LINCOLN — With time running out on the 2019 session, Nebraska state legislators pitched a new, simpler plan for property tax relief on Thursday — one that the governor immediately slammed.

Gov. Pete Ricketts, who has consistently criticized lawmakers’ proposals for tax reduction, chastised senators for “this newest tax swap plan.”

“Nebraskans want and need tax relief, not tax hikes,” Ricketts said in a press release, adding that past promises of reducing property taxes via a tax shift have failed.

But lawmakers defended the new proposal as less complicated — and less controversial — than a previous plan, Legislative Bill 289, which has stalled because of opposition from the state’s largest school districts, including Omaha and Millard. Most important, they said, it had a better chance of passing this year.

State Sen. Tom Briese of Albion, the main author of the new plan, said it would provide immediate and substantial tax relief and would funnel every dollar of new tax revenue back to taxpayers in the form of a 67% increase in the property tax credit program.

“This is straight-up property tax relief for all,” the senator said, while setting the stage for reform of educational funding next year.

Briese’s proposal borrows most of the revenue-raisers contained in LB 289 but leaves out the complex changes in the distribution formula for aid to K-12 schools that inspired the harsh opposition by the state’s big school districts.

The new plan also doesn’t include the ½-cent sales tax hike or 36-cent a pack increase in cigarette taxes proposed in LB 289. But it would retain the repeal of sales tax exemptions on about 20 items, including pop, candy, bottled water, haircuts and home repairs performed by plumbers, roofers and other contractors — an action that Ricketts has described as ”reverse Robin Hood” because low-income people pay a higher portion of their income on sales taxes.

The new revenue would go back to property owners via the state property tax credit program, which would grow from the current $224 million a year in credits to about $375 million. That, according to calculations by Briese’s office, would increase the credits received by the owner of a $100,000 home from the current $86 to $145 and increase the credits for the owner of ag land from $104 to $174 for every $100,000 in valuation.

Sen. Lou Ann Linehan of Elkhorn, the chief sponsor of LB 289, said that proposal was just too big a lift because it made two dramatic changes: a major shift of the tax load from property taxes to sales taxes and a comprehensive redo of the complex distribution formula for state aid to K-12 schools.

“We had a lot of people scared,” she said. “I still believe the vast majority of people want us to do something about property taxes. This (the Briese amendment) gives us a start.”

Linehan also said some of the blame for stalling LB 289 lay with Ricketts, who she said failed to “engage” in serious discussions and failed to recognize the severity of the property tax problem.

“He says we can cut our way out of this, so tell us where to cut. Where?” she said.

Ricketts' spokesperson, Taylor Gage, disputed the criticism. He said the governor had spoken twice with Linehan after LB 289 stalled during first-round seeking compromise and "she turned away his offers of help." 

The summer and fall, she said, would be used to sell and educate school officials about the state aid changes proposed in LB 289 — a $500 million boost in state aid to schools, along with a guarantee that each Nebraska district would get at least 33% of its funding from the state, a big increase for small, rural and midsized schools that have seen their share of state aid dwindle in recent years.

The big school districts, which now get the bulk of state aid and have the bulk of the students, opposed LB 289. They argued that there was no guarantee that the State Legislature would continue to pick up a greater share of local education costs, given past cuts in such aid. They also hated the new spending and property tax caps in the bill, which they argued would starve them of funding, particularly in future years when the state might cut back its support.

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Linehan had been crisscrossing the floor of the Legislature in recent days, hoping to round up agreement from 33 of the Legislature’s 49 senators to bring LB 289 back up for debate this year. But that effort was abandoned Thursday after a compromise with the large school districts failed to materialize.

The author of the school aid changes in LB 289, Sen. Mike Groene of North Platte, angrily complained that school superintendents in Lincoln, Millard and Omaha appear to run the Legislature.

Meanwhile, Briese’s amendment is front and center now. He has a tax-related bill, LB 183, that was advanced to second-round debate that will become the vehicle for the new amendment. It is scheduled for debate Wednesday. If it advances, it would have just enough time for lawmakers to override a promised veto by Ricketts before the Legislature adjourns on May 31.

Briese pushed back on the governor’s criticism, saying that removing sales tax exemptions on nonessential food items and services is a needed “modernization” of the state’s tax code. Spending, he said, has shifted from goods to services, adding that his bill would increase the earned income tax credit to offset the added sales taxes paid by the poor.

“This is completely and utterly a revenue-neutral tax shift,” he said.

Briese’s plan, ironically, has some similarities to the one proposed by the governor, only on steroids. Ricketts had proposed a much smaller hike in property tax credits, $51 million, and proposed using a combination of existing state funds and budget trims to finance it, rather than increasing any taxes.

Wednesday promises to be a make-or-break donnybrook in the Legislature for two of the most important issues of the 2019 session: property tax relief and LB 720, a replacement for the state’s main business incentive program, the Advantage Act.

Nebraska’s farmers and ranchers, slammed by large increases in property tax bills as the valuation of their land exploded in the past decade, have been screaming the loudest for tax relief. Their interests will collide Wednesday with those of the state Chamber of Commerce and other business groups, who have replacing the Advantage Act at the top of their agenda.

Both would need to advance Wednesday to have enough time to become law this year.

The time crunch was created Thursday when the Speaker of the Legislature Jim Scheer of Norfolk, announced that the session will end almost a week early, on May 31.

Reporter - Regional/state issues

Paul covers state government and affiliated issues. He specializes in tax and transportation issues, following the governor and the state prison system. Follow him on Twitter @PaulHammelOWH. Phone: 402-473-9584.

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