Scaled-down version of property tax cuts proposed

Nebraska state senators on Monday considered a scaled-back version of Gov. Jim Pillen’s proposal to cut property taxes.

The latest version of Pillen’s proposal whittles down the list of currently tax-exempt items that would be taxed under his plan. Gone are the proposed taxes on vehicle and home repairs. Gone is the tax on advertising and lawyer fees. Taxes on cigarettes and liquor would see smaller increases than previously proposed -- taxes on liquor from big distilleries would be essentially doubled instead of quadrupled, and would be cut on small distilleries. And the cigarette tax would go from 64 cents per pack to $1.36, instead of the $1.64 proposed earlier.

All that reduces the amount of new revenue the state would collect in order to replace school funding that currently comes from property taxes.

Instead of eliminating schools’ ability to levy property taxes for operating costs, the proposal reduces their maximum levy by about 75%, from $1.05 per $100 of valuation to 25 cents. That means the owner of a $100,000 house who’s paying up to $1,050 for schools would instead pay $250.

Pillen had talked about cutting the overall property taxes people pay by 40-50%. Asked how much of a cut the latest version of his proposal would produce, Sen. Lou Ann Linehan, chair of the Revenue Committee, demurred.

“I'm not going to get into a back and forth on exactly how percentages because it depends on where you are, and we won't know exactly until we get a bill drafted and we get it down here,” Linehan said. "The goal is going to be a significant reduction."

Pillen was asked how big the reduction would have to be for him to be satisfied.

“To me, the answer is simple," Pillen said. "We want to make sure it's transformative enough so young people can afford to have a dream to own a home. We have to have it transformative enough to make sure that seniors that have raised their kids, educated their children here, love this place like all of us in this room, and now on fixed income that can't afford their home (would be helped). And we have to have transformative policy so we have workforce growth."

Another change in the proposal would apply to limits on local government’s ability to increase property tax collections year to year. Earlier, those increases were limited to the increase in inflation, as measured by the consumer price index. Now, that cap has been removed when it comes to spending on public safety, like police, fire, other first responders, county attorneys and public defenders.

Lt. Gov. Joe Kelly, a former prosecutor, said law enforcement officials had argued the caps would hurt their ability to respond to unforeseen circumstances.

“The issue that came up each and every time was, hey, those restrictions last session were too restrictive," Kelly said. "And it's true and I know from being in those positions, you can't predict and budget a summer of riots. You can't predict and budget a triple homicide in a small jurisdiction."

More from the Legislature's special session:

Marijuana, municipal aid proposed for property tax relief

Education Committee considers school funding changes

Online sports betting touted as way to reduce property taxes

Committees hear support, opposition to Pillen’s budget and tax proposals

Legislation to legalize online sports betting introduced in special session

Douglas County Sheriff Aaron Hanson said removing the caps would enable more spending on personnel, equipment and training, while still reducing property taxes.

“We can do both. We can reform our property taxes so people can live in dignity and afford to live in their homes in retirement, and we can also make sure that we are funding our first responders or county attorneys or public defenders appropriately,” Hanson said.

The new proposal also loosens the cap on other local government spending. Instead of using the consumer price index to measure inflation, it uses state and local consumption expenditures. Sen. Eliot Bostar said over the last 20 years, that index has increased an average of 3.9% per year, as opposed to 2.6% for CPI.

The new proposal would have the state take over the cost of running natural resources districts and county jails. It would also include several provisions that Linehan said would help low-income people. It would impose a 50-cent excise tax on home delivery of items from retailers large and small, like Amazon or local stores.

Linehan said that could raise enough money to eliminate sales taxes on residential electricity bills. And another provision would raise the state’s earned income tax credit, or EITC, for lower income people, from 10% to 20% of the federal credit.

Linehan praised the latest version of the proposal.

“It is an amazingly good plan because we're taking care of low income folks through the EITC," she said. "And trying to do away with sales tax on electricity. And we are moving from a tax that you have no choice and very little control over, to taxes on things that you have absolutely control. You want to hire a service, personal service, whether it's getting your house cleaned or getting your nails done, that's your choice."

But Sen. George Dungan, a member of the Revenue Committee, still expressed reservations.

“I continue to be concerned with the outline of the plan that we've seen so far," Dungan said. "Because I do think it's fundamentally regressive. I mean, we're seeing an attempt for property tax relief, which is laudable, but it's on the back of everyday working Nebraskans. And when you're talking about expanding the amount of things that we're going to now subject to sales tax, the people that's going to affect are the people in my district who pay those sales taxes and 50% of my district doesn't own property."

Pillen has argued that property taxes are included in the rents paid by people who don’t own property.

The proposal now needs to be formally drafted into a bill. Linehan hopes that can be done in time for the Revenue Committee to vote on it Tuesday afternoon, to brief other senators on Wednesday, and to have the bill debated for the first time by the full Legislature on Thursday.