LINCOLN, Nebraska — As they prepare for a debate on taxes, Nebraska lawmakers are trying to find new ways to reduce what property-owners pay without robbing local school districts of revenue.
Property taxes will again surface as an issue in the legislative session that begins next month with 18 new senators and Gov.-elect Pete Ricketts. On Tuesday, the Revenue Committee will look at how other states have lowered property taxes during a hearing at the Capitol.
"We want to lay out all the possible options, especially when it comes to property taxes," said Sen. Galen Hadley of Kearney, the committee's chairman. "There are a lot of different methods out there, and each has pluses and minuses. I hope people understand that there isn't one magic formula."
Hadley said the discussion could include reducing the taxable value of agricultural land, putting caps on property taxes, or taxing land by the profit it generates rather than its market value.
Hadley said he also would support additional funding for the state's property tax credit fund, which offsets those taxes for farmers and ranchers as well as urban businesses and homeowners. Lawmakers increased the fund to $140 million this year. With the additional money, a home or property valued at $100,000 gets a tax credit of $74.11.
A Nebraska Department of Revenue report released in April showed an overall 12.45 percent increase in the state's property valuations this year, fueled largely by a 29.1 percent jump in agricultural land valuations. For land-rich farmers and ranchers, the higher valuations mean bigger tax bills.
Gov.-elect Pete Ricketts has said lowering property taxes is "absolutely the No. 1" priority for his administration, given his conversations with voters and the public feedback given at a series of legislative tax hearings.
In Nebraska, school districts and other local governments tax agricultural land at 75 percent of its market value. Some states base their taxes off the money that farmers make from crops grown on their land, so their tax burden can be lowered when they produce less or when commodity prices drop.
Last session, lawmakers tried but failed to lower agricultural land valuations to 65 percent of market value. Supporters argued the move would help farmers, but opponents said the decreased tax payments could leave counties and schools with large cash shortfalls.
A think-tank report to be released Tuesday will recommend steps to lower both property and income taxes.
The proposed changes would eliminate income taxes on the first $6,000 for married couple filing jointly, and cut Nebraska's top tax rate from 6.84 percent to 5 percent. The top corporate income tax rate would drop from 7.81 percent to 5 percent.
The report by the Platte Institute for Economic Research also suggests that lawmakers freeze property tax rates and "seriously question" all state mandates on local governments to lower their costs. The conservative, Omaha-based think tank was founded in 2007 by Ricketts, who resigned from its board of directors in August 2013.
Institute chief executive officer Jim Vokal said the group is working with a state senator who will introduce the reform plan as legislation next year. The group has also reached out to local chambers of commerce and Nebraska Farm Bureau members to build support.
Reducing the mandates on local governments "is not going to happen overnight," Vokal said. "But it is a substantial component of why property taxes, especially in rural counties, have gone up. You put that on top of the valuation increases we've seen with ag land, and it's a pretty bad combination."
Vokal said lawmakers should also look at tax breaks that go to businesses. Eliminating some of those incentives would help pay for income tax cuts and make Nebraska more competitive, he said.
The chairman of the Legislature's budget-writing committee has said lawmakers should proceed cautiously next year. Sen. Heath Mello of Omaha said last month that senators will need to strike a balance between measures to lower property taxes and spending to address the state's prison overcrowding.
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