Property tax, schools create taxing dilemma for Nebraska

Nebraskans are upset about property taxes. But property taxes provide most of the money for Nebraska schools. That leaves lawmakers grappling with what to do.

In the last five years, taxes on Nebraska agricultural property rose 82 percent, says Bruce Johnson, a retired ag economics professor at the University of Nebraska-Lincoln. Meanwhile, Johnson says, residential property taxes went up only 7 percent, and commercial property, up 12 percent.

“There’s a huge, huge disparity,” Johnson said.

But that could change, says Sen. Mike Gloor of Grand Island, chairman the Legislature’s Revenue Committee.

“We’re already seeing a cooling off of the inflationary rate with ag land. But assessed value and sales prices for a lot of residential properties are starting to climb pretty significantly,” Gloor said.

Against that backdrop, senators are trying to decide what to do about property taxes when the Legislature begins meeting again in January. At a recent public hearing, Speaker Galen Hadley told a roomful of people who came to testify, “We know that there’s a problem. So if you get up and just tell us that there’s a problem, you’re stating the obvious. If you could help us come up with possible solutions to the problem, it would really help us."

Cathy Lang, a former state property tax administrator now with an educational advocacy group, reminded senators to think about how the money is spent.

“It is the spending that drives the need for any and all tax revenues. Therefore the policies considered by the Legislature must address the size and the rate of change of that ‘bucket’ that you are filling with tax revenues,” Lang said.

By far the largest share of property taxes collected in Nebraska goes to schools. And property taxes account for about 54 percent of all school spending in Nebraska.

Much of the rest comes from state sales and income taxes, funneled to local districts through the state school aid formula. As ag property values have gone up, that formula means many rural school districts have gotten less and less state aid, says Sen. Kate Sullivan, who chairs the Legislature’s Education Committee.

“Consequently, of our 245 school districts, about two-thirds of them are supporting their school districts solely on the property taxes that they receive,” Sullivan said.

The community of Chadron, in northwest Nebraska, still gets state aid, but the amount has fluctuated, says Chadron schools superintendent Caroline Winchester.

“We lost $1.6 million in one year, and that was out of about a $5 million state aid budget,” Winchester said. “We had to close four rural schools. We had to RIF (reduction in force) 16 positions, which is a tremendous economic effect on the community because it’s not only those 16 positions but economically it hurts 50 other positions (that) are lost throughout the county.”

Chadron’s property taxpayers are already paying the maximum levy allowed by state law. Elsewhere in the state, property taxpayers have faced steeply increased bills, as rising agricultural property values have sent state aid flowing elsewhere.

Among the beneficiaries of the state aid formula in recent years have been schools in cities like Lincoln, says Lincoln superintendent Steve Joel.

“Our needs continue to go up. We grow about a thousand students a year. The needs of those students that are coming into the system continue to go up as well, too,” Joel said. “Our valuation doesn’t keep up with our student growth. We benefit from the formula the way it’s written today. But we’re one of the fastest-growing districts in the state.”

Urban schools may benefit now, but that hasn’t always been the case, Joel added.

As lawmakers continue to wrestle with changing the school aid formula or the property tax system, Sullivan says it’s important to maintain perspective.

“The reality is we’ve got to find a balance. We have to keep that and retain that quality education that I think we have in the vast majority of our schools. But we need to balance that with the concerns of the taxpayers,” Sullivan said.

Lawmakers will continue to discuss how to find that balance, as the Legislature prepares to reconvene January 6.

Editor’s note: For more on property taxes and Nebraska schools, tune in to an NET News Special Presentation: Nebraska Schools: A Taxing Dilemma. The program airs for the first time Tuesday, Dec. 15 at 6:30 p.m. Central on NET Radio and 7 p.m. Central on NET Television. It will also be available on our website, netnebraska.org.