Pillen Property Tax Plan Big on Cuts, Short on Details

MIKE MOTZ

Sidney Sun-Telegraph

Over the past few weeks, there has been much activity concerning property tax relief and tax reform, and Nebraska Governor Jim Pillen has been making the rounds touting his ideas on property tax reform. After recently signing an updated budget agreement that Pillen called “fiscally sound”, the Governor has directed all Nebraska state agencies to cut spending to the tune of $280 million dollars. The spending cuts are needed to offset a big property tax cut, which the Governor recently unveiled.

Many lawmakers and state budgetary officials were “shocked” by Pillen's proposal, and reactions were mixed, depending upon which side of the partisan divide a particular person was attached. For example, State Senator Rob Clements, Republican from Elmwood, and the chair of the Appropriations Committee said that the state should always be looking to save money and that high property taxes were a problem that “demanded swift action.” Democratic Senator from Lincoln Danielle Conrad accused the Pillen administration of hiding information on the cuts while “trampling on fundamental checks and balances.”

Pillen's previous property tax relief proposal did not make it through the Legislature earlier in the year, and he called for a special session to address property tax relief. Pillen has said repeatedly that the details and work involved in his property tax relief proposal needed to be made by the Legislature, and allies of the Pillen administration noted during the first day of the special session that they were willing to stay in session as long as was necessary to get the reform done. The first day of the session introduced 20 bills concerning property tax reform, and the next days would be dedicated to discussing and debating the merits of the individual bills. The goals for property tax relief outlined by Pillen are ambitious, but he believes that the legislative members working together will find many ways of accomplishing the necessary work.

Earlier, Pillen said, “We are in a property tax crisis. All 49 legislators know we have a property tax crisis, and I have great confidence it will all come together and solve the crisis. It has to be fixed, and I have great confidence that will take place and we'll get bipartisan support. Will we get all we want? No, that's not how the policy process works, but I have great confidence we'll get transformational solutions.”

Pillen looks to cut the property tax bill for Nebraskans from the 2023 level of 5.3 billion dollars down to 2.6 billion dollars. He wants to keep the focus of the special session on property taxes, although changes to Income and Sales Tax revenues are also a big part of his plan. He is looking to cut Income Tax revenues from 2023's 3.7 billion dollars down to 3.2 billion dollars. He seeks to increase sales tax revenues from 2.3 billion dollars in 2023 to 4.1 billion dollars. Most of the increase in Sales Tax revenue would come from trimming exemptions that are built into the tax code. “We've added 120 sales tax exemptions since 1950. We need the legislature to look into these exemptions and determine which of those we can phase out,” Pillen said.

Pillen's plan seeks to decrease overall spending by 1 billion dollars by 2027. Cutting state-level spending while cutting property taxes and income taxes, while increasing revenues from sales tax collections is a fiscally sound way of going about reform, Pillen said. “Any economist will agree that's a healthy form so you can grow your state. We can't grow today because we're chasing our seniors, who can't afford their home, out, and young people don't have the hope of buying a home and we have no idea how many people aren't coming here because of our property taxes,” said Pillen.

He said that $750 million of property tax credits were available, but only $500 million of that was taken advantage of by 55% of Nebraska property owners. 45% did not take advantage of these credits. Pillen said, “Everybody is up in arms about valuations. The fact is it is not a valuation problem--we have a state statute in play that says whatever the valuation goes up by, the levy is to drop correspondingly and there's no change in property taxes. Yet there's a “pop-off” there that allows every local government to override it and we do it 100% of the time everywhere. It's a spending problem. It's not fun to tell people “No”, but we have to stop spending money, which is why I'm an advocate of Hard Cap Zero. What that means is that when we go into deflation like we had in 09, 10, 11, and 12, we had deflation of 2 to 3 percent, Hard Cap Zero means that you wouldn't decrease spending 3%, you'd stay at zero spending, which means you're increasing government by 3% because you get 3% more with 3% deflation.”

Pillen also addressed school budgeting, saying, “Nebraska ranked 49 out of 50 states in funding K-12 education. The state should provide funding for education. Currently, 60% of school funding comes through property taxes, and the state should provide funding just like we did two years ago with community college funding.”

Pillen said that out of 244 districts, the state provided no funding to 180. Pillen said that broadening the sales tax base by eliminating exemptions would be a big help in properly funding education. Pillen's plan is focused on spending cuts and creating a “pro-growth” atmosphere to generate more revenues through increased economic activity while giving Nebraskans much-needed property tax relief. However, it is up to the Legislature to hammer out the details and make agreements to make this ambitious plan work. We'll have more details as news comes out of Lincoln during the special session.