Nebraska senators struggle to fund schools and cut taxes

September 16, 2018 GMT

LINCOLN, Neb. (AP) — Three months after a coalition of Nebraska lawmakers started looking for ways to pay for K-12 public schools while lowering property taxes, senators still haven’t united behind a proposal and a tight budget could threaten their plans.

Senators on the informal committee said they’re hopeful they can agree on a plan to sell to the Legislature in next year’s session, despite a possible revenue shortfall that would limit their options.

The group wants to change Nebraska’s school-funding formula, which has been sending less money to rural schools because of soaring farm and ranchland values.


“I’m cautiously optimistic,” said Sen. Tom Briese, of Albion. “There’s a lot of sentiment within the committee to change how we fund education to ensure more dollars get to school districts.”

The loss of state equalization aid has forced rural districts to cover their costs by raising property taxes. Farmers say they’re shouldering an unfair share of the burden because they own valuable land but their incomes have fallen due to low commodity prices.

The committee is looking into ways to help small, rural school districts that no longer receive state equalization aid. One option is a boost in state foundation aid, which is distributed to all schools at a flat, per-pupil rate.

Another possibility is to increase the income tax dollars that automatically flow back to each taxpayer’s school district, said Sen. Curt Friesen, a farmer from Henderson.

Under current Nebraska law, roughly 2 percent of residents’ income tax payments are automatically steered back to their home districts. Friesen said he’d like to increase the total to 20 percent, which would ensure that rural schools get more money. But larger, urban districts would lose money unless lawmakers add an estimated $85 million to the school funding formula — a tough sell if tax revenues continue to fall short of projections.

“We can’t do it all in one year,” Friesen said. “I’m willing to look at a process through which we make changes over three, four or five years.”

Briese said any proposal will need to deliver benefits to both urban and rural Nebraska to win support from at least 33 of 49 senators — the number required to overcome a filibuster.

Briese said he’d like to see the state generate new revenue to offset property taxes, possibly by eliminating sales tax exemptions or using internet sales tax money. He said it’s important to ensure that the money could only go toward lowering property taxes to eliminate any temptation for school districts to spend it.


Even so, the idea is likely to face resistance from senators who want to keep those taxes as low as possible. Gov. Pete Ricketts has said he opposes efforts to raise any taxes.

The school funding system sends money to K-12 public schools based on a formula that looks at each school’s expected needs and the revenue it can generate locally through property taxes. More than two-thirds of Nebraska’s 244 school district no longer receive any equalization aid, primarily because their boundaries contain too much valuable farmland.

Urban schools, which receive most of the state aid, note that their enrollments are growing and they don’t have nearly as much valuable land to tax. Of the $848 million in equalization aid that will get distributed to schools this academic year, nearly half will to go Omaha and Lincoln public schools, according to the Nebraska Department of Education.

Sen. Lou Ann Linehan, of Omaha, said she’s hopeful lawmakers will find some way to ensure that state aid for schools is more stable, predictable and transparent, so districts can estimate how much they’re going to get each year and the public can see how the money is divided. Even though she represents the fast-growing Elkhorn area on Omaha’s western edge, Linehan said it’s important that rural schools have a chance to qualify for state assistance.

“There’s clearly an unfairness there,” Linehan said. “Kids in York are no less important than kids in Lincoln. We need to treat them equally, and we’re not.”

But Linehan said she’s concerned that raising other taxes to generate new revenue would backfire as it did in the 1990s, when lawmakers increased income and sales taxes with promises that doing so would lower property taxes. Property tax rates dipped briefly but started to rise again a few years later.

Another committee member, Sen. Tom Brewer, of Gordon, said he questions whether lawmakers will be able to address the problem this year given the likely cost of other state services, including a Medicaid expansion measure that voters will consider in November.

“We may be able to come up with some ideas, but it’s not going to be a great year to execute them,” Brewer said. “We have to pay the bills, and the bills are probably going to be more than the available resources.”


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