LINCOLN — Complaints about high property taxes in Nebraska appear to be sinking in at the State Capitol.
Gov. Dave Heineman on Wednesday signaled that any tax-relief push needs to include reducing local property taxes, and not just cuts in state income tax rates.
It was a shift in focus welcomed by some state senators, who have long said that the biggest tax problem in the state is ever-rising property taxes. Such gripes dominated last week's public hearings by a legislative panel studying state tax changes.
“This is a change,” said State Sen. Galen Hadley of Kearney, who is leading the Legislature's Tax Modernization Committee. “Maybe our hearings have given some other information for the executive branch to look at.”
Heineman had been aiming darts at Nebraska's state income tax rates, which he says scare away good-paying jobs because they are higher than all but one neighboring state, Iowa.
High property taxes, the conservative Republican has said in the past, were an issue for someone else: local school boards, county boards and city councils that levy property taxes.
At a press conference Wednesday, the governor called on the Nebraska Legislature to work with him to pass a “balanced” plan of income tax cuts and property tax relief during the 2014 session — the last session for Heineman before he leaves office because of term limits.
“Rural Nebraska wants property tax relief and urban Nebraska wage earners need income tax relief,” he said. “This is going to be priority No. 1.”
State Sen. Tom Hansen of North Platte, a member of the tax modernization group, applauded the governor's new, dual focus.
“We found out that (high) property taxes are a pretty big item out here,” Hansen said, of public hearings held in Scottsbluff, North Platte and Norfolk.
Other reaction was more cautious.
Omaha Sen. Heath Mello, who is chairman of the state budget-writing Appropriations Committee, said he's glad that the conversation now includes property tax relief. However, Mello said he also wants to make sure that any tax proposals are “fiscally responsible.”
Earlier this year, Heineman pitched a plan to eliminate state income taxes and to pay for it by rescinding several sales tax exemptions.
A stampede of business, agriculture and nonprofit groups descended on the State Capitol to oppose Heineman's plan. The groups said that losing their tax exemptions would make products made or grown in Nebraska uncompetitive and would force jobs out of the state.
The governor said Wednesday that he has backed off that plan but remains convinced that the state offers too many sales tax exemptions.
He said the state should dip into its cash reserves to finance tax relief. That rainy day fund now stands at $679 million, or about 17 percent of annual state spending.
Mello said he anticipates that the Legislature will be cautious about using the reserve funds because there's still uncertainty about the economic future of the state and because such cash reserves are more wisely used for one-time expenses, not the ongoing costs of a tax cut.
The state's cash reserves helped sustain state services during the recent recession. Nebraska, unlike some states, didn't have to raise taxes.
“My taxes are high, just like everyone's taxes are too high,” the senator said. “However, the challenge we have is reforming a tax code to ensure fairness and stability, while generating enough tax revenue to fund state priorities into the future.”
The governor's comments come as the tax committee is midway through a series of public hearings across the state on how to modernize the state's tax system to better reflect today's economy.
The group's final hearings will be held Oct. 17 in Omaha and Oct. 18 in Lincoln. But those testifying at the initial hearings, including several farmers and ranchers, complained mainly about high property taxes. Few griped about high income taxes. Several said that sales taxes should be raised to offset reductions in property taxes.
Heineman, in comments this week, said he would support increasing the state property tax rebates now offered to land- and homeowners through a program launched in 2007.
This year, that credit returned $115 million to taxpayers, the same amount since the program began. The tax break amounted to about $107 for the owner of a $150,000 home. If that home was in the Omaha school district, the credit reduced the homeowner's total property tax bill by 3.3 percent.
At his press conference Wednesday, Heineman displayed a handful of posters indicating that Nebraska's property taxes are 13th-highest in the nation and that state income taxes rank in the top 16. Other charts showed that Nebraska, unlike most other states, still levies a county tax on inheritances and doesn't offer extra tax breaks for retirees. Another showed that the state was among the 10 “least friendly” states for retirees.
“Our citizens don't even need these charts,” the governor said. “They know our taxes are too high.”
Other recent rankings have placed Nebraska among the top five best places to start a new business. But Heineman said those were about business climate, not taxes.
The governor, when pressed, said it was too early to provide details on whether tax cuts would require cuts in state spending. The tax committee is scheduled to issue its recommendations by Dec. 15, and the 2014 legislative session doesn't begin until Jan. 8.
“It's only October,” the governor said. “I want to work together with (the Legislature). I don't care who gets the credit.”
World-Herald staff writer Paul Goodsell contributed to this report.