Nebraska Gov. Jim Pillen last week signed into law a package of bills that includes caps on spending authority for local cities and counties. Their signing follows a
The governor's plan originally was to secure greater tax relief by shifting K-12 education funding from property taxpayers onto the state, eliminating sales tax loopholes and passing advertising and sin taxes. He hailed the scaled-back legislation as a victory in a statement Wednesday.
"Most people view out of control valuation increases as the problem," he said. "Excess spending is the real issue. Implementing hard caps is a gigantic step in the right direction. This will decrease property tax increases by county and city governments."
Spokespeople for the governor did not respond to requests for comment.
Local cities, counties and school districts would still be able to issue bonds under the new laws. The main piece of legislation,
There are also exemptions for public safety, county attorneys and public defenders and emergency situations.
"One of the things that we're investigating is whether that exception is enough to prevent any harm to our bond ratings," said Jon Cannon, executive director of the Nebraska Association of County Officials.
"The communities that have a lot of bonds or have a larger portion of their budgets that go toward public safety are the larger counties," he added. "The smaller counties, less than 11% of their budgets go toward public safety. So that exception isn't really going to do them much good."
Roughly 34 of the 93 counties in Nebraska have less than 5,000 residents, Cannon said. He voiced concern about the reserves in such counties: Nebraska is one of six states that still have an inheritance tax, and those revenues flow to the county in Nebraska, so some Nebraska counties have essentially used their inheritance tax fund as a reserve.
"One of the things that we've been telling our counties is that if you do not have a healthy reserve, you need to have a reserve established," Cannon said. "Smaller counties in particular use the inheritance tax fund as their de facto reserve. Larger counties can accurately forecast… so they're able to directly move it into their general fund or maintain it as a fund that they have on a consistent basis."
The new legislation also includes $185 million in property tax relief and makes automatic existing income tax credits which previously had to be requested, the
The cap on the amount of property taxes municipalities and counties can levy is tied to the greater of zero or the inflation percentage (which is defined according to the change in the State and Local Consumption Expenditures and Gross Investment for the preceding 12-month period).
In a statement, L. Lynn Rex, executive director of the League of Nebraska Municipalities, noted that the LNM and NACO had previously negotiated with legislators a "reasonable" property tax cap of the greater of 3% or the percentage change in the Consumer Price Index.
"Having a multiplier of at least 3% provides stability for budgeting from the largest municipalities and counties to the smallest, especially those which cannot take advantage of the public safety exception from the cap," the statement says.
In addition to the governor's original plan, a more comprehensive bill that the Revenue Committee had voted to advance earlier this month — which would have included stronger credits for K-12 school systems — also failed to make it through the legislature.
"In the original plan, there were a lot of eliminations of sales tax exemptions, so there was a lot of activity on the revenue generation side," said John Spatz, executive director of the Nebraska Association of School Boards. "I think those who were against that revenue generation really pushed back.
"Broadening the revenue base: that's the part that really didn't go anywhere," Spatz said.
"The people who were going to be affected by the pay-fors… that lobby is very, very strong," said Cannon. "That's a multibillion dollar business whose interests are going to be affected."
What passed instead means that "when times are lean, infrastructure is going to be hit the hardest," he said. "I'm curious about the wisdom of making it harder to develop infrastructure, because that is the one way that you halt the growth of any kind of development in rural Nebraska. [The state] needs to attract more residents. And you don't do that by having poor roads."
But it will be interesting to see how things play out, Cannon added. Pillen has said that he and the legislature need to do more on property tax relief. And with many close state races in the upcoming election, "a lot of it is going to depend on what the makeup of the legislature is," Cannon said.
"If [the races] go one way or the other, it will make a big difference," he said.
