LINCOLN — The sponsor of a major income and property tax proposal said Friday he hopes to add more property tax relief to the package.

State Sen. Jim Smith of Papillion, who introduced Legislative Bill 461, offered an amendment that could increase the Property Tax Credit Fund based on growth in state revenue projections.

Smith described the amendment as “our starting point” and said he is committed to doing what he can to help property-tax payers.

But he made clear that income tax cuts remain a priority.

“We have to put the state on a better path for growth,” he said.

The tax bill’s future remained up in the air as lawmakers adjourned for the weekend. It was unclear whether Smith’s last-minute amendment won over any votes.

The only vote taken was on a motion by opponents of LB 461 to send the bill back to the Revenue Committee.

The motion failed, with 29 senators voting against it, 15 voting for it and five either abstaining or absent.

The 29 “no” votes fall short of the 33 that would be needed to end a filibuster, raising questions about the strength of support for the bill.

Smith expressed confidence, however, about getting enough votes to bring the bill back for continued debate and to get it advanced.

“I believe I will have the votes when I’m ready for it,” he said. “I feel comfortable where we are today with the votes we have.”

Lawmakers spent three hours Friday debating LB 461, which incorporates Gov. Pete Ricketts’ proposals for cutting the top individual income tax rate and changing how agricultural land is valued for property tax purposes.

Other provisions would cut the top corporate income tax rate and increase credits for most taxpayers, including a higher earned income tax credit, a refundable credit that helps low-income working people, particularly parents.

Smith and Sen. Burke Harr of Omaha, who opposes the bill, both declined to read too much into the vote on recommitting the bill to committee.

But Harr said he does not believe the version of the bill put out by the Revenue Committee can advance.

He criticized the package as being too heavy on income tax cuts and using the wrong approach to growing the state’s economy.

He also faulted the bill’s price tag. Even without changes in the Property Tax Credit Fund, LB 461 would cost $453 million when fully implemented.

“What started out as tax reform turned into a bunch of kids in a candy store,” Harr said. “This is a feel-good bill.”

The amendment would add $20 million to the Property Tax Credit Fund in any year when state tax revenues are projected to grow 4.5 percent. The fund now stands at $224 million annually.

As proposed, the increase would be triggered in the same fashion as each step in cutting the state’s top individual and corporate income tax rates.

If revenue is projected to grow at least 3.5 percent, it would trigger an individual income tax rate cut. A projection of 4 percent growth would trigger a corporate rate cut as well.

Smith argued that the use of triggers makes the proposal “reasonable and affordable.” He said he doesn’t believe state spending needs to grow by 3.5 percent every year.

“It’s not starving government, it’s being responsible with government spending,” he said.

But Sen. Kate Bolz of Lincoln said she has grave concerns about whether the proposal would leave the state with enough money to pay for necessary programs and services.

She said the tax cuts would have worsened the state’s budget woes this year and forced more decisions like one made to increase special education funding by only 1 percent when the number of children needing special education is growing faster.

Sen. Curt Friesen of Henderson called the debate historic for the scope of the tax bill being considered.

As a farmer, he said the proposal would not do enough to fix the steep rise in property taxes on agricultural land over the past decade or so.

But he said the measure is an important step forward and expressed hope that some of the pending amendments would improve it. More than 20 amendments had been filed to the bill by noon Friday.

Sen. Tom Briese of Albion offered an amendment to end several sales tax exemptions and some income tax deductions and put the revenue from those sources into a new property tax credit fund.

He said he had committed, when running for office last year, that he would support only tax bills that provide “substantial and significant property tax relief.”

Several other senators said property taxes, not income taxes, were the top concerns raised by constituents on the campaign trail.

But Sen. Lou Ann Linehan of Omaha said she also heard complaints about income taxes during her campaign.

She said Nebraska definitely loses people and businesses to other states because of its income taxes.

The state’s top income tax rate ranks near the middle of the pack nationally but higher than most of its neighbors.

Sen. Mike Hilgers of Lincoln said the state’s tax climate affects him as a small-business owner trying to recruit workers from out of state.

A flurry of lobbying preceded Friday’s debate about LB 461.

Business and free-market groups joined the governor in supporting it, while agriculture, education and economic justice groups argued against it.

None appeared to have changed positions based on statements issued after the debate.

When fully implemented, LB 461 would provide an estimated $400 million of individual and corporate income tax cuts, according to the State Department of Revenue.

The pace of implementation is uncertain because the rate cuts would be phased in, with each step triggered by state tax revenue projections.

The increased credits and the first step in reducing corporate tax rates would occur in 2019.

The proposal to switch from a sales-based approach of valuing agricultural land to one based on the land’s income potential would start in 2018.

LB 461 also would require that valuations statewide end up between 55 percent and 65 percent of market value and would cap statewide increases in ag land value at 3.5 percent per year.

About $34 million worth of additional state aid to schools would be required to offset the ag land valuation changes, starting in 2020. State officials estimate that 40 school districts would qualify for the aid.

Martha Stoddard keeps legislators honest from The World-Herald's Lincoln bureau, where she covers news from the State Capitol. Follow her on Twitter @StoddardOWH. Phone: 402-473-9583.

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