LINCOLN — Gov. Pete Ricketts got in an early punch on Tuesday, jabbing a legislative proposal to reduce property taxes as “the largest tax increase in Nebraska’s history.”
He is the first in an expected long line of opponents of Legislative Bill 289, which is the subject of a public hearing at 4 p.m. on Wednesday at the State Capitol.
The bill would lower property taxes by raising state aid to K-12 schools by $540 million via a 3/4 of a cent hike in state sales taxes, new taxes on soda pop, candy and bottled water, and increases in taxes on cigarettes and home purchases. Tax exemptions on services provided by plumbers, movers and veterinarians would also be eliminated.
Ricketts, a conservative Republican, submitted his written testimony for the hearing a day early, and continued hammering LB 289 as a bad idea that has failed in the past. He cited efforts in 1990 and 1999 that raised state aid to K-12 schools but only temporarily lowered property taxes.
“LB 289 will be no different,” the governor wrote. “Nebraska may experience short-term reductions in property tax bills, (but) as history demonstrates … Nebraska will end up with higher property taxes and higher sales taxes.”
School groups are expected to testify against the spending lid included in the bill, and groups that advocate for the poor have already stated their opposition to the sales tax hike as a “regressive” step that hurts low-income Nebraskans the hardest. The state’s municipalities maintain that LB 289 will crimp their budgets. And veterinarians, Realtors and grocers hate the new taxes that would impact them.
Testimony on Wednesday is expected to continue late into the night.
Ricketts has his own plan to reduce property taxes: place a constitutional lid on spending of property tax proceeds of 3% a year, and increase the property tax credit program by $51 million.
Budget plan halves proposed property tax credit boost, draws criticism from Ricketts
LINCOLN — Legislative budget-writers halved their plans for boosting the state’s Property Tax Credit Fund as they wrapped up budget work Tuesday.
Appropriations Committee members voted 7-2 to add $26 million annually to the tax credit fund, bringing the annual total to $250 million.
The committee chairman, State Sen. John Stinner of Gering, who proposed the move, called it “responsible.” It was coupled with a decision to put $25 million in each year of the two-year budget period into the state’s depleted cash reserve fund.
But the move drew immediate condemnation from Gov. Pete Ricketts and Sen. Lou Ann Linehan of Elkhorn, who chairs the Revenue Committee.
“This decision … sends the message that the Legislature would rather keep taxpayer money for future spending rather than give taxpayers the relief they have been asking for,” the governor said. “In a time when our farmers and homeowners need relief, it is wrong for senators to withhold property tax credits.”
Linehan predicted the move would will spark a major fight when the budget reaches the full Legislature.
“That sends a very bad signal,” she said. “The number one issue is property tax relief, and not just for farmers.”
Ricketts had sought a $51 million annual boost for the tax credit fund, along with legislation to set a minimum level for the fund. The Revenue Committee incorporated that amount into a property tax package that will have a public hearing Wednesday.
The Appropriations Committee had included the higher amount in its preliminary budget plan, but that was put together before state revenue forecasts dimmed in February.
Stinner said the committee could revisit some of its final budget decisions after getting updated revenue projections on Thursday.
The projections will be the first to consider how the March flooding and blizzards could affect the state’s economy, as well as incorporating the results of the April individual income tax collections.
Some committee members objected the idea of scaling back the increase for property tax credits. Sen. Steve Erdman of Bayard said the committee had “spent money like a drunken sailor every day,” leading to the cash reserve being drawn down too far.
Others defended the committee’s work. Sen. Anna Wishart of Lincoln said much of the spending was required by state laws. She noted that the $26 million would represent an 11.5 percent increase in spending on property tax credits, larger than the increase in other budget items.
Wishart also said that, by funding property tax credits, the Appropriations Committee has done more for property tax relief than other legislative committees.
The property tax credit program began in 2007, with a budget of $105 million. State policymakers increased the fund repeatedly, until it reached $224 million in 2016. Money for the program comes from state sales and income taxes.
Stinner praised the committee’s budget, saying it “covered all the bases” and addresses the state’s major concerns. It represents a nearly 3.2 percent average increase in spending, compared to the 3.1 percent average recommended by the governor.
Included in the budget is money for two high-security prison units and to open more problem-solving courts, as well as paying for a just-concluded contract providing longevity raises for corrections employees.
It funds the voter-approved Medicaid expansion and boosts payment rates for Medicaid, child welfare and other service providers. It provides more funding for K-12 schools as called for under the state aid formula, although it phases in the increase over two years.
With the vote Tuesday, it also keeps the cash reserve fund at its current level. Without the infusion of money and with a $54.7 million transfer out for prison construction, the reserve would end up at its lowest level since 2005-06. It would have an estimated $278.8 million by June 30, 2021.
The budget bills are expected to go to the full Legislature by May 2, and debate will get underway the following week. The budget covers the two fiscal years ending June 30, 2021.