LINCOLN — A new K-12 school funding proposal from a bipartisan segment of five urban and rural Nebraska lawmakers is being pitched as an alternative approach to provide tax relief.

State Sen. Jana Hughes of Seward, a former school board member, introduced Legislative Bill 9 on Thursday. She has nicknamed the proposal “Lower the Levy Cap” because, over the course of 10 years, maximum general fund property tax rates for local K-12 school districts would fall to 25 cents per $100 of taxable valuation.

In the first year, maximum tax rates would fall from $1.05 per $100 of taxable valuation to 65 cents. The state would fill in the gap to cover the local portion of the school funding. Every two years after, lawmakers would have to find more state funding to lower the tax rate cap by an additional 10 cents, until the 2033-34 fiscal year when the cap would be reduced to 25 cents.

‘Lower the Levy Cap’ concept

“Lower the Levy Cap” would require about $444 million additional funds in its first year, according to estimates from Hughes and her office. She said her proposal is not “anti” the governor’s plan but is simply another approach to property tax relief.

“It’s just another way to do it, and I think it’s reasonable and can actually get accomplished because it’s just not quite so much money and we time it out over 10 years,” Hughes said.

Hughes began working on the concept this spring shortly after a prior proposal that she had backed didn’t pass.

Pillen, similarly, has suggested lowering the levy cap to 0 cents by the middle of 2027. That shift would require upwards of $2.6 billion, including nearly $1 million in current tax relief programs.

“We cannot go away with nothing,” Hughes told the Nebraska Examiner last week. “I’m worried we might be running into a buzz saw of nothing, and that’s not acceptable to me.”

State Sens. Tom Brandt of Plymouth, Myron Dorn of Adams, Danielle Conrad of Lincoln and Lynne Walz of Fremont were part of the bipartisan group working with Hughes.

An alternative option

Brandt said the group set out to find a practical solution and offer an alternative for the state’s 49 lawmakers to consider. In anticipation of the session, the group decided to divide and conquer, Brandt said, with each of them reaching out to about 10 other senators to explain the impact. 

“Today, I could easily say 40 of them are absolutely aware of this, and like it,” Brandt said.

Hughes and the team shared the plan with local stakeholders and public school leaders, as well as Pillen and his staff, and asked for feedback.

According to estimates from Hughes’ staff, the proposal would lower property taxes for a home valued at $250,000 by an average of nearly $800. For a business property valued at $500,000, the savings would be more than $1,500. And for 80 acres of irrigated farmland, it would be more than $3,700 in savings, on average.

Conrad said that stood “in sharp contrast” to Pillen’s plan, which State Sen. Lou Ann Linehan of Elkhorn introduced on his behalf Thursday. Contrary to past statements that the governor’s plan would reduce property tax rates to 0 in three years, Linehan’s LB 1 included no direct reductions.

At a news conference announcing his ideas last week, Pillen said the state needed to act now and “couldn’t have a 10-year incremental plan.”

“My job as governor is to make sure we have a plan so we can grow the State of Nebraska, and we have to do it now,” Pillen said. “If we don’t do it now, the party’s over and this place shrinks. I don’t want to be any part of that.”

Hughes said she is in favor of removing some sales tax exemptions and has herself in the past proposed increasing the tax on e-cigarettes, or vapes, to 20% wholesale. The Pillen-led plan suggests a 30% tax on vaping products.

A second Hughes bill, LB 19, calls for a 2% excise tax on taxable personal property that is sold, given or furnished via mail, delivery service, online sales, telephone or other electronic method. If enacted, the change would take effect July 1, 2025.

That tax rate would add 2 cents to a statewide sales tax rate of 5.5 cents per dollar purchase, as well as any other local sales tax rates (those range from 0.5 to 2 cents).

‘Grandest challenge’ for lawmakers

Conrad, who along with Walz is a member of the Legislature’s Education Committee, said “Lower the Levy Cap” provides more resources and tax relief statewide. 

In the face of Pillen’s “misguided and radical plan,” Conrad said, their alternative is “gaining support at every moment.” She said it’s more fiscally sustainable and doesn’t rely upon huge tax increases.

“We are well positioned to use this measure as a centerpiece to move forward this session, which is thrilling,” Conrad said.

Brandt said he believes that the Legislature faces the “grandest challenge” that he’s seen in his six years in the Legislature, but he sees a chance to rise to the occasion.

“I’m not being facetious when I say that,” Brandt said. “We’ve talked about property tax, we’ve picked at the edges. We have an opportunity to focus on meaningful property tax relief for all the people in the state.”