LINCOLN — Lawmakers have formally introduced a “fix” to Nebraska’s summer special session changes to a key property tax relief program, which closed off some tax relief for Nebraskans.

State Sen. Brian Hardin of Gering introduced Legislative Bill 81 on Thursday, a promise he and five other lawmakers made in October. The legislation would allow all Nebraskans to claim a credit on any property taxes paid in 2024 when they file their tax returns this spring, in the middle of the 90-day legislative session. The aim is to make whole the people who missed out on claiming an income tax credit for property taxes assessed in December 2023.

LB 81 would offer a one-time extension for the income tax credit program established in 2020 and designed to offset K-12 school taxes, which make up the majority of local property taxes. 

The credits will now be immediately applied against school taxes on property tax statements, beginning in December 2024.

For some Nebraskans who didn’t know about the program previously or weren’t able to request the relief, it will be the first time they benefit from the program. About 50% of such eligible credits were left unclaimed.

“[The] challenge is that, in so doing, we did not realize that, inadvertently, we caused a problem as we set about the solution,” Hardin said at an afternoon news conference in the Nebraska State Capitol Rotunda.

“It’s lovely to get that shot in the arm right now because most of us got lowered rates for this year,” Hardin added. “We’re looking at that saying, ‘Hey, that’s good.’ The problem is when you look across those years, 2023 is missing.”

‘Making life more miserable’

Hardin and State Sens. Danielle Conrad of Lincoln and Tom Brandt of Plymouth, who cosponsored LB 81, were among 40 lawmakers to vote to pass legislation during the special session to “front-load” the existing relief program so more people received it. But the change closed the door for relief on 2024 tax returns for anyone who decided to pay property taxes assessed in December 2023 in arrears, or throughout 2024.

“We didn’t realize it at the time but what ended up effectively happening is we ended up making life more miserable,” Hardin said, saying about 85% of Nebraskans didn’t pay their 2023 assessed taxes by December 31, 2023. One person who did pay early: Gov. Jim Pillen.

The legislation, as written, would not be limited to taxes assessed in December 2023 taxes. It would include anyone who paid their 2024 property taxes assessed just last month, if they paid by Dec. 31, 2024.

Implementing LB 81 would cost up to $750 million, plus the allowable growth rate of all real Nebraska property, as determined by the Nebraska Department of Revenue. The actual cost of the fix would likely be less because not all Nebraskans would request the additional year’s credit.

Meanwhile, the state is facing a more than $432 million projected budget shortfall by summer 2027 that lawmakers must tackle.

Hardin said lawmakers might draft an amendment to limit the additional relief to the desired fix: to target only the taxpayers who lost out on the credit for property taxes paid in 2023 if they didn’t pay those taxes by Dec. 31, 2023.

“There was no sleight of hand going on by the Revenue Committee or anyone involved in that process,” Hardin said. “We truly didn’t realize that what we made was an expensive error, but we’re saying: Here’s an opportunity for us to talk about it and fix it.”

‘Nobody had a crystal ball’

Former State Sen. Lou Ann Linehan of Omaha, as chair of the Revenue Committee, led LB 34 through the special session for the tax credit changes she championed four years prior. Linehan, a former six-year chair of the Revenue Committee, and her successor as committee chair, State Sen. Brad von Gillern of Omaha, have said the cash flow to taxpayers is improved by the special session’s changes. 

“Nobody had a crystal ball that that was going to happen, that LB 34 was going to happen the way that it happened,” von Gillern told reporters. “To say that anybody prepaid their taxes knowing that they were going to get a ‘double dip’ on this is not reasonable.”

Linehan and von Gillern have noted that if the relief program is funded twice in the same year, the double $750 million credit has a total $1.5 billion price tag.

Hardin envisions paying for the one-time extension of tax credits using billions of dollars sitting in Nebraska agency cash funds, “sweeping the accounts” and recouping money that he said departments were “hoarding.”

‘The people’s money’

The effort to plug the “missing year” of relief that led to LB 81 was in part drafted by another former lawmaker before he was term-limited this week: Steve Erdman of Bayard.

‘A missing year’: No income tax credits for Nebraskans to offset school property taxes paid in 2024

Erdman was among the first to identify what he saw as a “retroactive property tax increase,” to the tune of 20-22% for some Nebraskans he said, shortly after the special session ended in August, as first reported by the Nebraska Examiner.

He and two other term-limited senators were the sole opponents of LB 34, largely for wanting more relief, not, as Erdman described the changes, “a decrease in the increase” of property taxes.

“You can go on forever and never make up that loss,” Erdman said in October of the “skipped” relief. “The question I have is, ‘Whose money is it?’ It’s the people’s money.”

The EPIC Option

Erdman drafted the legislation for his western Nebraska partner, Hardin, who also is taking the mantle from Erdman on seeking to more broadly rewrite Nebraska’s tax code by eliminating property, income and corporate taxes (the “EPIC Option”) and creating a wholesale consumption tax, but not on groceries.

“EPIC is alive and well,” Erdman told the Examiner last week. “The next effort that we put forward will be a far more involved and specific plan on how to get this on the ballot.”

Erdman says it takes time to make “big, bold changes,” but supporters aren’t deterred because of decades of inadequate policies and have learned how to improve their efforts. They are “more focused today than they were before.”

“Going forward, we will have a whole new look,” he continued. “I think it’ll be an opportunity for the Nebraska people that are being taxed out of their homes and farms and businesses to understand that there’s only one option, and that’s to change the whole system.” 

Tax relief priority in rural Nebraska

Brandt said property tax relief is top of mind for his constituents.

“They want to know what happened,” Brandt said, adding that the 85% of Nebraskans who didn’t pay their 2023 taxes by the end of that calendar year are in rural districts.

“I would like to tell the people of the state: We’re here,” he continued. “We’re trying to make a difference.”

State Sen. Jana Hughes of Seward said farmers in her district also preplan how they’ll pay their taxes and are good about claiming the income tax credit when available. The Nebraska Farm Bureau has been pushing for an LB 81-style fix.

“They didn’t know the rules were changing,” Hughes said, adding the quick fix left taxpayers in the hole without time to choose their next steps, who might have paid early if they had known.

Finding the money

The special session was the longest and most expensive in state history, costing $173,134 over 17 days, based on a deficit budget request made after the special session. That’s a daily cost of $10,184.35, the highest of any special session in Nebraska.

LB 81 would require an early hearing and would need to be passed, and signed into law, by the time Nebraskans start turning in their tax returns this spring.

Hardin would also need at least 33 lawmakers, regardless if the bill is filibustered, for his bill to take effect for this tax season. And he would need Pillen’s blessing.

Conrad said that in a state budget of more than $12 billion, lawmakers can find the money while also closing the projected budget shortfall.

“It is easily ascertainable to find resources to make it right for Nebraska taxpayers,” Conrad said. “If indeed there is a political will, if indeed there is consensus, we have to come together to make things right for Nebraskans who were negatively impacted by the special session.”