LINCOLN — Months of buildup for a new property tax relief-driven package was heavily narrowed in the Nebraska Legislature on Tuesday before being advanced with the “absolute minimum” provisions.

Lawmakers voted 34-11 to end debate on Legislative Bill 34, accepting a “very skinnied-down,” “simple” version. Over the course of 24 hours, lawmakers pivoted through various tax packages before landing at a “consensus” that contained  just three components. 

That was a striking contrast from plans Gov. Jim Pillen, the Revenue Committee and others championed this summer. That included the results of a statewide tour that Pillen led to 26 communities, along with organizing a “task force” of select lawmakers.

In the end, state senators landed what could be the last train out of the special session:

• “Front-loading” income tax credits for property taxes paid so they appear first on annual property tax statements. About 50% of such eligible credits were unclaimed.
• Expanding school tax credits to a total of $750 million in the next fiscal year that would grow in future years.
• Restricting annual increases in property tax-asking authority by municipal and county governments by the state and the local index of inflation, or 0% in times of deflation. Public safety services and the work of county attorneys and public defenders would be exceptions, as would voter approval and emergencies.

“This is an absolute minimum that I feel that we should do,” State Sen. Brad von Gillern of Elkhorn, Revenue Committee vice chair, said during debate. “I mean, I am disappointed that this is all that we’re talking about doing.”

‘Incremental positive movement’

State Sen. Kathleen Kauth of Omaha, another Revenue Committee member, said it was a start while calling it “the absolute least we can do.”

“It’s nowhere near what we really wanted, but incremental positive movement is still incremental positive movement,” Kauth said.

The Revenue Committee voted 6-1 just one day prior to advance an expansive, 122-page package that sought to lower local property taxes by about 30%, based on rough estimates. 

That effort included the final three items, but also more expansive credits for K-12 school districts and the state’s 23 natural resources districts. Funding the model would have come through existing property tax relief programs as well as new or increased taxes on various goods, services and “sin” items, such as candy, soft drinks, consumable hemp, tobacco and gambling.

Instead, State Sen. Lou Ann Linehan of Elkhorn, the Revenue Committee chair, acknowledging that the legislation lacked enough support, pivoted about halfway through the eight-hour debate Tuesday to a new amendment.

“If somebody votes ‘no’ on this, they can’t possibly stand up on the floor again and say they care about property taxpayers,” she said. “This literally puts money in people’s hands.”

Linehan and von Gillern, among others, said the change would help those who might not have an accountant to walk them through their tax filings and educate them about the program. Those already claiming the credit would have an easier process but smaller relief, Linehan said.

‘I hope we can do more’

State Sen. Mike Jacobson of North Platte said that those revisions were a “no-brainer” and that it didn’t get easier, simpler or more fundamental.

“I’m truly flabbergasted that we’re debating whether we want to do the minimum,” Jacobson said. “I mean, it doesn’t get more minimal than this.”

Those who opposed the plan included State Sen. Justin Wayne of Omaha, who said out-of-state companies would benefit from the “front-loaded” property tax credits while residents of his district would be left out. 

Wayne criticized progressives and conservatives alike in the officially nonpartisan body for drawing lines in the sand and not working together. He said the “minimum” was bad policy.

“I hope we can do more than just this, because this is the bare ‘minimum,’ Senator Jacobson, and the bare minimum isn’t good enough for my district,” Wayne said.

Municipal, county tax asking caps

Linehan described the caps on local governments as “very soft” because a majority of some county or municipal budgets are related to public safety, which wouldn’t be capped.

However, that was the side of the narrowed bill that led to hesitation.

State Sen. George Dungan of Lincoln said the public safety carveout might help with hiring jail guards, for example, but would not address the “upstream issues” to prevent incarceration, such as homelessness, substance use disorders and mental health.

“You can start to delineate certain exemptions of what you think is or is not public safety, but the reality is, if a political subdivision is financially unable to meet the needs of its citizens, it is failing the people that it’s there to represent,” he said.

State Sen. Terrell McKinney of North Omaha said the category needed to include other support, such as school programs or community centers, to ensure “kids aren’t going into the streets.”

State Sen. John Fredrickson of Omaha said in his conversations with constituents and officials statewide, many people are unwilling to sacrifice or compromise infrastructure, including roads, bridges and quality of life services, such as parks and libraries. 

The City of Omaha was among the loudest opponents to the caps, as were multiple municipal leaders statewide.

“I just don’t know that I’m comfortable kneecapping the possible economic development that’s going on in that city,” Fredrickson said of Omaha, “and I don’t know why anyone in the state would want to do that.”

‘Our spending lid is killing us’

Two Democratic lawmakers from Lincoln, State Sens. Eliot Bostar and Anna Wishart, supported the plan. They said it would be beneficial to their city, and to Lancaster County, because of existing budgetary restraints that Lincoln is up against but that would be removed.

“Our spending lid is killing us,” Wishart said.

Bostar said the city would benefit, “on net.”

The League of Nebraska Municipalities and Nebraska Association of County Officials have remained adamantly against the proposed hard caps, which could freeze tax asking in times of deflation even as some costs or salaries must be paid for.

Lynn Rex, executive director of the League, said the Legislature “basically disregarded” that cities and villages have obligations they must pay for. Jon Cannon, executive director of the county association, said the caps could make it “virtually impossible” for counties to maintain infrastructure, which law enforcement and the public rely upon.

“All the other things that are part of the fabric of our communities, now they’re subject to a cap,” Cannon said after the vote.

Cannon and Rex said taxpayers will see a decrease in quality of roads and bridges and fewer qualify of life services. 

Rex said she hopes lawmakers will consider bumping up the spending cap to 3% or inflation, as was negotiated between August 2023 and April 2024, when the previous tax package failed.

Pillen plan ‘down in flames’

In addition to Bostar and Wishart, three other lawmakers bucked the majority of ideological lines in either supporting or opposing the measure: Democratic State Sen. Tony Vargas of Omaha and Republican State Sens. Julie Slama of Dunbar and Merv Riepe of Ralston.

Vargas said in a tweet that he was proud to vote for an additional $180 million in property tax relief without increasing sales taxes, which Slama also celebrated.

But Slama saw it more as a “huge indictment of Pillen’s failed leadership to watch his plan go down in flames,” which she added he and his family stood to financially benefit from.

“Big win for Nebraska taxpayers to have the largest tax increase in state history fail before the cloture vote,” Slama told the Nebraska Examiner.

Slama and Democratic State Sen. Jen Day in Sarpy County opposed the motion to end debate but ultimately voted to advance the bill.

Riepe, who joined members of the Revenue Committee and a handful of other senators in negotiating a tax plan this summer with Pillen, said it was hard enough to stay on top of the plan as it “changed almost by the hour.” He said it was more so for “citizens with skin in the game.”

He said the bill was an example of “biting off more than one can chew” and that the measure needed more thought and study, even though he wanted property tax relief.

“I’ve never lived by the theory of ‘jump and the net will appear,’ and I am afraid that that is where we’re at,” Riepe said. “I tell young people this all the time, it’s better to be single than to wish you were, and it’s better to have no legislation than to have bad legislation.”

Budget debate begins Wednesday

To fund the new plan, lawmakers will consider two bills advanced from the Appropriations Committee related to budget cuts, to the tune of about $139 million (LB 2), and increased fees (LB 3). 

If those measures advance as is from the committee, the state would be on the hook for about $46 million, according to State Sen. Rob Clements of Elmwood, chair of the Appropriations Committee. He said that would need to come out of state reserves.

That number could end up being higher, McKinney and Wishart previewed, as they and others are opposed to a broad, undisclosed $25 million administrative cut to the Nebraska Department of Health and Human Services.

Debate on those two measures will begin at 9 a.m. Wednesday. LB 34 is expected to return for debate later this week.