Haste makes waste in property tax debate

Anyone who pays attention to the Nebraska Legislature knows that a short session is never a good time to try to discuss, let alone pass, major legislation.
Those same people also know that senators have spent years dancing around the issue of tax equity, often referred to as the three-legged stool.
Those three legs—property tax, sales tax and income tax—must be the same length to make the stool stable.
For years, the property tax leg has been the longest, thus making the stool wobbly. Governor Pete Ricketts and what he calls a broad coalition of Nebraska business and agriculture groups want to shorten that leg with a pending bill (LB 947). That’s property tax relief. Tax adjustments, according to the governor, will make the state a better place to do business and grow the economy.
Opponents say cutting property taxes is a bad idea when the state is already short on money coming in. Duh. School funding and government services rely heavily on property tax income and would, likewise, suffer from cuts.
Taking money from the state’s cash reserve (rainy day) fund to pay nearly $40 million for the proposed package is a bad idea. Always.
Omaha Senator Burke Harr said during floor debate on the bill that we are treating the cash reserve fund as a checking account instead of a savings account. That fund has declined from $750 million in 2014 to an estimated $250 million if funds are used for this tax proposal.
The whittling away—about $500 million—over four years is either gross incompetence or dereliction of duty, said former Senator Al Davis of Hyannis. He also noted the proposal would provide limited and very likely short-term relief at best.
Estimates are that rural taxpayers will receive a 2 percent reduction in their property taxes and urban taxpayers will receive $25.
I agree with the analysis of the OpenSky Policy Institute that the bill would likely create more problems than it solves. It is not the magic bullet that some were hoping for, it doesn’t even scratch the surface and it certainly doesn’t represent the work product of a thoughtful and lengthy discussion.
That discussion, in my humble opinion, still needs to happen. Maybe in a special session, maybe next session.
The pressure to get something done this year is driven by the looming threat of a ballot initiative. That proposal would provide property tax relief distributed through a state income tax refund or credit equal to 50 percent of local school property taxes. It carries an estimated $1.1 billion price tag.
If it passes, lawmakers would have to figure out how to fund it.
Ricketts has spent four years saying that Nebraskans want property tax relief. He said it’s time for Nebraska to change its image as a high tax state. If that happens, he said, the economy would grow because businesses will be attracted to locate in Nebraska.
Proponents say that 6 percent growth will pay for the tax cuts. Opponents say the growth projected by the Economic Forecasting Advisory Board is only 4 percent.
Unfortunately, the bill comes at a time when Nebraska faces considerable uncertainty regarding future revenues and the ability to fund health care, education and other key services because of changing state demographics and the unclear impact of federal tax changes. Harr said he would be more comfortable having a discussion about funding schools since education is the most reliant on property taxes.
The experience of states such as Kansas, Oklahoma and Louisiana illustrate that LB 947’s tax reductions are unlikely to pay for themselves in terms of new economic activity.
This means service cuts or increases in other revenue sources would likely be needed. Not a good idea.