The Legislature closed its 17-day special session on Aug. 20 by passing LB 34 by a 40-3 vote, creating an estimated $185 million or 3.5% in new tax relief and some questions among local leaders.
District 24 Sen. Jana Hughes points to three main actions from the special session in which more than 80 bills were introduced. These will take effect for the 2025-2026 budget year are:
• Front-loading school district property tax refunds – This changes a tax refund Nebraska property owners have until now had to apply for to something that will be automatically deducted as a tax credit, lowering additional school revenues the state will replace.
• Transferring excess state revenues to the fund offsetting property taxes – If general fund revenues exceed more than 3% growth annually, excess amounts will be transferred to the fund offsetting property taxes.
• Placing a cap on city and county tax levies – The cap limits tax revenue growth to 0% or the inflation rate, whichever is greater, with exceptions for public safety services. This will be based on the State and Local Consumption Expenditures and Gross Investment, which Hughes said reflects more government spending than the household-focused Consumer Price Index, and has tended to run higher than the CPI.
Taken as a whole, Hughes said while there were frustrations with the session and its outcome, she saw some silver linings, like the number of bills brought forward and the hearings held.
She also said switching to the SLCE index will better reflect city and county costs and provide some buffer if the broader economy is suffering. She said over the past 20 years, the CPI averaged 2.6% increases, while the SLCE reported an average of 3.9%.
“I know a lot of these bills will be coming back,” she said.
A former Seward school board member, she hopes to adjust and bring back her own school funding bill (LB9) in the next session.
Hughes said she sees the most frustrating part of the session’s results in its timing. None of the three tax changes enacted will take place until 2025-2026, so they could have been done in regular session.
She would have liked to see more changes in sales tax exemptions, but notes it is an area in which everyone with exemptions thinks theirs is justified, but others could be cut. Making such changes would have widened the base enough to lower state sales tax from 5.5 to 5.0%.
“Now we’ll see where we end up in January,” she said. “If we are going to push more state funding to schools, we have to have the money.”
Timing, elections
concerns for county
Other Seward County leaders have some mixed reactions to the changes.
The caps placed on cities and counties require them to hold special elections if they need to exceed their spending limits.
Seward County Board of Commissioners Chair Misty Ahmic said the election timeline set out in the legislation does not synch with the existing budget timelines for cities and counties and cost about $25,000 each.
“Changing our fiscal year at this point, well, we could do that, but I think that would be way messy,” Ahmic said.
She expects lawmakers may revisit some of these elements.
“Having a county that is growing – and Seward County is growing – I wonder what that looks like five years down the road,” Ahmic said. “In the future, if there was a need, we would hope that taxpayers would trust our ability to levy for something that we really need.”
Seward uses sales tax
to offset property tax
Seward City Administrator Greg Butcher said city officials kept in touch with Hughes’ office and the League of Municipalities to keep up with the quickly changing bills during the special session.
“It’s really hard for us to understand and track day to day as they worked through” the legislation, Butcher said. “That stuff was happening in real time.”
City officials were keeping an eye on the proposals to shift away from property tax and toward the sales tax option.
“We are glad that they did not effect the sales tax” measures some talked about, Butcher said.
Seward has utilized voter-approved local option sales tax capabilities to fund special projects – including the Wellness Center now under construction – and has designated 1.5% of the total 7.5% sales tax to offset property taxes in the city.
He was also appreciative that exemptions in the tax limits were created to fund public safety services.
Seward Mayor Josh Eickmeier said legislators will continue to talk about property taxes.
“It’s one of those things that, unfortunately, it’s a problem you can’t really solve,” he said. “Where do you get the revenue necessary to get the quality of life that your residents have come to expect?”
Seward leaders have worked to control property tax requests, he said, noting that during his tenure as mayor levies have actually decreased in several years.
He credits the local option sales taxes for that, as well as increases in sales tax revenues when the state required online retailers to submit state sales taxes and when the pandemic led people to spend more time and money in Seward.
Schools retain levy limits
Seward School Superintendent Josh Fields said all public school districts were excluded from the new tax lids, but retain the existing levy limits they now have.
He was pleased with the shift to the tax credit for the school tax refund because all taxpayers will now access that tax relief, which is scheduled to increase from $750 million to $902 million statewide by 2029, then increase 3% annually.
Hughes said this will provide relief for the 50% of Nebraskans who were not applying for the refund, likely because they were unaware they could.
