Social Security Tax Cuts Advance; School Aid, Canal Discussed

Jan. 25, 2022, 6 p.m. ·

Senator Brett Lindstrom speaks Tuesday (Photo by Fred Knapp, Nebraska Public Media News)
Sen. Brett Lindstrom speaks Tuesday (Photo by Fred Knapp, Nebraska Public Media News)

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In the Nebraska Legislature Tuesday, tax cuts advanced, major school finance changes were discussed, and questions were raised over a canal to bring water from Colorado.

In their first move of the day, lawmakers voted 42-0 first-round approval to a proposal by Sen. Brett Lindstrom to speed up the elimination of taxes on Social Security. People with incomes less than $44,000 for singles, or $59,000 for married filing jointly are already exempt. This bill would exclude everybody, taking full effect by 2025. It still requires two more rounds of approval, but has widespread support.

Lawmakers then took up a proposal by Sen. Tom Briese to extend an income tax credit that this year is expected to offset about one-fourth of the school property taxes people pay. Briese said the bill is needed because of a glitch in the law.

“Because of that glitch, we have in statute what will essentially amount to essentially a $200 million property tax increase in year 2024 on everyday Nebraskans, and each year going forward. This bill will prevent that increase from happening,” Briese said.

The income tax credit was supposed to be capped at $375 million a year, which would have given everybody a break closer to 17 percent on their school property taxes. But because of higher-than-expected state revenues, the credit has now reached $546 million.

Critics of Briese’s bill said the bigger credit was a fluke based on the state’s changing when 2020 taxes were due, and the huge influx of federal COVID relief funds. Among those critics was Sen. Steve Lathrop, who wanted to stick to the original cap.

“We had a deal. It was $375 (million). And now we’re trying to change the deal. And by the way, we don’t even know if we can afford this thing,” Lathrop said.

Sen. Matt Hansen warned of what could happen if more and more funds are devoted to property tax relief.

“There’s going to be a larger and larger pool that is just simply probably going to be the -- untouchable by future Legislatures, for better or for worse. It might work perfectly. It might bankrupt the state spending priorities on education, corrections, law enforcement, other things that we need,” Hansen said.

Sen. Lou Ann Linehan defended maximizing the credit.

“It all goes back to the taxpayer for what he pays for his K-12 general fund tax. It is abundantly fair. It is based on what you actually pay. So if you pay $400 you get $100 back. If you pay $4,000, you get $1,000 back… It doesn’t matter if you’re in Lewiston or Beatrice or Omaha, Palmyra – you’ll get the same back,” Linehan said.

Debate for the day concluded before senators reached a vote on the proposal. But Briese indicated he and Sen. John Stinner, chair of the Appropriations Committee, had agreed in principle to cap the credit at $546 million for this year and next, with relatively small increases after that, rather than let it expand beyond that. That amendment is expected to be introduced later.

Tuesday afternoon, the Education Committee held a public hearing on a proposal by committee chair Sen. Lynne Walz to revamp state aid to public schools. The plan would set aside half a cent of the state sales tax, and 20 percent of the state income tax, for state aid. Walz said that would result in the state paying 58 percent of the cost of schools and local property taxes 42 percent, about the opposite of the current split.

Those are statewide averages. But the split would differ by district. For example, Sen. Lou Ann Linehan noted schools in Columbus currently get about 47 percent of their expenses reimbursed by the state, whereas Lakeview district, a rural and small-town district outside of Columbus, gets just 17 percent.

“Columbus is kind of at the national average now. How does this help Lakeview?” she asked.

Chip Kay, the director of finance for Columbus Public Schools who helped draft the plan Walz introduced, said the plan would increase the state’s share of Columbus’s costs to 70 percent, and its share of Lakeview’s to 33 percent.

“It’s impossible to have equal increases in the state of Nebraska, because the needs are different throughout Nebraska. So you’re going to see proportional increases based on some factors. Needs, which is going to be the demographics of the district, and valuation,” Kay said.

Several school groups testified in support of the plan, with possible modifications. Cheryl Logan, superintendent of Omaha Public Schools, testified against it, saying in the long term it could divert resources away from the districts that need them the most. A hearing on other parts of the plan is scheduled for Wednesday.

Also Tuesday, the Appropriations Committee heard testimony on Gov. Pete Ricketts’ proposals for the use of American Rescue Plan Act, or ARPA, federal funds. Ricketts wants to use $100 million of that $1 billion, plus $400 million from the state’s cash reserve, to build a canal to take water from the South Platte River in Colorado to Nebraska. Sen. Mark Kolterman asked Director of Natural Resources Tom Riley about the cost.

“All of a sudden we’re going to spend $500 million. It just seems to me like we’ve pulled a number out of the air and said let’s move forward with this. Would that be accurate?” Kolterman asked.

“No. The number that we’re talking about is based on evaluating the components and elements it would take to build a canal and reservoir system,” Riley replied.

Riley said Nebraska needs to act now to prevent Colorado from developing water projects that would cut flows to Nebraska. Stinner asked him to come back later to provide more details, which Riley said he would do.

Reporter Jackie Ourada contributed to this report.