Nebraska Gov. Jim Pillen called a special legislative session, starting on July 25, to try to win lawmakers’ support for his property tax reform plan. 

The plan involves funding Nebraska’s K-12 schools through sales taxes — eliminating certain sales tax exemptions and raising taxes on advertising, cigarettes, vaping products and alcohol — rather than through property taxes, according to comments by Pillen in his monthly radio call-in show, the Nebraska Examiner reported. 

Pillen’s property tax reform push bears some similarities to property tax relief efforts in Texas and in Colorado that succeeded. But Pillen’s previous attempt, a bill known as LB388, failed in the state Senate in April.

A spokesperson for Pillen did not respond to requests for comment. The sponsor of LB388, state Sen. Lou Ann Linehan, did not respond to a request for comment.

The bill would allow municipalities to increase property tax requests above the maximum by the amount budgeted for bond debt service.

It would also exclude from its definition of “school district taxes” any property taxes levied for bonds.

For cities and counties, bonds were outside of the cap that was negotiated, according to Lynn Rex, executive director of the League of Nebraska Municipalities.

Still, the legislation, which included the Property Tax Growth Limitation Act, the Property Tax Relief Act and the Advertising Services Tax Act, drew an onslaught of lobbying by a wide range of groups. 

LB388 would have levied a 20% tax on vaping products, a $1 per pack tax on cigarettes and a 25% tax on CBD and hemp products. It would levy a 7.5% tax on firms doing business in Nebraska whose combined gross advertising revenue exceeds $1 billion. It also would tax lottery tickets, storage services, dry cleaning and veterinary services for household pets.

According to lobbying disclosures, groups in favor of the bill include the Nebraska Association of County Officials, the League of Nebraska Municipalities, the American Cancer Society and Nebraska Cattlemen.

Lobbying against it were the Nebraska Vape Vendors Association; the Cannabis Factory; Phillip Morris; Meta; Google; TechNet, a trade group representing technology CEOs and senior executives; Americans for Prosperity, a conservative advocacy group linked to the Koch brothers; the Association of National Advertisers; Walmart; and the Lincoln and Greater Omaha chambers of commerce.

Also opposed was the Nebraska State Education Association, a public school teachers’ union, which did not respond to a request for comment.  

“There was an incredibly misleading campaign at the last minute against LB388 from the Nebraska Grocery Industry Association,” said Rex. “They led the effort against it … Senator after senator was getting pummeled with emails. They said, ‘This is going to tax food.’ … It would have added a sales tax on pop and candy. I don’t know of anything more flagrant in terms of an effort of misrepresentation against a bill.”

Ansley Fellers, executive director of the Nebraska Grocery Industry Association, said the group’s main concerns were the “increased cost of doing business” and that the bill was not a net tax reduction.

“One, soda and candy are food, they’re edible products,” she said. “[The bill] will hit lower-income individuals hardest. It’s also hard to justify taxing any food product right now given the kind of inflation we’re seeing.”

Fellers added, the way the bill was written would have taxed granola bars but not licorice, kettle corn but not Kit Kats.

“The governor has said that he’s looking more at the state taking over funding for public schools,” she said. “That’s an expensive proposition. … That would be a several-billion-dollar shift [onto sales taxes].”

According to Rex, exemptions added over recent decades have chipped away at sales tax revenues and property tax revenues in Nebraska. All were “legitimate exemptions at the time for Nebraskans to compete with other states,” she said, but there was a problem: other states’ legislatures then put together reimbursements for local governments through state aid programs as they narrowed the tax base through exemptions. In Nebraska, it all got shifted over to property taxes.

In March 2011, “they got rid of the one and only reimbursement to municipalities” in Nebraska, Rex said. She added, Nebraska voters have been confused by rhetoric about rising valuations. The problem, she said, isn’t increased valuations — “that’s the basis on which we get loans,” she noted — but consistently rising property taxes.

From fiscal 2022 to 2023, the total valuation in Nebraska increased by 11.44%, and the taxes levied during that period rose by 5.7%. 

“It is critically important that the state legislature … try to address the incremental shifts over to property taxpayers that have happened over the last four decades,” Rex said. “It’s so important to make sure that local governments have the revenue that they need to do their jobs. … Just because your valuation goes up, doesn’t mean your taxes have to go up.”

The governor and his team are working with state senators to come up with a package that can pass the legislature during the special session, she said. 

LB388 would have changed the current lid on restricted funds for municipalities and counties to 3% or the change in the consumer price index, whichever is greater: “That is a lid on basically all sources of revenue for municipalities and other political subdivisions except schools,” Rex said.

The schools are not under the current 2.5% lid on restricted funds. They have always had a different lid.

“Municipalities, counties, everybody else — we’re just hanging in the wind,” Rex said.