Property tax relief swamps all other state spending in Nebraska

Spending on property tax relief has grown so much over recent decades that it now makes up nearly half of Nebraska’s budget.

In the current fiscal year, direct and indirect relief – including property tax credits and equalization aid to schools – makes up more than $3 billion, or about 47% of the state’s total budget of more than $7 billion, according to the Legislative Fiscal Office.

According to Nebraska’s most recent biennial budget report, the state paid out more in property tax relief this year than it collected in net sales and use tax receipts. That’s one of the state’s largest sources of revenue, which came in at over $2.8 billion in fiscal year 2026.

Meanwhile, money spent in fiscal year 2026 from the state’s general fund, which functions as the state’s primary spending account, was over $7 billion.

In 2017, property tax credits and relief, direct or indirect, cost the state more than $1.6 billion. General fund obligations that year totaled over $4.4 billion. Across all property tax relief accounts, spending has increased at an average rate of 8% each year of the decade.

Almost a decade earlier, beginning in the 2007-2008 fiscal year, the state created its property tax credit fund and put $105 million into it. The appropriations into that account have increased nearly every year and are projected to hit $437 million in the current fiscal year.

The state also created a school property tax fund, its Education Future Fund and a Community College Future Fund in the past few years. These distribute hundreds of millions of dollars toward offsetting how much those entities levy in property taxes to fund themselves, resulting in property tax relief for individuals in a given school district.

For example, the Community College Future Fund was created in conjunction with the Legislature taking away community colleges’ power to levy property taxes to fund themselves in exchange for the state funding them directly. That happened in fiscal year 2024-2025. These funds altogether come out to more than $1.4 billion in property tax credits, said state Sen. Robert Clements.

The Tax Equity and Educational Opportunities Support Act, usually referred to as TEEOSA, is also a form of property tax relief. Created in 1990, it restructured public education funding in Nebraska to equalize that funding and offer residents property tax relief. TEEOSA is the largest chunk of state aid to local governments at over $1 billion.

At the same time, Nebraska’s total property taxes collected have also been growing over time, with the state treasurer’s office estimating them at $5.3 billion in fiscal year 2025.

“When valuations come out, people know their (property) valuations went up and that it’s going to cause their property tax to be higher next year,” said Clements, who serves as chair of the Legislature’s Appropriations Committee . “The number one thing we hear, visiting one-on-one with people, is property taxes are their biggest complaint.”

Gov. Jim Pillen’s budget plan primarily centers around easing that problem for taxpayers. In April, Pillen said Nebraska is focusing on shrinking the size of its government and returning as many taxpayer dollars to residents as possible. But not everyone agrees that's the best solution for the state.

“Our state budget at this time is heavily encumbered with our property tax relief programs,” said Rebecca Firestone, executive director of Open Sky Policy.

Firestone pointed to individual and corporate income tax rates that were cut in 2023, which have reduced income to the state’s budget over time.

State senators worked to close a $470 million budget deficit during the legislative session. Despite adjourning with several million dollars in the bank, low tax receipts from the tail end of the fiscal year sank the budget back into a deficit. The state is now in a $208 million deficit for Fiscal Year 2027, with a projected $846 million deficit in the next biennium.

“It is significantly challenging for the state to maintain its current commitment to property tax credits while reducing state revenue,” Firestone said.

Clements disagreed. At a recent Tax Rate Review Committee meeting, he expressed no concerns about the state’s ever-widening budget deficit, noting that cash reserves – which currently total more than $526 million – can fill those gaps.

“When you shrink the amount the government spends on itself, you free up money to be able to give back to the taxpayers,” Clements said. “It’s logical to cut the government spending so that it doesn’t need to take up as many tax dollars.”