.”
Narrower bill advances, but has opposition
Instead of the plan advanced by the Revenue Committee on Monday, Linehan on Tuesday offered a scaled-down plan that scrapped all of the sales tax exemptions she had sought to ax in the initial plan and included zero sin tax hikes.
The alternative plan — which lawmakers ultimately advanced on a 36-8 vote after several more hours of debate that wrapped up at about 7 p.m. — would place a cap on annual budget increases for cities and counties.
Local boards could only increase their budgets at the same rate as inflation each year under the plan with exceptions for voter-approved bonds, public safety spending, emergencies and through an override vote of the people.
It wouldn’t make any adjustments to the maximum property tax rate school districts could levy, however, leaving the largest item on homeowners’ tax bills untouched.
The plan would instead create the School District Property Tax Relief Credit Fund and immediately pour $750 million into it to be distributed to counties for property tax relief — a far cry from the $2 billion in property tax cuts Pillen had pressured lawmakers to deliver.
The cap on property tax growth for cities and counties drew sharp opposition from the League of Nebraska Municipalities and the Nebraska Association of County Officials, which represent those entities at the Capitol.
Lynn Rex, executive director for the League of Nebraska Municipalities, said capping growth in property tax collections for the 527 cities, towns and villages in the state would have a “devastating impact” on the quality of life in those communities.
Governing boards will find it harder to purchase frontend loaders for street departments, negotiate with employee unions, or meet the requirements of unfunded mandates passed down by the Legislature, she said.
“The price of concrete doesn’t go down,” she said.
The amendment adopted by the Legislature to exempt public safety spending would primarily benefit the largest communities in the state, Rex added, as hundreds of municipalities do not employ police officers or firefighters.
Instead, Rex said the cap would ultimately mean less funding for streets, water treatment facilities, wastewater plants, landfills, libraries and cemeteries in some communities.
“These are the things that are on the plate of municipalities,” she said.
NACO Executive Director Jon Cannon said he was “profoundly disappointed” with the cap, which was introduced on the floor with little notice after both NACO and the league negotiated an agreement with senators last year to keep the cap at 3%.
Allowing for 0% growth or growth at the Consumer Price Index would create “severe limitations” for counties to meet obligations like maintaining vital infrastructure, NACO said in a news release.
An analysis conducted by NACO found the 39 Nebraska counties with fewer than 5,000 people spent approximately 31% of their budgets on building and maintaining roads and bridges, items Cannon said are important for both quality of life and public safety.
By comparison, the largest five counties in Nebraska — Douglas, Lancaster, Sarpy, Hall, and Buffalo — allocate just 14% of their budgets on infrastructure, while more is spent on law enforcement, fire departments, jails and other public safety expenses.
Cannon said Nebraska counties would fare marginally better under the growth allowance settled on by the Legislature — the State and Local Consumption Expenses and Gross Investment index, which considers state and local government spending.
But with a floor of 0% and the ability of the index to move into negative territory, Cannon said downsides remain for county boards.
“That’s really going to put counties in a bind,” Cannon said. “Not now, not next year probably, but in the future when we face a recession or deflationary period.”
At that point, counties will be forced to double down on what Cannon said was “bad policy” by allowing infrastructure to further deteriorate.
While Omaha took a stand against the caps, Sen. Eliot Bostar said the language in the amendment could benefit Lincoln and Lancaster County moving forward.
Caps in property tax growth already exist for cities and counties, Bostar said, while other restrictions in state law have prevented cities like Lincoln from being able to use other funds like sales tax to supplement services and infrastructure.
The amended version of LB38 removes the restricted funds lid cities must currently function under, which drew support from several Lincoln lawmakers.
“Every community is going to come to a decision for how net beneficial or not this particular cap structure is,” Bostar said, “it just so happens this is beneficial for Lincoln.”
Lawmakers not done
The latest plan will face two more rounds of debate at the Capitol this week before it can be signed into law by Pillen.
Speaker John Arch on Tuesday said the Legislature could continue to meet through Saturday to wrap up its work in the longest special session in the state’s history.
In a news release Tuesday night, Pillen did not acknowledge that the plan he had asked the Legislature to advance had failed, but thanked Linehan for her “strong leadership in achieving this first step toward property tax relief.”
“Although there is much work yet to do to achieve a victory for Nebraskans facing spiraling property tax bills, this vote is a step in the right direction,” Pillen said.
“I look forward to partnering with good faith members of the Legislature to continue the work of delivering transformative property tax reform and bringing this consensus bill into law,” the governor added.
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Reach the writer at 402-473-7223 or [email protected]. On Twitter @andrewwegley
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