LINCOLN — A coalition of farmers rolled out its plan to reduce property taxes on farmers on Tuesday, arguing that increasing sales taxes is the best course for solving the state’s most vexing tax problem: high property taxes.
Detractors say the plan, released by a group called Fair Nebraska, is too weighted to benefit farmers. Perhaps as a result, no senator was willing to introduce it in the Nebraska Legislature this year — a year in which addressing high property taxes is a high priority.
But Fair Nebraska members say that dramatic changes are needed for the state’s No. 1 industry, agriculture.
“We’re not only not competitive with other states, we’re not competitive with our neighboring school districts,” said York farmer Doug Nienhueser, one of the leaders of the group.
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The Fair Nebraska plan calls for raising sales taxes by three-quarters of a cent, ending the sales tax exemption on groceries and redirecting the current state property tax credits, among other things, to dramatically increase state support for K-12 schools, which would allow farm and ranch land to be totally exempt from property taxes for local education.
Farmers and ranchers would continue to pay property taxes on their homes and buildings under the plan, which assumes that they would increase spending and investment, boosting sales and income taxes by almost $43 million.
It would cause nearly a $1 billion tax shift by 2023, the organization estimated, with higher taxes being paid in the state’s largest counties.
Nienhueser disputed that the plan benefited only farmers and said that even though no senator would introduce their plan, it was important to educate state senators about the big increase in property tax bills. The group’s luncheon on Tuesday was attended by about a dozen state senators. It also served to unveil a study, commissioned by Fair Nebraska, about the state’s property tax problems that was done by Creighton University economist Ernie Goss.
State Sen. Lou Ann Linehan of Elkhorn, who chairs the Legislature’s Revenue Committee, said she sympathizes with farmers, but could not support their plan. She said she supported some portions of the proposal and was particularly interested in information provided by Goss that said total state and local support for K-12 schools was about $363 million a year more than the median provided in neighboring states.
Linehan, who will guide the crafting of a property tax relief proposals this year, said that any solution needs to include provisions to rein in school spending.
“Why are we spending more on students than other states around us? It’s a question we have to ask,” the senator said.
Among the highlights of Goss’ report:
- High property taxes have created “soaring financial stress” for Nebraska farmers and ranchers, who have seen a 45 percent decrease in earnings from 2013 through 2017 while absorbing a 34 percent increase in property taxes. That makes it harder for Nebraska’s farmers to compete, he said.
- About 33 percent of funding for K-12 education in Nebraska comes from state sources, the second-lowest among adjacent states (South Dakota is lower). If Fair Nebraska’s plan was implemented, state sources would fund 59 percent of that cost, thus lowering the pressure on local property taxes.
- Nebraska’s property taxes are the highest among its neighboring states, with the exception of Wyoming. By contrast, state sales taxes in Nebraska, as measured as a percentage of the gross domestic product, are the lowest compared with the six adjacent states. Increasing the state sales tax to 6.25 cents and doing away with the exemption on groceries would generate about $460 million in new revenue a year by 2023, which would be used as increased state aid to offset lower property taxes.
- Adjusting the state aid formula for K-12 education is a big part of the solution, Goss said. Three of the state’s largest school districts got 40 percent of the total state aid in 2016, while 200 of the state’s school districts get less than 1 percent. By contrast, Iowa’s three largest school districts get about 16 percent of all state aid there. (The latest figures from the Nebraska Department of Education indicate that Nebraska’s three largest districts, Omaha, Lincoln and Millard, educate about 37 percent of the state’s students.)