Due to COVID-19 concerns, the Nebraska’s State Legislature’s current session has been suspended until further notice. Legislative Bill 974 may be discussed again at an unknown time.

On Jan. 13, the Nebraska State Legislature’s Revenue Committee introduced Legislative Bill (LB) 974 which deals with public school funding. Public schools get money primarily from two sources: the property taxes their districts impose on its residents and the money the state gives them through aid. Essentially, 974 aims to lessen public schools’ dependency on property taxes. The bill’s Statement of Intent, which explains the purpose of the bill, heard on Jan. 22, reads: “The goal of LB 974 is to reduce our reliance on property taxes to fund public K-12 education by providing a dollar-for-dollar reduction in K-12 property taxes. State Aid is being increased to reduce the reliance of local property taxes for funding K-12 education.”

State Senator Lou Ann Linehan, elected chairperson of the Revenue Committee, said Nebraska’s reliance on property taxes to pay for education is an issue.

“The ideal situation would be about a little over half of the money coming from the state and half of it coming from property tax payers,” Linehan said. “That’s a more fair situation. What we have now is a heavy over-reliance on property taxes.”

District representatives agree the dependency is a problem.

“The national average for the percentage of property taxes that funds public education is 29 percent,” Superintendent Mike Lucas said. “Here in Nebraska, because of our over-reliance on property taxes, depending on the year, about 52 to 54 percent of funding comes from property taxes. At Westside, about 63 percent comes from property taxes, about twice the national average.”

Currently, each school district decides how much it needs to tax its residents, and the amount they are allowed to tax their residents is called their taxing authority. According to Brian Gabrial, Director of Finance for District 66, Westside can levy up to $1.20 on their property value. If passed, LB 974 would reduce every districts’ taxing authority. The following, an excerpt from the bill’s Statement of Intent, describes the proposed yearly decreases in taxing authority.

“As introduced, LB 974 will reduce the taxable valuation for all school districts over a 3-year period,” the Statement of Intent reads. “Residential, commercial/industrial and centrally assessed land will be reduced from 100 percent of actual value to 95 percent of actual value in 2020-21. It will be reduced to 90 percent of actual value in 2021-22 and 85 percent of actual value in 2022-23 and thereafter.”

This means that districts will be unable to get as much money from property owners in their district as they would have been before. According to Lucas, Westside would lose a significant amount of money.

 Those decreases in property value were calculated based on the amount of state revenue available to give as education aid. While the Statement of Intent provides the original percentages proposed, the bill may be amended. Linehan said it is likely that instead of lowering the taxable valuation of residential, commercial and industrial to 85 percent of its actual value in year three, they will reduce the taxable value to 87 percent because they realized the state wouldn’t be able to afford to pay the difference back otherwise. An amendment for this change has been introduced.

“We want the bill to be sustainable so we are not going to commit money we don’t have,” Linehan said. “So, that’s why we took it back up to 87 percent.”

Why were the legislature and the governor able to propose this bill? According to Linehan, it was because of the availability of state money. This state money comes primarily from income and sales tax, along with some miscellaneous taxes. 

“The governor has kept spending at 3 percent and we have managed to keep our state spending below our revenues, so we actually have room in our revenues to do more for schools.” Linehand said. “So over the next three years, there’s $520 million dollars we could use to support public education and reduce property taxes by the same amount.”

That $520 million would go towards schools in many forms of aid. One type of aid is net option funding which Westside already received. To calculate how much net option funding a district receives, they use a formula that takes the number of opt-in students the district has compared to the number of students who live in that district but opt-out to other schools. 

Another type of aid schools around the state also already receive is equalization aid. As Gabrial explained it, equalization aid is for when a school’s designated needs exceed its resources.

“Currently, there’s a big, gigantic, very complex formula that spits out a couple different numbers that figures out how much you need as a district,” Gabrial said. “Then there’s another formula for how much resources you currently have at your disposal…Subtract those two and you get what’s called equalization aid.”

 However, Westside doesn’t qualify for any. There’s an additional type of aid 974 proposes that would be new to Nebraska called foundation aid. Foundation aid, according to Gabrial, is money a district would receive per student. LB 974 also proposes transition aid, meant to cover losses for districts who have financial difficulty adjusting to their lowered taxing authority. 

“We still might come out slightly ahead in that year one,” Gabrial said. “Year two we would definitely be behind and need that transition aid. After that, it’s hard to project, but I don’t think we would get transition aid in year three. But at the end of the day, if you get transition aid, think about what that means, right? If you get transition aid that means you have less money this year than you had the year before. So it helps, but it’s certainly not something that you would want to get.”

The amount of transition aid qualifying schools would receive would lower yearly. 

“Transition Aid will be 100% of the difference in 2020-21; 75% of the difference in 2021-22; and 50% of the difference in 2022-23,” the Statement of Intent reads. “The amount of Transition Aid will be appropriated by the Legislature and prorated to the school districts.” 

The concern the district has is that these types of state aid wouldn’t be sufficient in covering the amount schools would make otherwise through their property taxes. How much money would Westside be out, exactly? It’s hard to know for sure, but according to the legislature’s estimates, obtained from a Tweet sent out by Superintendent Lucas, in year one we would receive a total revenue of $70,969,020. For year two, however, we would receive a total of only $67,758,909—about a $3.2 million dollar difference in revenue. The legislative office also projected a loss of $550,000 for year three. Because of these financial losses, District 66 representatives said they are adamantly against the bill. 

“974 is something our school board has been actively opposed to,” Lucas said. “Please don’t get us wrong, we are very excited and hungry for less reliance on local property taxes to fund education, but 974, we don’t see it as that vehicle to do so. We run different analyses and they range from a loss of 2.8 to 3.9 million dollars over the next three years and we just don’t see that as a good policy.”

If LB 974 was passed, Gabrial said there would have to be a lot of discussion to figure out how to adjust to the new budget in year two.

“Clearly there would be a lot of conversation, a lot of back and forth between board and superintendent, advice from myself, we would get community stakeholders involved,” Gabrial said. “I mean it would be a lot of work and it would be painful, because going to cut something that’s really really important and crucial to somebody. Every program and every teacher is important to us, so how do you choose which thing to fund less?”

Gabrial said that while he agrees Nebraska is too reliant on property taxes for education, he sees these tax authority reductions as negative because the district doesn’t aim to take unfair advantage over its residents.

“I can tell you right now, we did not levy the entire 15 cents of the levy just last year,” Gabrial said. “I mean, we could have, but that’s not the way this board operates and that’s not the way most boards operate. They don’t want to levy up to the limit…So, I can tell you right now, if they gave us a bunch more state aid you’d see our levy drop. Trust me when I tell you—I mean I live in the district, every board member lives in the district—our goal is not to tax the most we can. It’s to tax what we need to make the district run.”

According to Gabrial, 974 would complicate an already complicated process.

“I’ll say this with 974, I don’t know if it’s the most devastating school finance bill that I’ve read, but it definitely is the most, of the ones that have made it out of committee, and they’re serious serious bills, is the most complicated one,” Gabrial said. 

Linehan, whose committee introduced the bill, disagrees that this bill would be bad for Westside.

“Westside would be a big winner,” Linehan said. “The property tax payers in Westside would benefit significantly…this would balance out the 244 school districts, so every school was getting a significant amount of its state aid from the state instead of depending on property taxes.”

Lucas said he believes there are other ways the state can fund public education that wouldn’t interfere with taxing authority.

“Really, for the last 5 or 6 years we have been asking for increased special ed reimbursement, and we’ve been asking for a local effort rate adjustment into the funding formula and if those things were done that would benefit every school district throughout the state of Nebraska,” Lucas said. 

So, if the district is against the bill, who supports it? The bill’s Statement of Intent also reads “The purpose of LB 974 is to reduce the property tax bills of Nebraska’s farmers’, ranchers, and homeowners while protecting our schools.”  University of Nebraska-Lincoln Agricultural Economics professor David Aiken explains why this is.

“The thing that’s driving this is the really high property taxes on agricultural land,” Aiken said. “That’s the political issue that’s driving this…Last spring, there were about seven or eight rural senators who voted against the state economic development program rewrite and that was enough to keep it from passing. They said, ‘If we don’t get your votes for property tax relief, then you don’t get our votes for economic development.’”

Where is LB 974 now? Nebraska’s state legislature is a unicameral, and each bill goes through several phases of debates and amendments. As of March 13, the bill is still on general file. Social studies instructor Jonathan Priester explained what this means.

“If it passes out of committee, then it goes to what they call the general file,” Preister said. “Then everyone gets to debate, vote on the bill. The state senators consider amendments. They can change things…then if it passes out of there, it goes to the second debating and voting stage… then their final reading is basically a vote.”

The legislative agenda is determined on a day-by-day, so there is no set date for when LB 974 will again be discussed. 33 out of 49 state senators must vote to approve this bill, and Linehan said they are very close to that 33.

However, due to Covid-19, the legislature is closed until further notice. Aiken explained that because of the coronavirus, it may be unlikely for the bill to pass if the excess state revenue that would have been used to give to schools as state aid has to be used to deal with covid-19’s repercussions. 

“If coronavirus means state revenues are going to go down and state spending may have to go up to support people hurt by coronavirus…that complicates the state budget in a major way,” Aiken said.

Once the need for social distancing comes to an end, the legislature can talk about reconvening.

“The constitution of Nebraska says when the legislative session has to begin, but it doesn’t specify a date when it has to end…The governor can always call a special session…if they can’t get everything done in the regular session.”

Either way, Aiken said he doesn’t believe property tax relief will be a top priority for the legislature amidst the pandemic.

“The fact that they’re taking a long recess is something that’s pretty easy to work around if the virus lets up,” Aiken said. “If the virus doesn’t let up, we won’t be worried about tax relief.”

It is unknown as to if and when discussion about LB 974 will resume.