Hearing Transcripts

Committee on Education/Committee on Revenue

LB 1059

January 23, 1990

 

The Committee on Education and Revenue met at 1:30 p.m.  on January 23, 1990, in Room 1517 at the State Capitol to hold a public hearing on LB 1059.  Education Committee members present were Senators Ron Withem, Chairperson and "Cap" Dierks, Dennis Baack, David Bernard-Stevens, LaVon Crosby, Jim McFarland and Arlene Nelson.  Absent:  Senator Jerry Chizek.  Revenue Committee members present were Senators Tim Hall, Chairperson and Elroy Hefner, Rex Haberman, Paul Hartnett, Richard Peterson and Carson Rogers.  Absent:  Senators Bernice Labedz and David Landis.

 

SENATOR WITHEM:  We have a presentation on what LB 1059 deals with and then also hear plenty of- testimony both pro and con on the bill that is before us this evening.  This is a joint hearing of the Revenue Committee and the Education Committee.  Rationale for that is that we have a bill here that changes significantly the way in which schools are funded in our state.  It also changes significantly the tax base of the state.  Senators Hall, Moore, and I met in December and talked about when the bill is introduced what we should do in terms of reference, and we all three agreed that it has too much revenue impact and too much education impact to go to any one committee.  So we both requested that it be jointly referenced to the two committees.  We'll kind of, probably, make up the rules with joint committees as we go along because there isn't a whole lot of information written about how joint committees operate, but we will be conducting the hearing here jointly.  Tim has asked me to do most of the presiding, although he'll get his fair share as the evening goes on.  We'll conduct it like a normal hearing.  Senator Moore is here who will introduce the legislation.  We'll then follow it up with a list of individuals who are from the School Finance Review Commission to add an explanation to what Senator Moore has to say.  Maybe it would be helpful.  We have a list of people, fairly lengthy list already up here of people who would like to testify.  Most of them supportive; there are some anti individuals up here.  It's my desire to kind of flip-flop that so that we don't have all pro followed by all con.  I think that doesn't lead to a very good hearing if the purpose is to get the senators to balance the viewpoints that they hear.  How many people here would wish to offer testimony to the committee tonight in a positive vein in terms of the legislation?  I counted right at seventeen hands, I'm not sure if that's accurate or not.  How many people are here wishing to testify in an "anti"

 

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position?  We have ...  about ten of those.  What we'll do is flip-flop, I'm going to as long as I'm presiding, other than the main introducers of the bill that are explaining, I'll going to fairly rigorously enforce five-minute rule here tonight so we get as many people up here as possible testifying.  With that let me introduce the Education Committee members here and then let Senator Hall have an opportunity to say a few words and introduce the Revenue Committee members that are here.  Senator Arlene Nelson from Grand Island is -on the Education Committee, Senator Jim McFarland from Lincoln is on the Education Committee, the Vice Chair of the Education Committee is Senator Cap Dierks, Senator Dennis Baack from Kimball is on the Education Committee and Senator LaVon Crosby is on the Education Committee.  The Chair of the Revenue Committee is Senator Tim Hall, and Tim, if you have some words to say and introduce your committee members, please feel free.

 

SENATOR HALL:  Very few words, Senator Paul Hartnett to my right is from Bellevue, Member of the Committee.  Senator Rex Haberman to my immediate left from Imperial, Nebraska, and Senator Elroy Hefner the Vice Chair of the Revenue Committee from...  Where are you from?  Coleridge, (laughter) Coleridge, Nebraska, for Elroy from God's country, northeast Nebraska.

 

SENATOR WITHEM:  Thank you, Tim.  Senator Moore, would you like to go ahead and tell us about LB 1059?

 

LB 1059

 

SENATOR MOORE:  Thank you, Senator Withem and Senator Hall.  For the record, my name is Senator Scott Moore, representing the 24th Legislative District and it is my pleasure to appear tonight to introduce LB 1059.  1 guess it's a, really it's flattering or humbling for me to be able to do this.  I firmly believe that this piece of legislation has the potential to be probably the biggest piece of legislation we passed in this Legislature in the last twenty years and probably the next twenty years after that.  And it's that big a deal and it's only by luck of the draw, or however you want to call it, that I'm here to open.  It's been the culmination of a lot of work.  Obviously, the Senators and the Legislature...

 

SENATOR WITHEM:  ... Senator Moore, actually it's the fact that you don't chair one of these two committees.  (laughter)

 

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SENATOR MOORE:  Hey, you're ruining it, you know.  You're absolutely right, but the Legislature members with the guidance of Senator Hall, the Revenue Committee Chairman last year, we passed LB 84 and passed LB 611, two significant bills dealing with property tax relief.  At that time many members of the Legislature, including the members of the Gang of Four at that time, said it's in 1989, the Legislature is going to put some pain killer on the property tax wounds.  We said at that time we're going to spend the next year trying to come up with a solution to do some major surgery to the property tax problem in the State of Nebraska.  it's been under the guidance of Senator Ron Withem and the Chairman of the School Finance Review Commission, which I am also a member, worked diligently this summer and LB 1059 is a result of that commission's work.  Quite simply some few basic premises to be kept in mind as we worked through the summer and, now I'll give you the finished result of that commission, is introduced tonight.  Two things we kept in mind.  We looked at it from the point of view of the taxpayers in the State of Nebraska.  We looked at it from the point of view of the educational system and the kids of the State of Nebraska.  The taxpayer, it's rather simple.  The fact of the matter is that Nebraskans pay high property taxes.  You can divide it a couple different ways, you know, we rank in the ten probably in property tax in the fifty states in the nation.  We rank, according to some sources, thirty-eighth in the nation in income taxes collected and forty-second in the nation for sales tax collected, somewhere roughly in those figures.  Fact of the matter is we rank, when you total state and local taxes combined, we rank about twenty-seventh in the nation, right on average.  So, at least from a taxpayers point of view, we're not by comparison at least, overtaxed or undertaxed in the State of Nebraska.  We're right on average.  It was our intent to quite simply recognize the property tax were high so the income taxes were low, we think it's time when we reshuffle the deck in the State of Nebraska, while at the same time maintain roughly that same figure of the total tax take.  That's what we tried to do.  I think there'll be some more testifiers after me that will explain that in more detail.  We're talking about a tax shift, and yes, your sales and income taxes will go up; and yes, at least as an aggregate statewide, property taxes will go down.  Fact of the matter is, if you're going to inject $230 million dollars into the school finance system in the State of Nebraska, there is at least one school of thought is you can't just dump that money in there and have no

 

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strings attached.  Obviously, a big string attached is the budget growth limitation, I'm sure we'll hear a lot about.  But that's just a guarantee.  We can try, an attempt, so we stay right in the middle as we reshuffle that deck.  We looked at was from the education perspective was from the kids' point of view.  The first thing we do is, we just overhaul a system that we know is wrong in this state and it causes a lot of problems.  If we don't fix it, it's going to cause a lot more problems, and more importantly, cause some problems for those kids out there.  Secondly, for once the State of Nebraska is going to have a major commitment to the cost of education in this state and catch up with our peers nationwide on what commitment the state should have that cost of education.  Thirdly, we're basically going to try to guarantee that there's, you know, an average dollars per student out there.  And so that you, you know, just by accident where a child resides, there's not money there to finance his or her education.  That's the two basic premises that we had entailed in LB 1059.  1 know there's going to be some here tonight that may oppose our measure.  It's one of those things that is, Senator Withem and myself have travelled the state, I've used this quote a lot.  I'm reminded of when Franklin Delano Roosevelt came in the office of Presidency and those first one hundred days in depths of the Depression, and he often said to some of his advisors then, he goes, there's nothing more terrifying to be out in front of an issue look over your shoulder and see nobody there.  Luckily tonight, the work of, right, there are a Lot of people over my shoulder here to support this and I compliment those people for having the intestinal fortitude to do that.  Also, there are some people here to oppose that.  They're going to tell you that the lid's no good.  They're going to tell you that you're raising the sales and income taxes.  They're going to tell you it's basically unfair, well, you're going to hear two things.  You're going to hear that it's a rural bill and you're going to hear it's an urban bill.  I don't know how it could be both, but you're going to hear from both sides of that probably.  The fact of the matter is that.  When you hear all of those things, keep in mind though that the whole bill we have here, yes, there are thirty-two senators that signed the bill that says, there is no magic to fixing our tax system in the State of Nebraska.  The magic isn't there.  if you're going to permanently lower property tax in this state, it has to come from somewhere.  If you're not going to cut services, it has to come from increased taxes somewhere, and we're saying that has to happen.  I guess the thing that makes me tingle, is I believe it possibly can't

 

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happen this year because, as you all know, we have thirty-two cosponsors, we have Republicans, we have Democrats, we have rurals, we have urbans, we have school types, we have taxpayer types--all gathered here to say that, yes, the system is broken, we need to fix it.  And yes, there are some...  you know, I'm not saying our plan is perfect, the fact of the matter is, is that we can make a giant step forward and just brief summary in closing, the fact of the matter is, that this isn't going to fix our property tax problem in the State of Nebraska.  I mean, it's probably now where you can't fix it, but it's going to be a giant step forward and I urge this committee, this joint committee, to simply listen to the testimony tonight and those that have problems, please bring your problems to us.  The fact of the matter is, we are closer than we have been in a long, long time to making this giant move.  I just hope the committee will see fit to advance this bill from the joint Education and Revenue Committee.

 

SENATOR WITHEM:  Are there any questions?  Senator Haberman.

 

SENATOR HABERMAN:  Senator Moore, you alluded to the possibility of this legislation having property taxes go down.  Is that correct?

 

SENATOR MOORE:  Uh humm.

 

SENATOR HABERMAN:  Senator Moore, as you know, real estate taxes on farm land took quite a jump.

 

SENATOR MOORE:  Uh humm.

 

SENATOR HABERMAN:  And in looking over this proposal, there are some schools that lose a hundred percent, seventy percent, eighty percent, ninety percent of their income under this formula.  One school, for example, loses forty-nine thousand dollars; another one loses ten (thousand dollars); another one loses thirty-four thousand (dollars); another one loses twenty thousand (dollars); forty-six thousand (dollars).  How are you going to get this money back if it costs that much to run the school without raising property taxes?

 

SENATOR MOORE:  As you know if you look at the printout, the printout is the figures that were, if you had this bill in effect today, what it would have done two years ago.  I assume you're referring to the fact that there are some school districts in there that are net losers, so to speak.

 

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Is that what your...  ?

 

SENATOR HABERMAN:  The ones I mentioned are losers, that much money.

 

SENATOR MOORE:  Yes.  Well, you know, to begin with, the figure escapes me, maybe Larry Vontz, to begin with, it's like ninety percent of the kids in the state are in districts that win, obviously.  They win as far as getting additional dollars.  Secondly, I think there may be some proposals here to try and recognize the plight of those districts that we're going call net losers.  Maybe there is something that can be done as far as the hold harmless, I don't know.  The fact of the matter is usually if you look at those districts, if you apply this formula which I think is a very fair formula, regardless of any political ties, there are some districts there that don't fare as well as others.  I think as you look at those districts, there are some varying reasons why that is, either that they're, tremendously, valuation wealthy, or maybe they're a district that spends well above average.  There is a variety of reasons there that, I don't know, right or wrong is besides the point, that don't fair as well.

 

SENATOR HABERMAN:  Well, Senator Hall, or...

 

SENATOR MOORE:  I thought you were Senator Schmit with that cigar.

 

SENATOR HABERMAN:  I fully intend to support the increased sales tax or increase in income tax and basically to support for legislation.  However, a clause to "hold harmless" to fix this for at least one or two years so these people can at least get their breath because I don't think they can stand this kind of a loss.  So something ...  I'll say I'll support the legislation if we can work out some type of compromise to help these folks out.

 

SENATOR MOORE:  You know and the commission and all those involved purposely, you know, when you're getting the printout, you're getting to the down and right mentality.  You go down the page over to the right and see whether you win or lose and make your decision on that.  We basically postponed that the last possible moment in December so we could really look at these things in theory and principle without getting to the winner and loser syndrome, but now we're there, we have to deal with it politically, obviously.

 

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SENATOR WITHEM:  Okay.  Thank you, Senator Moore.  Additional questions?  Senator McFarland.  Yes, I remember you.  Senator McFarland...  great remembering senators names tonight.  Senator James McFarland from Lincoln.

 

SENATOR McFARLAND:  You've got a number to remember, it's confusing sometimes.

(INAUDIBLE) And he's from Lincoln.  (laughter)

 

SENATOR McFARLAND:  Senator Moore, I note that the idea is to get some kind of property tax relief, and you're quite right that we do as a state rank high, very high in property tax, when compared to other states.  I have a concern I thought you might respond to.  One of the concerns I've always had about the income tax changes that were in 1987, with the Orr administration under LB 773 was that the progressivity of the income tax in Nebraska was reduced in that , it seemed to me, I think the figures would generally bear it out that middle income people suffered the tax increase, while the upper income people had tax relief or tax relief, in general.  The concern I have is that I'm assuming that property owners generally have higher incomes than non-property owners.  In effect, people who rent homes, don't have homes for their own, my assumption is probably have less income or more middle income, than people who have a lot of property.  Do you know whether there was any consideration given to changing the progressivity of the state income system as an adjustment in order that middle income people, particularly those who rent, rent their homes and live in apartments, are not hit as hard by the tax increase as the wealthy and affluent?

 

SENATOR MOORE:  Senator McFarland, as you remember I voted "no" with you on that particular bill you're talking about.

 

SENATOR McFARLAND:  Thank you.  Yes.  Even more reason to try to correct it.  Right?

 

SENATOR MOORE:  But the answer to your question is, no.  We basically used our present tax system and all.  If there are inequities in there, we observed them, if there are good things in there, we absorbed.  Basically we just used the present system.

 

SENATOR McFARLAND:  Present system.

 

SENATOR MOORE:  Obviously, I'm not ...  the possibility of

 

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doing something is there, but our commission and our work did not go into that sort of argument that you're talking about, no.

 

SENATOR McFARLAND:  Okay, thank you.

 

SENATOR WITHEM:  Other questions?  Senator Hefner.

 

SENATOR HEFNER:  Senator Moore, on the one percent increase in sales tax, do we dedicate the one percent to this fund?  Or do we appropriate that out of the General Fund.

 

SENATOR MOORE:  Well, there's a variety of school of thoughts on how you do that, and actually I'm trying to remember it.  We went back and forth and for the life of me, I can't remember how the bill ended up being drafted, to tell you the truth.  But either way, I don't think it is and we don't want it to be.  It's not dedicated specifically.

 

SENATOR HEFNER:  It's not dedicated?

 

SENATOR MOORE:  No, the cent sales tax increase is not dedicated to school districts.

 

SENATOR HEFNER:  Okay, then...

 

SENATOR MOORE:  Twenty percent of income is dedicated to the school to the new program.

 

SENATOR HEFNER:  Okay, then my next questions is, say that after two or three years, we know that the school budgets are going to go up.

 

SENATOR MOORE:  Um humm.

 

SENATOR HEFNER:  Okay.  Where are they going to get that increase?  from raising property taxes then?  or are we going to appropriate more sales and income tax money?

 

SENATOR MOORE:  Well, you know, the one key component which is contained in the local income tax portion, you know something I've been championing in for some time, the fact of the matter is the property tax don't grow that much.  By giving school districts an income tax base to place their budget on, you're giving them a tax base is elastic.  it's been growing, you know where that sales tax grows something like three percent.  Income tax is growing like nine percent.  So part of their increased needs can come from

 

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that increased tax base- Secondly, fact of the matter is the State of Nebraska, our track record is not too good, quite honestly, in keeping...  you know, state aid has not increased maybe the way it should of to have an equal value.

 

SENATOR HEFNER:  We probably should increase state aid by the same percentage rate that we increase state budgets.

 

SENATOR MOORE:  Yes, and we've not done that in the past.  Now, one way to make sure that happens is to earmark the sales tax, but actually if sales tax only grows at three percent, if you inflation rate is more than that, that isn't enough, and so quite simply, I think, we as lawmakers need to keep up our end of the bargain better, and I just hope we do that.  There's guarantee that happens now.

 

SENATOR HEFNER:  Okay.

 

SENATOR WITHEM:  I think, Senator Hefner, the fiscal office has done some analysis projecting that the current rates, projected rates of growth that the program under these current rates would fund itself at the forty-five percent level through about the year 2001, 2002 with a slight lag behind that my interpretation is could be made up by sharing in the growth of state budget also.  But we can get that information for you to show those projections.

 

SENATOR HEFNER:  Okay, then my next question, if I may.

 

SENATOR WITHEM:  You bet.

 

SENATOR HEFNER:  Okay, in some of the rural areas, we're in a drought, and per capita income isn't growing at a four, five, or six, or nine percent rate.  How are we going to handle that then?

 

SENATOR MOORE:  Well, the fact of the matter is that the whole formula which Larry Vontz is going to explain, you know, will basically say that we guarantee the average of your share per student.  Now if your income goes down, the state is going to make up a bigger chunk up to that average and so ...  now if you're spending over the average, some of that is going to have come out of your own pocket.  But in theory, if your income goes down, your state aid will go up.

 

SENATOR HEFNER:  Okay, my question was probably premature then.  I'll watch.

 

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SENATOR WITHEM:  Senator Peterson has a question.

 

SENATOR PETERSON:  Senator Moore, you and a number of them have spent eighteen months devoted to this issue, but it seems to me that there's only been about two or three weeks in regards to funding the mechanics of it.  Now I'm concerned that this aspect of the proposal needs further analysis.  Analyzed how that's going to effect Nebraska taxpayers, their sales and income tax, and specifically the concern about the elderly, the low income, the people that don't pay rent, how it's going to effect them because they're going to be paying more.  Where are we going to end up in this regards?  How are they going to be effected?  Has anyone performed such a, analyzed the tax burden how it's going to show on which taxpayers are going to be hit?

 

SENATOR MOORE:  The first part of your question, your first statement you made about the fact that the ...  how are you going to fund it has only been talked about in the last two or three weeks.  I beg to differ, because the commission and, me, myself, and you know, Senator Peterson, I'm not one of the wild-eyed spenders of the Legislature- I don't like, in 1987, 1 wore a T-shirt that said "just say no tax increases." I don't like to do that.  But we've been talking about a tax increase to fund this from day one that I've been on the committees since January, and we can go back to a variety of public hearings that both the School Finance Review Commission had across the state and the Revenue Committee under Senator Hall's leadership had across the state.  We talked about point blank; we're talking about a tax shift, and the way you're going to pay for this is increasing sales and income taxes.  And so, we have not ducked that issue.  That has been something we've been very up front with, something that I've been very up front with because the fact of the matter is the unfortunate thing is that politicians, in general, in the state and all of us in the Legislature, we campaign on the fact that we're going to lower your property taxes, we're going to increase your services and we're not going to raise your sales and income tax.  That's what we say, and that can't be done, in my opinion.

 

SENATOR PETERSON:  But you haven't shown any figures, I don't think, that substantiate which taxpayers will benefit and which taxpayers will pay.

 

SENATOR MOORE:  I think you are going to be hearing some testifiers tonight that will address that to some degree,

 

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both that are for the bill and supposedly neutral.

 

SENATOR PETERSON:  I think that's a question that Nebraska taxpayers are looking for before we pass any type of legislation, is how it's going to effect them and that hasn't been addressed yet.

 

SENATOR MOORE:  Well, I said it, if you pay sales and income taxes, yes your taxes are going up, is an aggregate as a whole at least, we pay property tax, your tax will go down.  Now, how you personally fit into that is going to depend on how property you own, but fact of the matter is, if you disagree the property taxes are- high then you don't do anything, I happen to think they're high, and they need to be lowered.

 

SENATOR WITHEM:  Senator Nelson.

 

SENATOR NELSON:  In response to Senator Peterson's question, I remember in the last couple of years, we have removed thirty thousand of the low income elderly from the tax rolls and also remember there's not a sales tax on food, and I don't think there is in this proposal.  Usually the low income and the elderly are not heavy users of sales tax, and because of the fact that we've reduced their income tax considerably, I think that would show up.  Wouldn't it?

 

SENATOR PETERSON:  That's what I'd think we need to have.

 

SENATOR WITHEM:  Other questions of the introducer?  Again, we have lots of testifiers here.  I don't want to shut off questions.  Oh, okay...oh, okay, waving at the TV cameras so they make a picture of you there?  (laughter) Thank you, Senator Moore.  I appreciate it.

 

SENATOR MOORE:  Thank you, and Senator Withem, I know you'll be closing and will do a fine job of that.

 

SENATOR WITHEM:  Okay.  We now have, and hopefully we can do this fairly quickly, although the first one, I want the committee up here to feel free to ask questions of because these folks here that are coming up now are the number crunchers over at the Department of Education who really do understand the formula the way it operates.  We have Larry Vontz, the Deputy Commission of Education.  Is Mr. Kemper going to help you with this testimony?

 

LARRY VONTZ:  I think he's going to applaud for us.

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SENATOR WITHEM:  oh, okay.  We'll listen to see how vigorously he applauds when you finish then.  Okay, we have Larry Vontz, the Deputy Commissioner of Education who will

give us a little more of a technical explanation of the program.

 

LARRY VONTZ:  I apologize for the fact the room is really not designed to show you something visual so that all of you could see, but I know that most of the school people have seen this probably two or three times and I just want to go through it very briefly, very quickly.  In any state formula to assist schools basically you have these three components.  You have needs, you have resources, and' you have equalization.  Our current formula has all three components.  We have needs in our current formula and those are described very quickly, very briefly the fact that there's a problem with those needs because of the amount of.  money we distribute to schools we can only insure them, as far as needs, about thirty-five percent of the cost of education.  In other words for high school kids, we're saying, we're going to insure you for about fifteen hundred dollars.  We know that it costs more like four thousand dollars to education a high school student, so we are by no means anywhere near in the ballpark with our current formula as far as the needs portion of our formula.  So that's one of our biggest problems, first of all.  In our current formula, we use property tax or property, as well as our only indicator of wealth- We say, if you have property, you're rich.  That's how we're going to determine whether you can afford an education or not, or pay for an education.  We have two problems with this.  First of all, we all know there are a lot of districts that look pretty good as far as property is concerned, and don't look very good as far as income; we have districts -that don't look very good as far as property and have lots of income; and we have districts in between.  We have one other problem with property.  it's assessed at county level and it varies in its assessment.  Because we use property as the primary component, if it is not assessed properly we are distributing money improperly.  For the past twenty years, or more, we've been doing that.  The district, or the counties which are under-assessed are winners as far as state aid is concerned.  They are entitled to more money.  So one of the things we wanted to fix was that particular problem and the commission then, and as far as the bill requires the Revenue Department to examine the evaluations and where they're off, to make adjustments for state aid purposes.  Well, that's one of the things we're

 

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correcting.  Now in the current formula, there's nothing about income.  This is void.  It's not there.  This part is, we have other accountable receipts and so one of the new wrinkles is to introduce income as a source of wealth and to give part of that back to the school districts.  We are proposing as they do in the State of Kansas, by the way, most of what we've adopted comes from what they're doing in Kansas.  The commission was not interested in reinventing the wheel.  We looked what other states were doing, and we felt Kansas was doing a pretty good job and we pretty well patterned this proposal after what they do down there.  So we're talking about an 'income rebate going back to the school district of twenty percent, and obviously, to answer Senator Hefner's question a while ago, if you have a year in which you have a lot of income, you're going to get a lot of revenue here and you won't get as much over here.  But diversely, if you have a poor year over here, then the state's going to help you over here.  So, that's what a good state aid formula ought to do.  It ought to take care of those peaks and valleys which occur as far as the income of the residents of a district.  So I think that's a very good feature and I think that probably most people agree that we need to introduce income as another indicator of wealth and we've done that.  So in essence then, our new proposal is saying, we're looking at needs in today's world.  Not only that, we have categorized the schools by enrollment categories, recognizing that it costs more money to educate youngsters.  Smaller districts, we're giving them the benefit of that situation by putting the districts in enrollment tiers and then paying toward the average of each tier so that the higher-cost districts will qualify for more state aid than they would if you were doing it just on the statewide average.  And many states do it on just a statewide average.  So I think that's a reasonable feature in this proposal and it does benefit the districts which have to spend more for education, as a general rule I guess.  Okay, so we're talking about the needs up to what they are in today's world.  We're introducing income as another accountable receipt and take all these resources, add them together, subtract it from the needs, and the balance is funded from the state in what's called equalization aid.  This would be a rather significant "pot" of money.  Right now it's thirty-three million dollars.  Thirty-three million dollars of a billion dollar expenditure isn't going to equalize very much as you know.  That's three percent of the expenditure.  All right that's basically how the formula works.  The winners and the losers in a general sense, the ones which have still lots of property in the sense that

 

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we're really looking at everyone having a minimum levy of about a dollar.  When you apply that dollar and give some of the districts, you add all these other resources, they don't gain much over here, if any.  Some of them get nothing, and some of them as Senator Haberman pointed out even lose because they lose foundation aid that they're currently getting.  And this, the state income, will not offset that loss of foundation aid and that's true in some districts.  Tim Kemper, I think, has some figures for you to show you on the composite how much that is on a statewide basis.  As a general rule, the districts which profit the most in this proposal are those with high levies; the districts which do not profit very much, if any, are those with low levies.  That was what, I think, the commission was trying to do was to get the variance levies because in this state they range anywhere from fifty cents and three dollars and fifty cents, to get them more towards the middle.  That then, in essence, what the proposal is.  That's one side of it.  As Senator Moore mentioned, there is a lid provision written into this proposal as well, so that there's a guarantee that there is property tax relief.  I'm going to go through four possibilities of a school district to show you how the lid would work.  Here's a school district which in 1989-90 had a budget of one million dollars and two hundred and fifty students.  That means they had an average cost of four thousand dollars a student.  Their allowable increase based on the tier placement happens to be five percent.  As you know the lid, you're allowed anywhere from four to six and one-half percent with those who are at the lower end of spending spectrum having a higher percentage increase.  Okay.  If you have a district that spends five thousand at the upper end and one spends three thousand at the lower end, and you let them both have four percent increase, which one has the greatest benefit?  Obviously, the one that's spending the most money.  So you have to allow those at the lower end a greater percentage of increase or they're not even going to come close-to keeping up with those at the higher end.  Okay, this example, this district two hundred and fifty kids, million dollar budget a year ago, they're allowed five percent increase based upon where they fall in the tier.  In 1990-91, they have no special circumstances, no enrollment increase, the board doesn't feel like they need any more than that, then the most their budget is going to be one million fifty thousand dollars.  That's the end of that.  We'll take the same district.  This district happens to have lots of cash that they're carrying over.  They want to use part of it.  They don't want to go up a full five percent.  They only need to go up three, but in so many

 

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cases where you have a lid, you're penalized if you don't use it all.  Well we made provisions for that.  In this case, this district, all they needed was three percent, that's all they'd have to increase it.  That would be thirty thousand dollars over where they were a year ago, with the understanding that that balance they didn't use, that two percent, can be carried over and added to the next year's entitlement.  C.  Another possibility.  The district needed the full five percent and in the judgment of the board they ought to have one more percent in order to meet all the requirements they feel that they have to meet.  Seventy- five percent of the board members agree, they vote to increase it by an additional one percent, that means they're at one hundred and six percent and they could go to sixty thousand dollars.  There's one more possibility, and many of the districts talk about this, assume for a moment that this district is going to have ten more students next years than they had the year before.  Again, since they had a million dollars for two hundred and fifty kids, that's four thousand dollars a pupil for the previous year.  They're a five percent district ...  and raise that a ...  you divide the two hundred and fifty into the million, you get four thousand, we take the four thousand times one point zero five with five percent increase.  That means that we're up to forty-two hundred dollars a pupil.  Since we're going to have two hundred and sixty people instead of two hundred and fifty, you multiply the forty-two hundred times two (hundred) sixty, then the budget could go up to one million ninety-two thousand.  I think those were all the possibilities and that's simply how it works.  I'll stop there.

 

SENATOR WITHEM:  Okay.  Are there any questions for Larry? Senator Dierks.

 

SENATOR DIERKS:  Larry, is there a possibility that we could phase out the foundation aid over a few years in order to make up for the budget shortfall that some, of these schools ...  ?

 

LARRY VONTZ:  ...You're talking about...  if you want to do some sort of "hold harmless"?

 

SENATOR DIERKS:  Yes.

 

LARRY VONTZ:  I think you would want to do it that way as opposed to foundation aid.  I think you could do it more appropriately if you said you wanted to do something and

 

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hold, "hold harmless" at some percentage and then we wouldn't have to monkey around with, calculate foundation aid.  We'd just say, you're entitled to "X" dollars.

 

SENATOR DIERKS:  You mean as far as the lid's concerned?

 

LARRY VONTZ:  Yes.  Well, as far as the aid is concerned.  Losing money out of the formula has nothing to do with how much you can spend the next year.  The lid is one component and it's totally unrelated to the aid on the other side.

 

SENATOR DIERKS:  I guess I'm just concerned that there is some method that people could look to in case there's going to be a great discrepancy for them this first, second, third year

 

LARRY VONTZ:  Well, I think Senator Haberman mentioned...

 

SENATOR WITHEM:  Your answer though is that the Legislature could do a "hold harmless".

 

LARRY VONTZ:  Yes

 

SENATOR WITHEM:  But you would prefer a "hold harmless" as opposed to...

 

LARRY VONTZ:  ...  maintaining some foundation.

 

SENATOR WITHEM:  Maintaining some foundation aid.  Why?

 

LARRY VONTZ:  Because we could more appropriately do what you want to do.  If you wanted to hold the districts harmless at, and made sure that they got ninety percent of what they got before.  That's real easy to do.  You take ninety percent of what they got- If we have to do it with foundation aid, we're going to monkey around, we'll try to get that exact figure that gives them ninety percent and I don't know where we'll end up, to be real honest.  It would be much more complicated.

 

SENATOR WITHEM:  Okay.  It's much more of a mechanical than a philosophical concern.

 

LARRY VONTZ:  Yes.

 

SENATOR WITHEM:  Senator Hefner.

 

SENATOR HEFNER:  Larry, you said if you didn't use you full

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five percent, you could carry it over one year.

 

LARRY VONTZ:  Yes.

 

SENATOR HEFNER:  How about more than one year?

 

LARRY VONTZ:  It would be cumulative.

 

SENATOR HEFNER:  Cumulative?

 

LARRY VONTZ:  Yes.

 

SENATOR HEFNER:  Okay, so then it wouldn't become a floor?

 

LARRY VONTZ:  No.

 

SENATOR HEFNER:  That's what...

 

LARRY VONTZ:  That's what's always been a problem with a lid, is that in the past, the lids we've had, you had to spend up to that lid in order to maintain that base.

 

SENATOR HEFNER:  Yes.

 

LARRY VONTZ:  Well, this one you don't.

 

SENATOR HEFNER:  Okay, then you also said, the income tax would be twenty percent initially.  Do you think we'll increase that?

 

LARRY VONTZ:  You may want to down the road.  I depends on what percent of the cost of education you want income to bear as opposed to property.  Still, this proposal still you've got property picking up forty-five percent of the cost or little more, and income isn't forty-five percent because you're going to have income and sales mixed together.  But you're going to have more income than you had.

 

SENATOR HEFNER:  And that's about fifty-fifty ratio or not?  Little more income tax?

 

LARRY VONTZ:  I would think that perhaps you'd have more income.  That's a decision if you pass this you'll have to make.

 

SENATOR HEFNER:  Thank you.

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SENATOR WITHEM:  Say you have your existing hundred thirty-three million dollars plus whatever you raise from seventeen percent increase in income and a one percent increase in sales.  I don't know if you've ever looked at those particular numbers.  Again, we can get those for you, Senator Haberman.

 

SENATOR HABERMAN:  Well, Mr. Vontz, did the School Land Fund have any effect on this formula?

 

LARRY VONTZ:  No.  Other than it's one of the accountable receipts over here that under the resources.

 

SENATOR HABERMAN:  Can the formula be changed or anything particular happens to it if the school land is sold?

 

LARRY VONTZ:  No.  The distribution of money would change.  For instance, the districts which have the land now but were sold, they would get less money from this source.  They would begin to get a tax from that land because it would now be owned privately, but they would not get the in lieu of tax you're certainly getting.

 

SENATOR HABERMAN:  Well, what happens if the money they receive when it's put on the property tax roll is less than the money they receive in lieu of tax?  Then where...?

 

LARRY VONTZ:  ...Then you have the equalization coming in.

 

SENATOR HABERMAN:  And they would go to this fund, or this bill, and get the difference.  Is that correct?

 

LARRY VONTZ:  Yes, if...

 

SENATOR WITHEM:  If they qualified for equalization.

 

SENATOR HABERMAN:  Yes, thank you.

 

SENATOR WITHEM:  Larry, I have one question for you that I'd appreciate it if you'd answer because I had difficulty explaining to people the other day, and the question that was directed to me was along the lines of, you folks on the commission said you were going to, use property as a measurement of wealth, like they did in Kansas.  As you know in Kansas, in their formula they have a component that they identify as wealth measurement, where they add together the property valuation of a district and the income, personal income, that's produced in that district.  In this formula,

January 23, 1990

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as opposed to a measurement of wealth concept we put in property what it could produce at a low, at a particular levy, the income that could be produced with a twenty percent rebate, and we have been told that we kind of reneged on our promise, to count property value as a measurement of wealth by doing that.  Can you explain how, in your opinion, this still counts property as a measurement of wealth?

 

LARRY VONTZ:  Kansas takes property and a factor of income, adds them together and then they say everyone has to have a minimum effort that they apply it against property, totally.  Now what you're doing then, it's possible with following that scenario, if you could take a district that had a lot of income, very little property, and you could use that particular concept you're talking about and on paper it would look like they're going to get a lot of money.  it's all going to come from property, they're going to have a horrendous property tax because you're not taxing the income.  When we talked to the Kansas people about that when they were here, the only way you should use income as an indicator as well, is if you get to use it.  If you don't get to use it, it is ridiculously to count it, and that's in part what they're doing.  They do give them the twenty percent, but in addition to that, they have this factor where they use property and income together and the quickly told that was a mistake.

 

SENATOR WITHEM:  Okay.

 

LARRY VONTZ:  And they wished they hadn't done that.

 

SENATOR WITHEM:  Thank you.  Thank you very much, Larry, very good presentation.  I didn't hear Tim applaud but we'll deal with that.  (applause)  There you go, Tim.  I would like to now, the first two testifiers, I know did take quite a bit of time but I thought that was necessary to get some fairly complex concepts out in front of the committee.  Would like to institute fairly vigorously our five-minute rule at this point., We have, we will move to three other sets of testifiers from the commission to immerse the committee fully in what the commission's reasoning was.  We will then be moving to a couple of individuals who have indicated they have to leave fairly early who would like to testify in an opponent category, Mr. Osborne and Mr. Karmazin.  I hope I've pronounced that fairly correctly and then we'll alternate two or three testifiers in support, two or three testifiers against, until we either exhaust the

 

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list of testifiers or exhaust ourselves, whichever comes first.  So we now have a professional musician who plays in Bohemian Polka bands who is a part-time school administrator in Table Rock, we have Duane Stehlik.

 

DUANE STEHLIK:  Thank you, Senator.  Polka band business hadn't been very good lately, so we need this bill.  (laughter) Especially in Table Rock, there are a lot of Bohemians down there.  A lot of what I was to speak about concerning the income portion of this particular piece of legislation...  for the record, I am Duane Stehlik from Table Rock, Nebraska, commission member and Superintendent of Schools of Table Rock and am pleased to be able to address this body and speak towards this piece of legislation.  Much of what I have to say concerning the income has already been bantered about through the question and answer process, however, Senator Moore in his introduction said that this was a very significant piece of legislation and I believe in his time frame said, included the span of forty years.  The income provision is probably one of the big reasons why.  This is brand new territory for the State of Nebraska.  We are now introducing income as a revenue source for school districts, for local school districts, which is something that has never been done before.  It is, in fact, a local income tax; it's not collected locally, but it is rebated locally to the extent the twenty percent of the personal income tax paid within the confines of a given school district.  That's new territory.  That's new thinking for this particular state.  It also gives us, in addition to access to a new revenue source, a more elastic revenue source.  One with growth potential that hopefully can keep up.  Now realizing in times of drought, Senator Hefner, that we also are agrarian in Table Rock, it's not urban.  I always like to point that out.  The income portion goes down, the equalization goes up.  The other thing which Dr. Vontz answered very well in response to your question, Senator Withem, is the fact that it does become a measure of wealth to the extent that you're able to utilize it, that's at the twenty percent level.  if you are in a district with much income, you're going to get twenty percent of a pretty good sized number and that's going to be in your accountable receipts, and it therefore, is a measure of the ability to pay.  It is a measure of the wealth of the patrons of the school district and it becomes a resource for your local school district.  Now, it is true, as the critics are going to point out, that our system is still is still a property-based system.  It will always be apportioned property-based system, I'm certain.  The extent

 

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to which it's a property-based system is dependent upon you legislators by the amount of income that you choose to put into the measure.  If you put in thirty percent, it becomes less of a property tax system,.  and if you put in forty...you know, you play with the numbers in anyway you see fit.  The system has some flaws.  There are some losers.  Dr. Vontz didn't use his statement this evening, so I'll steal it from him, it's not perfect but it's a doggone sight better than what we have got.  I would like to make one further point before I conclude and that is, now that I have sung the praises of the bill and all of the fine work of the commission, I would like to point out that I would not be true to myself or the organizations to which I pay dues and also represent, if I did not point out that the lid is punitive in some nature.  I realize that we have a lid mentality prevailing.  I realize that there are lid proposals out there that are a great deal more severe than this measure proposes, but Blue Cross/Blue Shield is expecting to go up twenty-two point six percent for the coming year, and a four percent lid is just going to be pretty doggone tough to live with.  So I would hope in your deliberations when you consider this measure and you consider the various lid proposals that you realize that there are certain fixed costs in social security, energy, insurance, et cetera, et cetera that we don't have a great deal of control on and that we have to live with the same as you folks do and the same as the state government does.  With that I would like to conclude, and take any questions.

 

SENATOR WITHEM:  In four and one-half minutes, very good.  Are there any questions for Mr. Stehlik?  Thank you, Duane.

 

DUANE STEHLIK:  You bet.

 

SENATOR WITHEM:  Next we have two members who served on the committee representing higher education.  We have Dr. Gene Koepke from Kearney State who is the acting provost at Kearney State.  And Don Leuenberger, who is the business director at the University of Nebraska Med Center?

 

DON LEUENBERGER:  Vice Chancellor.  (laughter)

 

SENATOR WITHEM:  Vice Chancellor in charge of business affairs.  Okay, got it.  Sorry, didn't have my cheat sheet in front of me.  Because of that now you're going to testify opposed to this.

 

DON LEUENBERGER:  Do we have to split this five minutes,

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Ron, or can we

 

SENATOR WITHEM:  Three each, how's that?

 

DON LEUENBERGER:  A bargain.

 

GENE KOEPKE:  Go ahead.

 

DON LEUENBERGER:  I'm Don Leuenberger, I'm Vice Chancellor for business finance at the University of Nebraska Medical Center and a commission member.

 

GENE KOEPKE:  I'm Gene Koepke, I'm an interim provost at Kearney State College and a commission member.  For me it's been a pleasure to work on this committee and I guess I'm proud to say that the final product is a package that every member of the committee took pride in.  Tonight I'm going to be brief, especially if I have three minutes, (laughter) and I'm going to focus my attention on just a couple points that were of special interest to me on that committee.  I personally had a bias as a member of the committee or commission in that I was intent on changing our system to shift part of the cost of elementary and secondary education away from property tax and to some other source of revenue.  As a state, we forced our local school systems to be excessively, and I underscore excessively, dependent on property tax and to be honest the property tax owners in this state are angry.  More than seventy percent of the aggregate cost of running public elementary and secondary schools in Nebraska comes from local support.  The average local support in the United States is under forty-five percent.  While state governments across the United States have assumed a greater responsibility for public education, Nebraska in recent years has gone the other direction, and we have not...

 

SENATOR WITHEM:  Gene, could you pull the mike over so you can speak directly into the mike, they're some people in the other room who are not able to hear.

 

GENE KOEPKE:  Okay.  Okay.  School districts have been forced to cover increasing costs by constantly adjusting their property tax rates up.  I'll, argue tonight, and forever I guess, that our excessive dependence on property taxes had a negative impact on sectors of our economy.  The typical farmer, rancher in the State of Nebraska paid $1.64 (one dollar and sixty-four cents) in real estate taxes for every $100.00 (one hundred dollars) of market value of his

 

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or her property in 1986.  The national average was$0.71  (seventy-one cents) per $100.00.  our farmers and ranchers are paying more than twice the property tax rate that their competitors are in other states.  The typical home owner in  Nebraska paid an effective property tax rate of 2.29 percent in 1985, while the national average was 1.21 percent. Again, that's punitive for the people that own property. There are those in this state that are operating under the  mistaken assumption that property taxes are too high because our schools are poorly managed.  That's simply a mistaken assumption.  Per pupil expenditure in Nebraska for 1988 were $3,756.00 per pupil.  The national average was $3,977.00 per pupil.  We're spending less than the national average.  Our problem is not tied to expenditures; our problem is tied rather to source of funding.  We, as a state, are not overtaxing ourselves in aggregate.  On a per capita basis, Nebraskans paid $2,644.00 in federal, state, and local taxes in 1986-87.  Nationally the figure was $2,919.00 per capita--we ranked 27th (twenty-seventh).  And trust me, we're not anxious to be first, but I think we are going to  have to do some things to shift some of the burden away from property tax and over to income.  The second and last major  point that I want to make relates to fairness, and Larry has done a good job of explaining this, but I want, I want to hammer away one more time.  As a commission, we quickly  agreed, this was of the first things we could agree to, that we wanted every youngster in the State of Nebraska to have equal access to quality education.  We didn't care whether that youngster lived on a ranch in Western Nebraska, in North Omaha, in Fremont, in Lincoln, or in Blue Hill, Nebraska.  I was appalled, I guess as an individual, as we  studied our current formula for funding to realize that only $33 million out of the total package of support for public education in this state had anything to do with the need of the district.  Some districts are property rich; others are property poor.  Property-poor districts must tax themselves at a higher rate than do property-rich districts to provide a quality education.  Our current system is simply not fair.  As you study our proposal, you'll quickly realize that we're recommending leveling the playing field.  The formula is simple needs minus resources equal aid.  Districts with greater resources, either property or income, will receive proportionately less aid than will districts that are poor. That, senators, is fair.  The word, aid, as far as I know implies that someone needs help.  Legislative Bill 1059  represents a simple concept, yet it's complicated in that it represents sweeping changes.  I'd like to suggest that now

is the time to deal with the issue.  This bill represents a

 

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rational carefully thought-out solution that's fair, and again, I underscore fair.  To not act will cause property taxpayers to resort to punitive lids creating chaos in educational systems and damaging the quality of education that youngsters in the state receive.  I'll say thank you.

 

SENATOR WITHEM:  Thank you, Gene.

 

DON LEUENBERGER:  Ron, I won't repeat what Gene has said.  I think Gene good job of laying out the issues that the commission considered.  Whenever you deal with a system as large as our public education system is, and as large a consumer as tax dollars as it is, whenever you start talking about shifting, definitions of wealth or whether you assess that wealth for purposes of that support, you bring up the kind of issues I've heard here tonight.  Let me say that 1990 is not 1890, income is a source of wealth in this state; it's one that we do tap disproportionately low compared to other states.  It does represent a somewhat different set of taxpayers in some areas,' but that's what we're talking about.  If we did not intend or if we were talking about just simply transferring the color of money, if I was going to get $10.00 of property relief for $10.00 of income tax paid in--we'd be talking about aesthetic values and not economic values.  In point of fact, Gene's point about taxpayer equity, equity for school children in disproportionately low property districts and a shift in the definition of wealth in this state, is central to this commission and I think central to the bill.  I'd be happy to answer any questions.  I enjoyed serving on the committee.  I will say that there has been some criticism that we did not address exactly the tax rates.  I thought that was unfortunate, unfair; we debated them thoroughly as we did all other aspects of the work of the commission- I'd be happy to answer any questions.

 

SENATOR WITHEM:  Are there any questions for either of the gentlemen?

 

SENATOR CROSBY:  I have a question, Mr. Chairman.

 

SENATOR WITHEM:  Senator Crosby.

 

SENATOR CROSBY:  I think Dr. Leuenberger you could probably answer this question because I think of you as a financial, economic expert.  I have had a lot of calls since the First of December when the tax bills went out because last year's LB 84 was a tax rebate on property tax.  I have one woman in

 

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particular out in the College View area, the houses and the property out there are medium-priced, they're not, you know ...  Her bill was $1,500.00, $900.00 of that was the school--approximately 60 percent.  The rebate was there on her bill.  She thought she was going to get lower taxes because of LB 84.  How am I going to promise her that when this bill is, goes into effect, if and when it does, that next year or whenever the effective date is, that her tax bill on her house will actually come out with a lower total due?  I think that's essential in this bill.  If that continues, if it happens as it did this past year, then the public is going to say, you lied to us again.  So these people are older, and I think they need that assurance and I'd like to have it down in...  I mean I ran all these formulas and I've written out some problems, but I'd like to hear it from you.

 

DON LEUENBERGER:  I could answer that in a couple different ways.  Let me answer it with the experience that I've had, and kind of the conclusions that I've come to over the years.  I've not only served the state as Tax Commissioner but as State Budget Director for a much longer period of time than I did as Tax Commissioner; and I was involved in the last lid we've had and I've been involved in several attempts at school aid.  The problem with property tax relief in this state has not been devising a formula for property tax relief, it's a simple matter, and I think every Legislature has seen men and women clever enough and genius enough to do that.  The problem is that we've never come up with a formula for sustaining that relief over time.  That's been the policy difficulty and the policy issue.  Philosophically I oppose lids, but the amount of property tax levied and spent in this state is so large and the amount of state tax resources necessary to relieve that tax, that property tax, is necessarily therefore so great that I'm afraid that without a lid you cannot have property tax relief.  It was not my intention on serving on this commission to talk about lids and property tax relief, the intention was school of finance and the role of income in that.  But I think the deeper that you got into the issue, the more you looked at other states, the more compelling the argument came--that you're not to achieve either equity between school districts or property tax relief without the existence of a lid and an effective lid.  Now, I don't exactly speak for the commission in that regard entirely, Ron, but I think that's my particular view on the matter.

 

SENATOR WITHEM:  Thank you.  Other questions?  Jim.

 

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SENATOR McFARLAND:  Mr. Leuenberger, you mentioned that the tax rate adjustment was considered by your commission.  Is that correct?

 

DON LEUENBERGER:  We debated it thoroughly.

 

SENATOR McFARLAND:  Debated it thoroughly?

 

DON LEUENBERGER:  We debated whether or not we should recommend one.  We debated whether we should split between sales and income tax.  We debated whether or not the marriage between corporate income tax and the bank tax and some other taxes ought to be sustained.  I believe we met with the Revenue Committee at one point in time.  The general conclusion of the commission was that our role was to look at the relationship of income as a source of wealth to the financing of schools.  The recommendations that we would come we want to be very, very clear would require the state to come up with more resources to replace those local resources.  But I think the commission felt as a whole, very strongly, that the particular mix at a particular point in time of tax sources was a matter for the Revenue Committee and the Legislature, and that it was not within the commission's purview to say, so much income versus so much sales versus so much corporate, or so much cash flow.  You know, those were not numbers presented to the commission or that we could consider.  So we did debate that but the result of the debate was, I think, an admonition that you point out the full cost to the state of the bill, as well as the relief on the other side, but not try to specify from what sources that would be taken.

 

SENATOR WITHEM:  Okay, thank you.

 

SENATOR McFARLAND:  Let me continue.  So if I understand you correctly then adjustments in the state income rate were really not considered because you delegated that as a responsibility of the Revenue Committee.

 

DON LEUENBERGER:  Well, we didn't feel it was delegated to the commission, I think is the proper response to that.  That's right.

 

SENATOR McFARLAND:  One more issue, you mentioned, we talk about a tax shift and you mentioned the example of a person who gets $10.00 worth of property tax relief and then pays $10.00 more in income tax.  But that is going to be a very

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unique example, isn't it, because there are many people who are going to see a substantial amount of property tax relief, very little increase in income tax.

 

DON LEUENBERGER:  If it was generally true, I don't think that we would have an issue or a commission.  All that's involved there is not any economic values but an aesthetic one.  What color of money do I want to pay my $10.00 from.  The fact is, is that's not generally the case as you suggest.

 

SENATOR McFARLAND:  That's right.  For example, if you had a young man with a family and they happened to be renting an apartment and he's trying to get started, just newly married.  He and his wife and family are not going to see any significant property tax relief at all because they don't own property.

 

DON LEUENBERGER:  That's right.

 

SENATOR McFARLAND:  But they are going to see some significant increase in their income tax and their sales tax.  Right?

 

DON LEUENBERGER:  They would see, I would assume, the full 17 1/2 percent, depending on what their income was on that, and as well as the sales tax.  That's exactly the case.

 

SENATOR WITHEM:  Senator Haberman had a short question you indicated?

 

SENATOR HABERMAN:  Dr. Leuenberger, what would your remarks or your answer be to a.  dollar-for-dollar reduction?  If a school district receives, say $10,000.00 in state aid, that school district's property tax should come down $10,000.00.  Would that work?

 

DON LEUENBERGER:  That would be a zero lid under this bill.  That would be a zero lid.  That would be the way to do it, would be a zero lid, and that would be the effect of a zero lid.

 

SENATOR HABERMAN:  So anything over a zero lid on that little theory would be a bonus.

 

DON LEUENBERGER:  That's exactly right.  It would either come from the property tax or the sales or income tax, or it would be shared in-some fashion, depending on that school

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district's needs and proportions.  That's right.

 

SENATOR HABERMAN:  Maybe you subscribe to the theory also that if this was not done, there would be a penalty of some sort, financial penalty or something like that.

 

DON LEUENBERGER:  The way this is set out in the bill, and this is how it differs from previous lids and I think this is very important and that is that there is not the...  This is ...  how to explain it, the lid goes into effect at the budgetary stage.  It is not a matter that has to be confirmed by the state auditor later, if you remember all the troubles we had with the later lid, this is something that the Department of Education has all the data for and can immediately adjust the state aid portion.  I should point out one other thing and this is in aspect of equity, of tax equity in this bill that I don't think has been spoken to by any of the other testifiers here tonight.  One of the concerns the commission had, is what about the assumption that not all school districts are at 100 percent of value, and so that the property tax dollars that we measure need by are somehow distorted and they either get more or less than they would deserve, had they been assessed properly.  The bill does call for the Department of Revenue to move each school district to 100 percent of value regardless of where their assessment is automatically and report those figures to the Department of Education.

 

SENATOR WITHEM:  Senator Hall has a question.

 

SENATOR HALL:  Since you brought it up, Mr. Leuenberger, (laughter) the issue of what the bill deals with, with regard to assessing school districts.  Have you had a chance to look at the fiscal note from the Department of Revenue?

 

DON LEUENBERGER:  No, I haven't.  I didn't know there was one.

 

SENATOR HALL:  A million two hundred thousand dollars.  Specifically on that issue that you addressed because it talks about approximately twenty-three full-time employees to deal with that issue along--that issue being the issue of assessing school districts at 100 percent of value, basically what some of us might call central assessment.  A not very often spoken of term (laughter) around these hallowed halls.  Right?

 

DON LEUENBERGER:  I didn't mention that concept.

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SENATOR HALL:  That's ...  you're familiar with in your term in any of those positions that you have previously held with the state.

 

DON LEUENBERGER:  No.

 

SENATOR HALL:  But do you feel feel that that's adequate?  I mean is that appropriate?  Is that fair representation of what it would-take to assess and we have county figures, do we not?

 

DON LEUENBERGER:  That number is somewhat less than I would have remembered from previous years, quite frankly.  What you're talking about is a system that produces a billion dollars of revenue right now on which the state, at least, in terms of its administration and its constitutional responsibility for uniform assessment, spends less than any other tax system including "pickle cards" I suspect.  (laughter)

 

SENATOR HALL:  A constitutional responsibility that has been accomplished from year to year, do you feel?  Or if we have that constitutional responsibility, why do we all of a sudden have the cost of a $1.2 million to keep that responsibility up, I guess is my point?  Another thing, don't we currently have figures that are on a county-wide basis?  And are we saying then that our county figures are that far off from the figures that would be generated on a district-by-district basis?

 

DON LEUENBERGER:  I think that's a marvelous question.  I really do, Tim.  Let me answer that.  From the various times that I have served as Tax Commissioner, there are counties but they are not necessarily the majority that from year to year have enough sales all over the county to actually derive a county-wide figure of what value is.  Let me give you at typical example, and we can go to South Sioux City, for example.  Most of the sales in that county come out of that town, yet those values that are set in the sales in South Sioux City are then attributed to every other town in that county.  Many counties don't have enough sales in any one year to really do any statistical 'analysis on, less than five, and those five then are extrapolated to the entire county and represent the values for that entire county.  What the bill requires the Department of Revenue to do for the first time is to use other measures and to do what the County Assessor cannot do, and that is extrapolate actual

 

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experience in sales from other areas from other counties and confirm those through other market analysis so that you, for once, have a legitimate number for that county or, in this case, that school district.  In this case, the school district is more important because this is how you're going to do property tax relief.  You're going to do it on a school district basis and not around county boundaries- But yes, it adds supplemental information that is not now available and is not, in many instances, available to many County Assessors.

 

SENATOR HALL:  But if you have within that county a group of school districts that don't have any more frequent number of sales, how do you add to that pool of information that gives you the additional sales or the additional information to generate what actual, or 100 percent of, value would be?

 

DON LEUENBERGER:  An analogy would be the way that we have traditionally handled ag land by soil-type, crop-type crop reporting district.  It's an extrapolation of experience from other areas when you don't have that statistical data right there.

 

SENATOR HALL:  Why can't we do that currently on a county-by-county basis?  And I think you know where I'm going.  My point is ...

 

DON LEUENBERGER:  That's right.  Part of the problem is that as I mentioned with, what county is South Sioux City in?  I can't even recall.  I can't remember.

 

SENATOR HALL:  Dakota County.

 

DON LEUENBERGER:  Dakota County.  Even within that county you should do that kind of analysis between towns, between taxing jurisdictions.  The county average is that it's an average.  The problem is that the extremities of that average are so wide that that average loses meaning.  What you need is to spend the proper money to confirm that average.  If you're going to spend hundreds of millions of dollars to arrive at some reasonable level of property tax relief and 15 percent is modest, property tax relief, then I think that...  and you're going to redistribute income and state revenue geographically, then you want to assure yourself that that jurisdiction is properly assessed and properly valued and it's ability to support services in that area, is comparable with every other district that you're shipping money to, and I don't think that you've got that

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with the best efforts of the Revenue Department and the best intentions of the State Board of Equalization simply because you have not had the opportunity to gather that data.

 

SENATOR HALL:  Do you think that data as a rule should be done on a county basis, or should it be done by the state?

 

DON LEUENBERGER:  I'm not sure the county can do that in terms of extrapolating data from other counties or similar jurisdictions, or that type of thing.

 

SENATOR HALL:  Well, at least on a school district by school district basis within a county.  Say we change the proposals within a bill that required the counties to send that type of information to the Department of Revenue, and then the Department of Revenue dealt with it and extrapolated it from county to county.  I think the county has the ability to do that within themselves I think right now, as opposed to requiring the Department of Revenue to send us that...or put a separate division out there that was given that job description to do that.

 

DON LEUENBERGER:  You would not have ...  you would have to use the Department of Revenue in some fashion just simply to collate that information, and redistribute to other counties.  Because the fact is that there are counties out there, and a number of them not one or two, that don't have the sales that constitute in any one year a valid sample.  That's just simply the case.

 

SENATOR HALL:  We don't disagree on that, my point is that we don't necessarily have to reinvent the wheel.

 

DON LEUENBERGER:  It depends on how far you want to go in setting up a central information system that assures that culpability.  That's the issue.

 

SENATOR HALL:  I'll start calling it a central information system.

 

GENE KOEPKE:  Ron, I wondered if I could, just to respond to a comment or question that Senator McFarland had a little ...  it'll just take a second.  The question was asked basically, will a young working couple living in an apartment some place pay a disproportionate share of the shift or pick it up.  I guess I don't want people to believe that they're the ones that are targeted.  Certainly anyone living in a rental unit is paying for those property taxes

January 23, 1990

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one way or another.  I guess I've owned rental property, and certainly as I'd compute the rent, I would look at the property tax and decide what that rent would be.

 

SENATOR WITHEM:  We won't ask you the embarrassing question if when the property taxes go down whether you'll be recomputing that rent on your property.  We'll just go on to the next...

 

SENATOR McFARLAND:  That's exact...  that's the point, I mean, that's what we discussed in the bills last year that if property tax relief was given, the indication was that rental property would not decrease and renters would not see any resulting benefit of the property tax relief.

 

GENE KOEPKE:  I think, Senator McFarland, it would depend on how competitive that rental market is.  If it's a highly competitive market, then indeed there would be a potential of rents actually going down.  If we're unwilling to go that far, at least we have to realize that rents won't be going up as property taxes continue to rise.  I'll assure you that anyone owning property will pass a tax increase on as it's received.

 

SENATOR WITHEM:  thank you very much.  Appreciate your input very much.  It was very good.  One more member of the commission to testify and then we'll get to some anti-testimony.  While Charlyne Berens from Seward is coming up who represented the Public at large.  Just to indicate to people we have a letter from Pat Newjahr from Valentine, Nebraska, member of the School Finance Commission represents a Class I school district in the City of Valentine who was unable to be here tonight because she is ill.  She is represented here tonight in two ways, one with a letter that she sent and the second way is by Suzie, our page over there, who is her daughter from Valentine.  So give Suzie a little bit of a plug here, too.  Charlyne, go ahead.

 

CHARLYNE BERENS:  My name is Charlyne Berens, I'm from Seward.  I'm the co-publisher and editor of the Seward County Independent, and I am one of the at large members of the commission as was just said.  Because of that I have no particular ax to grind.  I don't represent a particular aspect of education or business or anything else.  I am the ordinary Nebraska citizen, and what I'm going to tell you is not based on statistics.  It doesn't explain the formula; it doesn't defend the tax shift that was mentioned; it's moral support for what the commission has done.  As anybody who

 

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can read or think, understands this state has changed just a little bit since its founding more than one hundred years ago.  What worked then, or worked at different stages of our development as a state, does not necessarily work now.  One of those things that doesn't work anymore is our tax structure.  When the vast majority of Nebraskans were farmers deriving their livelihood from the land, it made sense to support local services like schools on the basis of property taxes.  After all, nearly everybody shared the burden and those who earned more land could usually afford to pay more property tax, but things have changed.  The burden of support for cities and counties and schools has fallen on a smaller and smaller group of people.  Add to this picture the number of exemptions that the Legislature has seen fit to grant, and the tax base gets even smaller.  It's no wonder people are screaming for tax reform, and they are screaming.  If you can't hear them, it's because you're not listening, The fact is that Nebraska ranks near the top of the list of states in property tax rates, but near the bottom in income and sales tax.  With people who understand that situation, and I admit that they are the minority, are pleading for some carefully planned change.  Those who don't understand are just plain mad.  But both groups would like something done.  For years the Legislature has been thinking and pondering and considering and talking about property tax relief.  Last year LB 84 actually did something about it, but it did nothing to change the structure of the system.  If LB 84, or comparable measures, are going to be the only way we get property tax relief than you're going to have to deal with the problem every year, and you're going to have to deal with people who don't believe that you're serious about real change.  This bill is a step toward real change--a way to change the system itself.  It's a plan that will work, and the commission is sure of that after all the questions we raised and the details we demanded and the "nits" that we picked.  It can, in the aggregate, decrease Nebraska schools' reliance on property taxes.  But, on the other side of the coin, the measure should have another pleasant side effect, or pleasant effect, it will move toward equalizing educational opportunity in Nebraska.  No, a good education does not come about simply because money is thrown at a school or a program or a kid, but, education can suffer a lot if sufficient dollars are not available to fund what's needed..  By providing state aid dollars to a formula that attempts to bring comparable school districts' resources closer together, this bill helps prevent the kind of funding shortages that can hamper a school district's ability to provide a quality education.  That, in itself,

 

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makes this worthy of support.  I am a firm proponent of the old local control idea when it comes to school districts.  I want to see most of the decisions about schools made by the people whose kids and grandkids and neighbors' kids go to those schools, but I also believe that we have a responsibility as a state to be sure that all the children in our state are educated, and educated well.  We will all suffer if they are not.  By increasing the amount of state dollars flowing to education and beginning to equalize the funding across our diverse state, we're taking on that responsibility for educating all our children.  We're not doing a favor just for somebody out in the Sandhills or up in the city, but for ourselves.  I ask you, if you're going to oppose this measure to do it on the basis of a philosophical difference.  Please don't oppose it because you're scared to raise the state revenue necessary to make up for the decreased property taxes­Please don't oppose it because of a school or schools in your district isn't going to get enough of the goodies.  Neither of those arguments is going to hold up.  People want property tax relief.  When those who are at all rational, realize the dollars have to come from some other source and are willing to accept that.  All people, senators included, need to think more about the good of the entire state and not just their own little corners of it.  To a very great extent, what's good for Scottsbluff is good for Omaha, and every place in between.  Please support this bill.  It's good for Nebraska's taxpayers and it's good for Nebraska's kids.

 

SENATOR WITHEM:  Thank you, Charlyne.  Questions?  Senator Bernard-Stevens.

 

SENATOR BERNARD-STEVENS:  Charlyne, first of all, I haven't said anything so far which is a rarity for me, I think, but I certainly appreciate all the effort and time and each of the commission members have spent on it because I know how much effort every took going throughout the state and getting input.  And it's on that line that I want to ask this question.  Being a Member at Large, and not particularly representing any particular group and going statewide as the commission did, we in the Legislature are getting closer and closer to political rhetoric time as they get closer to the elections.  How in your judgment will Nebraska public weigh the issue when it gets down to, this is a tax increase because we're increasing sales and income and we're not against tax increases versus we want property tax reduction?  When those two points clash, what is your perspective of what the Nebraska public is going, how are

 

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they going to come down on that issue?

 

CHARLYNE BERENS:  Well, I unfortunately realize that a lot of people don't care, all they want is, don't raise my taxes and they won't see it but I believe a lot of people will see if it's explained to them that in the aggregate this is a trade-off.  That it's over all in this state, it's not an increase in taxes, and I think people also need to be reminded that if they want property tax relief, they're going to have to take a little bit of pain, maybe, to get it but they're also in this bill getting a good deal for school that's going to improve educational opportunities.  And, maybe not for my kid, maybe I don't have a kid in school, but that it's my responsibility to see to it that everybody does get that opportunity.  People just need to be told that--not just my little corner but the whole state.

 

SENATOR WITHEM:  Thank you, Charlyne.  Anyone else?  Thank you very much.  Let's move to Don Osborne who has some concerns he wanted to express about the bill.  We'll follow that by Mick Karmazin and then, sorry I forgot your name, but from Macy School District.  We'll do those three individuals.

 

DON OSBORNE:  I'm Don Osborne.  I am representing the Board of Education and the citizens of Big Springs and the Big Springs School District- I've been in education for thirty years and one of the rewards in education that we have are seeing our students advance to higher levels, and with that I'd like to recognize Senator Bernard-Stevens.  Congratulations, and I issue greetings from the rest of Cozad where Dave was.  There I don't believe there is a person in this room that does not feel that there needs to be a change in the state's support of education for elementary and secondary students.  Something has to be done at the property tax level but when we sit around promising 40 percent, 45 percent state aid and we will do this statewide average doesn't compute.  If I were to pay you $999,000.00 and I were to pay myself $1.00, and say we're all making a half a million dollars a year, it wouldn't make sense.  I have a gentleman here tonight that might testify for this bill.  He might testify against this bill.  He lives in my school district.  I didn't know he was going to be here tonight, but when I pointed out to him that instead of $16,000.00 worth of property tax next year with this bill, he'll pay $20,000.00 worth of property tax, he may change some of his ideas.  I think there's some substantial problems with the bill in the "tiering" system.  The very

 

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smallest school is set at a level, as the schools get larger and larger, we are allowed to spend a decreasing amount of money until you reach the very largest tier which is Omaha.  Omaha can establish their own tier and thus establishing your own tier are guaranteed 100 percent of the state aid.  They will not take a cut because they're "tiering".  We go and, years ago we said, go reorganize.  Get a large per pupil value for your students.  Many of the school districts went out and got a very large per pupil value for the students and now those are the school districts that are going to be punished by this bill.  I'm also concerned with the school land tax issue.  If that land were sold, we would get 100 percent of the taxes off from it for us, sure we're getting 143 percent "and now you're taking 143 percent away from our state aid.  Maybe 43 percent should be taken away but not 143 percent.  I think the biggest devastation in this bill is not the lid that you people propose, but the Governor's lid.  If we take a 50 percent loss in state aid, and the Governor says, you are limited, you can go up only 4 percent.  What are we going to do with the children in the school district I represent?  If you could see yourself to have a "hold harmless", I think this would help us a great deal.  That's my testimony, Senator.

 

SENATOR WITHEM:  Thank you, Don, I appreciate it.  Are there any questions?  Thank you very much.  Next individual I had was Mick Karmazin from Lawrence.

 

MICK KARMAZIN:  Senators, my name is Mick Karmazin.  I'm from Lawrence, Nebraska.  Lawrence, Nebraska is in Nuckolls County and I sit on the Board of Education at Lawrence Public School.  Lawrence Board of Education is opposed to passage of LB 1059 because of the unfairness of the bill.  You got net gainers and net losers.  Lawrence Public School would lose over 30 percent of state aid but would limit us to a lid of 4 to 6 percent.  Our taxes would go up, we would pay more taxes for education, plus trying to operate under the imposed lid.  We'd pay more in sales taxes, more in income taxes, and more in property taxes.  Lawrence is the ??so-called" rich property district because of a unique situation.  We educate half of our kids in the private sector and do it a lot cheaper than the state does.  I'm a product of the Lawrence school system.  I feel it has great benefits.  The majority of kids go on to higher education.  We have a "nil" dropout rate.  We have no school violence.  Over half the kids in one through eight grades are educated at a parochial school and financed by the income of the patrons of the district, some of them.  The mill has much

 

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negative impact, as I said, because of the net losers and the net gainers.  From a 100 percent loss to a possible 300 percent gain.  If LB 1059 passes it needs several amendments.  First of all you should count all the kids that are getting an education in one's district, whether private or public.  If that was the case in Lawrence, we would gain close to a quarter of million dollars in state aid.  if it were the case also, we'd rank right in the middle of the state school systems.  We would not be the "so-called" rich district.  The 1 percent sales tax, I'm all for lowering property tax but I think that has to be "earmarked" specifically for education.  And, if you pass the bill, please put in the "hold harmless", there should be no negative impact when we're trying to lower our property taxes because that will not be the effect of the bill the way it is written.  I would also recommend that you, if you want to lower property taxes which is the intent of this body, to give all school districts a minimum of 40 percent increase in state aid.  I think that would do it.  Thank you.

 

SENATOR WITHEM:  Are there questions?  I believe Senator Bernard-Stevens, then Senator Hartnett, have questions.

 

SENATOR BERNARD-STEVENS:  I have one.  I can't remember all the figures that have gone through.  The levy that you have in your school district is at what levy now?

 

MICK KARMAZIN:  About 1.94 (?).

 

SENATOR BERNARD-STEVENS:  1.94, okay, that's what I wanted to know.  Thank you.

 

SENATOR HARTNETT:  That was my same question.

 

SENATOR WITHEM:  Additional questions?  Thank you very much.

 

MICK KARMAZIN:  Thank you.

 

DR. SCOTT BUTTERFIELD:  Senators, my name is Dr. Scott Butterfield, I'm the superintendent in Macy, Nebraska, located on the Omaha Indian Reservation.  I'd like to address a rather narrow focus, under this proposed legislation that addresses Macy Public Schools, Winnebago Public Schools and Santee Public Schools.  These are school districts that have 95 percent, or better, Indian students and are controlled by elected Indian school board members, as well.  As this legislation stand presently, I believe

 

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some of you know, maybe others of you don't, that it improperly considers aspects of the impact aid that our schools receive to help fund our schools.  Much of land that we have within our school districts is nontaxable--federal land held in trust by the tribes by the federal government.  Because of that, our tax base is extremely low and therefore we received impact aid in consideration of that.  If this bill stands as it is presently, it would result in an extreme reduction in our total revenues.  In my particular case in Macy, approximately 25 percent of the total budget for the other schools ranging from 25 down to 15 percent or SO.  I'm not sure that our schools could survive that kind of reduced funding level.  The result of something like that would be obvious reductions in staffing levels, fixed costs, and educational services that we can provide to the kids who attend our schools.  It would also make it extremely difficult for us to meet some of newly-imposed requirements by the Department of Education under Rule 10.  Any rule or any legislation that finally gets passed in order for it to not adversely effect us in another manner has to be sent to the Department of Education in Washington, D.  C., to meet a test requirement established by them to indicate that the state has not adversely effected the compensation in whatever state aid is a final result.  If it doesn't meet their test, what they will do then is cut off all state aid to the impacted schools in this state, which means we get no impact aid at all.  We get half of our budget through that funding source.  This is extremely important to us.  With reductions we may have to increase our pupil/teacher ratios and that's one of the things that we try very hard to keep low to try to deal with the students that we have who have real unique needs, and extreme efforts have to be taken to try to raise those achievement levels for the students that we're working with.  I would like mention some points for you to consider as members in looking at this from our perspective.  One is that since we are so heavily dependent on impact aid from the federal government, it has not kept pace with the growth of fixed costs that our schools have to deal with--teachers' salaries, insurance, et cetera.  It has never been fully funded by the federal government, and in fact, in the past year my school lost $223,000.00, if it had been fully funded; Winnebago lost $156,000.00; Santee lost over $100,000.00.  My school is also growing at the rate of 60 some students at the kindergarten level per year; visiting classes in the neighborhood of 15 or less.  The other two schools their population, student population is remaining relatively stable.  I believe the bill's intent is to average 45 percent of the state funding level on average,

 

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but at present we're as I indicated much less than that, if the bill was to let stand as is, it would drop to practically zero.  I don't believe that that's fair, and I don't believe that if you think about it, you would either.  Our school districts don't get much, or would not get much in the way of an income tax rebate.  Most of the employees within the reservation boundaries are Native Americans.  They're not obligated to pay income taxes.  The same thing is true of the sales tax, so neither of those are benefits to our particular schools and, in fact, under this proposal are not positive at all.  our recommendations for the committee members would be to look into ...  we're not looking for the kinds of increases that many of the schools may receive under this bill but rather would hope that some effort might be made to help us achieve the 45 percent level that the statewide average is hoping to meet.  We'd also like you to recognize the extreme uniqueness that I believe is not an overused word in our particular case in trying to fund our schools- We wrestle every year with the federal government on what level of impact aid we will receive.  It's very uncertain from year and now we're turning around and we're wrestling with the same issue with the state.  Lastly, if any consideration is made to take our particular situation into account, we'd ask that we be given some opportunity to participate in that process.

 

SENATOR WITHEM:  Thank you.  Are there any questions?

 

SENATOR BERNARD-STEVENS:  I've got just one.

 

SENATOR WITHEM:  Yes sir.

 

SENATOR BERNARD STEVENS:  Would the "hold harmless"

amendment satisfy your problem then?

 

DR. SCOTT BUTTERFIELD:  Well, I believe it would.  The concern we would have is that it not be a one- or two-year "hold harmless" clause because if that did, we'd be in the same boat two or three years down the road from now.

 

SENATOR BERNARD-STEVENS:  Thank you.

 

SENATOR WITHEM:  Thank you very much, Doctor.  Now we'll move back to proponent, general proponent testimony.  People that talked me earlier in the week about testifying that Dr. Norbert Schuerman, Larry Dlugosh from Grand Island, and Walt Radcliffe, Nebraska Real Estate Association, in that order.  Then we'll put back through some people that have

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some concerns with the bill again.  I'll add we still have lots of people who want to testify, and Dr. Schuerman, obviously not because you're the one before me at the moment am I making these remarks, but we would appreciate brevity by any succeeding testifiers.

 

SENATOR BAACK:  And by the Chair- (laughter)

 

SENATOR WITHEM:  And by the Chair, as Senator Baack so rudely interjected.

 

NORBERT SCHUERMAN:  Thank you.  Senator Withem, Senator Hall, members of the joint committee, I'm Norbert Schuerman, Superintendent of the Omaha Public Schools.  I would like to preface my brief remarks with the fact that this particular bill has not been thoroughly discussed with the Board of Education.  We've had it on the agenda several times but haven't been able to get to it because of some other issues.  So as a result of that, I'll be representing my own thoughts in that and not the thoughts of the Board of Education, but we will be taking a, and discussing it thoroughly in the very near future.  I would also like to express my appreciation personally of the fact that our district was represented on the commission by Don Benning and as result of that, the commission did have some input from the school district of Omaha and we are appreciative of that.  I will, and do, want to speak in support of LB 1059, basically because it does broaden the tax base and it does provides some shifting away from my judgments, what I think is the over-reliance on property tax in support of schools and education in the state.  Basing that feeling on the, because of the equalization emphasis, and because it is necessary in the appropriate public policies that are going to go with that, if in fact you do, if in fact the Legislature does pass this bill.  I need, however, to indicate that philosophically I do not believe in lids, especially as it relates to education and meeting the needs of students.  I'm a proponent of local control and I do believe that local boards of education do act responsible in meeting the needs of their students.  However, I do understand the political necessity for including perhaps a provision for some kind of a lid for this particular bill to pass.  I would encourage the legislative body, however, to give some flexibility and to, in the lid, a portion of the bill.  and perhaps to consider some of the fixed costs that school districts are faced with relating to the operation of the school districts, some of which have already been mentioned ala the health care increases, the utility cost increases, and we

 

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are labor-intensive.  It does appear that in general the public is in favor of higher salaries for teachers.  So-as a result of that particular statement and believe and the concerns I have, we still want to say to you that we do feel that the bill should pass.  It will be good for public education in Nebraska.  It's been a long time in coming.  We do have those reservations because we think it'll be very difficult for us to meet the complex educational needs of the urban youth that we serve in the Omaha Public Schools.  I do thank you for the opportunity to appear before you, and if my office or any of my staff, or our staff in the Omaha Public Schools, can be of any help to you as you deliberate and change the provisions of the bill, if you change and revise to improve it, please feel free to call.

 

SENATOR WITHEM:  Thank you.  If we revise and damage it, though, you don't want us to bother you.  (laughter)

 

NORBERT SCHUERMAN:  I don't want any part of it.

 

SENATOR WITHEM:  Okay.  Are there any questions? Senator Bernard-Stevens.

 

SENATOR BERNARD-STEVENS:  Just one.  Under the present system that we have now, I would assume that the Omaha board would be not much different from the boards I have in the 42nd District and that is when it comes budget increases, on fixed costs that you can't control whether it be faculty salaries at some point negotiations that have already been decided or insurance that goes up, and so on, I assume that there's a tremendous feeling on the board of being careful about how we finance those increases and yet try to keep our, the property tax down, at some point.  Is that...would that be a fair assessment that there's some pressure there to watch that relationship?

 

NORBERT SCHUERMAN Undoubtedly so.

 

SENATOR BERNARD-STEVENS:  Yes.  I'm curious, this is the second time it's been brought up tonight and a lot of people have asked me in letters to explain it, and sometimes I'm at a loss to explain it well.  How would it be different under LB 1059, if it passed, under the lid, flexible lid that you would have, with the 22 percent increase that you may have with Blue Cross/Blue Shield or whatever percent it may go up in some other year, or some other costs.  How would that be different justifying how to do that with the pressures of, with the lids of 1059 comparing that to the pressures that

 

January 23, 1990

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you now face at the public level on increasing property tax base with the same type of increases?

 

NORBERT SCHUERMAN I think the pressure would be very similar, but if you had by law to keep your increase to only 4 percent and you had needs that need to be met, you simply wouldn't meet them or you cut program, or somehow you would not be able to continue the thrust of excellence and quality in education which I think our district is about.  And if we are going to continue to meet the complex needs of our students, we will have to put additional people power and resources into programming.

 

SENATOR BERNARD-STEVENS:  Thank you.

 

SENATOR WITHEM:  Thank you, Dr.  Schuerman.  Questions? if there are none, thank you very much.

 

NORBERT SCHUERMAN Thank you.

 

SENATOR WITHEM:  Appreciate it.

 

LARRY DLUGOSH:  I don't have that long a name, it's just taking, (laughter)

 

SENATOR WITHEM:  We don't expect you to fill out the whole thing.  Go right ahead.

 

LARRY DLUGOSH:  There are a lot of spaces here.  Senator Hall, and members of the joint committee.  My name is Larry Dlugosh, and I'm Superintendent of Schools of the Grand Island Public Schools and tonight I am testifying for the Grand Island Board of Education in favor of LB 1059.  First, we commend the Nebraska School Finance Commission for the excellent study and the proposals set forth in LB 1059.  In our opinion, the study was conducted in such a manner that we had several opportunities throughout the period of time for input and review of the process.  I'm going to give you the scenario of our school district and tell you where we've come from and why we support this bill.  I can go back as far as five years of personal experience and through examination of records, historically quite a few years beyond that, but for the past five years Grand Island Public Schools have been faced with a variety of financial difficulties, some caused by local conditions, such as the annexation of several housing areas adjacent to the city which added nearly a thousand students to our student population in 1985, and some carry-over problems that when I

January 23, 1990

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arrived, it existed from the lid bill of late seventies and early eighties.  Traditionally, the Grand Island School District has experienced low valuation per pupil and a lower than average expenditure per pupil but has also enjoyed an excellent school program for these students.  Because of the lack of an appropriate cash reserve coupled with increasing costs and unstable state and federal revenues, we have found ourselves in the position of having to levy a higher than average local property tax rate.  This year it was $1.96 for the general fund and a $2.16 total.  In addition, we've been borrowing nearly $3.5 million per year through the Tax Anticipation Note Program to cover our short-term cash flow difficulties.  As we followed the progress of the Nebraska School Finance Commission, we've been particularly pleased with the attempts to:  1.  Provide adequate funds to equalize educational costs; 2.  To broaden the revenue sources available to school districts by rebating a portion of the state income tax collected at the local level and back to that local district; and 3.  To provide a more appropriate overall level of funding for K-12 education in Nebraska.  If the formula proposed in LB 1059 had been in place during the 1987-88 school year, our district would have had to raise $5,902,000.00 less from local property taxes.  The savings to local tax payers of approximately 35 percent.  In 1987-88, we derived $15,995,000.00 from local property taxes and had this bill been in place, that figure would have been about $10,100,000.00.  The formula illustrates that our district when placed in its tier group, had a cost per pupil that was below the midpoint for the tier of both the 1-6 and 9-12 levels during 1987-88.  We believe that same condition would exist for 1989-90.  Legislative Bill 1059 addresses a situation that has been allowed to exist far too long, and that is funding disparities that have existed between property-rich and property-poor school districts.  It takes into consideration each district's ability to provide services based on the resources available at the local level and provides adequate equalization aid for those districts who can demonstrate the need.  Again, I'd like to go with what some of my colleagues have said, and while we are not in favor of a lid, we do understand political realities.  We think that if the lid has some expandability in it that we can probably live with such a lid.  We encourage the committees to move LB 1059 to legislative floor for positive action and implementation.  It is a ray of sunshine that many of us have been anticipating for several decades, and I can't go back too much farther than several decades in the business.  Thank you.  (laughter)

 

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SENATOR WITHEM:  You're giving something away there, Larry.

 

LARRY DLUGOSH:  Yes.

 

SENATOR WITHEM:  Are there any questions? Senator Haberman.

 

SENATOR HABERMAN:  Could you take it a step further here and tell us, in your opinion, what some of the expanded liabilities would be underneath the lid?

 

LARRY DLUGOSH:  Would you rephrase...  expanded liabilities?

 

SENATOR HABERMAN:  I believe you said, if we gave you some "rope" so to speak to raise the lid, in what area would you raise them, would you want to raise ...  ?

 

LARRY DLUGOSH:  No, I was commenting, Senator Haberman, on the fact that I believe in 1059, the lid has some expandability, that it is not a certain set percentage, and we favor that kind of a lid rather than an specific 1, or 2, or 3, or 4 percent lid.  That's what I was referring to.

 

SENATOR HABERMAN:  So with a pretty good expandability of the lid, then, it wouldn't be a dollar-for-dollar tax reduction.  Would it?

 

LARRY DLUGOSH:  In our case, as we look at it for the first year or two, I think it would be a dollar for dollar.  Now our enrollment has stayed fairly stable except for that tremendous impact during the annexation.  We do anticipate that we'll be annexing, the city will annex another housing area in 19-, well, they've done it in 1990, and we'll take over that area in 1991, so we'll have some more liability there.

 

SENATOR HABERMAN:  And this is at Grand Island, is it?

 

LARRY DLUGOSH:  Yes, it is.

 

SENATOR HABERMAN:  So what we could say then that in Grand Island, taxes could have been on the real estate 33 percent or something like that.  I

 

LARRY DLUGOSH:  The way we calculated it, if it had been in place in 1987-88, that would have been true.

 

SENATOR HABERMAN:  Have you figured out what it would be

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in 1990?

 

LARRY DLUGOSH:  No, I haven't because I don't have the information from all of the schools in our tiers.

 

SENATOR HABERMAN:  Thank you.

 

LARRY DLUGOSH:  Yes.

 

SENATOR WITHEM:  Thank you, Larry.  Appreciate it.

 

LARRY DLUGOSH:  Thank you.

 

SENATOR WITHEM:  Mr. Radcliffe, Dr.  Radcliffe.  (laughter)

 

WALTER RADCLIFFE:  It's pretty late for any of that.  Mr. Chairman, Members of the Committee, my name is Walter Radcliffe and I'm appearing before you this evening as a registered lobbyist behalf of the Nebraska Realtors Association, behalf of LB 1059.  First of all, I'd like to say that the, I know the Revenue Committee is going to have a number of property tax bills, number of lid bills.  This is the only time you're going to get to see me.  I know that probably distresses you a lot, but I think that LB 1059 has the component parts that will permit me to explain to you what the position of my client is and you won't have to suffer through my testimony on any of the other bills that you have.  I just simply ask that you keep it in the recesses of your mind when you're deliberating those bills.

 

SENATOR HALL:  Mr. Radcliffe.

 

WALTER RADCLIFFE:  Senator Hall.

 

SENATOR HALL:  Do your clients know that, that you don't intend to appear? (laughter)

 

WALTER RADCLIFFE:  I intend to send them a memo in April in that regard, Senator Hall.  However, if you'd like to have me come more often, I'm sure I'd be happy to do that.  Seriously, LB 1059 contains what the realtors believe are the three necessary component parts for property tax relief/school finance.  They're looking at 1059 from its impact on property taxes.  Those three component parts are these:  First of all, a formula method with regards to state aid to education and a formula which will be enacted, which will stay in place for a period of time in the future, at least until the Legislature decides to change that, so we're

January 23, 1990

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not back every year trying to reconfigure what state aid's going to be.  Secondly, is a lid.  Now historically the realtors have not supported lids on a stand-alone basis.  They do not today support the Jaksha petition.  They support lids when, in fact, they are part of an overall methodology to effectuate and ensure that the state dollars which are going back to the political subdivisions, in this case the school districts, will result in a reduction or, and I'll get to this, a stabilization of property taxes.  And, finally (third), LB 1059 contains in it a funding mechanism through sales and income tax to ensure that the revenues will be there to meet the formula distribution that's in the bill.  Now, I'll admit with regards to the lid, that does effect only school districts.  However, school districts fill, you know it better than I, they consume about 65 to 70 percent of our property tax dollars.  Quite honestly, I know I'll ...  I probably shouldn't turn my back at the room when I say this, I don't think the lid in LB 1059 is adequate.  That's not because that I'm here to bash school boards or anything else, I simply don't think that the general public feels that a 4 percent lid to a 6 1/2 percent lid is sufficient.  Let me illustrate to you why.  I do not believe that LB 1059 and an extension of LB 84 from last year is going to pass.  it's going to be either/or.  if it's LB 1059, let's assume that because that's the greater of the two.  If LB 1059 passes, with the lids that are currently in it, and I'm assuming for the sake of discussion that this would have a 15 percent impact in overall property taxes, not just, not the school district's property tax share but overall property taxes.  Out of that 15 percent, 8 1/2 percent is going to be eaten by as a replacement for LB 84 from last year, so that's going to leave us 6 1/2 percent.  If you're over the threshold, you go to the lid, it's a zero.  If you're under the threshold and you do a 4 percent, it's only 2 1/2 percent.  People need to understand that whatever we're talking about with regards to "property tax relief" is not going to see any property taxes plummeting.  At best it's going to be a stabilization.  That's what LB 1059 does.  One it stabilizes and two, it puts in place a formula and a methodology for funding it.  That, quite frankly, is why the realtors support that.  A couple other tangential comments on 1059 and then I'd be happy to try to answer any questions.  In looking at the bill from a, purely from a political standpoint, there are two, in my estimation, problems with it that we're going to encounter.  One is going to be the lid--is it high enough, is it low enough.  I'm sure at some point in time, we're going to have an auction on the floor.

 

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Secondly, is the issue of sales tax, or excuse me, of the income tax increase in it? I'll say this now, I've said it before privately, if the money is there to continue LB 84, the money is there to pass LB 1059 without an income tax increase, at least for the next fiscal year.  In closing, the other thing I'd ask the committee to consider is the sales tax increase which is proposed.  The Revenue Committee, Senator Hall, as you know has before it a number of bills that seek to rectify some inequities with regards to the sales tax; housing authorities pay sales tax; ag societies; NRDs--those types of exemption bills have never been considered.  They've never been on to the floor.  I think if 1059 is going to pass, and in essence, increase the sales tax and perpetuate whatever inequities are in the system, perhaps it's time to look at some of those exemptions and see whether or not this may or may not be the time, if the sales tax is going to go up to attempt to address those.  With that, gentlemen and ladies, I would attempt to answer any questions.

 

SENATOR WITHEM:  Are there any questions?

 

SENATOR CROSBY:  Mr. Chairman.

 

SENATOR WITHEM:  Senator Crosby.

 

SENATOR CROSBY:  A question and a comment, I guess more, Mr. Radcliffe, Walt, because you answered my question that I asked a little while ago.  I think the public perception, again, with the publicity that's been given to LB 1059, again, because we talk about property tax relief.  Property tax relief, if you ever go door to door, you'll find that out, to the average citizen means that the taxes go down, that the property tax bill is lower.  In this past year, the rebate, I had to explain that to every person that called me to go down the list and find that figure that was the rebate.  So I thank you for going through that because I think you've clarified the point that even that 15 percent is going to evaporate, more or less, because of the givens in it.  I guess I don't really have a question, I just thank you for the notes that I've been able to take.

 

WALTER RADCLIFFE:  Thank you, Senator.,

 

SENATOR WITHEM:  Are there any other questions? Thank you very much, Walter.  Appreciate that.  I'll move to some individuals who wish to express some reservations about the bill at this point.  Mr. DeCamp.  Is he still here?

 

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SENATOR HABERMAN:  He was on the phone a minute ago ...  maybe he's out in the hall.

 

SENATOR WITHEM:  We'll go to Mr. Baum then, there we go ...  Rick, you'll be up next and then that's the last of the people, John DeCamp and Rick Baum are the last of the individuals that I have on the list identified specifically as "anti" testifiers.  We will then allow an additional person, I don't have anybody on the list here identified specifically as "anti".  I didn't finish my sentence, I have a tendency not to do that.  We will hear three "anti" testifiers and then switch over to do three proponents., and continue that as long as we need.

 

JOHN DeCAMP:  (Exhibit D) Mr. Chairman, Members of the Committee, I had a rather lengthy presentation but with the limitation of five minutes, I'll obviously change that dramatically and hand out my presentation after I'm finished.  Mr.  Chairman, rather than discuss losers, winners, who gets more money, who gets less money, we would like to deal with three philosophical reasons why we, the Class VI Schools are opposed to LB 1059, as written.  The first and foremost most fundamental one is very simply that the bill belies what it says it's going to do.  In other  words, property, property, property is still the fundamental measure, the fundamental underpinning of financing education.  Whereas we had thought that we're going to move from property, we actually moved more solvently on to property.  The essence of this legislation is very simply this.  If you have property, whether that property has a million dollar mortgage on a million dollars worth of property, and is producing nothing; or whether it's a million dollars worth of property producing thirty percent income, it's all treated the same--it's viewed as wealth and ability to pay.  And if you have property, then it is property that is going to finance your school district. That's a simple fact.  We had hoped, we had hoped and believed that the system would move to what were the other, the other real measurements of wealth and ability to pay moving into the 21st Century.  What are they? We don't have the agrarian economy of a hundred years ago where everybody had an eighty or a quarter section, or whatever.  Now we have an economy based on wage earners, entrepreneurs; an economy based on consumption of goods.  The true measures of ability to pay, the true measures of wealth in an economy like this are income, sales, income tax, and sales tax.  But, that is not what the system does.  This system says, if

 

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you have property, that's how you're going to finance your school system, primarily and fundamentally.  Best example of that, a simple example, Omaha has a limited amount of property per student so they move dramatically down in terms of paying for their school system out of property.  They pay only 48 percent, or thereabouts, and the balance comes from sales and income.  Take a school like Northwest out near Hastings.  That school pays about 90 percent of its school expenses from property today under this system, it'll continue to and increase 90 percent or more in the future.  So we say, if your philosophy is that you're moving off of property and going to move to another source, then it's not really being done.  The gentleman earlier used the example, well, if I have 99 people and one has $1,000 and one has $1--we have an average of ...  well, it's kind of that way.  So we would say, the underpinnings of this system are still property and once you're grounded into property, you're going to have the same problems going into the future and the future, ten or fifteen years.  The second philosophical argument that we have against this bill is that we believe fundamentally that you cannot divorce the financing of education from the quality of education.  Repeatedly, when we raised this question, we were told the purpose of this bill is not to worry about the quality of education, this bill deals with the financing of education.  Now what I'm going to say next is going to offend some in the room, it offended them when I brought it up before.  But one of those ghosts of the past, Vard Johnson said it far better than I when he had a lot more time in a hearing, he brought up an example, a good-example.  I think the example was Monroe, quite frankly, and the essence of what Vard explained to the committee then, and it surrounded LB 662, quite frankly, and some of the other legislations.  The essence of what he said was this, let's face it, there are schools that do not deserve to exist.  We have to worry that our kids can compete in the future.  They have to compete against the city, they have to compete in the universities, they have to compete against the Korean, the Japanese, the Taiwanese, the German--they have to get that quality education.  We believe the way this system is designed, it will literally keep in existence hundreds and hundreds of schools who do not deserve to be in existence.  Schools that cannot compete today that would probably go out of existence will be preserved in existence.  And yes, we know, the Class VI schools know that if they're going to survive in a world competition, that means they either have to be the best schools or they're going to be ex-schools but that's the world that we're moving into, that's the world we think you

 

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should deal with.  If you try to separate, if you try to divorce the quality from the financing, you're going to end up with exactly what we see happening--a bill that says, okay, A, B.  C, D, E will keep you all in existence.  if you're starving now, we'll make sure you have enough to stay in existence.  We don't think that's necessarily good.  We think it'll end up with a two-tiered system of education in the state.  One of fairly good quality, particularly and primarily in the metropolitan areas and one, quite frankly, of mediocrity, particularly in some of the rural areas., That we think is unfortunate and a direction we don't want to take.  The final, or other philosophical argument that we have against the legislation has to do with the whole issue of ability to pay.  What is the true measure of wealth? And as I say, we suggest the real measure is sales and income, and even though, even though, sales and income dollars are today, if you look at the studies primarily generated in Omaha and Lincoln, much of that generation starts outstate.  For example, I would guess I don't know, a half a third of all the medical, major hospital treatments that occur in the major medical centers emanate from outstate.  A person like myself has a number of clients, even though I'm sitting in Lincoln, owning a house in Lincoln, my income shows up in Lincoln and probably a lot of the people in this room, that income is generated outstate.  These are collection points.  Under this system of this legislation, we see a system developing in which with property being abundant outstate and being the primary measurement of- wealth, property will finance the schools outstate for a fairly mediocre system and we will become net exporters of sales and income tax dollars to the very points where they don't need them the most.  In other words, the cities.  So, we would suggest that if you really wanted to completely fulfill exactly what you stated in the preamble of the bill, in the intent of the bill, you would do precisely and exactly what you did in the one bill that attempts to marry the two concepts--quality and financing--and think about it for a moment.  What is it? It's the choice bill.  What did you ultimately determine you were going to have to do.  You were going to have to provide a financing system that essentially treated everybody the same, a foundation system.  In other words, a kid in Neligh, a kid in O'Neill, a kid in Omaha, a kid in Lincoln--is a kid entitled to an education about the same quality and probably costing about the same.  And, yes, you could take your identical bill almost, not almost, literally word for word on the needs portion on these things but just do the one thing you claimed you were going to do and that is flip it so that instead of using property as the measuring device

 

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for wealth, you use the sales and income resources of the state as the measurement.  And you said every kid in the state is entitled to 55, or 65, or 75, or 95, or 100 percent of the standardized needs for education.  And, yes, eventually you would have a system based on sales and income tax and almost devoid of property tax.  And, yes indeed, hundreds of schools that are now surviving and that the towns want to keep alive would probably go out of existence because they couldn't compete.  They'd have to merge and have regional schools--a regional school system.  That's what we see as the alternative and a better alternative, and yes indeed, a hardier alternative to pass but that's what we would suggest as three philosophical objections to the legislation.

 

SENATOR WITHEM:  Thank you, John.  Do you have a handout there...  ?

 

JOHN DeCAMP:  Yes.

 

SENATOR WITHEM:  That one of the Pages could get?

 

JOHN DeCAMP:  Sure.

 

SENATOR WITHEM:  Appreciate your comments.  Rick.

 

SENATOR HEFNER:  I have a question.

 

SENATOR WITHEM:  Yes, Elroy.

 

SENATOR HEFNER:  Senator DeCamp, when you say "we", who do you mean?

 

JOHN DeCAMP:  The Class VI schools.

 

SENATOR HEFNER:  Okay, what association is that?

 

JOHN DeCAMP:  We call them the regional school systems...

 

SENATOR WITHEM:  We tried to call them that last year, too, John.  We didn't get that done.

 

JOHN DeCAMP:  I know it, I know it.  Well, we can try again.

 

SENATOR HEFNER:  Okay, are you a paid lobbyist then for the Class VI schools?

 

JOHN DeCAMP:  Oh, I hope so.  I hope so.  (laughter)

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SENATOR HEFNER:  Okay.

 

JOHN DeCAMP:  Yes sir, but

 

SENATOR HEFNER:  Well, I want to know.

 

JOHN DeCAMP:  Yes, yes, indeed.

 

SENATOR HEFNER:  Okay, okay.  Thank you.

 

SENATOR WITHEM:  Thank you.  Thank you.  Rick, you're up next.  You're going to run the risk of giving your handout before you speak, huh?

 

RICK BAUM:  (Exhibit C) Yes, well there are few exhibits I'd like for you to see.

 

SENATOR WITHEM:  Okay.

 

RICK BAUM:  I'll sign this afterwards.

 

SENATOR WITHEM:  That'll be great.

 

RICK BAUM:  Senator Withem and Members of the Committee, my name is Rick Baum and I'm here representing the Nebraska School Improvement Association this evening as a lobbyist, as well as their Field Service Director, and as you're getting the exhibits, I'll try to summarize as concisely as possible some, but not all, the things that we're concerned about.  As you get your exhibits, you'll notice kind of a summary page on top.  I'll use that as a prompter but realizing time is rapidly passing along here.  The first exhibit after that you'll see the vote on LB 662 and it was brought to my attention by one of the members of our board that this should be brought up this evening because people were told when the 662 debate was in its height that they were going to get property tax relief.  I'm also told in some of the other debates that are going on in the Legislature right now addressing Class I schools that the only reason why LB 662 was defeated was because of the sales tax issue.  Why, I don't know, I cannot read the minds of about 517,000 voters that voted on that issue.  Sixty-seven percent voted to repeal that law.  I don't think that they were necessarily against funding education, but I think they saw a number of things that were not necessarily the kinds of things that reflected them and thus that bill was repealed.  One of the main concerns I have this evening that

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I'd like to represent in terms of the Class I's, we're obviously the most rural districts in this state.  I, too, got the data as you did, it showed the differences in the state aid that they would or would not get in comparison to what they're receiving now.  Many of them received a reduction and others act in an absolute termination of their state aid.  Rural American-is not necessarily on a bounce back.  In a couple of the exhibits I've included, show some of the things that are happening.  We've seen attrition; we see an aging demographic pattern; we see a lowering economic issue.  And someone said, well, you know if you get twenty percent of that income back, that's pretty good.  I said, well, twenty percent of nothing is nothing.  Just to make an illustration that the income, of course, is not going to be that robust in many of the Class I Districts.  But one of the things I'd like to ask of this committee, of these legislators, is to ask that a run be made.  If we were to take this bill, LB 1059, and not increase any additional revenues and show how the monies would be distributed to the school districts right now based on the current $133 million, I think that would show who's going to be really fairing well in this legislation.  and I'm very serious in that request.  I guess the bottom line here...

 

SENATOR WITHEM:  Pardon me for interrupting but specifically would that prove?

 

RICK BAUM:  As we understand the bill, our understanding is that there will be larger districts that are going to get the money, and even those districts that are getting money now that are not Class I's but inclusive of Class I's would receive a reduction...

 

SENATOR WITHEM:  I don't know if that's true or not.  What would that prove?

 

RICK BAUM:  That would prove that this is not going to be advantageous to all the school districts across the state.

 

SENATOR WITHEM:  I guess I don't understand how showing what $133 million would do in this formula proves anything about what a different figure of appropriation that we're trying to give to the bill.

 

RICK BAUM:  Well, the point...

 

SENATOR WITHEM:  I'm, sorry, Just go ahead with the testimony.

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RICK BAUM:  No, that's, no, I'm glad you did because one of the reasons I wanted to bring that up is that the Class I's have been receiving a lot of brunt, as you well know of their so-called property tax havens and there's the same disparity of levies even amongst the K-12 Districts as there are in the Class I's, and if you take the revenue data, and I don't have that with me tonight.  I thought about it after I already left the office, but I did a comparison showing the levies and in the per capita income in that district.  I took the top ten levies in the K-12's and the top ten levies in the state of the Class I's and also compared the lowest ten levies of the K-12's and the lowest ten levies of the Class I's and showed the per capita income- The disparity existed in both categories.  So I guess what we're saying as bottom line, we see that this bill is going to hurt rural Nebraska more than it's going to help it, and that's all I'd like to say.  Everything else has been said and I don't want to be repetitious in that and respect your time, but as an official position, NSIA (Nebraska School Improvement Association) would like to go on record as opposing LB 1059, as written tonight.

 

SENATOR WITHEM:  Any questions? I guess the only thing I'd do, Rick, is to ask you to wait until you see the neutral testimony we're going to be seeing from the Department of Revenue here in a few minutes and react accordingly to that.  Also I saw when handouts came from a couple of other sources, the Farm Bureau Federation and Dr.  Ossian from Waverly.  Those just happened to be distributed.  Those were part of your handouts?

 

(INAUDIBLE) No.

 

SENATOR WITHEM:  They just happened to come at the same time.  Okay, I was just slightly confused there.  Okay.

 

RICK BAUM:  One of the things that we don't understand based on the data that exists, or I should say, does not exist is how, do we know where the income is actually coming from.  If we have the data and relationship to the income from the Department of Revenue, does that show it by districts, Senator?

 

SENATOR WITHEM:  To my knowledge, it doesn't, but I'll wait and let them speak for themselves.

 

RICK BAUM:  Okay.

 

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SENATOR WITHEM:  I think that's one of the problems I have with the preliminary look at the data I've seen that it doesn't show it by district.

 

RICK BAUM:  All right, thank you very much.

 

SENATOR WITHEM:  Thank you very much.  Yes sir, will you...

 

MONTE ROMOHR:  I was anti.

 

SENATOR WITHEM:  Yes, come on up.  You're the third individual who...  and then Weill go to Mr. May, Mr.  Chillcoat, and Mr.  Smith.

 

MONTE ROMOHR:  Thank you, Senator, my name is Monte Romohr.  I'm from Gresham, Nebraska, I'm a member of the Utica Centennial School District.  I'm not going to remember all the things my superintendent back here tells me to say, or wanted me to point out...  all I can say is that I'm a farmer and I pay property taxes.  And my school district happens to be one of those schools that slipped through the cracks on this and we're going to lose state aid to the tune of $132,000.00, or about 57 percent of what we had been getting in the past, according to the print that I saw based on 1987-88.  1 guess what I'd like to say tonight is, I'm in support of the bill, I think you've got a nice bill here.  I think it does the things that me as a amateur politician has done in my little district in my little corner of Nebraska has been preaching for years and that is, end the reliance on property tax.  Get it to the more appropriate signs of wealth and that is income and sales tax.  But, keep me where it was at.  That's all I'm asking.  Keep me where I was at on the thing and don't penalize the efficiencies that my school district has been able to do in the past by consolidating three, four and one-half towns.  That's what I want to get across to you tonight.  Again, I have a bunch of things that I could say on the things we're looking at.  I'm looking at a 5 1/2 percent increase in my own property tax as a farmer--just from this bill--if it's not "held harmless" for me.

 

SENATOR WITHEM:  Thank you, Monte.  Appreciate your comments.  Senator Nelson, then Senator Dierks have questions.

 

SENATOR NELSON:  All right, you're about the first farmer that came up here and I have an idea of some of these

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figures, but would you care to share with the people here.  Are you primarily, you're a young fellow, so I'm assuming you're renting some and you're a property taxpayer both.  Approximately, and I know you buy probably used machinery, new machinery, and so and so forth, what this 1 percent would cost you.  Would you care to share in your operation, if you're an average farmer?

 

MONTE ROMOHR:  Ma'am, we bought a new combine last year for $74,000 ...

 

SENATOR NELSON:  You're not an average farmer then, but go ahead.  (laughter)

 

MONTE ROMOHR:  Well, the last one we bought was ten years ago, so ...

 

SENATOR NELSON:  All right, all right.

 

MONTE ROMOHR:  Divide that by ten.  All right.  So, you're looking at 1 percent on 74, $740.

 

SENATOR NELSON:  $740.00.

 

MONTE ROMOHR:  Right.  I also a decent share of income tax in the good years, but my problem is with the way it's been in the past, if I didn't make much money, I still had to pay a lot of property tax, ma'am.  And there are people that I feel use the school system but don't necessarily pay the property tax.  Okay? I don't know how to say it any more diplomatically than that.  But, yes, I'm going to be effected from the income standpoint on this bill.* I'm going to be effected from the sales tax standpoint of the bill.

 

SENATOR NELSON:  The criticism that we hear, and I'm very much aware of, is the young farmer if he's not a property taxpayer, he's going to be the loser here because he's going to pay additional, maybe he'll pay income tax and maybe he won't, but he's going to pay additional sales tax.  Well, on the other side of the coin, then, they're saying, well, he's getting his kids maybe educated without paying a lot of property tax.

 

MONTE ROMOHR:  Where is this young couple that's renting a house now, where were they when I was educating the kids with my property tax? You know, if you...  Senator McFarland...

 

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SENATOR NELSON:  Umm humm.

 

MONTE ROMOHR:  Anything else?

 

SENATOR WITHEM:  Senator Dierks, I believe had a question.

 

SENATOR DIERKS:  Well, we haven't heard much talk here tonight yet about the increase in range land values that's happened last year and will happen again this year and that'll have some effect on the final printout that we have on this legislation.  How does that affect you? How does that effect you? What kind of difference do you see?

 

MONTE ROMOHR:  That's true.

 

SENATOR DIERKS:  How does that effect you? What kind of difference do you see?

 

MONTE ROMOHR:  That effects me even more than I've let on because first of all the property taxes that I specifically pay in my district, the increase on it, because of the increase of ag valuation increased between 20 percent and approximately 38 percent.  If we see an additional increase in the ag land valuation for me next year, I'm hearing figures from 15 to 20 percent, that again will be added in addition to this "non" hold harmless.  Furthermore, sir, if we lose the effects of LB 84, is it that gave us the rebate, I will get hurt there again, too.  All I'm, I'm pointing that out that, that's how I'm going to be effected as a farmer and a taxpayer out there.  All I'm asking you is if there's a five percent ...  yeah, I know, I'm from a cheap district, but if there's five cents out there that you can hold me harmless on, that will help.  Three million dollars, I understand, other than the Native American tribes would cover some of these things out of $230 million you're going to raise on this thing.  I don't think we're asking that much, and I'm going to be paying the income in sales tax to do it, to help do it.  But, yeah, the change in valuation will effect me too.

 

SENATOR DIERKS:  The percentage is how much, again, from

last year to this year?

 

MONTE ROMOHR:  It varied, depending on the piece of land on whether I had dwellings, or buildings on them or not, varied between 20 percent and 39 percent, sir, the increase.

 

SENATOR DIERKS:  Thank you.

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SENATOR WITHEM:  Thank you very much, Monte.  Appreciate it.  I'm going to ask everybody to do one thing now, if you would.  There's still lots of people I know who want to testify.  The committee's been at it for two hours and twenty minutes.  You've been at it for two hours and twenty minutes.  I would like to ask you to take a look at your remarks, see what you can abbreviate.  We want to make sure we give everybody a chance to, at the minimum, get up to the microphone and say who you are, where you're from, who you represent, and what you think about the bill, but I think we're kind of getting of getting to the point where reading prepared statements, those kinds of things, if you could limit that, we'd sure appreciate it.  If you have some new comments to make, if you just want to focus on one or two key points that you may have heard previous to this, go ahead and do that.  We want to give you a chance.  This is an important bill but we also, I think, should be a little bit sensitive to those that are still following you that have some information to give to us.  So, with that admonition, wouldn't you know it after I "chew" people out about being brief, one of my constituents is on the list next.  So we'll make one exception, I guess.  No, Jim, please.  How many people are still wishing to speak in a supportive position? How many people are still wishing to speak in a supportive position? We have ...  eleven.  How many are going to wish to speak in an opponent position...  four, okay.

 

JIM MAY:  I won't need a Page.

 

SENATOR WITHEM:  Okay, very good

 

JIM MAY:  Only a page in the book, probably.  Thank you, Senator Withem and Senator Hall, while he was here, and the members of the committee, my name is Jim May and I live in Papillion.  I'm not a paid political announcement, I'm only a constituent of Mr. Withem's district and I have children in the Papillion/LaVista School District.  I want to congratulate you and the members of the Nebraska School Finance Review Commission for a fine job on a difficult task and I know that you recognize a need to modify the current school funding methods and relieve the burden now being carried by the local property taxpayers.  we've seen a lot of data and we've crunched a lot of data, and I just want to put this on a personal level and then I'll get off your case.  Seven years ago my company transferred me to St.  Louis.  My children attended the Parkway School

 

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District.  Parkway is a district that provided a good basic education and offered programs not available to us in the Papillion/LaVista District, full-time counselors, full-time nurses, full-time school psychologists at the elementary level, full-time librarians.  Now while that doesn't seem all that important and it could be argued, they're not really necessary to a good overall education.  I think, and that's a good observation, I think they provide a means for a healthier learning environment for our children and the funds available in that district for $4,600.00 a student.  In my current district, there's about $2,500.00 a student.  My property tax bill in St.  Louis for approximately the same assessed valuation was $1,566.00, total; my property taxes in Papillion are $2,522.00 just for education, my total bill is over $4,000.00.  So that says something is really, really wrong and I think this proposed legislation goes a long way toward helping rectify that problem.  As long as you don't have the same thing happen that happened to the 8 1/2 percent where the local entities come right in behind you and erode the supposed benefits, and I think the lid does that but I think you have to have to watch the city and county governments that are coming in behind you and attacking the property tax bills, too.  Whether you do it within this bill or whether you do it within some other means, I think you have to be cognizant of that and not allow the other entities to come in and erode what you're attempting to do because if you do that, then I think what will happen is...  I read one of your reports and I think we'll end up in the terms of the Russian novel and we'll all die in the end.  Thank you.

 

SENATOR WITHEM:  Thank you, Jim.  I appreciate it.  Questions? Thank you very much.  Bob Chilcoat...  followed by Mr. M. L. Smith from Odell.

 

LARRY BELZ:  (Exhibit E) Mr. Chairman, committee members, my name is Larry Belz.  I'm speaking in place of Bob Chilcoat.  I'm here to testify in favor of LB 1059.  1 live in Stanton, Nebraska.  I grew up and was educated in this state.  I spent ten years working in Seattle, Washington, after graduating from college.  My wife and I returned to Nebraska to raise our seven children, realizing the quality of life that exists here.  For the past twenty-five years I have worked as an industrial engineer.  I've been president of the Stanton Community School Board of Education for the past three years.  Our Board of Education has been following very closely the School Finance Review Commission's work since it began.  We applaud the commission's work and the

 

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resulting bill.  We feel a change in the way schools are presently financed is long overdue.  A closer look at our situation at Stanton will point to the many problems that we, as well as many other schools throughout the state, face.  The last five years have been a very difficult and trying time for our board members and taxpayers.  Trying to provide a quality education with dwindling revenues is a tough balancing act.  Enclosed is a five-year history of the key statistics that show our dilemma.  I will highlight a few of them.  First, our philosophy is to have the most efficient school system possible.  This translates into value for our taxpayers.  The past five years we have cut our budget to the bone in an attempt to control expenditures.  Even though we have had very large increases in health costs, our expenditures have increased by an average of only 2.3 percent per year.  Unfortunately that's all the good news.  The bad news is that our local district taxes have gone up an average of 13 1/2 percent per year.  This is due to the present school financing formula.  We have only a $36 million assessed valuation, so the loss in revenue from state aid and nonresident tuition puts an ever-increasing burden on our taxpayers.  We are presently in the highest 15 percent of mill levies in the state, even though our per pupil costs are in the lowest 25 percent.  This translates into efficiency.  Property taxes have gone up not because of increased expenditures but to replace other revenue lost.  In summary, our children are not given an equal opportunity at quality education.  Legislative Bill 1059 is the light at the end of the tunnel that we have been waiting for so long.  It is innovative, fair, and timely.  Property tax relief coupled with a more suitable method of financing our public schools is paramount.  We look forward to providing efficient quality education.  All we need to achieve this are proper tools and LB 1059 is one of those tools.  We, therefore, urge the Legislature to have the courage to pass this important bill ensuring that all students will have this opportunity for a quality education, irregardless of the district they live in.  One further comment was made about what happens to some of the farm ground, some of the rural.  In our situation, one-third of our tax base, in other words $12 million assessed valuation comes from farm land.  These people have not been just hit with the 13 1/2 percent increase in the tax rate, but also in the increased valuation.  So these are people that are basically in dire straits.  So, yes, in some cases it would help rural Nebraska.  Any questions?

 

SENATOR WITHEM:  Thank you, Larry.  Are there any questions?

 

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SENATOR NELSON:  Larry, you had the figure on the farm ground then.  What does this do to your district?  Does this...  I have the printout here, and so on, but do you know?

 

LARRY BELZ:  I think the last figure I had we would go from $1.76 general levy to somewhere in the neighborhood of I believe it was 50 to 60 cents in that range without any additional spending.  So that would be the impact it would have here.  One other quick comment was we had Mr. Chilcoat was one of the individuals who is a full-time farmer within this district.  He went back through, he refigured all his sales tax for the last several years, all of his income taxes, and everything, his property taxes he paid, his net result would be $1,000.00 savings in total tax bill.  So there are those things out there where they would be an advantage.

 

SENATOR NELSON:  Thank you.

 

SENATOR WITHEM:  Thank you.  Appreciate it very much.  Mr. Smith.

 

M. L. SMITH:  (Exhibit F) My name is M. L. Smith and I've given your legislative aide some handouts.  I'm going to get right to the meat of the testimony so I can make my comments short.  In my school district total tax dollars are decreased by 50 percent over the last seven years.  At the same time, taxes have increased an average of 3 percent over the same period of time, and in fact, dropped three out of the last several years.  The reason has been reorganization, reevaluation of property, utilization of cash reserve.  But more importantly the local board of education are representatives who pay taxes, live in the district, and are cognizant of the local needs and control of the district budget.  They represent their people.  I make no promises that taxes will continue to increase only an average of 3 or 5 percent, or whatever, in the Odell District, but I can promise you that my board of education will be fiscally prudent and we do not need a 4 percent lid attached to LB 1059 to see that they be fiscally prudent.  Now if you would look on page 2 of the handout I gave you, this was addressed to Senator Dennis Byars pointing up some of the problems that I foresaw in 1059.  To make a long story short, last year I spent $49,000.00 out of cash reserve for roof repair, asbestos removal, furnace replacement, and so forth, anticipating that I would be able to build up that cash reserve.  We've used some of our cash reserve in

 

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previous years to hold taxes down.  Now in November and October,.  Enron, and/other subsidiaries have indicated that they're not going to pay their 1989 taxes and I owe them $42,000.00 in back taxes.  The first third of the school year is traditionally an expensive part of the school year.  We pay our bills.  We've used up $49,000.00 of cash reserve, Enron has not paid taxes; I have delinquent taxes in my school district.  We have 20 percent insurance rates coming up for next year.  We've already negotiated our salaries at 4 1/2 percent increase for next year and that raises us to the tremendous base of 15.3, which even by Nebraska standards is low.  So now I have a low cash reserve, lost income from investments on the cash reserve, a 20 to 30 percent locked-in insurance increase, a 4 1/2 percent certified salary increase, an increased FICA and retirement rate, an accreditation rule that allows no exceptions to the rule or else you lose accreditation and a possibility of a lid being forced on a budget from the Legislature.  My statement is we have local elected officials that are cognitive of the local needs.  We should leave the local spending up to them.  If the Legislature wants to tinker with something, they should maybe tinker with the 45 percent funding, or the tiers.  I think you have a lid structure imposed in the funding bill already.  And Senator Crosby earlier asked, what do I say to this constituent that says, how come my tax bill went up when the 84 went in.  She should have asked the people who passed the tax bill onto her, which was probably the Lincoln Board of Education, since they control 60 percent of the budget of her tax bill.  It wasn't the Legislature.  If the Legislature raises state taxes, then she call Senator Crosby; if the local school board raises taxes, she should call the local school board.  That's the way our system in democracy operates.  That's all I have.

 

SENATOR WITHEM:  Thank you.  Mr. Smith.  Appreciate it. Senator Hall does have a question.

 

SENATOR HALL:  Out of curiosity, Mr. Smith, what have been your, over the last five years, your annual increases in your budget, percentage-wise?

 

M. L. SMITH:  Over the last seven years, it's been 3 percent.  Oh, excuse me, for budget?

 

SENATOR HALL:  Um humm.

 

M. L. SMITH:  Budget went probably 4 to 5 percent every

 

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year.  This year it went, I think it was 12 percent.

 

SENATOR HALL:  And those factors that you talked about?

 

M. L. SMITH:  We've dipped in, we've used cash reserve.  We reorganized.  Valuation went up in my district about 22 percent, land valuation

 

SENATOR HALL:  Right.  Do you estimate that you're going to go back to that traditional 4 to 5 percent over the next few years or do you see...

 

M. L. SMITH:  When we get our cash reserve built up, I think we will, but right now, we're going to be in a crunch and I'm looking for some relief from the Legislature on a 4 percent lid bill.  I said to Senator Byars that I thought it would be judicious for us if we would be allowed to raise our reserve up to at least a 1988 budget-year level or 20 percent of the total budget cash reserve.  If there would be an out, and I know you can't do this because everybody has a problem, and you start putting exceptions in the lid and then you have no lid.  So the best way is no lid.

 

SENATOR HALL:  What was your cash reserve before you started to dip into it?

 

M. L. SMITH:  Approximately a third of my total budget.

 

SENATOR HALL:  Is that something that you have set at the local level that is a requirement, a 33 percent reserve?

 

M. L. SMITH:  By state law you have can have no more than 50 percent and we were running about 30 percent, 35 percent.  We tried to get it down to about 20 percent and then with all these other problems, it's really created a crunch for US.

 

SENATOR HALL:  Okay, thank you.

 

SENATOR WITHEM:  Thank you.  At this point I think we had some more names on the list.  I don't know if they're pro or con, I don't know who still wants to testify, who doesn't, if you want to submit written testimony, you may.  I think we'll just kind of do a, maybe, pass the list.  Ron, why don't you come on up and have a seat and then pass the list on down.  There are other individuals that may wish to testify.  Sir, you're standing, why don't you come on-up and sit in the on-deck chair and get yourself signed in and

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let's move it on.

 

(Exhibit G#1, Jim Rea, President, Nebraska State Education Association)

 

RON WITT:  (Exhibit G#2) Members of the Education/Revenue Committee, I'm Ron Witt, Superintendent of the Millard Schools and I think about everything has been said that possibly was said, so I'll keep it very brief, other than to carry to you a message that the Millard Public School, the Millard Board of Education supports LB, 1059.  Just a couple comments, I know that we all don't agree on everything and that's particularly true in the school family.  I know the lid presents a problem and I'd like to just say that I think that school boards have been very prudent with their budgets and have been watchful for the taxpayers.  I heard earlier this evening that this is a revenue bill and we're not to talk about boys and girls in education, but I feel compelled to say that you know lids can be rather restrictive at times and I think we need to remember that sometimes new programs we're asked to put can't be put in under very stringent lids, and I'd like to have you keep that in mind.  Millard is a growing school district.  We're 16,252 students; we're growing at a rate of 500 students a year.  So having a very high tax levy of a $1.94, we look if no changes are made that we'll probably go at 10 to 15 cents next year- We need an extensive bond issue to take care of the building problems, so all we can see is problems with continued high property tax- To cut my remarks brief, I would just urge the committees to support the concept and move it ahead.

 

SENATOR WITHEM:  Thank you, Ron, appreciate it.  Next.

 

LESTER RHOADES:  Senator Withem and Senator Hall, Committee Members, I'm a Keith County Commissioner, and I'm a farmer.  I'd just like to quote mostly to probably the Revenue Committee.  I'll try to make three major points this evening.  Let me start with the third that makes up industry and business.  A recent newspaper article quoted the president of the UP Railroad as saying and I quote, "Any well-run business doesn't pay taxes." They pass that bill onto the people that do business with them.  Tax obligations are part of the cost of doing business and are passed on the margins or the mark ups.  My question to you is, who does the farmer and rancher, or the homeowner, pass the tax obligation to?  In Keith County we have approximately fifteen hundred households that are not farm and ranch, with an average income of $18,000.00.  That translates into some

 

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$27 million of income to pay a third of the tax bill, of this sector, 90 percent of the school children originate.  Now from the ranch and farm, there's estimated there are about 250 farmer/ranchers with an average income of $30,000.00 in Keith County.  Again this translates into a total income of $7,500,000.00 to pay their third of the tax and only 10 percent of the students come from this sector.  Now unless my math is bad, I find that 3 to 4 times as much income in a nonfarm household as in the farm and ranch sector, yet each has the tax bill to pay.  Now my second enterprise is the business enterprise.  It's still the foundation in economy in the State of Nebraska, and is the life blood of our cities and towns.  The actual value of any property used as a business can only be measured on ability to pay of such property to contribute to the return from the ownership thereof.  In our current situation, sources of income are not being treated equally.  Let's say that a large motel which can simply add a few cents a night to their rates and raise the increase revenue to pay the taxes.  The same goes for the rail and utility companies.  This, I believe, is not fair taxation.  Our current economy is not as healthy and increasing as, I believe, we are led to believe.  Our agriculture economy is struggling with adverse conditions.  Taxing currently is based on possible revenue earning potential, not on actual earnings.  You have the drought, the winter kill, the hail, and the disease are all variables that farmers and ranchers have no control over whatsoever.  I sit in a dry land farming community and we get our income producing crops only every other year due to the lack of adequate rainfall.  Current real estate cannot continue to be our base if taxed to the point that ownership of it makes it a poor investment.  The farmer and rancher sells it wholesale and buys it retail.  As I said, each year as a Board of Equalization member in Keith County, I listen to the pleas of constituents that can no longer afford to maintain farmsteads but we can continue to tell them to either pay the taxes or tear them down.  What a pity for' a state that once prided herself in the rich heritage we once knew.  Our school district, as Mr. Osmonde from Big Springs was here a while ago, will lose on this bill.  The information I get from the management services that was put out.  My taxes will increase approximately $3,600.00.  1 am paying $16,000.00 taxes now, that's a total property tax of $11,000-00 is to the school.  I pay 73 percent of my total tax bill goes to the schools, the local school, educational and voc/tech colleges.  And far as I believe, we should have more of the state income tax to support the schools and possibly some of the sales tax.  You know the farmer does

 

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pay a lot of sales tax when he buys equipment, has to replace it, and so therefore, the farmer is paying a lot of property tax and also the sales tax.  I thank you.

 

SENATOR WITHEM:  Thank you, sir.

 

SENATOR HALL:  I have a question, your name is Mr. Rhoades?

 

LESTER RHOADES:  Yes.

 

SENATOR HALL:  Mr. Rhoades, your opening quote, what was that again, you were talking something about chairman of the railroad said something about a good run business doesn't pay taxes, or that...  ?

 

LESTER RHOADES:  Yes, I read that article in the paper.

 

SENATOR HALL:  Was that private conversation between he and Mr. Harper?

 

LESTER RHOADES:  (laughter) Yeah, I think that's...    (laughter)

 

SENATOR HALL:  I was interested where you got that from, just out of curiosity.  Nothing more than curiosity, but if you had that in writing, I'd sure like to see it.

 

LESTER RHOADES:  Okay.

 

SENATOR HALL:  Not now, but sometimes.

 

LESTER RHOADES:  Okay, okay I'll send you that.

 

SENATOR HALL:  Drop it in the mail.

 

LESTER RHOADES:  Okay.

 

SENATOR WITHEM:  Thank you, Mr. Rhoades.

 

LESTER RHOADES:  Okay.

 

SENATOR WITHEM:  Next.

 

SENATOR CROSBY:  Tim's evidently never been in business?    (INAUDIBLE):  Huh?

 

SENATOR CROSBY:  Tim's never been in business?

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RICH SCHLESSELMAN:  (Exhibit H) Good evening, my name is Rich Schlesselman, I am superintendent of Petersburg Public Schools.  Basically, the things that have been said, I think, I would support.  I am in support of the bill, as far as the concept of it is concerned.  I do have one concern and would like to see one change in the measure.  They are passing around basically what I would say, the one point is that as several school districts throughout the state have attempted to curb the increases as land valuations went up and so on, our particular school district in the last four years has gone with a tax levy from a $1.80 and dropped down $1.41, $1.33 for the 1989-90 school year through a number of things reducing our cash reserve and a number of other things.  We will reduce our levy to $1.01, or just under a $1.01.  During that same time period in the last year and a half, we have put on a small addition to the building, made it accessible so that people can get in and out, added some office space and did it relatively inexpensively.  The point that I make with this is the fact that I think that there is a great deal of efficiency going on out there.  Some of us have taken to heart the fact that the Legislature and Governor Orr has stated that we need to reduce taxes, and in fact, in the Petersburg School District, someone that was owning a $25,000.00 home this year did in fact get a $273.00 real tax reduction.  I guess that is, again, due to a number of things.  If this bill goes through as I understand it will and we have dropped.  our levy down, we will end up losing the equalization money that shows in the printout, which shows great.  Money in the printout shows $73,000.00 we will get without reduction in tax levy.  As I understand it, we will then end up losing that equalization formula money.  Maybe not...  and they're shaking their head, and I think that's great if we're not going to lose that, but as I understand it, when I drop down to $1.01, 1 automatically lose it.  Larry's shaking his head that I don't lose it, so I think that's great.

 

SENATOR HALL:  We handled that problem, didn't we?

 

(laughter)

 

RICH SCHLESSELMAN:  Hey, I'm...  That's great.  The one point that I would make though that if this is going to become a problem, I would ask that you consider a three-year average on that levy so that as districts that have attempted to reduce the levy, have followed the mandate of the state, that they not-be penalized for it.  But if I'm not going to lose it, I would support the thing even more

 

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completely than I did before.  (laughter)

 

SENATOR WITHEM:  Senator Hartnett.

 

SENATOR HARTNETT:  I think you're about the second or maybe...  have brought up about the cash reserve and that you had to, good management use your cash reserve to pay some of the current bills.  And I, maybe, is there in the bill, I just haven't looked at it close because, should there be a cap on how much cash reserve that you can set aside?  Should there be a limit on cash reserve?  I'm asking you.

 

RICH SCHLESSELMAN:  You're asking?

 

SENATOR HARTNETT:  I'm asking you, yeah.

 

RICH SCHLESSELMAN:  I don't know, we run 10 percent of our budget for cash reserve and that is way too low.  Way too low, because if you don't happen to get tax money in at a given time, you can be visiting your friendly banker far too often.  I've been fortunate not to have to do that in the four years that I've been in Petersburg, but prior to my coming there, they spent a considerable amount of time at the bank.  So I guess that's the only, I would like to see it at 20 - 25 percent, though.

 

SENATOR HARTNETT:  Okay, thank you.

 

SENATOR WITHEM:  Thank you.  Senator Nelson.

 

SENATOR NELSON:  Would you share with us how you were say, able to cut mill value every year, or the levy?

 

RICH SCHLESSELMAN:  Well, part of it is, I think...

 

SENATOR NELSON:  You had a big reserve and you...    (inaudible)

 

RICH SCHLESSELMAN:  No, no, no, the big part of it is the fact that we did have one Class I that closed and we picked up part of the land.  A lot of it is the fact that valuations have increased dramatically in the last four or five years.  In some cases, some of the valuations have increased by as much as 50 to 100 percent, doubled in the last five years.  We have attempted, rather than taking what the new valuation was and multiplying our levy out and setting our budget accordingly, we have attempted to set a somewhat restrictive budget from that perspective.

 

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SENATOR NELSON:  Do you have a lot of rangeland in your district?

 

RICH SCHLESSELMAN:  About half of it.  The highway goes right through, right at the edge of Petersburg and everything west is rangeland and everything east is pretty hilly farm ground.  It's fairly good farm ground if we don't get frozen out and we get sufficient moisture so that we can operate.

 

SENATOR NELSON:  Cinch bugs and rain and everything else.  Right.  All right.

 

RICH SCHLESSELMAN:  But the western half of the district is rangeland and the eastern half is hilly farm ground.

 

SENATOR NELSON:  Thank you.

 

SENATOR WITHEM:  Thank you very much.

 

RICH SCHLESSELMAN:  Thank you.

 

DENNIS GENGEBACH:  Senators, my name is Dennis Gengebach. raise corn, soy beans, cattle and hogs in Gosper County in Southwest Nebraska- I'm a land owner and also a member of the Board of Education for the Bertrand School District 54. I would first like to thank the Revenue and Education Committees for the opportunity to express my views.  As a taxpayer, I strongly support the legislative finding that there is an overreliance on the property tax for school support and that state aid has not kept pace with increasing school costs.  The legislative intent to provide state funding for 45 percent of the aggregate school operating costs is an admirable goal, however, my opposition to the bill lies in the drastic impact that an immediate enactment of this bill would have on our taxpayers and our school system.  According to the Nebraska Department of Education Management Information Services, the Bertrand School District would 52.2 percent or greater than $59,000.00 of the state aid that it now receives.  With the income tax rebate, the state in reality would only provide 5 percent of our budget.  The remaining 95 percent would have to come from our taxpayers in the form of increased property taxes. This, coupled with the loss of $35,542.00 as a tax refund to the Trailblazer Pipe Line Company and Burlington Northern Railroad would create a double hardship on our taxpayers.  Our agricultural economy is already depressed with the

 

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drought of the last two years and the outlook of higher taxes and lower income is a gloomy one.  Our school district now has a low mill levy because my predecessors on the school board thirty years ago pushed for and achieved consolidation of several smaller districts to provide an excellent tax base for our school system.  The immediate impact of this bill would be to penalize us for building a base to educate our children.  In conclusion, I wholeheartedly believe that the changes suggested in Legislative Bill 1059 need to be made, however, I would humbly ask that the committee gradually make these changes to minimize the drastic impact on our taxpayers and our school system.  Thank you.

 

SENATOR WITHEM:  Thank you.  Questions?  Appear to be none.  Senator Nelson.

 

SENATOR NELSON:  What county is Bertrand in?

 

DENNIS GENGEBACH:  Bertrand is in Phelps County, there's part of Phelps and Gosper County.

 

SENATOR NELSON:  Thank you.

 

KEN BABCOCK:  Thank you, Senators, for hanging in there, and waiting us out.  I'm Ken Babcock, I represent Meridian Public School which is a consolidated school district.  I represent the board and the children of Meridian, and I wish to speak in opposition of 1059.  You've asked for some change in testimony and I have a little different nuance here in that Meridian is a "winner" in the formula.  We, according to the printout of two years ago, we would have been a winner of $22,000.00, but included in that $22,000-00 is the income tax rebate of $27,000.00, so I see it in a little different light.  I see income tax going out, going to the state, income tax coming back--of $27,000.00 and the entire increase for our district is $22,000.00.  1 see actually a net loss for our district of $5,000.00.  With that, if we do say that is an increase, our levy would have went from a $1.65 to $1.60 that particular year, and that would be very, very difficult to explain to my patrons with income tax going up 17 1/2 percent, sales tax going up 1 percent, and our levy going down a nickel.  And we are a property rich district because we are a consolidated district--three communities.  I have another problem with the system and that is, it was alluded to earlier, and it was built into the system that Omaha's on it's own tier.  Omaha defines it's own average.  One of the previous

 

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speakers mentioned that what's good for Omaha is good for the entire state and if what's good for Omaha is good for Meridian, I could support the bill.  If we can define our own average cost, then we are guaranteed to be very, very near that minimum levy and if you would take this printout and go backwards to see what would happen to Omaha.  Of course, Omaha under this printout will come very, very close to the minimum levy.  It's mathematically impossible to do anything else, and I think that's a basic inequity of it.  I know Omaha has some special problems but Meridian has some special problems and I just don't think it's fair.  It might be a political reality but I don't think it's fair.  One of my biggest problems with the lid, and you're probably tired of hearing about this, but I represent kids here and I don't see boards going out spending money willy-nilly, you know, for the school districts and we're talking our kids and we're talking our grandkids.  Now, if this body can guarantee me that if Blue Cross/Blue Shield goes over 4 percent, we don't have to pay it or propane goes over 4 percent, or gasoline.  I got correspondence earlier this week that the Nebraska Retirement System is going up 5.4 percent and that comes from the state.  Now if I can refuse to pay those, then I can go along with the 4 percent lid and you know that's impossible.  But, what are we going to do?  I have some other problems with that because you know that on the Education Committee as well as anyone, that the school is taking on more and more responsibilities.  We're supposed to be looked to as...  or-, we are being looked to as the parents, as the church.  We're supposed to have elementary counselors and I think that's an excellent idea.  We don't have one right now.  Under a 4 percent lid, how are we going to get one?  Technology, we should be on the cutting edge of technology, and we're not; we're only about five or six years behind.  How are we going to do that?  We're talking our future here.  What about preschool?  I think that's a need.  Where's that going to come from?  Special problems, in my district, 180 kids this year, we had three students move in that will require a lot of special education.  They're not covered under this lid.  What if these kids cost us $60,000.00?  That takes care of our 5 percent, if the board would vote to go over the 1 percent.  What do we do about grants?  For example, this morning I received, or Meridian Public School -received a grant to participate in a satellite learning session.  What it is, it's through SERC, it's through a state, well, it's a cooperative situation but we get to set up a satellite so we can tie in to some learning networks and our kids can take Japanese.  They can take Russian, and they can take so on,

 

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you know, some advanced courses.  Well, this is going to be split situation.  We're going to share half of the cost, but it's still going to cost thousands of dollars, and those thousands of dollars are going to show up on the budget, even if we get reimbursed for half--they're going to show up on the budget.  Do we not do that because that will put us over the lid?  I think...

 

SENATOR WITHEM:  We're going to have to ask you to get...  lots of people still want to talk.

 

KEN BABCOCK:  Yeah, I'm sorry, I get kind of carried away when I start talking about kids.  My final point is I don't think that you can get a more conservative group of people, generally, than a school board, and I think what a lid is telling a school board is that you are irresponsible; that we don't trust you.  And I think that's actually a slap in the face to the school board.  Thank you.  I'm sorry for going over.

 

SENATOR WITHEM:  Oh...  thank you, thank you for your testimony.  Just one point, the grant money, it's probably not your local match but the external money, you'd get the grant money, is apart from the budget, at least that's the intent of the bill and we need to clarify that.

 

KEN BABCOCK:  Well, the wording of the bill doesn't state it that way.

 

SENATOR WITHEM:  Okay, okay.  Marge.

 

MARGE YOUNG:  (Exhibit I) I am Marge Young speaking for the League of Women Voters.  We have members in many parts of the state and about three years ago we did a study of financing public schools and I'm happy to tell you that our position goes pretty much down the line with what this bill has in it.  So we very much support LB 1059.  We can see that this does not mean that we all will pay less taxes and I think that's come out in other testimony.  It does mean that all taxpayers will share more equally in the costs of education through their property taxes, sales and income taxes.  A greater dependence on income and sales taxes, rather than the property tax is shifting the tax burden to tax forms which are inherently more fair.  That's one of the reasons we support the bill.  We are at a crossroads.  We can accept the findings of the School Finance Review Commission which are expressed in LB 1059 and bring Nebraska into a respectable level of state support in comparison with

 

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other states or we can reject it and keep the unfair status quo.  The education of our children is of utmost importance.  When we fail to educate well, we lose in many ways and we pay out lots of tax dollars for our failures.  We shortchange our children in not having the educational background to realize their full potential.  We shortchange our state in not having as many productive, law-abiding citizens and taxpayers as we could have.  We pay out more in welfare.  We pay out more in correctional facilities and prisons.  We, the League of Women Voters of Nebraska, do not relish the thought of spending more money on prisons and correcting social deficiencies.  We prefer doing all we can to provide the best possible education for all Nebraska children.  The League believes in a public educational system financed by a combination of local and state revenues.  Since state government has created the public schools by law, it has a responsibility to aid local districts in providing adequate and equitable school financing while maintaining local control.  And many people have mentioned the local control.  And I'm going to skip a bunch of this.  The only part of LB 1059 which the League does not support is Section 16 which offers a lid, and we've heard many people speak against the lid.  The League has consistently opposed limitations upon budgets of both local government subdivisions and state expenditures.  We believe it is up to the local taxpayers to evaluate their program needs according to their own fiscal abilities.  The League of Women Voters supports LB 1059 with this one exception; to provide 45 percent state funding for Nebraska public schools; to reduce reliance on property taxes; and, to use money from income taxes for the support of public schools.  And, we'd like to commend Senator Withem and this committee and the State Finance Committee, and the Revenue Committee for their dedicated work to study this issue, and for these long hearings that go on and on.  (laughter) I appreciate the chance to talk to you.  Are there any questions?

 

SENATOR WITHEM:  Are there any questions?

 

SENATOR CROSBY:  No, but thank you for staying.

 

MARGE YOUNG:  Thank you.

 

SENATOR WITHEM:  Yes, thank you, Marge.  Deb.

 

DEB THOMAS:  I'm, this neutral testimony that people keep referring to all evening.  Senators Withem and Hall, and Members of the Education and Revenue Committees, I'm Deb

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Thomas and I'm appearing before you this evening on behalf of Governor Orr.  Governor Orr has asked me to provide you with her thoughts about LB 1059.  Legislative Bill 1059 consists of two distinct, yet interdependent proposals.  The first proposal revamps school finance in our state, specifically by changing the equalization aid formula and by also increasing state aid to school districts that are wealth poor.  The second proposal provides a funding  mechanism to achieve the first goal.  The second proposal  has also been viewed by many as a means of achieving property tax relief.  While these two proposals can be viewed discreetly from a policy point of view, they are inseparable and ultimately must be judged by how their interaction effects all Nebraska taxpayers.  For the last eighteen months, Senator Withem and the members of the School Finance Commission have performed yeoman work in studying the question of school finance.  The commission has made responsible recommendations to improve the equalization portion of the state aid to education formula.  These are contained in LB 1059.  The concept of moving away from property ownership as a sole determinant of wealth seems appropriate as our state's economic base broadens and as capital expands its dominant role in production agriculture. The effects of changing the equalization formula, specifically in relation to increasing the portion of operating expenses borne by the state, have been well documented in the commission's report.  Governor Orr feels that it is imperative that such impact information be available for study by both the Legislature and herself before coming to a final judgment on the merits of LB 1059. To that end, the Governor has asked that the Revenue Department study the impact of increasing sales tax rates by 25 percent and income tax rates by 17.5 percent to finance the concomitant increase in state aid that will provide property tax relief through LB 1059.  She is  particularly aware of the need to make everyone patently aware of the ramifications of tax shifts when changing state tax policy. Three years ago such information detailing estimated shifts of income tax incidents was made available and printed extensively regarding LB 773.  Notwithstanding, there remains much consternation, as you all know, among the taxpayers in Nebraska regarding these shifts, which have been perceived simply as tax increases,.  Given her personal experience, Governor Orr recommends that the effect of a funding mechanism be studied and discussed to the same degree as the formula changes were studied and discussed by the education community.  In addition, she would like to have assurances that income and sales tax increases would

 

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indeed providing property tax relief.  When Senators Withem and Moore announced their recommendation for the specific funding mechanism a couple of weeks ago, the Revenue Department began to analyze the impact on taxpayers in two different ways; one, they used a sampling of data from twenty representative school districts and then they were able to do some macroeconomic analysis for this state as its entirety...  and I'll pass these out...  ah, good still a Page, I have twenty-five...

 

SENATOR HALL:  We have tough Pages with this committee.

 

DEE THOMAS:  Hey, you know, these are loyal to the end.  I'm really impressed.

 

SENATOR HALL:  That's right.

 

DEB THOMAS:  I want to emphasize that this information is really preliminary and within a month or so, there's hopefully going to be complete estimates that will be modeled for taxpayers in all school districts.  As soon as it's available, it will be provided to you in its complete form.  The data in the handout is pretty self-explanatory.  It presents the estimated total tax shifts by taxpayer type.  These numbers will change when an analysis is done for all the school districts.  However, the analysis does include the majority of income taxpayers as the Lincoln and Omaha school districts are part of the twenty districts modeled.  I'd like to make just general notations about this information.  On the front page under the "Macroeconomic Change in Tax Burden" you'll note that it indicates that there is a shift from "farm" to "nonfarm" households when it is looked in the aggregate between income, sales, and property.  That's been discussed somewhat this evening, I think, and then second of all, when you go to the next three pages and you look at the total tax dollar changes of various taxpayers, there appears to be whole lot of plus columns which is not to indicate in any way, shape, or form that there aren't shifts, because there are indeed folks who are going to have a decrease in their tax burden.  I mean there's always going to be winners and losers, it's been discussed, and basically as Senator Moore indicated in his opening, you're going to see losers anti renters, and you're going to see owners in lower income homeowners.  I mean that just makes sense.  You know, just, just generally speaking, renters aren't going to get the property tax relief unless the landlord passes it on which you cannot model, and folks who have moderate income and own their homes will, will

 

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derive more benefits.  I mean, that's just somewhat logical, but anyway, that's basically what, those are the highlights of that handout.  Again, those last three sheets are only the "Weighted Averages" off the twenty representative school districts that you'll find on the last page.  So that is not in any way, shape, or form, I mean, this is going to change. I don't mean to represent that this is absolute.  This is a model; it will be fluid.  The Governor would like to take time to study the information for all the school districts when it is done, before coming to any judgment about 1059. She's particularly pleased with the efforts and the results of the commission regarding the recommendations to change the equalization formula.  She believes that it's very appropriate and desirable for the Education and Revenue Committees to now be reviewing the bill jointly as the two distinct parts must be thoroughly harmonized before passage of any successful school finance legislation.  Thank you for your attention and at a very late hour.  I'll be happy to answer any questions or I'll be happy to leave.

 

SENATOR WITHEM:  I don't think the latter is an option at the moment, as I do have some questions and I appreciate your testimony, and I appreciate the manner and the spirit in which it was given.  But, there are some concerns I have both about the data and about the testimony.  You indicated that there has been a lot, eighteen months worth of work, discussion about the equalization concept, the school funding concept, and those sort of things.  You made allusions to the same type of attention needs to be given to the revenue sources.  Does that imply we need another eighteen months of...

 

DEB THOMAS:  No...

 

SENATOR WITHEM:  What do we need?

 

DEB THOMAS:  No, I guess...  the point of the testimony, Senator, simply is that it's only been that the financing mechanism has only been before the public for two weeks, which means that there just simply hasn't been the time to put the sorts of numbers together that just because of the time the commission was able to take.

 

SENATOR WITHEM:  Yes.

 

DEB THOMAS:  It is not to mean that they should parallel each other in terms of time whatsoever.

 

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SENATOR WITHEM:  Okay, but it was possible to get something done tentative sort of information done for the hearing tonight.

 

DEB THOMAS:  And it's very tentative and it's only off of the twenty school districts, as opposed to the nine hundred plus.

 

SENATOR WITHEM:  Yes.  I was going to ask some, thinking of some "cutsie" sort of questions to ask, but it's a little too late for that.  I was going to ask if they had compared blue houses to red houses, or any of those things, because I think that information has as much validity in understanding the proposal, as comparing business farms to household farms to industrial to commercial to nonfarm to household.  The purpose of the bill is to deal with inequities that exist between school districts, and until such time as we have that information that talks about the inequities between school districts, I think the information you present is not particularly worthwhile, and frankly, I think it's a little bit misleading.

 

DEB THOMAS:  I guess the point is, is that you can look at where the shifts are going to be in terms of the dollars that the districts will receive through the new formula but to look at that information by itself and not similarly look at where the money is going to come from because there can be as many inequities built into the finance side as through the delivery side.  And I think, the Governor's point simply is that those two must be harmonized

 

SENATOR WITHEM:  Okay.

 

DEB THOMAS:  I think that was brought up earlier.

 

SENATOR WITHEM:  I would agree with that, I think though that had we come forth with a printout that nearly showed Class I Districts getting "X" percent increase, Class II Districts getting "X" percent increase, we would have been roundly criticized, justifiably.  I think the same criticism applies to merely lumping together farm versus industrial to a nonfarm household, and I wonder if it may not just engender greater debate concerning urban/rural splits that too often dominate this type of discussion.  The effect of it may not be more to do that, than it is to illuminate anything.  Frankly, I don't know what this illuminates.

 

DEB THOMAS:  I don't know, there certainly has been a lot of

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discussion this evening whether or-not this is a pro-rural or pro-urban bill, so I think to a degree that discussion will always be there and if you have the numbers to at least put that argument to rest on way or another, you can set it aside and deal with whether or not you're going to deal with the equities and inequities that exist within the school system.  But the question will be there until it's answered to whatever degree your data permits you to answer it, I think.

 

SENATOR WITHEM:  Are there other questions?  Senator Bernard-Stevens.

 

SENATOR BERNARD-STEVENS:  I had two.  Deb, I'm real curious, and I know you'll have a good response because you always do.  Why if the data is very "rough" and where it could change at any time as we get and really look at it a little closer and we figure out what we're really doing on this stuff, why then come to this committee this evening, put out for the public, put out for the press, information that you know is so "rough" that we may not even have some valid conclusions to be made by this?

 

DEB THOMAS:  Well, because...  As I indicated in the testimony, while the numbers may change to a degree, this has been modeled off a majority of the taxpayers.  It is not going to change that much.  I mean, the fact that you're gonna have renters having an overall increase in tax burden and home owners of moderate and low income having a lesser total tax burden is pretty predictable without even going through an analysis.  Second of all, I could have brought and did not think that the committee would wish to be burdened, but perhaps I should have, 1 could have brought, as Senator Withem indicated, these numbers by each school district.  These numbers are all "weighted up" by school district, but I could have told you exactly what these numbers were for each of these categories for Omaha, for Lincoln, for...  you know, the four Class I's, et cetera.  if that would have been more illuminating, I could give you that tomorrow.  It just gets to be kind of burdensome and kind of bulky.  That is what I believe they are intending to do for all nine hundred districts.

 

SENATOR BERNARD-STEVENS:  The second question I had was more up from the testimony in the beginning, you know, I guess I'm kind of like Senator Withem, I almost take offense at the numbers presented this evening because it's so misleading in what we're trying to do in the state overall

 

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on education policy and equalization of education fairness to our children.  Has anyone, to your knowledge on the committee or that has talked about the bill, from the commission ever stated or stated...  I want to say this carefully, that the bill 1059 and its funding mechanism was revenue neutral?

 

DEB THOMAS:  No, and there's nothing in my testimony that would indicate...  I mean, the whole point that's...  for example, that was discussed earlier by the commission is that the commission really did not feel that it was in their charge to spend a lot of time -dealing or making recommendations as to the specifics of the funding mechanism.  And, the point of my testimony merely is, is that if you're going to deal with inequities in the tax...  you know, if...  there's two parts to this, there's school finance and there's property tax relief, and, and, and financing mechanism of the school finance that you cannot truly bifurcate them, that they really are intermingled, and if you're gonna start running numbers, you have run numbers on both sides to determine whether or not you're creating an equitable or an inequitable tax policy because while you may deal with the school districts in terms of the dollars you give them, depending upon how you raise those dollars, you could end up with more inequities in the end than you had in the beginning.

 

SENATOR BERNARD-STEVENS:  How do you define inequities?

 

DEB THOMAS:  the...  certainly there have been plenty of studies to determine what the inequities have been in terms of school district finance.  Whether or not you're average per student costs and funding have been inadequate.  You can do it by school district; you can do it by per pupil; you can do it by Vard Johnson's method who has sued me to argue that our current formula and funding is inadequate.  But, that obviously comes down in that being a policy choice by the policy makers as to what is going to be equitable.

 

SENATOR BERNARD-STEVENS:  And would you also agree then when we're trying to deal with inequities that it is fair for the Legislature, and as for the executive branch, but mostly for the Legislature in at least this arena, to decide levels of inequities, in other words, yes, we may have this as inequitable, and the other's inequitable, but this is by far a better inequity and more fair inequity?

 

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DEB THOMAS:  Absolutely, and the presentation of these numbers is simply a means to say, when you make those decisions you ought to look at this information and those facts, because you have to harmonize...

 

SENATOR BERNARD-STEVENS:  Exactly.

 

DEB THOMAS:  ...  the package and make the decision.

 

SENATOR BERNARD-STEVENS:  Exactly, which is why I would have liked to have seen if we're going to show, to allude to one inequity, let's make sure and have the other side as well, so we have the whole picture.

 

DEB THOMAS:  Well, that's the whole point, you already had that in the commission's numbers that had been put out in terms of what the funding would be to the different school districts.  This is supposed to be the other side, Senator.

 

SENATOR NELSON:  Deb, is this what you're talking about?

 

DEB THOMAS:  I can't see that far.

 

SENATOR NELSON:  Well ...

 

DEB THOMAS:  I'm sorry I don't have any glasses on and I really can't see that far.

 

SENATOR NELSON:  The equalization formula aid, equalization aid, some of the rebate and equalization and the aid under the existing formula...is that what you're referring to?

 

DEB THOMAS:  Basically what I'm referring to is the winners and losers on the school district side

 

SENATOR NELSON:  Well, that's ...

 

DEB THOMAS:  And the information that's been prepared.

 

SENATOR NELSON:  That's ...

 

DEB THOMAS:  If that's what that is, Senator.

 

SENATOR NELSON:  That's what I have here.

 

DEB THOMAS:  Okay.

 

SENATOR WITHEM:  Senator Hall, I believe, had a question.

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SENATOR HALL:  Just two.  Deb, on the front page of your handout, right below the "Macroeconomic Changes" you have how Nebraska currently compares with other states and you deal with sales, income, and property tax.  You show how we would rank now and if 1059 were in place.  Could I make a formal request that you give us a, show us what these same, through the same methods and the same states how we would have compared in the income tax arena prior to 773's passage in 1987?

 

DEB THOMAS:  Sure.  It would be no problem.

 

SENATOR HALL:  If you would supply that to us?

 

DEB THOMAS:  Can I ask you one question?  What tax rate should I assume that 773 didn't pass?  21 percent or 24 percent?

 

SENATOR HALL:  Use both.

 

DEB THOMAS:  Okay.

 

SENATOR HALL:  Give us, just give us both figures.

 

DEB THOMAS:  I'm sure we've got, I'm sure Revenue Department's probably got that off the top of their head, but...

 

SENATOR HALL:  I would be interested in what, how we would rank prior to the passage.

 

DEB THOMAS:  Okay.

 

SENATOR HALL:  And if you could, if you could show us on the same type of...

 

DEB THOMAS:  ...  really do an income, I can't do it on sales and property, right?

 

SENATOR HALL:  I only ask for income.

 

DEB THOMAS:  Just income.

 

SENATOR HALL:  That's all I would, that's all my request is.

 

DEB THOMAS:  Okay.  No problem.

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SENATOR HALL:  Secondly, I'd, I'm, I'm interested in the, in the reason for the, I guess, what I would, for lack of a better term, the delay in terms of looking at the issue of the financing and how it would impact based on the, I guess, the not so necessary need to look at impact with regard to 773 when it was passed a couple of, few years ago, we found out that after while that because we didn't do that that there was, I guess, a more dramatic increase than had been anticipated.  Is this just a new approach to say, we should pull back and make sure that we know exactly what is going to happen when once we put a financing system in place?  Or, what is the overall purpose for them?

 

DEB THOMAS:  Well, I supposed that I'd answer in two ways.  First of all, when I was Revenue Committee Counsel, when 773 was passed in 1987 under Senator Johnson's signature.  More than one memo went out which I've all kept copies of, that detailed in great, and what I considered at the time to be pretty great detail that there were going to be significant shifts and there were discussions of that on the floor of the Legislature that there were going to be pretty big shifts and they were going to be in the middle class.  As to whether or not there was a property tax, or whether or not there was a...  a net tax increase as many of you may recall, I early on said it was an unintended tax increase given what the revenues did shortly thereafter.  I think that the Governor has, had felt in 1987, that she had adequately participated with the Revenue Committee in alerting both the public and the Legislature specifically as to what those shifts were and yet obviously we all know that she's still suffering the consequences of that perceptional lack regarding the shifts.  I think at this point in time, she is very cautious about...  and, and that caution is, is given to you also that you can't be careful enough in making sure everybody understands what the impact is on shifts of this magnitude.

 

SENATOR HALL:  Does the Governor still intend this...  supply, I guess, or allocate $100 million for property tax relief as she stated a month ago?

 

DEB THOMAS:  To my knowledge, I think that that has always predicated upon available revenues and I don't know what the February board will do.  But, to my knowledge, yes.

 

SENATOR WITHEM:  Yes, Senator Nelson.

 

SENATOR NELSON: Deb, does the Revenue Department have  a

 

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breakdown of farm income and urban income?  In other words, to arrive at these figures...

 

DEB THOMAS:  Well, the...

 

SENATOR NELSON:  ...  they must have to have a breakdown.

 

DEB THOMAS:  Yes, see in the income tax if you're a farmer or rancher or a fisherman, you check the box, and 'so they have  the ability to go in there and get that information to the degree that it is checked.

 

SENATOR NELSON:  Well, not from what they told me.  I tried to get that in my county, a breakdown, and they told me that was impossible.  The only way they could do it was a little guess number by school district and you can't tell by school district because ...

 

DEB THOMAS:  That's true.

 

SENATOR NELSON:  ...  you might have a Doniphan address.

 

DEB THOMAS:  And, and, and, and the, and the economist who prepared these numbers is here and could come up and discuss it if you'd like.

 

SENATOR NELSON: Because I tried to get that very information...

 

DEB THOMAS:  I don't know how late you want to stay though, I mean.

 

SENATOR NELSON: And they told me it was not, it was not feasible.

 

SENATOR WITHEM:  I, I, yeah, that raises a question I have, Senator Nelson, because I'm thinking back and I'd like somebody from the School Finance Review Commission to correct me if I'm wrong but as I recall midway through this process, we began asking some, what we would characterize as tax incidence questions--who pays what taxes, where do they come from to what extent does will a certain type of person pay, more of this particular tax, and It-hat kind of tax.  And as I recall, we were dissuaded, I don't know if we were discouraged or told it wasn't available, but we were certainly dissuaded from proceeding in that line of reasoning under the impression that, gosh, even the Syracuse Tax Study had done a tax incidence, not done the tax

 

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incidence study and the Nebraska Tax Research Council was embarking on this major project to find out where the taxes are coming from, and that this data just isn't available but low and behold the bill gets introduced and two weeks later, Department of Revenue has all of these numbers available.  I guess that's a question I have about how those two situations...

 

DEB THOMAS:  The problem has always been, and the reason why Syracuse did not proceed...  succeed on doing an incidence study is twofold.  First of all, we could not get as Legislators, even with me being a part-time Revenue Department employee at the time.  We're really not given a complete access to the confidential data sources.  I mean it's just a perennial problem.  That's why the Legislature made me a, a Revenue Department employee and I spent weekends there trying to get at the data but I still couldn't release it to Syracuse because it would frequently be in groupings less than ten, which violated all these IRS contractual arrangements we had.  Therefore, Syracuse said, we're not going to do it because we have to put forth such a series of assumptions and we'll have all of our assumptions criticized, and it's not worth it as academicians to do it so we're not going to do it.  So that, that's what happened with the Syracuse thing.  What happened with the commission, I can not speak to, Senator, inasmuch as I was not party to that as staff in any way.  I do know that of the numbers that have been developed here, there are three pages of assumptions that are listed and I thought about including them and just thought we were getting awfully bulky but certainly those will be provided, and I will bring them by tomorrow.  They are assumptions that can be attacked just like the Syracuse folks indicated, but if you're going to do this at some point ...  in a..  you know...  you're gonna ...  you're gonna have to have assumptions.

 

SENATOR WITHEM:  I would suggest maybe on those assumptions that either, or both, committees may want to pursue those little more detailed, maybe not, at this time because it's getting late and maybe aren't available, maybe back to some policy-oriented questions.  Senator Hall.

 

SENATOR HALL:  Yes, quick, can we expect this kind of evaluation from the department on all bills that are introduced in the future?  (laughter)

 

DEB THOMAS:  Ones with this much impact, yes.

 

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SENATOR NELSON:  All right, you said

 

SENATOR HALL:  Good.  Who determines that degree of impact?

 

DEB THOMAS:  The Governor specifically, when the funding mechanism was announced the first of the year, specifically instructed the Department of Revenue to prepare an analysis on this because of the magnitude of the whole concept of school finance.

 

SENATOR NELSON:  What are you going to take a, you said a return, marked farmers' return, or if two-thirds of the gross income...?

 

DEB THOMAS:  How the analysis is done, Senator, I'd rather have Franz (Schwartz) answer because I didn't do it and I wouldn't want to answer wrong.

 

SENATOR NELSON:  Thank you.

 

DEB THOMAS: I mean, I know how I'd do it, but we really should ask Franz how he did it because he's the expert.

 

SENATOR NELSON:  Thank you.

 

SENATOR WITHEM:  Thank you, Deb.

 

DEB THOMAS:  Thank you, Senators.

 

SENATOR WITHEM:  Does anybody else have any final parting questions?  I tell you what we're going to do at this time.  It is now three hours and twenty-five minutes into the hearing.  It was my goal to close at ten thirty at the very latest.  We'll allow people to come through as quickly as they can.  You'll be limited to three minutes, excuse me, three sentences--I said that wrong; to three sentences.  Look at your testimony.  If you, we will leave the record open, if you care to revise your remarks and submit them in written form later on and we'll make those available to the committee.  It is important now, I think, the people who came down who wish to get on record, have an opportunity to do so, please limit your testimony to three sentences, and revise it in written form for the committee.  We'll consider it at a future time.

 

WALTER THOMPSON:  Would you let me say right now that I'm a member of the State Board, Walter Thompson, and the State Board of Education supports 1059?

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SENATOR WITHEM:  Nope, Walter, I'm not going to let you say that.  (laughter)

 

WALTER THOMPSON:  Okay.

 

SENATOR WITHEM:  Walter Thompson, State Board supports 1059.  Okay, boy.

 

SENATOR BARNARD-STEVENS:  You said the state board, I think, didn't you?

 

SENATOR WITHEM:  Yeah, I thought that's what I said, too.

 

A. LOY TODD:  Senator Withem, members of the joint committee, my name Loy Todd, I'm a paid lobbyist.  I work for the Nebraska New Car and Truck Dealers Association.

 

SENATOR WITHEM: Okay, those are your three sentences.  (laughter) No, no ...

 

A. LOY TODD:  Obviously why I'm here is because we're very concerned about the fact that there's a sales tax increase.  I want to point out just a couple of things very briefly about that sales tax increase and our major concern about this piece of legislation.  First of all, in our industry sales taxes effect sales.  Our sales will be definitely decreased in some manner by a sales tax increase, and I want to remind this committee and the Legislature that we're not talking about a one percent sales tax increase, we're talking about a 25 percent sales tax increase.  It's one penny, but it's 25 percent, and that gets me to our major concern about this bill.  We understand that there is a need to provide property tax relief.  We understand that there is a need to do some kind of major shifting.  We are not necessarily opposed to that.  What scares us to death is that this is this year's increase awaiting next year's increase because this does not adequately handle the growth that's going to be out there, and you heard the realtors testify.  They've already been hinting at you and other people have been saying, well, you don't probably really need the income tax part of this this year.  we'll worry about that next year.

 

SENATOR WITHEM:  Okay, so your concerns are:  Impact on sales for automobiles; the fact that it does not adequately provide for growth; and fear that we may jettison the income entirely and boost up the sales even higher.

 

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A.  LOY TODD:  Yes, Senator, without the growth...  we don't have growth in sales, the only growth is in income, and you've got to keep it...

 

SENATOR WITHEM:  Okay, we'll provide for you, and I'd urge you to take a look at their work, that our fiscal office has done.  Maybe you should talk to Sandy Myers, because we went through this couple of mornings ago, how the income is, in fact, how the growth in fact is taken care of and you can take a look at that information.  Next.

 

GARY THOMPSON:  (Exhibit L) Senators, my name is Gary Thompson, I'm President of the Beatrice Board of Education, and I have presented to you some graphs which simply are an illustration, a graphic illustration, of what is happening in our district and the reason that we support 1059 in its concept of equalizing property tax.  I want to point out, of course, that we-in Beatrice being the political subdivision that has been most affected by the Enron decision, we recognize the vulnerability which we have under the current inequities of the property tax system as it supports education.  A couple of things that I do want to point out, as far as our position is concerned, just to emphasize that in 1984-85 we received $1,750,000.00 in state aid to education.  Five years later in this current fiscal year, we are receiving $1,062,000.00, less in state aid than we received five years ago.  Our budget has increased by about 5.4 percent on an average of those five years.  The other thing I want to say is that I'm with the others, I don't want a lid...

 

SENATOR WITHEM:  ...  Okay....

 

GARY THOMPSON:  ...  4 percent.  We have built-in costs for next year of about 2.35 percent, that we have no control over.  So a 4 percent lid, we'd be able to give less than 2 percent increase to teachers' salaries "if" we did not increase "any other" budget.

 

SENATOR WITHEM:  Senator Hall has a quick question.

 

SENATOR HALL:  Clearly aware that the lid proposal that Mr. Jacksha and his group is circulating, are you actively opposing that?

 

GARY THOMPSON: Oh yes, we'll oppose that. we certainly will  oppose that just as we will hope that the 4 percent on

 

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this lid would be given.

 

SENATOR HALL: Because our lid looks like, you know, a picnic compared to his.

 

GARY THOMPSON:  Well, I understand that, but it's still not that much of a picnic, Senator.  (laughter)

 

SENATOR WITHEM:  Maybe a rainy picnic ...

 

GARY THOMPSON:  Yes, something along that line, yes.

 

SENATOR WITHEM:  Next up.  Thank you, Gary.

 

SENATOR NELSON:  Wait, one question.

 

SENATOR WITHEM:  Oh!

 

SENATOR NELSON:  You made a comment, and I guess I know that every year it's anticipated teachers' salaries will increase, but down on the farm, there's no increase.  I mean that grain's down twenty cents a bushel to that business owner.  There's no guaranteed increase- Why do we always have to say, a guaranteed increase?

 

GARY THOMPSON:  Because we're in a competitive market- if we're going to keep teachers in Nebraska, we've got to compete with them, and we have to.

 

SENATOR NELSON:  There's a big surplus of teachers.  That's not a problem.

 

GARY THOMPSON:  Well, I ...  that's not what we find, Senator.

 

SENATOR WITHEM:  Thank you.  Thank you.  Next.

 

DALE DeRIESE:  I'm Dale DeRiese, Superintendent of Schools, I represent the Holdrege Public Schools.  I think I shed a little different light on a request I have.  Number one is our school system very much supports LB 1059 and that I won't go into all the reasons because they've been covered.  My only concern that I'd like for your consideration that does effect, and maybe some of the other schools in the state that rely heavily on nonresident tuition, and I'm only talking about a two-year period.  That is that the when the nonresident tuition sunsets, I think that's been moved back a year now but whenever it does, anyhow, there will be a two-year period of time that we will be receiving

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nonresident, we will not be receiving nonresident tuition but it will be an accountable receipt within the formula.  So therefore, we will be at a disadvantage, we will be receiving less funds and probably a related property tax increase.  Now, LB...  if LB 259 passes, the consideration for the increase in valuation and it may have to be taken into consideration, too, but I just wanted to voice my concern that this could be a substantial consideration for the schools in the state who have relied heavily on nonresident tuition.

 

SENATOR WITHEM:  I think we've talked about that a great deal within the commission, and again...  I sound like a broken record, to put in people off on staff, but I think Tim and Larry here can visit with you a little about that, and if we still have problems, well, we'll see what we can do about it.

 

DALE DeRIESE: Okay, if we we could just be in a  "hold harmless" situation for those two years.

 

SENATOR WITHEM:  Okay, thank you.

 

DALE DeRIESE: Again, we are very much in support of LB 1059.

 

SENATOR WITHEM:  Thanks a lot, appreciate it.  Next up.

 

CARL NEWQUIST:  Ladies and Gentlemen, the hour is getting late, you're probably "tired-er" than I am.  My name is Carl Newquist, I am a member of the Nance County Board of Supervisors.  I am a farmer, a rancher, whichever you choose to call it.  As a member of the County Board of Supervisors, I am here, directed by our Chairman, to support LB, 1059.  For years we as board members have been told that something has to be done about high property taxes on real estate.  it now appears that possibly something like this is within 'our reach, and that about takes up my three sentences.

 

SENATOR WITHEM:  You've got 'em.  (laughter)

 

CARL NEWQUIST:  One other thing, I got my tax statement right here on my 160 acres, one of them that I own, 85 percent of this tax is going to education.  The proof is right here.  That's all I have to say.

 

SENATOR WITHEM:  Thank you.

 

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CARL NEWQUIST:  I'll take any questions.

 

SENATOR WITHEM:  Next up.

 

GLENN UECKER:  I want to thank you people for everybody for staying this late hour.  My name is Glenn Uecker, I'm -from the District II School Board at Pierce, Nebraska, and most everything has already been said but I would imagine that you people could very easily lose track of what all the different kinds of testimony we heard here this evening that basically what we're looking at is equalization of taxes here.  I just went through a very stressful thing in School District 2, which if you people remember the papers, we at that school board were under recall up there and all survived that thing because we told those people what they needed to do is come down to Lincoln, Nebraska, and that's where you can change things.  We were very happy to see that we have a bill like 1059.  We do wholeheartedly support that.  I also would like to speak as a farmer and a businessman.  I think we live in a very average community in Nebraska.  I'm an average citizen.  I also bought a combine this last year, paid $12,000.00 and it's a pretty good machine, and a good used big machine.  And I pay a lot of taxes.  I own a grain elevator in the community.  I own some farm land, and I feel that I probably will be paying more taxes under 1059 than I am now, but if I'm making money in my business and if my- cattle are making money and my farming's making money and I have a good year--I can pay my increased taxes.  If that's not, then the part of this bill where you have income taxes, it's going to pick up some property taxes, then that's not going to impact me if my income is hurt.  So, I, we really think this is a very good bill, and I think enough people have said plenty about that tonight.  Thank you very much.

 

SENATOR WITHEM:  Excellent statement.  Thank you very much.  Senator Bernard-Stevens has one.

 

SENATOR BERNARD-STEVENS:  I just had one comment.  In case you're trying to find some of those people that you sent down here to talk to "Lincoln", we sent them to "Washington" and said it was Washington's problem because they reduced the funds and they said it wasn't their problem, that it was the World Court, so many of them are probably in the Netherlands now, trying to solve this.  (laughter)

 

SENATOR WITHEM: So they'll be sent right back to you.

(laughter)

 

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GLENN UECKER:  I'm in Senator Hefner's district, and as you noticed, he went out on the hall, and talked to, he had a little chat about he did not cosponsor the bill but he said that he's not familiar enough with a lot of the things with the bill.  There is one thing about the bill we do have reservations in our district about, is the lid.  But I will also say that we don't have that much of a problem with the lid; we do not want to...  you know, we would like property tax relief.  We don't want taxes to go up in, you know, just, you know, the income and the sales tax and we end up in the same area, but we have to be, keep things equal so that...  we don't mind paying more taxes, as long as everybody is helping pay the bill.  We need to equalize the tax burden because we do need to ...  we're gonna have higher education costs.  There's no question about that.

 

SENATOR WITHEM:  Glenn, we're not going to hold it against you that you're in Elroy's district, but keep beating on him.  (laughter)

 

GLENN UECKER:  He's a good man.

 

SENATOR WITHEM:  Thank you.

 

JOHN HANSEN:  For the record, I am John Hansen.  I am a paid lobbyist and I am the President of the Nebraska Farmers Union, and I testify in behalf of my organization here this evening.  I wish that I could tell you that I was smart enough to tell you something you haven't heard before, but no better.  Our organization has been concerned for some long time about property tax and looking at different ways of remedying the property tax situation, and we have a long-standing policy of support for a bill similar to this and are excited about the prospect of being able to finally put a bill into play that has a chance to address this question.  We are concerned about quality of education and also concerned about property tax.  So we want to say, thank you for putting this bill before us, giving us an opportunity to talk about it and we hope that we're able to pursue those kinds of things, those kinds of remedies that deal with those questions that have been raised here this evening.  We have an excellent opportunity to move forward in terms of property tax relief and we think that a mix of property, income, and sales is the best overall remedy.

 

SENATOR WITHEM:  Thank you, John.

 

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JOHN HANSEN:  Thank you.

 

SENATOR WITHEM:  Dale.

 

DALE SIEFKES:  Dale Siefkes, Nebraska Association of School Boards, our organization is in strong support of 1059 by delegate assembly action.  I think you've heard from a lot of members already this evening.  You're hearing from them by letter and by other messages as well.  I 'would just simply say, we'll be available to assist you in any way that we can, and as this legislation progresses, we certainly encourage its advancement and give commendations to the work of the commission and thanks to the Senators that have supported it, with us cosponsors.  Look forward to working with you in all ways.

 

SENATOR WITHEM:  Thank you, Dale.  Senator Dierks does have a question.

 

SENATOR DIERKS:  Dale, most of the people that are members of your organization have asked, or expressed a concern about the lid.

 

DALE SIEFKES:  Yes.

 

SENATOR DIERKS:  It's my estimation, and I maybe need some clarification from the Chairman of the Committee, we're talking about a 4 percent lid, yet at-the same time we're going to be pumping quite a percentage of income into these, or a, paid into these school districts by virtue of the sales and income tax, so there should be a tremendous decrease in the amount of property taxes that are needed before you ever get to this lid.  Shouldn't that be right?

 

DALE SIEFKES:  That's correct.

 

SENATOR DIERKS:  Now we hear people saying like they're going be at, currently they're- at 2.3 percent income...  asking for this much of an increase and that leaves them less than 2 percent to take care of teachers' salaries, but there should be a great big (inaudible) ...

 

DALE SIEFKES:  Well, we're talking about a tax shift and remember the difference you're talking about is the amount of money that's in the tax shift and the dollars they're talking about is the amount of dollars that's in their budget and those are two different things.

 

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SENATOR DIERKS:  But shouldn't the amount...  ?

 

SENATOR WITHEM:  The lid is on the budget.

 

DALE SIEFKES: The lid is on the budget and not on the tax shift. Okay, and they're two different things.

 

SENATOR DIERKS:  Okay, thank you now.  What's the matter, June, you don't think we can read, you already passed out the letter here.

 

SENATOR NELSON:  You neutral?

 

JUNE REMINGTON:  For the record, my name is June Remington, I represent the Nebraska Council of School Administrators whom you have seen here this evening on both sides of the fence.  I'm going to have a hat made that's black on side and white on the other.  I wanted you to know that the, most of those people that you heard from that were school administrators, they do pay dues to our association, at least they did this year, and the association has a formal position in favor of 1059.

 

SENATOR WITHEM:  Thank you, June, very much.  Would like to, just for the record, indicate and have inserted in the record, we mentioned before a letter from Pat Neujahr who is from the Commission.  Testimony on LB 1059 (Exhibit J) presented before the Education Committee by Tom Vickers on behalf of the Technical Community Colleges, are supporting.  Jim Ossian who is the NASA president, who is supportive of the bill in a letter.  (Exhibit B) Farm Bureau Federation (Exhibit A), I guess I would say supportive with some reservations.  And the Nebraska State Education Association (Exhibit G) supportive.  With that I have about a twenty minute closing.  (laughter)

 

SENATOR HARTNETT:  You're going to close it by yourself! (laughter)

 

SENATOR WITHEM: Senator Hall, do you have anything to say for the good of the good of the cause?

 

SENATOR HALL:  Good night.

 

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Disposition of Bills:

 

LB 1059 - Advanced to General File as Amended.

 

committee Clerk

 

Chairperson