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It took two years of negotiations and deal-making, but the Nebraska Legislature has passed a bill giving farmers and ranchers property tax relief.

Earlier in August, lawmakers passed LB 1107 on a vote of 41-4, sending the bill to Gov. Pete Ricketts (R), who signed the bill on Aug. 20.

The bill was met with opposition with some lawmakers stating it was coming at a time when the state is facing financial struggles due to the COVID-19 outbreak and a loss of tax revenue. Others, including the state’s teacher union, said it would create a $3.4 billion reduction in school funding for the next 11 years, requiring funding be cut in K-12 education.

The relief comes when Nebraska’s agriculture sector has been hit especially hard due to the pandemic, low commodity prices and weather catastrophes.

“Today’s action is the beginning of finally reversing the disproportionate burden placed on the backs of agricultural property owners in Nebraska. We are thrilled to finally achieve meaningful relief directly from the state, especially in a year frustrated by a worldwide pandemic,” said Ken Herz, Nebraska Cattlemen president.

The bill, called a “great compromise,” provides state income tax relief on the amount paid in property taxes, reforms the state’s business tax incentive program and provides funding for the University of Nebraska Medical Center’s (UNMC) Nebraska Transformational Projects Act (NexT) project.

Property tax relief

LB 1107 maintains the current Property Tax Credit Cash Fund at $275 million a year, and the minimum yearly credit amount would also increase accordingly with revenue generated by additional sources. One of the sources, in the form of three ballot initiatives pertaining to the legalization and taxation of gambling at Nebraska racetracks, was pulled by Secretary of State Bob Evnen. A legal challenge by supporters of the measures was filed and the dispute will likely head to the Nebraska Supreme Court.   

Second, it established a new refundable income tax credit for school property taxes paid under the Nebraska Property Tax Incentive Act. For the tax year 2020, $125 million in tax incentives will be distributed. The fund will increase until 2024 when it reaches $375 million and will increase annually by the previous year’s statewide property valuation growth, not exceeding 5 percent.

“For years in which the Cash Reserve Fund—Nebraska’s rainy-day fund—has a balance of $500 million or more, 100 percent of the excess revenues would be used to increase the income tax credit amount. For years in which the fund balance is less than $500 million, 50 percent of the excess revenues would increase the credit amount,” according to the Tax Foundation.

According to Ricketts’s editorial in the Hastings Tribune, “In Lancaster County, a home valued at $201,584 with a property tax bill of $3,395 will experience a 17 percent overall reduction in its property tax bill. In Hamilton County, a 980-acre farm will see $14,179 of property tax relief for a 21 percent reduction on its property tax bill. These scenarios are based on property tax data available to us today.”

This means for property taxpayers, a 6 percent credit on taxes paid to support schools applies towards the income tax credit. If funding projections are met as stated in the bill, property owners could see the actualization of 15-18 percent of tax savings in five years.

According to Ricketts, “Under these property tax relief programs, the state will deliver a total of $650 million in annual property tax relief.”

Business programs

Under the bill, the ImagiNE Nebraska Act will replace the Nebraska Advantage Act incentives package, which expires at the end of 2020. Spending on ImagiNE Act credits is capped at $25 million a year in the first two years, then increases to $100 million in 2023 and 2024 and $150 million in 2025. In the tax year 2026 and years thereafter, incentives would be capped at 3 percent of state net tax receipts.

The Nebraska Advantage Act incentivized businesses which expanded payroll and current investments by offering tax credits and refunds to offset income. ImagiNE will offer the same program but will cap tax credits at 7 percent and offers more incentives for those businesses that pay employees above the average wage in the state.

The Greater Omaha Chamber stated the Nebraska Advantage Act was responsible for “more than $12 billion in capital investment over 14 years and led to projects in 170 Nebraska communities.”

“Passing LB 1107 represents a huge win for our state. It keeps Nebraska competitive with other states and continues to position us well for growth and accelerated recovery in the post-pandemic economy. This was truly a collaborative effort, and I congratulate all the elected leaders in our Legislature who showed how we could come together for the greater good,” said David G. Brown, president and CEO of the Greater Omaha Chamber.

NExT program

Lastly, the bill provides $50 million annually for six years, starting in 2025-26 towards UNMC’s NexT project. The stipulation is private donors and the federal government pledged $1.3 billion in funding for the project.

The project will build on UNMC’s work on contagious diseases and create a center for responding to pandemics, bioterrorism and expands the veterans’ hospital in Omaha. The UNMC states it will generate nearly 33,000 construction-related jobs and 8,700 permanent jobs and add $1.3 billion annually to the state economy when the project is fully operational in 2030.

LB 1107 falls short

Critics of the bill, including the Tax Foundation, a tax policy nonprofit, argue the bill does not address high local property taxes and just shifts tax credits to offset property taxes. They contend the state has “poured” increasing amounts to the Property Tax Credit Cash Fund since its creation in 2007, but has done little to prevent local property taxes from increasing.

While LB 1107 may provide some time toward a permanent solution, “They are not, in and of themselves, an effective means of providing lasting relief or generating long-term economic growth,” the Tax Foundation states.

“While we must continue to look for long-term solutions to alleviate pressure on property taxes, this is clearly positive progress in delivering relief,” said Steve Nelson, president of the Nebraska Farm Bureau. “We look forward to continuing to work with our elected leaders toward those ends and helping deliver more wins for Nebraska taxpayers.”

Sen. Justin Wayne (D-13) stated in his argument against the bill it “handcuffs” additional state resources and other senators suggested walking back funding should revenue collection fall short, especially with uncertain economic situations such as with the COVID-19 pandemic.

“This is a major win for Nebraskans and the communities we live in across the state,” said Ricketts. “It wouldn’t have happened without the commitment of so many everyday people who have been coming to the Capitol, writing their senators, and asking for property tax relief for years. I want to extend a major thank you to the citizens of Nebraska who persisted in contacting their senators and giving voice to the urgent need for property tax relief.” — Charles Wallace, WLJ editor

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