Nebraska Tax Research Council Report, 1992

In February 1992, the Nebraska Tax Research Council (NTRC) issued a report on the effectiveness of LB 1059 in meeting its stated goals.  The NTRC is a nonprofit association based in Lincoln and founded in 1951.  The mission of the NTRC is to act as a nonbiased library and clearinghouse for state and local tax and spending information.  At the state level, the NTRC has had an active role in providing information not only to its members but also to members of the Legislature and other government officials.

The report issued by the NTRC in 1992 represented the first formal effort to evaluate the new state aid formula and how, or if, it was meeting the goals established by the Legislature, particularly as they relate to taxation.  The report discussed four goals established under LB 1059 as follows:

1. To provide a broadened and expandable tax base for schools,
   
   
2. To provide property tax relief by increasing state funding of schools to 45 percent of general fund operating expenditures of schools,
   
   
3. To equalize education opportunities among students statewide, and
   
   
4. To equalize the school tax burden among property taxpayers.¹

The NRTC provided descriptions along with status updates of the three goals related specifically to taxation, but admitted a deficiency in information to report on the goal related to equalization of educational opportunity.

On the whole, the report provided relatively good news for supporters of LB 1059.  It reported that the tax base had in fact been broadened.  The introduction of income tax revenue as a source of school funding "clearly expanded the tax base."²  Due to the income tax rate increases, both individual and corporate income tax collections increased from FY1989-90 to FY1990-91, the years before and after the enactment of LB 1059.  The NTRC reported that, of the $118 million increase in net income tax collections from FY1989-90 to FY1990-91, $71 million was attributed to the implementation of LB 1059.³

The report indicated that statewide property tax relief had, in fact, been achieved.  The average aggregate property tax levy decreased 10.6% in the first year after implementation of LB 1059 and 9.9% in the second year.⁴  The new formula was also credited for a 12.7% decrease in aggregate property tax collections in the first year and a 15.1% decrease in the second year.⁵  Nevertheless, the report noted the state's failure to meet the 45% target level of funding for schools.  Instead, the state was only able to achieve funding of 40.35% of general fund operating expenditures for schools in 1990-91.⁶  This was due, according to the report, to increased spending by school districts.  The initial, projected spending growth was 5%, but the actual growth was closer to 6.6%.⁷

The report also stated that the property tax burden had become more equitable.  The report noted, as evidence, the decrease in the statewide general fund levy and the decrease in the number of school districts with "larger-than-average" general fund levies from 1989-90 to 1990-91, which demonstrated a "more equal school tax burden" among property taxpayers.⁸  The NTRC applied several tests to make its determination including a comparison of the "derived general fund levy" for all districts in the year prior and the year after the passage of LB 1059.  The derived general fund levy was computed by:

[C]alculating the tax dollars to be generated for each school district based on each district's general fund levy.  The total statewide tax dollars to be generated are then divided by the state's total valuation in dollars per hundred to determine the derived statewide levy which would have had to be applied against all valuation to generate the same tax dollars.⁹

The NTRC reported that, for 1989-90, the derived general fund levy for all school districts was $1.5138 per $100 of valuation.¹⁰  In the first year of LB 1059, FY1990-91, the derived general fund levy for all districts was reduced to $1.2539 and reduced again in 1991-92 to $1.2294.¹¹  "The decrease in levies indicates that the disparities in general fund levies throughout the state decreased, or became more equal," the report stated.¹²

The conclusion of the NTRC report perhaps gave the best indication of the success of LB 1059 since its inception.  The report stated that if LB 1059 had not passed:

[T]axpayers would have seen a significant increase in property taxes to keep up with increases in school expenditures, absent any other increase in state funding.  Clearly, LB 1059 did provide property tax relief - if the bill had not passed, taxpayers would have faced a property tax increase of $179 million.¹³

The report noted that property tax relief varied from school district to school district, depending upon variables such as enrollment, changes in valuations, and special education costs.  In the aggregate, however, "Nebraska received property tax relief in the form of lower property taxes than would have been levied without LB 1059."¹⁴