The 2000 Legislative Session

LB 1213 - Levy Overrides

Sadly there are not many pieces of legislation like LB 1213 (2000) passed each session:  one page in length and relatively easy to understand.  But the form in which LB 1213 was passed and the form it was introduced were two entirely different matters.

The original purpose of LB 1213 was to revamp the budget process for Class I (elementary only) school districts.  Introduced by the Education Committee, the bill sought to remove the existing methodology for calculating Class I budget limitations and instead include Class Is within the budget limits applicable to their primary high school's local system.¹  The existing lid exceptions for budget limitations would be extended to the Class I districts.  The existing provision, which allowed districts to seek voter approval for additional budget authority, would also be extended to Class I districts, except that voters in all affected local systems must be allowed to vote.²

Aside the proponent opening remarks by Senator Ardyce Bohlke, no one else appeared in support of the measure on February 1, 2000 during the public hearing.  But there were plenty of opponents.  Patrons of Class I districts, representatives of the Class I United organization, and even a representative of the Nebraska Farmers Union appeared in opposition to the bill.³ Their opposition, however, was far from adamant.  In fact, several testifiers seemed to desire more explanation about how the new lid mechanism would work.  The Class I United organization even offered several amendments, presumably to improve the measure.

The truth of the matter was that some Class I districts might have gained some budget authority under the bill.  As stated in the initial fiscal impact note, "It is possible that the budget of expenditures for Class I districts may be higher pursuant to the bill."⁴ The matter seemed to depend upon the affiliation arrangement of each individual Class I district, and perhaps their relationship with the designated primary high school district.  Some of the affiliation relationships were positive while others were more contentious.

There was another dynamic of the public hearing on February 1, 2000 that had many proponents of Class I schools on guard, perhaps even weighing the lesser of evils in terms of bills that had an impact on their schools.  Senator Bohlke, chair of the Education Committee, chose to hold a combined hearing on five separate bills at the same time.  The respective sponsors would open on their bills and testifiers could then offer comments on whichever measures were of interest to them.  This is not an unusual event, but it can add another dimension to the hearing environment.  It tends to require a little more strategy on the part of those who seek to influence the disposition of one or more bills heard at one sitting.  In the case of February 1, 2000, the hearing incorporated an entire range of bills having an impact from slight to severe on Class I schools.

The other four bills heard that day included rather innocuous measures, such as LB 1001, introduced by Senator Floyd Vrtiska of Table Rock, to provide various duties for county clerks in relation to the affiliation process.⁵  Another relatively inoffensive bill was LB 1056, offered by Senator Jim Jones of Eddyville.⁶  The bill proposed to change some of the audit provisions concerning Class I school districts.  At the other end of the spectrum were two bills that had Class I proponents and Class VI (high school only) proponents very concerned.  LB 1439, introduced by Senator Mark Quandahl of Omaha, eliminated all Class I and Class VI school districts by July 1, 2002.⁷  Even more draconian, LB 1447, offered by Senator Dan Lynch of Omaha, intended to eliminate Class I and Class VI districts by July 1, 2000.⁸ This did not necessarily mean the closing of buildings, but it did mean the end of separate school boards and administration for these classifications of schools.

Senator Lynch said the pending federal lawsuit filed by Class I patrons (Hawkins v. Johanns) had played a role in his decision to offer LB 1447.⁹  And he recognized the severity of the action.  "However, it is simply a logical step in the progression this state has been taking for a great many years toward a rational, comprehensive K-12 education system in Nebraska," Lynch said.¹⁰  Whether intended or not, it was as though Lynch's and Quandahl's bills were meant as retribution against those who dared file suit against the state.  This may or may not have been the case, but it certainly had the Class I advocates scrambling to defend their schools.  Over 100 small school patrons, board members, administrators, and students attended the hearing that day.¹¹

The Lynch/Quandahl proposals also made LB 1213, by comparison, look pretty good.  Perhaps this was Senator Bohlke's motivation all along for combining the bills into one hearing.  And it worked.  LB 1213 was advanced from committee on February 15, 2000 by an 8-0 vote.¹² The other Class I-related bills remained in committee.

The bill emerged from committee with amendments attached in order to fine-tune the original purpose.  LB 1213, as amended, would repeal the section of law allowing a Class VI district, a primary high school district for a Class I district, to establish the budget of expenditures for the Class I district.  Also repealed would be the requirement for NDE to determine the budget of expenditures for Class I districts that are not part of Class VI districts.  The bill provided that the applicable growth percentage for Class I districts would be the growth percentage for the local system containing the Class I district's primary high school.  The bill also allowed Class I patrons to vote on exceeding the applicable allowable growth percentage.  Finally, the bill allowed Class I districts to request a vote to exceed the levy limitation and all patrons in the multiple-district school system would vote on the request to exceed the levy limitation by a Class I district.¹³

However, we will never know how this scheme would have improved the budget and levy situation between Class Is and their primary high school districts.  The committee amendments were, in fact, adopted and the bill advanced on March 15, 2000.¹⁴  The bill was, in fact, advanced on second-round consideration on March 24th.¹⁵ But none of the provisions advanced from committee and advanced on the floor ever became law.  So what happened?

The answer to this question arrived during a legislative recess day on March 31, 2000.  The event would have a profound impact on school finance policy in Nebraska, a fraction of which was demonstrated by the literal gutting of LB 1213 during Final Reading consideration on April 10th.

As fate would have it, the long awaited decision on the federal lawsuit brought by Class I patrons was handed down on March 31st.  In Hawkins v. Johanns, the plaintiffs alleged that existing law deprived them of equal protection under the U.S. Constitution.¹⁶  Specifically, the plaintiffs believed legislation passed in 1996 and 1997 impeded if not prevented Class I districts to set their own budgets, exceed their general fund budget authority, exceed tax levies, authorize and spend special building fund monies, and merge, dissolve or reorganize.¹⁷ The suit was filed against several of the state's constitutional officers, including Governor Mike Johanns and Commissioner of Education, Doug Christensen.  The suit amounted to an indictment on the actions of the Legislature upon the enactment of LB 1114 (1996), relating to levy limitations, and LB 806 (1997), relating to major modifications to the school finance formula.

To the great relief of many state officials and lawmakers alike, Judge Richard Kopf disagreed with plaintiffs' contentions.  He went further than that by praising state government for addressing legitimate governmental interests and at the same time preserving the Class I structure.  He called the legislation in question an "innovative device" because it retained a modified Class I system that was "partially controlled by a geographically distinct school district that was obligated to provide a high school education to the children graduating from the Class I district."¹⁸

With this issue resolved, members of the Legislature could breathe a sigh of relief, particularly Senator Ardyce Bohlke, who believed the U.S. District Court decision vindicated her work on LB 806.  If the original provisions of LB 1213 were at all intended to "fix" a perceived problem, the fix was no longer needed following the decision in Hawkins.  While the official record is somewhat sketchy, it was decided to remove the existing provisions of LB 1213 and use the legislation as a vehicle for other important objectives before the Legislature adjourned sine die.  On April 10, 2000, a series of motions were entertained to bring the legislation back to Select File for specific amendment.  The first such motion was filed by Senator Raikes, a member of the Education Committee, who alluded to the decision concerning the fate of LB 1213.  "The decision, although LB 1213 is on Final Reading, the decision has been made not to go with LB 1213 as it is, so that's the reason for bringing it back from Final Reading," he said.¹⁹  Senator Bohlke would later add during floor debate that one of the reasons for removing the original provisions "was knowing that we no longer needed LB 1213."²⁰

There were actually several distinct proposals to renovate LB 1213, and not all would be agreeable to the majority of the body.  The Legislature was on its 58th day of a 60-day session and LB 1213 had suddenly become a vacant, yet very useful vessel.  For instance, Senator Roger Wehrbein tried unsuccessfully to transfer $2 million to provide additional reorganization incentive payment funds.²¹ Several other amendments were discussed for a short time and then withdrawn.  Ultimately, only two amendments would meet with approval from the majority of the Legislature, and would become the revised version of LB 1213.

Senator Ron Raikes of Lincoln proposed to merge the contents of LB 1324, a bill that he had introduced and that had been advanced from committee.²²  LB 1324 and the corresponding amendment to LB 1213 related to levy override elections pursuant to the levy limits under LB 1114 (1996).  The problem, Raikes explained, was that the law was not clear as to whether a levy override and spending lid override could occur on the same ballot.  It was believed they could, but clarification to that effect would make those concerned more comfortable.  Accordingly, the Raikes amendment permitted a levy and spending lid override to occur on the same ballot.  It also changed existing law to permit override issues to occur on Primary, General, or special election ballots.²³  This would save not only money in terms of election costs, but also time and effort by those who wish to attempt such an override, whether by petition or by resolution of the school board.  The Raikes amendment was adopted on a 31-0 vote.²⁴

The second and last successful proposal to return the bill for specific amendment was filed by Senator Curt Bromm of Wahoo.  The issue concerned what is commonly called the "respin" provision of the education statutes.²⁵ This provision of law provides a mechanism by which NDE may adjust funding to schools that received either more or less than the appropriate amount due to clerical errors for instance.  The problem, Bromm said, was that some districts entitled to those sums of money had to wait until disbursement of aid in the ensuing year.

The Bromm amendment specified that a school district would be allowed to apply to NDE for a lump-sum payment of adjustments made to state aid as per the "respin" provisions in existing law.  If it is found that the district is owed $1,000 or more due to the respin, the department would pay the district in one lump sum before the last business day of September in the year the respin occurred.  Adjustments of less than $1,000 would be paid in a lump sum on the last business day of December.²⁶ Interestingly, respin calculations work both ways in that sometimes districts are overpaid and must suffer reductions in aid the following year.  The Bromm amendment only applied to situations in which the state owed the district, not the other way around.

There is no question that the legislative life of LB 1213 was anything but typical.  The bill had been gutted on the second to last day of the session and reborn to incorporate entirely different provisions.  Certainly there are some interesting questions about LB 1213, such as its original purpose in comparison to its ultimate fate.  One might pause to wonder, if the decision in Hawkins had arrived much later in the session, what the Legislature would have done, if anything, different than what it ultimately chose to do.  In any event, the Legislature voted to pass LB 1213 by a unanimous 47-0 vote on the 60th and final day of the 2000 Legislative Session.²⁷

Table 124.  Summary of Modifications to TEEOSA
as per LB 1213 (2000)

Bill Sec.	Statute Sec.	Revised Catch Line	Description of Change
1	79-1029	Basic allowable growth rate; Class II, III, IV, V, or VI district may exceed; procedure	LB 1213 provides that approval for a school district to exceed the allowable growth rate for the district's budget of expenditures can be obtained by a vote of the people at a primary or general election. Prior to LB 1213, approval to exceed the expenditure limit could only be obtained if a special election was held each year. LB 1213 also provided that patrons could vote to exceed the limitation on expenditures and the levy limitation at the same time.

Source:  Legislative Bill 1213, Slip Law, Nebraska Legislature, 96th Leg., 2nd Sess., 2000, § 1, p. 1.

LB 968 - Property Tax Relief

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George Kilpatrick, legal counsel for the Revenue Committee, labeled LB 968 (2000) as "one of series of bills" to update what he called the "property tax relief project," which commenced in 1996.²⁸  Speaking before the Revenue Committee during the public hearing for LB 968, Kilpatrick outlined the legislation while making references to the various historical pieces of legislation that it affected.  The bill updated components of LB 1114 (1996) relating to levy limitations, LB 271 (1999) relating to taxation of government property not used for public purpose, and LB 87 (1999) relating to creation of joint public agencies.  Kilpatrick was careful not to refer to LB 968 as a technical cleanup bill.  "I try never to use the word, technical, because it implies that there's nothing substantive, and there is substantive change," he said.²⁹

Nevertheless, some of the provisions of LB 968 were in fact technical in nature.  For instance, the bill inserted the phrase "joint public agency" within a few sections of law that should have been amended under LB 87 in 1999.  Some of the more substantive provisions involved treatment of historical societies under the levy limitations of LB 1114 (1996) and the Nebraska Budget Act.  The intent of LB 968, in part, was to specify when historical societies fell within the requirements of the Nebraska budget Act for purposes of reporting budgetary information.  The bill also addressed a controversy about the effective date of LB 271 relating to taxation of government property not used for public purpose.  The 1999 legislation specified an effective date of January 2, 2000 and LB 968 changed the date to January 1, 2001 to avoid any legal and administrative entanglements.³⁰

The changes to the school finance formula, TEEOSA, were not a part of the original version of LB 968.  These provisions were adding during an executive session of the Revenue Committee on February 10, 2000 and attached to the bill as committee amendments.  The additional provisions related to expanding and clarifying the special valuation laws and derived from a separate piece of legislation introduced in 2000 by Senator Bob Wickersham (LB 1260).³¹

Special valuation, or "greenbelt," laws were enacted in Nebraska during the 1974 Legislative Session.³²  Greenbelt laws were enacted as a result of urban development and other non-agricultural development that had an economic impact on neighboring agricultural or horticultural land.  At the time, the special valuation assessment provided for a taxable value based solely on 80% of the actual value of land for agricultural or horticultural purposes or uses without regard to the actual value the land might have for other purposes or uses.  Because special valuation assessment reduces the value base for property tax purposes, there are provisions for the "recapture" of the tax benefit when the property ceases to qualify for the special valuation.³³

Since 1974, the greenbelt laws had been amended from time to time in order to keep pace with changing assessment practices, land development issues, and other issues related to real property taxation.  Generally, in order for land to qualify for special valuation all the following criteria must be met:

1. The land is located outside the corporate boundaries of any sanitary and improvement district, city, or village,
   
   
2. the land is used for agricultural or horticultural purposes,
   
   
3. the land is zoned predominantly for agricultural or horticultural use, and
   
   
4. the land is not subdivided.³⁴

Individuals wishing to attain special valuation classification would apply for such status with their county assessor.

Senator Wickersham introduced LB 1260 in 2000 and subsequently sought to include its provisions within LB 968 in order to address changes in real estate development in recent years.  As Wickersham explained during floor debate of LB 968, special valuation had been predominant around metropolitan areas of the state, such as Lancaster, Douglas, Cass, and Washington Counties where there had been "great pressure" on agricultural values due to development.³⁵  "We're now seeing that phenomenon on a more statewide basis," he explained.³⁶

Through LB 968, Senator Wickersham sought to change state law in order to more accurately implement what he called the "greenbelt provision in the constitution."³⁷  Said Wickersham:

We are suggesting that ag land valued under the special use valuation be subject to the same general assessment standard as for other ag land, so it's 80 percent of the purpose, so that would be 80 percent of the special valuation that is created in that process.³⁸

The legislation would conform the recapture provisions of law in the event special valuation status is lost.  The greenbelt laws would also be amended to incorporate the Tax Equalization and Review Commission (TERC) in cases of appeal.

In general, LB 968 intended to improve the process to apply for special valuation status without changing the criteria to qualify for such status.  The measure provided that on or before July 15th in the year of application, the county assessor must approve or deny the application for special valuation.  If the application is denied, the applicant may protest to the applicable county board of equalization on or before August 15th.  The county board of equalization must decide the protest on or before September 15th.  Within 30 days after the decision of the county board of equalization, its decision may be appealed to the TERC.³⁹

LB 968 affected only one section of the school finance formula.  The legislation specified that greenbelt land would be set at 100% of special valuation for purposes of state aid value, the value used to calculate state aid.⁴⁰  It must be remembered, however, that special valuation is defined as 80% of the "value that the land would have for agricultural or horticultural purposes or uses without regard to the actual value the land would have for other purposes or uses."⁴¹ The confusing aspect about this system, in terms of calculating state aid value for special valuation property, is that it amounts to 100% of 80%, meaning the maximum assessed value for special valuation property.  By comparison, the state aid value for nonagricultural property is set at 100% of market value.  The state aid value for agricultural land is set at 80% of market value.

So what did this mean for state aid to education?  What impact would the legislation have on public schools?  The final fiscal impact statement for LB 968 stated that the bill "could increase state aid to schools by $4.5 million," but that no definitive impact would "show up" until fiscal year 2004.⁴² While the fiscal note did not specify a reason, an increase in state aid often derives from a loss of property tax revenue due to changes in valuation and assessment practices.  The state aid formula is designed to compensate for losses in local revenue sources.  LB 968 did not answer the question of fiscal impact to schools, but it would launch a series of changes to the greenbelt laws in the next few years to fine-tune the special valuation provisions.

Not unlike other broad, encompassing pieces of legislation, LB 968 provided an opportunity for piling on other revenue-related amendments.  The Legislature appeared relatively content with the work prepared by the Revenue Committee in terms of the committee amendments and the original provisions, but the bill quite literally opened a large portion of law for potential amendment.  Before the bill passed on April 3, 2000, the measure had been amended several times, but no further changes were made to the school finance formula.  LB 968 passed on a unanimous 44-0 vote.⁴³  Governor Mike Johanns, who was presumably briefed on the potential increase the bill may cause in state aid to education, signed the bill into law on April 6, 2000.⁴⁴

Table 125.  Summary of Modifications to TEEOSA
as per LB 968 (2000)

Bill Sec.	Statute Sec.	Revised Catch Line	Description of Change
80	79-1016	Adjusted valuation; how established; objections; filing; appeal; notice; correction due to clerical error; injunction prohibited	Prior to LB 968, the school finance formula defined "state aid value" for purposes of calculating state aid as 100% of market value for real property other than agricultural land and 80% of market value for agricultural land. LB 968 added language to specify that agricultural land that receives special valuation (greenbelt status) would be set at 100% of special valuation.

Source:  Legislative Bill 968, Slip Law, Nebraska Legislature, 96th Leg., 2nd Sess., 2000, § 80, pp. 31-32.