Committee on Revenue

First Public Hearing

LB 829

March 6, 1991



Page 20


SENATOR ROGERS:  Okay, thank you.


SENATOR HEFNER:  Any other questions?  Any other questions?  Thank you Jack for appearing before us.  Anybody else in a neutral position?  Anybody else in a neutral position?  George, would you care to close?  He waives closing.  So then, this will close the hearing on LB 738.  Next we will take up LB 829 and LB 299, Senator Will would you like to present LB 829 to the committee.


LB 829


SENATOR WILL:  Senator Hefner and members of the Revenue Committee, for the record my name is Eric Will, I represent the 8th Legislative District in north central Omaha and I am here today to introduce LB 829.  LB 829 is a bill that I almost didn't introduce.


SENATOR HABERMAN:  You can withdraw it.  Save a lot of time.


SENATOR WILL:  I, obviously given its high number it is a bill that I put in I think about the last hour of bill introduction on the last day of bill introduction.  You...  it is a bill that I almost didn't introduce because you don't introduce a bill that puts between twelve and thirteen billion dollars worth of evaluation on the tax rolls lightly.  And, I did not introduce it lightly.  I introduced it in anticipation of a decision that I thought the Supreme Court might make in the way we tax personal property in the State of Nebraska.  I don't know if the Supreme Court Justices read the hearing schedules but this hearing is a lot more appropriate today than it would have been a week ago.  I guess, to preface my remarks, I would say that I have been involved with the Revenue Committee as a staff person and as a senator for, this is my sixth year, and throughout the time that I have been associated with the committee there has been an undercurrent of discussion dealing with something that we (inaudible) to as tax policy.  You know we from time to time are going about our business and looking at various bills that would provide small exemptions in the sales tax, exemptions in the property tax, exemptions in the income tax and every once in awhile someone on the committee will say, you know, what is the policy basis for this and why are we doing this?  I think the fact that we are here today talking about bills such as 829 and court decisions like the one that came down last Friday indicate that it is high time that we look at tax policy, that we have reached the point with all the exemptions that have been adopted over the years that our


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tax policy is being thrown open by the courts and we better start looking at some of the decisions that have been made over the years.  I think that LB 829 is a bill that gets right to the very guts of tax policy.  It says we are going to take a look at exemptions that we have in the property tax base and see if maybe it isn't time that maybe we repealed some of those.  The specifics of the bill are that several exemptions from personal property tax would be eliminated.  The exempt categories of property that would become taxable with the passage of the bill would include agricultural machinery and equipment, business inventory, feed, fertilizer, and farm inventory, grain, seed, livestock and other farm animals and railroad rolling stock.  It is not a long bill, it is fairly simple.  It just simply eliminates from statute exemptions that have been in there over the years.  I guess a lot of people have told me, "Eric, you have certainly looked into a crystal ball and saw what the Supreme Court was going to do when you put this bill in." But I really think that for anyone who has paid attention to the Supreme Court decisions that have been rendered through the '80s, this decision that we got last Friday should not be a surprise.  Beginning with ag land cases back in the early '80s and going through the personal property tax cases that were filled initially as a result of the 4-R Act, and then on down the line we have seen the court has really not wavered much from the standards that it holds our tax system too and that basically is, we have a uniformity clause in our constitution, the federal constitution has an equal protection clause and I think the court has clearly, in each case, pointed us towards one conclusion.  That is, folks if you are going to tax property, if you are going to allow local subdivisions access to a property tax base out there you are going to do it equally, you are going to do it uniformly.  Each subsequent decision, I think, has been a little more striding along those lines, the pattern has been that the court decides something, the legislature comes in and says, well we will see, we will come pretty close.  We will in fact try and structure some statutory language -that hopefully gets us around or puts us in minimum compliance with the Supreme Court and I think every time the Supreme Court has come back a little stronger and said, "This is just not good enough guys, you are not listening to what we are saying.  What we are saying is you are going to comply with the constitution, with the state constitution and with the federal constitution on this." And I don't want to go through the entire decision that came down last Friday but I did want to mention a couple of pertinent points.  I think the points that really show the danger of the situation that


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we are in right now occur in the first concurring opinion file d by Justices White and Fahrnbruch, they make the statements that when property regardless of whether it is real or tangible personal property is classified so that it provides exemption from taxation to all but a small amount of property, the classification and exemption may well be unreasonable and arbitrary and may fall within the prohibition of Nebraska Constitution, Article 3, Section 18 which is the state's equal protection clause.  But even if this state's present classification of property as exempt and not exempt was to be found valid under Nebraska's Constitution, it could not withstand muster under federal law.  They go on-to say that the principles in Trailer Train v, Leuenberaer which was a prior decision in regard to discriminatory treatment of property have followed to their logical conclusion might well be applied not only to personal property but also real estate.  So obviously they, in a concurring opinion are saying, we may be in trouble down the line with respect to our real estate taxes.  That concurring opinion ends by stating that the decision in Leuenberger has sounded the death knell for personal property taxation in this state unless the preferential treatment to certain classes of personal property is abandoned.  Taxation of real estate may also be at risk for the same reasons.  I guess this ...  I guess statements such as that, which are strong statements, lead me to the conclusion that our property tax system is broke.  We need to fix it.  I would suggest that LB 29 (sic) is the direction that we ought to take.  Senator Hall is going to present in a few minutes the other approach, that is what's exempt all this personal property.  I guess the three things that we can do are my bill, we can exempt personal property and let the other property that is out there shoulder the load, that means we are looking at residential property again, and I don't intend to support anything that would once again shift the burden to residential property owners, which is something that we resort to time and time again.  The third option would be to make up the difference with a state tax increase, sales tax or income tax or a combination of the two and reimburse political subdivisions that way.  That is also an approach that I personally, at least, don't intend to support.  I think that my approach is the reasonable start for this.  I think it is something that we ought to look very hard at.  I have been assured that it is an approach that can be implemented this year.  I think that we will be hearing from the Department of Revenue at the end of this hearing.  We can engage in some question and answer with them about the specific application, but I think it is time we started looking the other way than we have


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historically.  Historically we granted exemption after exemption and it has gotten us to the point where we are now, in a dangerous situation with respect to our entire property tax finance mechanisms being thrown out.  I guess the final reason, I would return to tax policy for the final reason to enact this bill, a very simple principle, a very simple principle of good tax policy is that you should have the broadest base possible and the lowest rates possible.  This would certainly be a step in that direction.  This would broaden the base substantially.  This would lower the rates.  In fact, I think you have a note that is along with your bill summary that gives the estimated tax rates under the two approaches, LB 299, which is the exempt everything approach would result....  assuming you raise the same amount of revenue that would result in a overall tax rate state average of about 2.45 percent.  My approach, LB 829 would result in a overall tax rate of 1.87 percent approximately.  I think there is no doubt that this is at least a fair way to go.  I would encourage your support for LB 829.  With that I would answer any questions.


SENATOR HALL:  Questions for Senator Will.  Senator Haberman.


SENATOR HABERMAN:  Senator Will, do you have a Chief Justice Shanahan opinion there?




SENATOR HABERMAN:  What did he say about this?


SENATOR WILL:  Chief Justice Shanahan...


SENATOR HALL:  Talked about vegetables and primates, if I remember right.


SENATOR WILL:  Yes.  I haven't read that recently Senator Haberman.  I was reading the opinion itself and the first concurring opinion as I prepared for the hearing.  So I might defer to Committee Counsel on that.  I do recall kind of what Senator Hall does about it.




SENATOR HALL:  Other questions?  Senator Warner.


SENATOR WARNER:  Do I assume that striking this language ...  that there is ...  ready to reference in the tax laws that


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remain that determine how all of these things are to be valued and how they are to be taxed and time lines?


SENATOR WILL:  I suspect that we would have to do some work along those lines, particularly if we are going to implement it this year.  There needs to be considerable work done on the administrative end with respect to the statutes that apply to various deadlines and things like for assessing the property and what not.


SENATOR WARNER:  I guess what I am asking the legislature chose to pass LB 829 we still couldn't, I am assuming we still wouldn't have any tax in place because there would be no reference to anything as to how values and ....


SENATOR WILL:  I think that probably the Department of Revenue will address that one when they ...  I have had, just very brief preliminary discussions with them as to the necessity for having implementing language in place.


SENATOR WARNER:  Do you know if you have any thought as to, lets take farm equipment as an example on how that would be valued?


SENATOR WILL:  I would assume as in anything else it would be valued the way we value other property with respect to just actual value, the statute that relates to actual value.


SENATOR WARNER:  The same way business equipment is valued?


SENATOR WILL:  I would assume.


SENATOR WARNER; Like that would be permissible then to use the depreciation schedule?


SENATOR WILL:  I would assume.


SENATOR WARNER:  The same depreciation schedule you file with federal income tax?


SENATOR WILL:  That I would not know.


SENATOR HALL:  Any other questions?  Senator Hefner.


SENATOR HEFNER:  Senator Will, I will agree with you that your legislation is certainly timely.  I was here when we took livestock and farm machinery and business inventory off and one of the reasons we took it off was because it was hard to assess.  It seemed like the honest guy was reporting


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all of his property and the dishonest guy wasn't.




SENATOR HEFNER:  Do you have a solution to that now?


SENATOR WILL:  I'm familiar with the situation to which you refer.  I would...  I don't have any magic solution that says boy this time we are going to do it a whole lot better, no.  I would hope that with the assistance of the Department of Revenue and the local assessors that if we do implement LB 829 that every effort will be made to assess the property adequately.


SENATOR HEFNER:  Okay, it would be up to the local assessor to get this job done.


SENATOR WILL:  I would think in conjunction with the Department of Revenue.


SENATOR HEFNER:  Okay, who will pick up the tab for that?  Would that local assessor's office or will the state have to help with that?


SENATOR WILL:  I assume it would be a mix, you know, much as we have now in that there would be a good deal of work that had to be done at the state level with respect to assistance and the state would carry that burden.  When it came to the actual assessing of the property and, you know, any additional expenses that would lie at the local level would be local expenses at that point.


SENATOR HEFNER:  Okay, I believe last year we had a bill and I don't know if you were familiar with it that would put it all back on but have $175,000 exemption.


SENATOR WILL:  I recall that.


SENATOR HEFNER:  But this bill don't have an exemption does it?


SENATOR WILL:  This bill does not have an exemption and I guess my ...  when I put the bill in, I intended to put it in in its pristine form and I guess I figured that any discussion of an exemption down the line would, number one have to be in light of whatever the court did say and I'm not, I don't have an opinion at this point as to the impact of Friday's decision on any potential exemptions.  I think given the line on what the court is saying I would think


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that any deviation from full value might be in question.


SENATOR HEFNER:  Do you feel we would run afoul of the constitution if we provided an exemption then.


SENATOR WILL:  I feel we would run that danger.  I don't want to make us...  I'm...  my opinion on it isn't strong enough to say, "By god, yeah that is what I think." But I think any deviation from full valuation, full application of levies probably puts us in murky area, murky water at this point.


SENATOR HEFNER:  Okay, thank you.


SENATOR HALL:  Senator Rogers.


SENATOR ROGERS:  Senator Will, I think I understood you right, you said you wouldn't support income and sales tax at the present time.


SENATOR WILL:  No, I wouldn't right now.


SENATOR ROGERS:  Because you think the property man regardless of whether you make any money or not, I mean that is your feeling evidentially that you think that is the way you want to raise the dollar.


SENATOR WILL:  Well I think property tax certainly has a roll, I think you and I had an exchange a few days ago, kind of along the same lines.


SENATOR ROGERS:  No, I'm not saying eliminate property taxes, but I mean a mix because I think you are well aware, I mean there are a lot of people directly don't own that much property.  Yet if they make some money, they can afford to pay the income and sales tax but I just wanted to hear you say it once more.


SENATOR WILL:  Certainly, yeah I in no way shape or form object to the income tax, you know, as revenue raising method.  The problem we are dealing with right now is we have to narrow property tax base.  I think that is what we are looking at with the decisions that are coming down and I think as we, if we expand the property tax base as LB 829 does, we are making the entire property tax system more fair.


SENATOR ROGERS:  Okay, thank you.


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SENATOR HALL:  Senator Haberman.


SENATOR HABERMAN:  Senator Will, along the lines of reasoning, income tax and sales tax and...  would you, would you consider favorably to raise or put a sales tax on food which would raise roughly a hundred million dollars?


SENATOR WILL:  At this point I would probably not support a sales tax on food.  I guess my opinion at the time that bill was passed was that it was probably fair given that food is one of the most basic things that is needed by people and I'm not...  inalterably opposed to it, but at this point I wouldn't support putting the sales tax back on food.


SENATOR HABERMAN:  Well this would give a credit to people on their tax for the sales tax on food.  You are willing to tax the industry that provides the food, but you are not willing to tax the consumer for using it.


SENATOR WILL:  The sales of the food.




SENATOR WILL:  That is correct.


SENATOR HABERMAN:  Can you give me an explanation as to why you are willing to tax the producer and not the consumer.


SENATOR WILL:  Oh, because I guess when we get to the property, the property tax is on the value of the property and you can probably for any industry make that same argument.  You can say, you know we have an industry that provides transportation and we are willing to tax the transportation industry and we are willing to tax people that use it but you know, you can make that argument for anything.


SENATOR HABERMAN:  Not, not forceful because you yourself said that food is necessary, the other things might not be necessary.


SENATOR WILL:  Yes, you probably have a point there.




SENATOR HALL:  Any other questions?  If not, thank you very much Senator Will.


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March 6, 1991

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SENATOR WILL:  Thank you.




SENATOR HEFNER:  Senator Hall will now present LB 299 to us.


LB 299


SENATOR HALL:  Senator Hefner and members of the Revenue Committee for the record my name is Tim Hall.  I represent the 7th District in Omaha, here as the introducer of LB 299 and we urge the body to kill it.  This is clearly a classic example of being too smart for your own good.  I did not introduce the bill advocating the position that the bill does.  I wanted a vehicle to talk about this issue because at the time bill introduction was going on we did not have a Supreme Court opinion dealing with the personal property tax problem in the state of Nebraska.  We drafted 299, it opened ail the sections dealing with the personal property tax and submitted it basically for the purposes of using it as a vehicle for discussion.  That is why it was introduced.  it has become a very timely topic, as Senator Hefner pointed out with regard to Senator Will's bill.  The issue, I don't think, is going to go away and it is going to be continued to be discussed here this afternoon.  I introduced it for purposes of listening to what folks who would be paying or would be effected by a decision from the Supreme Court.  Now that we have that, I'm eager to hear what those folks, on either side of either who might take the view that LB 299 would purport the view that Senator Will's bill would tend to support.  With that Senator Hefner I would respond to any questions,


SENATOR HEFNER:  Okay, are there questions?  Any questions from the committee members?  It looks like you are off Scott-Free Senator Hall.


SENATOR HALL:  Senator Hefner that is unfortunate too, but I will get up while the getting is good,


SENATOR HEFNER:  And you were all ready for us.  Okay.


SENATOR HABERMAN:  Senator Hefner, can we recall him if it is necessary.


SENATOR HEFNER:  I think we can.




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SENATOR HALL:  I mentioned earlier the Governor was going to testify.  He is here.  We will go ahead and take his testimony.  Mr. Becker, is that where you are going.  Thank you very much.  We will stand at ease right now until he comes and testify.  Can I see a show of hands while we are waiting.  As I stated earlier, we are going to take testimony on these proposals together because we don't want folks to have to come up to the microphone more than once.  So, if I could see a show of hands of those that are going to testify this afternoon, in any capacity, because I know some of you were in other places.  Okay, we are looking at approximately 20 to 25 people.  I think that it is now three o'clock.  As a matter of fact, I know it is three o'clock, so ...  and I am going to be on the highway at five, or at least quarter after.  So we will spend two hours on this proposal.  I think we will spend more if we need to.  What I would ask is, we want everybody's opinion.  It is clearly the most important tax issue that we have had to deal with this week, and we want to hear what you have to say, in all seriousness.  It is very important.  I would ask, though, that there not be any duplication in testimony, if you can avoid it at all.  Each of you has your own perspective on it, depending on who you represent, business, industry, or just your personal perspective, we want to hear that, but I would ask that there be as little duplication in terms of testimony as possible.  We have sign in sheets.  We would ask that you would sign those before you come up.  We will have the pages pass them around right now.  You don't have to sign it before you get here, as long as you sign it before you leave so we have proper spelling and who you are representing, even if it is just a personal testimony.  With that, why don't we go ahead and begin testimony.  I think we were going to take neutral testimony on the part of the department.  No, they were going to come last, that is right.  Why don't we go ahead and begin.  The good Governor can jump in when he gets here, and we will just have him follow whoever is currently up at the chair.  So whoever is in the front row, if you would like to begin, unless he walks in real shortly here.  Let's go ahead.  Mr. Todd, please jump up and start things rolling.  He is here.  Mr. Todd, please go back to your seat.  Thank you.  Governor, we are all ready for you.  Come on up.


LB 829-299


GOVERNOR NELSON:  Well, Mr. Chairman, members of the committee, Senators, all, last Friday...


SENATOR HALL:  Excuse me, Governor, would you state your


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name for the record?


GOVERNOR NELSON:  I am Ben Nelson.


SENATOR HALL:  Housekeeping, sorry about that.


GOVERNOR NELSON:  I am Ben Nelson, I appreciate your calling that to my attention, and it gives me one more chance to say that I live across the street.


SENATOR HALL:  All right, good.  Where the dogs are?


GOVERNOR NELSON:  Where the dogs are.  Well, thank you for this opportunity to come before you and address you.  (Exhibit E) As you all know, last Friday, the Nebraska Supreme Court issued a tremendous challenge to the policymakers of this state.  And I am here today because this situation is one that can no longer be ignored nor postponed.  The very future of the schools our children attend, the protection of the public safety provided by our police and fire departments, in fact the foundation of the quality of life in every Nebraska community is threatened.  My purpose in appearing before you today is to indicate my determination to work with the Revenue Committee and the entire Legislature in devising a permanent solution to a property tax system that has been eroded over the years to show favoritism to some taxpayers, while adding taxes on others.  The Supreme Court has consistently ruled that this system is not fair.  I view my role as one of ensuring that the decision we ultimately reach fully addresses the concerns raised by the Court, and is fair to all Nebraska taxpayers.  The bills you have before you today present two approaches dealing with this issue, and there may be some other options as well.  However, preliminary analysis by the Revenue Department suggests that our choices are very limited.  I have discussed with the chairman of this committee, Senator Hall, the possibility of bringing a separate proposal to you, as well as the need for a second public hearing once we have thoroughly analyzed the situation and explored all available options.  You and I will be pressured to immediately embrace a particular course of action.  I caution all of us to avoid choosing a path too quickly, to avoid hasty reactions to this challenge.  Our decision must be sound, reasoned and fair.  I have already directed the Department of Revenue to initiate the process of identifying and analyzing options, and I will make certain that this information is shared with you as quickly as possible.  We also will need to immediately initiate a process to engage business, agriculture,


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industry, labor, local governments, and most importantly, individual taxpayers in understanding the question before us and the consequences of choosing any particular course of action.  The watchful eye of the Nebraska taxpayer is on us, and we cannot give in to any short-term solution put forth by special interests.  You and I are the voice for those individual taxpayers who do not have the resources to hire a lobbyist.  I am here with you today, and I intend to remain an active part of this process until the day I sign the bill that brings about a fair solution.


SENATOR HALL:  Thank you, Governor.  Questions from the committee.  Senator Warner.


SENATOR WARNER:  (inaudible), I have to ask.


SENATOR HALL:  Senator Warner, like I say, this is once in a session chance.


SENATOR WARNER:  I certainly would agree that I'm also for something that is fair; unfortunately, that is like beauty, it is in the eyes of the beholder.  Is there a time frame in...  I am not asking for a time frame as much as a general time frame, not asking a specific.


GOVERNOR NELSON:  I think, basically, we would think that if we could have the opportunity to get individual input, have another hearing in a couple of weeks, that that would give everybody an opportunity to mull over what is presented today, and all the input that we'll receive between now and then, as well as perhaps analyze and evaluate the studies and the opinions on the tax case.  And that will give us then, I think, the chance to be better informed and be sure that we don't end up with some sort of stopgap approach to this and that we don't take a band-aid approach to it, but that we do it in some manner that is intended to be fair and will pass the test of constitutionality, which the last effort, obviously, did not do.  And I am not looking to delay, so very often you are asked to give more time on it because somebody doesn't want to face reality right now.  We don't have a choice but to face reality right now.  It is just that we need the time to absorb all the input and listen to all the people that we need to listen to, and that is going to be ever bit as important as jumping to a decision.


SENATOR HALL:  Senator Warner, go on.


SENATOR WARNER:  Yeah, Governor, (inaudible) I was thinking


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like two weeks, but we are talking essentially this session as opposed to...several months I think what I am thinking.


GOVERNOR NELSON:  Yes, that is exactly right, Senator.  I would hope that we could do this during this session, that that remains to be seen, but I suspect we can.  And I guess I would not try to create a self-fulfilling prophecy by even mentioning a special session.  So I would hope that our goal would be to work on it diligently in the interim.


SENATOR HALL:  Senator Hefner has a question.


SENATOR HEFNER:  Governor, today we have two bills before US.  One eliminates all exemptions, and the other one puts them all back on.  Do you have any feeling at all today?


GOVERNOR NELSON:  No, I think rather than embrace one of those two approaches, which are ...  obviously, perhaps meets the zenith and the apex of the sides on how to handle the issue, it shows that there is diversion as to how you can approach it, and that there is diverse views on how you can approach it.  So, consequently, we are not prepared ...  I am not prepared personally to embrace one over the other.  I think it gives us a framework, and I know that the two senators, who introduced these bills, may have seen this Mack truck coming.


SENATOR HEFNER:  Of course, if we take it all off, well, then we will have to find another way to fund it, and it is going to take a tremendous lot of money.


GOVERNOR NELSON:  Well, there is some question as to whether taking all the personal property tax off is the solution because it leaves the real estate property tax on, and there is a question of whether or not that is one of the choices that we would be able to achieve under the opinion of the court.  And so, consequently, I think that needs to be analyzed.  And I think we have to be comfortable, very honestly, with whatever we do that we are sure that it will, indeed, pass constitutionality and fairness, which the Supreme Court has defined as being synonymous for purposes of this case.




SENATOR HALL:  Other questions?  Senator Rogers.


SENATOR ROGERS:  I guess, do you have any opinion, Governor...  I guess what concerns me, and I haven't been in


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this body that many years, but so many times it seems like we pass something thinking that it will pass the Court's muster and then it turns out that it doesn't, and do you have any ideas or thoughts on that?


(End of Tape 1.  Recorder malfunction.  Some testimony lost at beginning of Tape 2)


GOVERNOR NELSON:  (Speaking) ...what will pass and what will not, and so, consequently, I think we are less in the dark than we have been in the past perhaps.  In any event, I think that having some time to have the road map laid out pretty clearly for us by technical exper ...  by people with technical expertise, that we will run less risk if we are prepared to be patient and diligent in the process.  I really think that that is what it is.  Because the first reaction is I think natural, and that is to panic, because when you look at the size of the hole, it is enough to cause you to panic.  But rather than jump to a quick solution, I think it is advisable for us to really study these decisions as best we can.  So I think there is a lot of guidance there.  They said it has got to be fair and they've, perhaps, told us pretty clearly what we have to do to make it fair.


SENATOR HALL:  Senator Peterson.


SENATOR PETERSON:  Governor, quite sure that we are going to have to refund forty, around 40 million in '89 and around 40 million in '90, are you working on any plans now for any direction on what time frame we are going to have to start refunding that, what road, direction we are going to take in that, or are we going to get some direction there in a few days?


GOVERNOR NELSON:  I would hope that the Department of Revenue, when the representatives testify, might be able to deal with that more specifically.  It is my understanding that, fortunately, there are some timing issues as to when the refunds have to occur, and what that will do, so that it may not be as difficult as sitting down and signing 35 to 40 million dollars of checks all at one time.  So it is a technical area as to how this will work; obviously, a policy area as to where the money will come from, but I think that clearly has to be addressed.  But it is not something that has to be handled with any all due haste to get it accomplished.  I think it can be reviewed, considered, and handled all in the context of how to deal with the total resolution of this problem.  In other words, I don't think


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you have ...  maybe for purposes of consideration, they separate, but I don't think you have to bifurcate them necessarily for two separate solutions.


SENATOR HALL:  Any other questions?  If not, Governor, just a request.  Should you feel the need to call a special session, would you mind letting my wife know about that, so that I don't ...




SENATOR HALL:  ...  I don't feel that I have the courage to tell her about that after a 90 day session.


GOVERNOR NELSON:  I think it would seem cruel and unusual and certainly...


SENATOR HALL:  Is that a yes?




SENATOR HALL:  Oh, that is all right.  We will talk about it later.


GOVERNOR NELSON:  All right, thank you.  Appreciate it.


SENATOR HALL:  Thank you very much.  Appreciate your taking the time to come talk to us.


GOVERNOR NELSON:  Thank you very much.


SENATOR HALL:  Others who would testify on the proposals.  Mr. Todd.


LOY TODD:  Senator Hall, members of the committee, my name is Loy Todd.  I'm the executive vicepresident and legal counsel for the Nebraska New Car and Truck Dealers Association.  We agree with the Governor that we all are seeking a solution and a permanent solution to the problem.  I will attempt to limit my remarks in the manner suggested by the chairman that is to our industry and impact on our industry.  I want the committee to understand that we are not here testifying to simply say this will hurt us and you ought to protect us to the exclusion of the rest of the State of Nebraska.  We're not saying that at all.  We're saying that we want to participate in a solution.  One thing I would like to make very clear and that is the fact that the business inventory exemption didn't come about simply because somebody had a lot of muscle to flex or because


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somebody wanted it.  We believe it came about because of a valid policy, a legitimate public policy for the State of Nebraska to pursue.  And that is that a business inventory tax, no matter what kind of business you're in, whether it's agribusiness, whether it's the retail business, whether it's the clothing business, or the food business, an inventory tax is counterproductive.  It discourages investment in the State of Nebraska.  It discourages choice.  It encourages people to go across the state line and shop.  And in fact, I'll be surprised if we don't have merchants from Council Bluffs and Kansas City and Sioux City and Denver here lined up to testify in favor of eliminating these exemptions because that's where the business is going to go.  You don't have the choice in Nebraska.  If you don't have the inventory in Nebraska, then that's where the business is going to go.  And if we end up with a tax that encourages a retailer to go out of business once a year, which is what used to happen, you just might find that that retailer likes being out of business, especially in a small town where they're struggling anyhow.  You know, you take one of the car dealers I represent or you take someone else who has their entire inventory financed.  They're sitting there paying interest on it already and now they're looking at paying taxes on it also.  obviously the thing they're going to do as a solution is to reduce that inventory.  They're going to reduce it at a time when it's appropriate to do that to avoid the tax You're going to get into the reason they used to call it a liar's tax because you're going to find people hiding it.  You're going to find people lying about it.  You're going to find people trying to cheat on it because it is just simply counterproductive and unfair.  Now I spent a lot of time with this decision since Friday and I've read it and I've re-read it and I've worried over it and I did a little bit of investigation.  I found 31 states so far that don't tax business inventory.  No surrounding state taxes business inventory.  Kansas repealed it a couple of years ago, Missouri five years ago.  Iowa doesn't tax it.  South Dakota doesn't tax it.  Now we're simply, if we take too quick an approach or too easy an approach to this problem I'm afraid we're going to end up in the situation where we're discouraging and maybe even reducing revenues by eliminating the business inventory exemption.  You know in the case of an automobile, it used to be when there was a business inventory tax that property tax was paid twice in a year on that motor vehicle.  If a dealer owned that car on January 1, they paid full property taxes on it.  And if they sold that car on January 2, it got collected again.  And the fact of life is that it wasn't the dealer that paid it twice.  The fact of life is that consumer paid it twice.


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And what you're going to get into is the situation where if I were a car dealer thinking about going into business and I had a choice basing this of going into business in Council Bluffs or going into business in Omaha, I know what I'd do.  And, you know, I think that we really need to look at this because the one thing I think this court has said is that if we're going to have distinctions, if we're going to have exemptions and classifications, they no longer can be based on favoring one taxpayer over another or group of taxpayers over another but they have to be based on legitimate public policy and they have to be targeted at that public policy, not at a group of taxpayers.  I think you can do that with inventory.  I hope you can do that with inventory.  We sincerely hope the solution is in-between all or nothing.  We'd certainly like to work with you in that regard.  If the solution that you choose turns out to be exempt all personal property, obviously revenues heed to be replaced.  We will try to work with you every way we can to find a legitimate and valid replacement for that.  However, we simply don't think that taking property that's sitting on a shelf, which is inventory, and treating it the same as any other property in the state is a valid attempt to solve a problem.  Other solutions that have been discussed I would just briefly touch upon.  One is to set up some intermediate or high exemption category and tax all property except for that over a certain amount.  We're concerned about that in a couple of ways and that is, one, it punishes large retail or large business and doesn't really recognize the problem.  I do somewhat suspect the court would have another opportunity given that type of treatment to say, well, what you've really done is target the centrally assessed people again because they're almost the only people large enough to end up paying that so we've done indirectly what we couldn't do directly and perhaps that wouldn't pass muster.  I'm certainly no tax expert, but we are concerned about that as a possible solution.  It also sends a pretty bad message we believe.  Don't get big.  Don't be a Cabela's, be a little mom and pop operation.  If you want to be a big car dealer, go some place else.  If you want to be the biggest livestock feeder or producer in the country, don't come to Nebraska.  Go to Texas.  You know, we just think it compounds the problem.  Also some discussion has been held about, well, let's 'avoid this January 1 thing.  Let's look at an average annual inventory, something like that.  I think that makes it worse because then it says don't just go out of business once a year, go out of business all the time.  We'll end up with a state of catalog stores.  I don't think that's productive.  When a car sold in this state, it generates full property tax.  It generates full sales tax.  We ought


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to encourage people to sell and buy that product, not to go someplace else to deal with it.  That's the end of my testimony.  Any questions?


SENATOR HALL:  Thank you, Mr. Todd.  Questions from the committee?  There are none, Loy, thank you very much.


LOY TODD:  Thank you.


SENATOR HALL:  Others who would testify on the measures?


WALT RADCLIFFE:  Senator Hall, members of the committee, my name is Walter Radcliffe and I'm appearing before you as the registered lobbyist on behalf of the Nebraska Realtors Association.  Simply put, the Realtors Association traditionally has tried to retain property taxes as low as possible.  Obviously if nothing were done on this issue and political subdivisions found it necessary to raise revenues, I'm sure they would, property taxes would have to increase dramatically.  So I'm sitting here today wearing my realtor hat saying to you that doing nothing, if you will, or in essence repealing all of the exemptions with no replacement quite frankly isn't a solution from the realtors standpoint.  Having said that, I will take my realtor hat off and go a couple of steps further.  I've heard Senator Warner for over 20 years say broad base, low rate.  When I read the opinion, kept saying broad base, low rate.  I think there are potentially, as Governor Nelson indicated, a number of or a combination of potential solutions.  I think in reaching those solutions you obviously need to weigh the legalities, the practicalities and the political realities.  Raising sales and income tax I don't think is politically realistic.  Senator Haberman's suggestion with regards to a food tax, perhaps in concert with something else, be it a service tax, maybe, I'm not so sure.  I don't know if that's broad enough nor do I know if the rate is low enough.  There is a suggestion that I would like to throw out, not as a solution but simply as a suggestion to consider.  Before I do that I want to say with regards to personal property, I honestly don't think that the Legislature can fashion a personal property tax scheme that can pass and that can receive the blessing of the Supreme Court.  Now that's just a personal feeling.  I've seen the Legislature try to do that for years.  It just, I don't know what's there.  Maybe there's something there that I don't have to see which wouldn't be the first time.


SENATOR HALL:  Walt, are you saying, I don't mean to interrupt you...


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SENATOR HALL:  ...  but I don't want to forget this.  Are you saying that politically we couldn't get it done or that the opinions don't allow it?


WALT RADCLIFFE:  I'm saying, Senator Hall, that politically and legally, vis-a-vis the constitutionality...


SENATOR HALL:  So in other words...


WALT RADCLIFFE:  ...  politically you can get it done.  Politically we could write one today that would pass.  But I think we'd be back here again today or a year from now, maybe 36 months from now depending on how long the decision took, reassessing where we were.


SENATOR HALL:  Right, okay, then I'm with you.  I understand what you're saying.  I was just trying to figure that out.  Senator Haberman has a question.


SENATOR HABERMAN:  Are you saying that, are you saying that you feel maybe the way some of the rest of us do that no one can satisfy the Supreme Court?


WALT RADCLIFFE:  I didn't say that, Senator Haberman, and I would not say that.  I would say that I do not think that the Legislature operating as a political body which they are can satisfy the constitutional requirements the way the court has interpreted them which frankly I think is correct, vis-a-vis personal property tax.  I think it's time we forget about personal property tax.  I don't think it's going to work unless you want to tax everything.  And you know as well as I do you're not going to get 25 votes to do that.  So I think you need to look at some alternatives.  One alternative that I would suggest and I'm glad the hearing was today so I could get up here before some clients told me not to say it is, and I maybe back arguing against it, I would suggest looking at a gross receipt surcharge, total gross receipt surcharge across the board.  Poll the numbers from the Revenue Department, see what the gross receipts are, have them tier them for you, maybe quarter million, half million, million, split them out by Sick (phonetic) code and see what that revenue pool is.  Juxtapose that to the revenue we need to offset the personal property tax loss.  It's something to look at.  And I would just, rather than just coming up here and just simply saying to you, oh don't put it back on the homeowner, I feel it's


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somewhat incumbent upon me to come in with some type of a solution.  Sales tax on food, Senator Haberman, I think that from a client's standpoint and frankly from a personal standpoint I could buy that.  I don't think you'll generate the revenue you need.  Depending on what kind of an exemption you put in, you'll get a float between $40 million and $80 million I think.  No exemption is probably 80, with the kind of exemptions we were used to before, probably 40, no immediate relief because of the exemptions because you've got a set-aside there.  Services, we all know the problem we have with services.  If you want to do a straight service tax on everything, a current tax rate is $100 million.  You're not going to do it.  You're not going to increase medical costs 5 to 6 percent.  As soon as you throw out medical, you're down to maybe $60 million.  Throw out the other things that are deal breakers and you're down to $40 million.  The money just isn't there.  So I would offer that as a suggestion.  And the last thing I would say is I think basically what we're talking about is where are we going to get the replacement dollars.  Personally I think that the fewer pots you go to the more constitutional it is because there are obviously less exemptions and also the more politically feasible it is.  It comes down to what Senator Warner has said forever--broad base, low rates.  There is a statutory precedent for in essence a gross receipts surtax and that's what you have with regard to insurance premium taxes.  So you have a statutory scheme for that type of tax assessment.  I'd be happy to try to answer any questions.


SENATOR HALL:  Questions?  Senator Hefner.


SENATOR HEFNER:  Walt, talk about this gross receipts surtax.  That'd be very hard on our number one industry, agriculture.


WALT RADCLIFFE:  well, Senator Hefner, if you're going to lower their property tax values, if you're not going to tax their inventory, if you're not going to tax their farm equipment and they don't pay any income tax, sooner or later they're going to have to pay something.


SENATOR HEFNER:  I know it.  But, Walt...


WALT RADCLIFFE:  I'm sorry, but them's the facts from my perspective.


SENATOR HEFNER:  Yeah, I know it, Walt, but gross receipts in agriculture is a tremendous lot of money.


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WALT RADCLIFFE:  It is.  And, you know, if you want to look at some exemptions, I kind of come with Senator Will's philosophy which is put the pristine model on the table and then look at where, look at then where perhaps some equitable exemptions lie.  And there may very well be some.  I'm not saying there aren't, Senator Hefner.  There may very well be.  But start there.  You do not have a lot of constitutional hurdles with gross receipts exemptions as you do with personal property exemptions.


SENATOR HEFNER:  No, but it's about one of the most unfair taxes.


WALT RADCLIFFE:  Well, that, Senator Hefner, that's your opinion.  I mean we've got to do something.


SENATOR HEFNER:  I know it and that's why I'm down here.


WALT RADCLIFFE:  I know.  I'm just saying we got to do something, and I don't know, I don't truly know where to start within our existing scheme so I'm saying I think it's perhaps time we go out of our existing scheme.


SENATOR HALL:  Senator Peterson.


SENATOR PETERSON:  Walt, have you taken a look at all the exemptions that we're exempting now?  Have you taken a look at all those exemptions?


WALT RADCLIFFE:  Many times.


SENATOR PETERSON:  Isn't there lots of those that we could put back on instead of eliminate them?  We'd have some people screaming, but we'd have plenty of money.


WALT RADCLIFFE:  Well, two things.  First, it took 25 votes to get them in, it will take 25 votes to get them out.  But what the Supreme Court's really said, Senator Peterson, is it doesn't want to see exemptions.  I mean I didn't have to read the opinion twice.  I got through the headnotes and I saw that.  They don't want to hear about exemptions.


SENATOR PETERSON:  I know they don't want to hear about them, but I mean if we're looking for money.


WALT RADCLIFFE:  That's right.  Exactly.  But what about the ones you don't put back in?  Then you go up.  It probably wouldn't take them as long this time on the decision.


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They'd probably just say see State ex rel., supra,


SENATOR HALL:  Other questions?  Thank you very much, Mr. Radcliffe.




SENATOR HALL:  Others who would testify?


JIM DICKINSON:  Senator Hall, members of the Revenue Committee, I have a handout here (Exhibit F).  My name is Jim Dickinson, My son and I own a diversified cattle and farming operation in Elkhorn, which is near Omaha as you all know.  I also serve as the chairman of the Taxation Committee for the Nebraska Cattlemen Association, and I am speaking in that capacity at least initially.  I might put on my own hat when I get through, Senator Hall.  Having served in the Legislature, I am aware of the long history and controversy surrounding this personal property tax issue.  And believe me, it goes back a long, long ways.  And once in awhile I recognize there is some advantage to be a latter middle aged citizen.  You pick up a lot of things along the road, you remember a lot of things that have happened.  And at this point, I would respectfully comment to the Governor who said he would not sign a bill until it was a fair one, I'd have to remind him that the Constitution provides him with only two four-year terms and he may not get it done in that length of time, at least it hasn't been done in the past, has it, Senator Warner?  And some of us thought we had this solved in 1978 so I am sympathetic with the position you find yourself in today.  Frankly, the Cattlemen are not certain of the ramifications of the Supreme Court decision.  That's been pointed out prior to this today.  We are here as much to learn as to express our opinion.  At this point it is difficult to know what options are available and the ramifications of each.  We urge you to take sufficient time, and you've heard this from the Governor particularly, to study the impact of the various proposals on segments of the population and on geographic areas.  However, we are concerned about reimposing personal property tax on livestock and farm equipment and inventories.  This would place Nebraska livestock producers at a competitive disadvantage with those in other states.  It will have a negative impact on the industry.  To be more specific, the position of our association has been and still is to oppose a personal property tax on farm machinery, farm inventory, including livestock.  Nonetheless, we understand the dilemma facing the state, and we are willing to do our part to resolve it.  That's the end of my formal statement.


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I would like to make a few more comments if you don't mind.  First.  I don't know whether it's proper to comment to a previous testifier, I found my ears unable to believe what Mr. Radcliffe had to say about a gross receipts tax.  Many businesses have tremendous volume and sometimes very little or no profit.  His implication that farmers don't pay income taxes, farmers have had some pretty good years the last couple of years and I'm lucky to be one of them, my son and myself.  I just sent my check to the state the day before yesterday.  If you want to go over and check it out, Senator Hall, you're welcome to do that.  It was substantial I assure you.


SENATOR HALL:  No, they won't let me, Jim, much as I'd like to.


JIM DICKINSON:  I knew you couldn't do it so that's why I gave you the chance.


SENATOR HALL:  Yeah, thanks for the offer.


JIM DICKINSON:  In regard to taxing equipment and someone prior to me being here talked about, Senator Will I believe, talked about full value and I can only go by history.  The last few years that the personal property tax was in effect, the state, and I don't mean, this is nothing demeaning to any assessor that might be in the audience and I'm sure there are some, but the assessors got together in Nebraska and they developed a manual just as we have an automobile tax manual that tells you exactly what it's valued at and we have nothing to say about it.  It's very easy, Senator, to determine the value of farm equipment.  It's on the market every day, so is livestock.  It's on the market.  Everybody knows all the time.  And they started that the last few years of our assessment to use full value.  However, equipment in a large industry or a small industry such as I'll refer to Western Electric at Millard with which we're certainly both familiar.  They put in new equipment in 1958 when they moved in that was worth umpteen millions of dollars.  Within five or six years it had depreciated almost down to nothing and from then on, from that time on that's what they pay taxes on their personal property.  That's a real problem and it was a problem and I see nothing in the future that would prevent that from being a problem again, particularly when the senator that introduced the bill said, yes, let's assess it at full value.  It just doesn't work well.  It is totally unfair.  And as the gentleman from New Car Dealers Association pointed out, this was not done in a short time.  The work that went into and the wisdom I say


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that went into the tax law we now have that the Supreme Court has declared unconstitutional was not done lightly.  And it was considered at the time I think by the majority of the people, both in and out of the Legislature, to be fair.  It was something that needed to be done.  I find it difficult and, Senator Warner, I know I can't ask questions, I'll pose a statement.  In 1970 the Legislature and Senator Warner I believe put a resolution passed, an amendment on the ballot that was passed by the people of the State of Nebraska authorizing this Legislature to classify personal property for tax purposes.  I have, I find it hard to understand what happened to that constitutional provision.  Beyond that, that's all I have to say except that I sincerely believe as a person who's representing this industry that it would be almost catastrophic to put this back onto the agriculture industry.


SENATOR HALL:  Thank you very much, Mr. Dickinson.  Questions from the committee?  Jim, I would just have one.  You don't, we don't put the personal property tax back on, okay?  Where does the revenue come from?  Where do we pick it up?  Property tax, we constantly hear that the real property tax, the real estate taxes, are at the breaking point now, both the homeowner as well as the folks in the agricultural business.  Where do we raise the revenue from?


JIM DICKINSON:  You've heard that from me, Senator Hall.




JIM DICKINSON:  And I was interested yesterday in reading the World-Herald last night and some other articles this morning quoting some of you people but also quoted some people representing taxing entities and one was the Omaha Public Schools.  I was a little surprised I guess.  We hear, we talk about this issue in hundreds of millions of dollars.  When it boils down to individual entities, it isn't maybe so much.  Anyway, Omaha mill levy for Omaha Public Schools is $1.31 per hundred.  And this gentleman that was being quoted, and I forget his name, said it would take ten cents more per hundred to make up their losses from no personal property tax whatsoever.  Now as opposed as I've been over the years to high property taxes, that isn't all that much.  So if expenditures can be justified, and that isn't the issue today at all, then it either has to be done by increased property taxes or increased sales and income taxes or some other state form of taxes.  And I don't agree, I'm talking as an individual now, with the broad base low rate.  And I mean no disrespect in saying this, but to me in many


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instances broad base, low rate is a way of maybe trying to fool the public into thinking their taxes aren't very high.  Let's be straightforward and the state has a good tax structure I believe.  It's state sales and income tax, if you can justify the expenditure, raise the rate.  Let the people know exactly what's going on and what's being paid.  Now those are the two options to raise the money, Senator, in my view.  I guess we all know that.  Which one that you're going to take I don't know.


SENATOR HALL:  So you advocate that property tax could absorb it.


JIM DICKINSON:  No, I'm not advocating either one.  I made that example that that's what it would be in terms of property tax for the City of Omaha Public Schools; 1059 supposedly relieved property taxes substantially.


SENATOR HALL:  Well, I'll just scratch this out.  I had Dickinson favors raising the property taxes.  Just kidding, Jim.


JIM DICKINSON:  Thank you.


SENATOR HALL:  Senator Warner has a question.


SENATOR WARNER:  Yeah, if you had your hat on representing the Cattlemen ...




SENATOR WARNER:  ...  what time frame would your group have in mind as to when you would have specific suggestions or would you plan to respond only to react to what somebody else ...


JIM DICKINSON:  What time frame do we want, Senator?  I didn't understand.  To specific suggestion?


SENATOR WARNER:  Well, if I read your statement here correctly, you want sufficient time to study and the Governor talked in terms of a couple weeks.  I don't think he quite meant that but he meant during the course of this session that it needed to be resolved.  And I was wondering what time frame Cattlemen would have in mind as to.


JIM DICKINSON:  Well, frankly, Mr. Ball and I sat down this morning and had a little difficulty writing this statement because of all the confusion and everything.  I suppose it should be resolved as quickly as possible, but you should


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take enough time to hopefully do the best possible job in resolving it.


SENATOR WARNER:  No one disagrees with that, but I have a concern maybe you could address.  I don't know how many times that we can pass legislation and run it through a test of the Supreme Court and then create another refund and another refund.  We may be spending more money in refunds than we are on operations at some point.  By the way, I didn't introduce the constitutional amendment.


JIM DICKINSON:  You didn't?


SENATOR WARNER:  I introduced with Burbach the first bill to implement the constitutional amendment in '71.


JIM DICKINSON:  Okay, all right.  Sorry about that.


SENATOR WARNER:  But I was very much involved in it, that's correct.


JIM DICKINSON:  Well, I was glad you did.  If I recall, that was the first time I ever came to the Legislature in my life to testify in favor of whatever you introduced.


SENATOR WARNER:  Yeah, well, it was obviously good.  But did you plan to develop something as the Cattlemen or going to react?


JIM DICKINSON:  Well, my answer to that would certainly not be yes.  I don't know as we're qualified to develop something, at least we haven't at this point in time.




JIM DICKINSON:  I was interested in something else, Senator Hall.  From the Revenue Department's, I probably shouldn't get into this, I'll take 30 seconds, how they centrally assess property.  If I understood the gentleman correctly, they use income from the central assessed entities.  That's how they arrive at and then they give them, try to give them a certain rate of return and that's how they assess those centrally assessed properties.  That's what we're asking for in 320, Senator.


SENATOR HALL:  Well, I understand that, Jim, but I think that's, I don't think that's exactly how they do it.




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SENATOR HALL:  But they're going to come up here at the tail end of this hearing and we can ask them.  But I think they place a value on the entire amount of property and then it's spread out based on whatever subdivision it happens to be in, whatever county throughout the state.  But we can ask that question when they're up here at the tail end.


JIM DICKINSON:  Thank you very much.


SENATOR HALL:  Thank you very much for your testimony, appreciate it as always.


JERRY PRAZAN:  Senator Hall and members of the committee, my name is Jerry Prazan.  I'm a registered lobbyist from the City of Omaha and I'm the first of what will be many political subdivisions representatives here.  And we had a meeting this morning.  We discussed this, and I think we have some sort of a consensus from our point of view as to what should be done.  The, first of all, this is a big crisis for us primarily.  It's a crisis for the state and the Legislature also, but it's sort of a secondary crisis for you.  We're the ones who rely on the property tax, the state does not.  Albeit, we're all one big community and a major crisis in local government is not something that the Legislature can ignore.  Reading the court case last Friday, I think it's very clear what the Supreme Court said.  The Supreme Court said that the whole system is broke.  The whole system is unconstitutional and they said how we could fix it.  And Senator Will has a bill and I'm here to testify in favor of 820, 829, excuse me, that will fix it according to the Supreme Court.  Now that is a hard pill to swallow.  And I think realistically and I've been here long enough to say that we're not going to have a pristine solution when you adjourn sine die.  But I think as a tactic we have to advance Senator Will's bill, we have to pass Senator Will's bill with an emergency clause, get it in place to save the 1991 tax season.  We've already lost '89 and we're soon to lose 1990.  We're trying to save 1991 tax season here.  We have to get something that is clearly constitutional on the books and implemented imperfectly but as best we can for the 1991 assessment-season that will have to be modified because some of the dates have already gone by and we save 1991 tax season.  Then we have the rest of the session to work with the Governor or with the Department of Revenue and all the people who are interested in coming up with what would be the long-term or the permanent solution to the property tax crisis.  And you know, the reason we -should do it that way is, is say we work all session, we come up with a bill,


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everybody goes home and the Supreme Court six months from now says that's unconstitutional.  We haven't moved a step.  We've lost another tax season.  Better to do what they say, put everything back on, all tangible personal property will be taxed, it will be a tough thing for our local assessors to do but I think that they're up to the job.  I think they won't let us down in the final analysis.  And then if we work out something, say, for example, to take care of the New Car Dealers.  Okay, they say they're going to pay property tax on a car twice.  Well, we can set up a system where if that is sold and registered and the property tax is paid in Nebraska they can get a credit.  Or say, for example, you want to do something with an exemption, say a hundred thousand dollar exemption for business inventory.  Well, maybe we can do that.  Maybe we'd all like to pass that.  It passes as a bill that the Supreme Court doesn't like it.  If they say that's not constitutional, then that bill is declared unconstitutional, that option is taken off the table, but the tax system is still safe.  Because we're not just talking about a $120 million in property tax here, we're talking about the entire property tax system.  So I think Senator Will's bill will fix the system and it's a hard, and I don't, you know, I'm not here to say that should be the permanent solution.  Maybe the permanent solution is getting rid of all the personal property tax and maybe we would go to a gross receipts tax or maybe we would raise the sales and income tax or maybe we won't do anything.  Maybe it will be shifted over to real property tax.  But in the end the constitutionality of that solution would stand on its own.  And if it doesn't meet the standards that, the high standards that the Supreme Court has, then that option is unconstitutional, the tax system is not unconstitutional.  And I could go into the effect this would have on the City of Omaha, but I think you're going to hear enough of that from everybody else and so I'd be willing to stop my testimony here and accept any questions.


SENATOR HALL:  Questions for Mr. Prazan?  There are none, Jerry.  Thank you very much.


JERRY PRAZAN:  Thank you.


TRENT NOWKA:  I have copies of my testimony (Exhibit G).  As with tradition, we have written copies of our testimony; and I'll paraphrase a portion of it to expedite the hearing.  First of all, for the record, Senator Hall, members of the Revenue Committee, I am Trent Nowka, vice-president of public affairs for the Nebraska Farm Bureau Federation.  I want to preface my remarks by saying that the latest Supreme


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Court opinion has again sent shockwaves and confusion into our state's property tax system.  But we urge the committee and Nebraska not to overreact to the opinion that has apparently created more questions than answers to what type of system our court will eventually determine to be constitutional.  There are as many different opinions about the case as there are lawyers who claim to have read it.  We recognize the conflicting statements and the concurring opinions pose a difficult challenge to everyone involved in this issue.  However, at this time we are not ready to subscribe to the thought that the only options available are to either put all personal property on the tax rolls or to take it all off.  A great deal of attention has been focused on one of the concurring opinions which disagrees with the holding in Stahmer by questioning how the authority of the Legislature to classify and exempt personal property can prevail over the uniformity clause.  However, the constitutional provision requiring all property to be taxed uniformly and proportionately in our opinion relates to all property which is taxable, not all personal property.  In other words, we do not support at this time the theory that all property except household goods, property owned by nonprofit, educational, charitable, horticultural or cemetery organizations must be taxed or no property tax at all.  We firmly believe the Legislature must first determine if it wants to continue to exercise its constitutional authority to classify and exempt property.  if the Legislature would take a very methodical, deliberate and cautious review of the personal property tax system and meet the "real differences of situations and circumstances" test the court established in the McNeil case to determine the legitimacy of an exemption, Nebraska may be able to continue a personal property tax system.  Farm Bureau has serious reservations and concerns to any proposal to reinstate all personal property on the tax rolls because of the adverse impact it would not only have on agriculture but on business and future economic growth.  On the other hand, if we take all personal property tax off the roll, we have questions whether the revenue generated from any statewide tax, be it sales tax on service or whatever, could be reimbursed in a manner to hold political subdivisions revenue harmless.  We also urge caution to all state and local elected officials who may see the current tax dilemma as an opportunity to require additional tax funds to finance new or expanded programs.  Those who may want to take advantage of the situation may compel the citizens of the state to adopt a spending lid similar to that which was defeated last November.  Let there be no mistake Farm Bureau recognizes that agriculture has the most to lose financially because of


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the latest opinion.  The situation dictates that we do not rush to any conclusions or consider our situation in isolation with other surrounding states.  We firmly believe all interested parties, including the agricultural community, must lay everything on the table including our cherished notions to determine if a legitimate and reasonable classification scheme can be devised and properly defended.  With that, I'll answer any questions.


SENATOR HALL:  Questions?  Trent, do I interpret this right, your third paragraph where you say that the issue about property that's taxed, not all personal property...


TRENT NOWKA:  On the second page or first page?


SENATOR HALL:  No, first page, I'm sorry, the third paragraph, "A great deal of attention ...  However, the Constitutional provision requiring all property to be taxed ,uniformly and proportionately' in our opinion relates to all property which is taxable, not all personal property."


TRENT NOWKA:  Okay, that was in response and was taking a quote out of the current opinion of the Farm Bureau (inaudible) White which they were saying that you had to tax everything or nothing at all.  And we're of the opinion that you do have the opportunity if you can devise some special classifications that are legitimate, that it's not just all, it's taxable property, not.  just all property, i.e., household goods or whatever.


SENATOR HALL:  Right.  I mean haven't we tried that?  I mean isn't that why we are where we are?


TRENT NOWKA:  Well, I think you got to question, you can refer to my comments in the paper.  There's ongoing discussion about whether our classification scheme is even proper to begin with.  And if you read some of the other concurring opinions, everybody makes some reference that there are some exemptions that may be legitimate.  Now what we're saying here is maybe we need to review those exemptions to see if they are legitimate, that there may be a classification scheme out there, i.e., equipment, be it railroad, farmers, business or whatever that may be a legitimate area which personal property tax could be collected on.  We think that there is some middle ground there instead of doing all or nothing situation.


SENATOR HALL:  You use and use throughout "may be," may be able to, might be, possibly, I mean, you know, that goes


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back to what Senator Warner asked about earlier, the previous testifiers with regard to being here back at this same position, you know, a year, two years, three years from now.


TRENT NOWKA:  I've only been around here for seven years and like two years ago when we had the problem with emergency special session a couple of years ago.  It seemed like we were all reacting within a short time period.  We never did sit down and methodically look at our current classification system.  We did Band-aid approach.  And the question was sit down, if we sit down, legitimately look at these instead of doing it in a two-week period, maybe do it in a month, six weeks, get some of our facts and figures together because some of the comments with regards to the fiscal office and the impact it's going to have on agriculture, we don't know whether it's correct or not because the local levies in some of the predominantly rural school districts, the local levies will have the impact of what the overall tax burden is.  I think if you want to look at the tax aspect that's good, but you also need to look at the legal aspect of whether there's classifications (inaudible) to meet this test.  And I don't think we in agriculture or the Legislature has ever sat down and done that work I guess you would say.


SENATOR HALL:  So you don't think that was done when these exemptions were put into the statutes to begin with.


TRENT NOWKA:  Well, I'd be lying to you if I said there wasn't some political maneuvering going on.  I mean that's the process.  However, I think right now because of the opinion the Supreme Court has put us in it's going to cause all of us to belly up and just see where we are.  Because as you've heard so far, everybody is, well, the comment of put it all back on or take it all off.  If you put it all back on and give tax credits back, can you imagine the workload it's going to be with regards to agriculture giving tax credit because if you sell cattle back you get a tax credit for it, for grain your resell it, get a tax credit back.  So there are some legitimate classifications we are seeing out there if we all sit down and look at them.  That could help address the issue.


SENATOR HALL:  So your position is that it can, the situation can be corrected.




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SENATOR HALL:  Okay.  Any other questions?  Senator Warner.


SENATOR WARNER:  So what's the time frame that you're, we're talking two weeks and six weeks.


TRENT NOWKA:  we would like to see something done this session.




TRENT NOWKA:  We would like to see something being done this session, but we need to all get the fiscal figures worked out.  I mean, right now no one knows how much personal property is out there, farm machinery or livestock.


SENATOR WARNER:  We're not going to get that (inaudible).


TRENT NOWKA:  Right, but at least we can maybe get some better extrapolations of what figures are out there and we need to do it yesterday I guess would be the comment.  But if we would start to collect those figures as well as having someone look at the legitimacy of the classifications that we have now.


SENATOR WARNER:  Well, the only issue really is the legitimacy of the classification....




SENATOR WARNER:  ...  and if there is a constitutional way to do it.


TRENT NOWKA:  That I agree with, Senator Warner.  However, to politically address it, you're going to have to alleviate some of those concerns.  And I think by, if you get some of those figures you're going to alleviate those political concerns to verify that the classification is okay.


SENATOR WARNER:  I'm painfully aware of what politically one has to do.  I mean I have a very genuine concern as to what route we're going to go to resolve the issue.  I'm not, I don't think it's, I don't think it's very prudent on the part of the state for local government and the citizens to run, and I certainly helped push the run some test case.  I don't think we can keep running test case year after year after year even though my sense of equity is not going to be consistent with what the Constitution says equity is.


TRENT NOWKA:  That I would agree with.


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SENATOR WARNER:  It just can't continue to be deferred.


TRENT NOWKA:  When I was sitting down to research this issue the last couple days, you go back to the special session we had a couple of years ago on this issue.  And the same comment arose then of the Supreme Court really did not give us a specific guideline as to what the problem was.  We have three or four concurring opinions with this case.  And like .1 say, you ask every attorney out there and each one has a different opinion as to what the concurrence is or if there's three votes or if there's four votes.  And we're of the opinion that the Legislature should try to continue to exercise its constitutional authority to classify and exempt.  Now if we get down to it, we would hate to see the Legislature give that authority up because you have that constitutional authority that was given to you.  And the hope would be, and I hate to say it because it would put more money in the attorneys' pockets, but until we get a straightforward opinion as to what they will accept by doing either/or we're creating a hardship on the economy by putting it all off or taking it all on and creating more questions than probably we are answering.


SENATOR WARNER:  I don't disagree with you, Trent.  There's no way to get a Supreme Court to tell you what they will approve.  They will only tell you after we act if they approved it or not, I don't think.


SENATOR HALL:  Any other questions?  If not, thank you very much, Trent.


DALE SIEFKES:  Senator Hall, members of the committee, my name is Dale Siefkes.  I represent the Nebraska Association of School Boards.  Today certainly I want to make sure that this committee understands that schools are vitally concerned about this issue, that they stand to be the local government entity that has the greatest amount of impact.  That the effect upon local school districts is as follows:  that we see the need for a payback that will be claimed against political subdivisions in 1989 and again in 1990 that reach a level of approximately, our share of $35 million or thereabouts per year.  There is certainly the potential for our share of a loss of $100 million to $105 million in revenues that are at stake if they're not maintained in some fashion or replaced in some fashion.  I think a great deal of comment has been made about the necessity of time lines and recognizing those, and I want to emphasize that.  The time line, it is important and a lot of


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people have said and I'm pleased to hear that people recognize that something must be done this session for the 191 tax season or in fact the loss occurs.  And as soon as the loss occurs, either the need for additional revenue happens for the state to make up that loss of revenue or the shift occurs at the local level.  The additional revenues that would be needed are $135 million to $140 million for each of the next two years.  We're talking about the loss of revenue plus the payback requirements.  If they're not replaced in some fashion, the shift occurs to the remaining property taxpayers which in essence negates LB 1059.  LB 1059 was adopted by the taxpayers of this state with the recognition that it was going to address property tax relief for the support of schools, that it would apply to the homeowner, to the current property taxpayer that's out there.  If you reduce or relieve, allow $103 million to $105 million worth of base revenue, base that generates that much revenue to go off the rolls and shift that over to the remaining property taxpayer, you have in essence made the benefactor of LB 1059 the property tax exemption individual groups.  And what are they?  They are currently the 103,000 to 105,000 is centrally assessed property and business and does not accrue to the individual property taxpayer that supported and desired to see LB 1059 have the kind of impact for their property tax rates that it should have and that it is currently providing.  It will totally negate that approach that I think the citizens of this state are expecting you to uphold and expecting you to honor.  I can't emphasize more the idea that there be a consistency with the court's ruling.  We have lived with in schools with a destabilized or a totally unstable tax base for almost 15 to 18 years at this point.  It is important that we reach the opportunity to know that we have a stable base.  It is important, as you well recognize, that that be fair to all people.  I think you have before you today, while other people may talk about possible solutions, you have two proposals before you today.  I can only see one proposal that even begins to develop a solution and that is LB 829.  We encourage that that particular proposal be forwarded to the body of the Legislature to help fashion the solution if LB 829 itself is not the solution.  Because if that's not forwarded and LB 299 is forwarded, the majority of the parties that need to be involved in helping to establish the solution have no vested interest to remain at the table.  They've gotten what they want.  And if nothing happens, they get what they want because the shift occurs November I when the tax rates are set.  And if something is not in place by November 1 of 1991 that does not allow that shift to occur, in essence the victory has been had.  Delay tactics will


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have been successful, and it is important to recognize that time line feature.  And we would encourage that something be done this session.  We would encourage that LB 829 be advanced for the purpose of helping to mold and fashion the solution that will be necessary.  And we would certainly work with you and encourage that the final solution be one that is consistent with the court and does in fact allow schools to operate for boys and girls in this state for the necessity of their education that gives them stability.  Thank you.


SENATOR HALL:  Questions for Mr. Siefkes?  Dale, what would your group be willing to do to I guess explain the situation, whatever the solution may be, whatever comes out of this committee or the Legislature as a whole?  How do you see your role in terms of educating your constituents to the problem?


DALE SIEFKES:  Well, certainly we will want to do everything to make sure and we will do something starting immediately in our newsletters that make sure they understand what the impact of the ruling is and what the impact of various proposals that we know now before us are.  And that's really a follow-up to some of the kinds of proposals that some of the knowledge that our people have that they gained through the understanding of what LB 1059 was all about.  And I think we have a group of people at least that have a better understanding about all those things right now than they would have a year ago.  And we will do everything we can to help assist in that manner.  We'd be pleased to help.


SENATOR HALL:  Were you here when I introduced 299?




SENATOR HALL:  Okay.  Did you understand that that was only introduced as a vehicle?


DALE SIEFKES:  It was and I appreciate your introduction of it in that light and would suggest that, like you said, that is not, the actual proposal is not really a vehicle to gain solution.  It was presented for a vehicle and I would certainly suggest 829 as a vehicle to help fashion that solution.


SENATOR HALL:  Other questions?  Senator Peterson.


SENATOR PETERSON:  Dale, there's been talk of monies to pay this off.  Which is the best solution do you have--sales and


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Stan Sibley to come before this committee because he would be able to support both bills.  There are a couple...


SENATOR HALL:  Inside joke, Tom, or what?


TOM JOHNSTON:  Well, yes, it is.  I'm sorry, this isn't the Education Committee so you don't understand the position Stan's board has put him in probably.  There are three things I'd like to say very quickly.  One, as a political subdivision, we're very concerned about protecting the base.  The easiest and most obvious way to protect that base is to pass Senator Will's bill.  You have a model that you've already passed and that is the freeze on ag land valuation while in fact the body takes time to consider what in fact you really want to do with ag land valuation.  By passing Senator Will's bill, you have protected the base and you will in fact then have the remainder of the session to think about what other possibilities there might be in looking at personal property tax or other sources of revenue.  I think that you do have in fact with the two bills before you a nice combination.  You do have a bill that you can pass quickly with the emergency clause and that would be Senator Will's bill and then you have Senator Hall's bill which he proposed specifically as a vehicle to work with, to make whatever adjustments you might want to make to that initial legislation you passed.  At one point, Senator Hall, you did mention, I thought you were going to ask Senator, or you thought you were going to ask Dale Siefkes what he might be able to contribute to this whole thing; and I was thinking that perhaps you could have the mother of all bake sales.


SENATOR HALL:  Any questions for Mr. Johnston?  If not, Tom, since you're there, what would you suggest?  I mean you do mention what I keep hearing today, and I'm not picking on you, but you're there and I'm thinking about it.  I keep hearing the temporary, you know, we could pass, you know, 829 and it could be a temporary solution, put everything on and then let's take a look at it.  Haven't we done enough of that?  I mean isn't it really time to just stay at this task until we get it done?  I mean even if it puts the local subdivisions I guess at the, makes them a little uncomfortable as opposed to the Legislature being uncomfortable having to deal with this because frankly, you know, it keeps coming back here.  And this clearly is not directed to you personally.  I'm just asking in terms of, put yourself in our position.  How do you deal with this?  I mean why deal with it on a temporary piecemeal, patchwork, Band-aid approach one more time?  Granted, we don't know what the Supreme Court will respond to.  I mean, they won't


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answer hypothetical questions.  No court will do that for you.  But we really do need to solve this for the long run instead of taking a look at it on a temporary basis and then coming back.  Because what happens is coming back keeps getting put off.  I mean we don't, any time there's a little room to maneuver we get a little comfortable where we are, we fail to then address the long range solution to it.  I mean can you understand that?  And I don't mean that the way it sounds.  I'm just saying, you know, the rubber has hit the road here on this decision I think.  I don't think there's anyplace else to go.


TOM JOHNSTON:  Senator, I think that the political subdivisions really do understand and we're not going to walk away from this issue.  By passing Senator Will's bill I think I would just simply echo what Dale Siefkes (inaudible).  With that bill on the books, no one else is going to walk away from this issue either.  You will in fact have everyone at the table tight through the end of this session if necessary and a special session to get something done.  Basically if you don't pass this or if in fact you exempt all, if in fact your bill were passed as opposed to Senator Will's bill, then you have got half of the people who can simply walk away.


SENATOR HALL:  I understand.  I have no intention of passing my bill.  That's what I was trying to make clear to Mr. Siefkes, but he wasn't buying it either.  And I know you guys are educators, you are a different breed of cat.


TOM JOHNSTON:  No, quite honestly, Senator Hall, we're more than willing to sit down and do what we can.  But because we are educators, we're not going to be able to come up with the technical solutions that you as a committee and the Revenue Department will be able to.


SENATOR HALL:  And what I'm saying there, Tom, basically is frankly I'm not predisposed to any temporary solution.  I would rather, at this point I would just rather let the local subdivisions, for lack of a better term, eat it right now until we hammer something out that's going to last for at least another 25 years.  And I mean that I guess is the one thing that I appreciate the Governor's testimony in terms of let's take a couple more weeks, find out where everybody is at, but when we do that, if we should do that and if we keep this hearing open or if he should introduce another bill and we come back in terms of taking testimony, I want to put you on notice and every other subdivision of government that I'm going to be real interested in where


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you're at on long-term kinds of solutions.  Because, frankly, I think the Legislature, and I don't mean to speak for them, but I know this individual is real tired of a temporary kind of proposal.  And, again, I don't mean to single you out.  You just happened to be the guy here while I was thinking about it.


TOM JOHNSTON:  I knew I should have come up here first.  Prazan got out without one question.  But...


SENATOR HALL:  And everybody thinks I'm picking on Dale if I do it to him so you can take it in good humor, I appreciate that.


TOM JOHNSTON:  And again, I don't think that we have any, our concerns literally are that right now, and I'll just speak for the community colleges, we're looking at a zero percent budget increase right now.  That's going to, and we do cut out things when we get those kinds of state aid increases.  We're serious about trying to live within our means.  If in fact we don't get a solution, if in fact ultimately we do come down to eat it and we eat part of a $100 million tax loss, that is going to be very significant to the community colleges.  We are local subdivisions because we do service our communities.  And 90 percent of the people we do train go right into business and industry.  That kind of circular effect doesn't do anybody any good so we'll be here.  The bottom line is, though, that as political subdivisions we don't have any real authority over a state taxing policy.


SENATOR HALL:  I understand.  I appreciate that and I appreciate your testimony.  Senator Haberman and then Senator Peterson.


SENATOR HABERMAN:  Tom, it's a lot easier to ask you questions and "pick on you" than it is June, so I will continue.  I heard Dale mention and you mention at the table, put the bill out, we'll hold people at the table.  We'll hold their feet to the fire.  I mean explain that to me.  What's going to happen when we hold their feet to the fire or we have them at the table?  What does it mean?


TOM JOHNSTON:  I think quite honestly that what Senator Peterson asked was where do we get the money?  Nobody wants to sit in front of God and the press and these microphones that go who knows where and say, well, let's raise this tax, let's raise the income tax or let's expand or let's put it on real estate.  The fact is that because that is so


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difficult a situation to get everyone sitting down and saying, all right, these are our options and none of them are what we like, but we've got to pick one of them.  it's very easy, it is easier if in fact someone can say, all right, I have protected myself.  Now I don't care, well, I'll go back to one of the testifiers earlier, Senator Haberman.  And the person said, well, all you have to do is be able to justify that these are good taxes, that you should expand, you should raise sales and income tax a hundred million dollars.  Basically what that person is saying to me is we're going to cut a hundred million dollars out of state and local government or out of local government because no one is going to sit here after they have been exempted and say, yeah, and I think my other taxes should go up a hundred million dollars worth.  They'll say, well, I really don't think that the services out there are necessary and since I don't have to worry about it anymore, I'm going to let you figure out what hundred million dollars worth of services you're going to cut out.  And I guess that that's it, Senator, that keeping people at the table is because we've got some very unpleasant and unpopular decisions that we have to make.


SENATOR HABERMAN:  Tom, it's a little frustrating to have people get up here and say we want to talk but we don't want to tell everybody in the world what we're talking about.  I had a phone call, a man from Sidney, Nebraska, well, we can't have that tax, oh, no, we can't have it.  And I told him, I'm tired of having you people call in and say we can't do this, we can't do that.  We're going to treat everybody the same.  Well, but they'll go out of state, they'll do, quite frankly, if you take all these people and we go into a room, there's no microphones and we don't say anything, we still have to stand up in front of God and everybody else and say this is what the committee wants to do.  This is what we're proposing.  So I always thought that we have these meetings so that everybody here who represents everybody would have input to the committee, not say don't tax me, tax the other guy, this is our suggestion to a solution.  And if we don't get that, we're going to do what we think is best and we don't care whether the people's feet are held to the fire or not.  This is it, period.  As they say, again, I'm not picking on you.


TOM JOHNSTON:  I understand, Senator.


SENATOR HABERMAN:  It's frustrating to have ...


TOM JOHNSTON:  Yeah, I agree.


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SENATOR HABERMAN:  Okay, Tom.  Thank you very much.


SENATOR HALL:  Senator Peterson.


SENATOR PETERSON:  You come up at a very inopportune time.  (Laughter)


SENATOR HALL:  Damn straight.


TOM JOHNSTON:  And I asked if I could come on here because, just I really had short testimony.


SENATOR HALL:  See, and I was waiting for enry because I wanted a piece of him and you had to step up there.


SENATOR PETERSON:  Maybe I should wait for him.  But, no just reiterate what I've said in the last several years in regards to money.  I put a bill in that anything over $500,000 that you or whoever entity or whatever it was that had to have a solution to where that money was going to come from and justify it.  And we're right back here.  You're coming in and everybody's coming in and saying, well, we'll pass Will's bill right now, some of them, and everything but not a solution.  Is there going to be a solution two weeks from now or a month from now?  We are left up in the air here and we've got to determine where the money is coming from and everything.  And I'm like Senator Hall in that.  You know, it's very frustrating to be on this side when we don't have really the help we need from the other side either.  And so that's a message to everybody out here, not just to you.


TOM JOHNSTON:  Quite honestly because I am not familiar with the personal property tax, it seems to me that if you leave it on and tax it all you are in fact broadening the base.  If in fact personal property tax is not a viable tax for whatever reason then you're obviously going to have to look at leaving, whatever property is left, which is going to be real property, is going to, have to absorb some of that.  You're going to have to raise the income tax and/or the sales tax.  You're going to have to go to sales tax on food which we all know is a regressive tax and as Walt said that you can get $80 million and then with the exemptions you only get 40.  I'll tell you the one thing, the reason that there is a resonance for what Senator Hall says.  If in fact you exempt all personal property, does that call in question the property tax in this state period under Gould v.  Nebraska, Basically we have a lawsuit that says


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that our personal property tax is not equitable to begin with.  If you exempt all personal property, have we in fact not just shot off a toe and have we in fact thrown our entire tax system into the courts once again?  And at that point, we've lost control of our destiny.  I agree with you, Senator Peterson.  I don't envy you.  That's why you have this great honor of being a state senator and you get paid so much.  But quite honestly we will work with you.  And if it means, you know, looking at program reductions in addition to tax increases, obviously, we're all going to have to do that.  It's not something we appreciate, but, you know, we've done it before.  But you lose those programs and you are losing something out of the state.  Not only somebody who, when you lose some of the programs in education, you're not only losing somebody who goes across the state to buy a car.  They go across the state to live and they disappear out of the state.  So those tradeoffs are there as much as some revenue concerns.




TOM JOHNSTON:  Can I go now?


SENATOR PETERSON:  And thank God that I'm not serving in California or New York where they're looking at billions of dollars.  If there's any light at the end of the tunnel, thank God of that.  So thank you, Tom.


SENATOR HALL:  Tom, thank you very much for putting up with US.


JACK MILLS:  Senator Hall, members of the committee, for the record my name is Jack Mills, appearing here in behalf of the Nebraska Association of County Officials.  Our legislative group reviewed these two proposals.  I know Senator Hall introduced his bill as a vehicle.  I won't discuss that.  We have a neutral position on the other issue knowing not what to do.  And I'd like to share with you some of the concerns we have.  We would like to offer some positive direction here.  We had another matter pending and we had opportunity to be working with one of your former colleagues, Senator Vard Johnson, and we have retained Senator Johnson to help us understand and help perhaps provide the committee some understanding as he sees it as the Supreme Court decision.  I've been in a number of meetings and I've listened to a lot of folks tell what these decisions mean and I'm more confused every day.  We don't appear here in a manner of saying don't do anything, certainly the contrary.  We want to try to be positive, to


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offer some support and assistance to you.  Several things come into mind.  One is very soon there are going to be property taxpayers not just centrally assessed property because they don't come to the county board of equalization.  I believe there was 185 cases came before the State Board of Equalization from locally assessed owners of personal property.  We're going to have to have some answer to those folks.  Secondly, we know that there are some owners of real estate who are going before county boards of equalization saying we need equal treatment (inaudible).  We need some answers there.  Again, we have offered to assist the committee and we're hoping that Vard will be able to provide some background to us and hopefully help the committee.  Along with that we have some concerns about administration.  This is not the administration by the state, it's locally administered.  As you remember, personal property is self-reported.  It's self-reported.  We as the individuals file our statements today as of March 1 I believe.  We have some concerns about the implementation.  We're not saying can't do it, but we want to work with this committee.  This is a major area of concern.  How will we administer a personal property tax if you pass 829 or whatever it is or some facet of that?  Again, our comments are we have the county board of equalization coming up.  We have taxpayers other than centrally assessed are going to be making appeals.  We're offering to help you with some legal help for whatever opinion that is, and we want to work with the committee as you discuss the administration of this issue.  Thank you.


SENATOR HALL:  Senator Hefner.


SENATOR HEFNER:  Jack, it will be up to the counties to refund this money, won't it?


JACK MILLS:  That's absolutely correct.


SENATOR HEFNER:  Okay.  And what's (inaudible) for that?


JACK MILLS:  Well, let me take you through the scenario that happened two years ago with the pipelines.  At that time we worked with the Department of Revenue, but we did retain outside counsel.  And what we did is we sent to every county that was affected, and there were 38 of them at that time, we sent to them a series of sample documents that they could use.  One to explain what the county treasurer had to do, the county treasurer must do this by a certain time unless something else happened.  We included sample resolutions for the counties to send to every political subdivision if they


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wanted to plead a hardship.  We said that the county treasurer must have that on record or the county treasurer would be making application that is repaying that which had been improperly taxed.  Judging from the comments in the paper this past week, one of the senators was saying, and I'm certainly not faulting that senator, that those companies who had received this exemption so to speak probably would negotiate.  My opinion is they're not going.  to negotiate anything other than saying we want our money back and follow the law as it is.  The counties will have to refund that money whether or not the state reimburses them or not.  There are certain sections of law which they can follow.  And there's some, again, we're going to ask some assistance there because of an unconstitutional question.  There's some different procedure.  I'm sure the Department of Revenue may want to discuss that.  But we plan to take an active role in that because all of these political subdivisions are going to be affected.


SENATOR HEFNER:  How many counties will be affected?  Will all of them be affected do you think?


JACK MILLS:  My opinion.


SENATOR HEFNER:  All of them?


JACK MILLS:  I believe, virtually all of them.




JACK MILLS:  A significant amount of money, too.


SENATOR HALL:  Any other questions?  If not, Jack, thank you very much, appreciate the offer to help work with the committee.


CLARENCE MILLER:  Senators, my name is Clarence Miller.  I'm from Omaha.  This is the first time I've ever appeared, but it sounds to me like it's the same old story.  People come up here and they say, oh, God, don't take away my tax exemptions, I enjoy them.  Put them on somebody else.  Well, I'm just a homeowner, had to retire early and I'm on a limited income.  But no difference, put it on the homeowner, put it on the personal tax, the sales tax.  I pay tax on everything I own and everything I buy and I'm getting tired of it.  You start talking about putting more sales, more income tax on, raising my home tax, a hell of a lot of us are going to lose our property because the county isn't going to give a damn.  They're going to come and take it.


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If we can't pay the taxes, they're going to put it up for sale.  And I think you're going to have to do something.  You say you want solutions as to what to do, how are you going to get money.  Well, I guess number one I'd start saying this 29 point some million the University wants for another building, the 3 million they want out in ead for another building, Nebraska U pay raises exceed budget.  By God, I can't exceed my budget.  If I don't have enough money, I can't do anything.  I can't hire somebody to come in and mow my lawn if I don't have the money.  When are these people going to learn?  You guys are going to have to tighten your belts and you're going to have to tighten all of their belts because they've got to stop.  We can't continue the way we're going.  I don't know what more I could say, but it just, I think a lot of these things are going to have to be put back on the tax roll from all these tax exempt license plates to horse feed that they're asking tax exemption for.  And it's just getting too much for the average taxpayer.  We can't take any more burden.  This one fellow says, well, put it on the school tax in Omaha, it dill only take another ten cents.  My God, does he know what we're paying in Omaha now on our taxes?  Hell, I got an old car, I pay $105, just got the notice, school tax on this It's about three years old.  Where the hell are we going to go?  We can't continue the way we're going.  And I hope to God you guys are smarten up and tell these people to tighten their belt.  Thank you.


SENATOR HALL:  Thank you, Mr. Miller, Well, sit still.  We may have a question for you.  I like the way you talk.




SENATOR HALL:  Questions from the committee?  Any questions?  Senator Haberman has a question.


SENATOR HABERMAN:  Mr. Miller, I really appreciate your testimony.


CLARENCE MILLER:  Well, thank you.


SENATOR HABERMAN:  I'm glad you came.


CLARENCE MILLER:  I'm glad to hear that because I had doubts about some of you.


SENATOR HABERMAN:  There are thousands of people that feel the same way you do.


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SENATOR PETERSON:  That's right.


SENATOR HABERMAN:  And you made me feel good and we're going to try to make you feel good.


CLARENCE MILLER:  Well, I certainly hope you can.  And it's not just for me, it's for a lot of people that are on very limited incomes that are just above that point they can't get property tax exemptions or anything.  We pay tax on everything we got.


SENATOR HABERMAN:  it is not just the people on limited income.  It's everybody.


CLARENCE MILLER:  Right.  But I'm concerned about a lot of people that are just at that breaking point where they can't get this homestead exemption and stuff, you know.  They're just a little above it, and we can't take any more of this stuff.  It's, oh, just more income tax.  Hell, we just had a 17.5 percent income tax and another state penny on the sales tax.  What are you going to do?  Christ, it's going to take a roll of bills just to go and buy an ice cream cone anymore if you keep it up.


SENATOR HABERMAN:  Well, I'd like to thank you for testifying.




SENATOR HALL:  Other questions?  If not, Mr. Miller, thank you very much for your testimony, appreciate your patience.


LYNN REX:  Senator Hall, members of the committee, my name is Lynn Rex, representing the League of Nebraska Municipalities.  I especially appreciate the testimony of the individual who appeared before me because I think his testimony reflects the frustration of residential property owners who are sick and tired of being the ones to pay the tab, of individuals who have found that everyone else is exempt and they're the ones that are left to pay the bills.  And that has happened because over a period of years there have been a series of exemptions and then more exemptions and more exemptions.  Representing the cities and villages of the State of Nebraska, we would tell you that we are in strong support of LB 829.  And we support 829 as a temporary measure and we are opposed to LB 299.  Senator Hall has asked what is a solution?  I think the solution goes back to the individual who was the first person to testify today and that's Governor Nelson.  And that is that the impact of this


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decision has not yet been fully understood.  It took the Supreme Court approximately two years to render this decision.  That decision came down on Friday, it is now Wednesday and folks have spent a long and pretty not too exciting weekend looking at that opinion.  And I can share with you that we feel that once some options are delineated then we're prepared to come back in and tell you where we're prepared to stand on the long term.  The League of Nebraska Municipalities has for several years now been in support of a sales tax on services if it goes for property tax relief.  And not that that is the first preference, but that we are in dire straits because we, too, understand the frustration and the people that serve and elected officials on the local level understand the frustration of the people that testified before me because in fact they're the ones that are first in the line.  They're the ones that hear about it.  And I suspect that the county officials and school officials and city officials hear about it more than you do, and you hear about these folks a lot and the frustration that they have.  And one of the concerns that we have about taking property off the tax rolls and setting up a reimbursement formula is simply that we have never been fully reimbursed for the amount of property taxes on 518 alone.  We had a study conducted by the University of Nebraska several years ago and from just the numbers that they can track, we're not even getting 25 percent of the amount of money we should be getting to represent the replacement value of that property if it was placed on the tax rolls.  So we're here to tell you that what you're seeing here are people that are coming before you, including the city officials that I represent, that are very concerned about the residential property owner.  We're very concerned, obviously, about this court opinion.  I'm not here to tell you that we fully understand it.  We don't.  There have been people that have been hired to try and educate us on this issue.  And frankly, I think that what is needed immediately is that 829 passes so that you have a constitutional base in place, Once that is done and we would hope within the next upcoming weeks that then a long-term solution could be developed based on the options that are there.  I simply think Senator Hall is asking too much today to say what is long-term solution when in fact we're not really sure what the court said.  At first blush, it looks like it's all or nothing.  I personally think that's what it says.  There have been some other folks that don't think that's what it says and in fact in consultation with the Governor's office and others they have encouraged us to work with them and we are very pleased to work with them in developing a long-term solution.  But first of all you have to make sure there is some base out there.  With


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that, I'd be happy to respond to any questions that you might have.


SENATOR HALL:  Senator Haberman, Hefner and Peterson.


SENATOR HABERMAN:  Lynn, you suggested or you endorsed advancing 829 as a temporary measure.


LYNN REX:  Yes, sir.


SENATOR HABERMAN:  Where do we go from there?


LYNN REX:  Where we go from there is advance LB 829 hopefully today or at least this week.  Once that is done and this bill is expedited, we would hope that the Speaker would be prepared to expedite this.  This is in many instances no different than the ag land issue.  The next step, Senator Haberman, then is for this committee to hold another hearing after the options have been outlined in terms of what are the policy options that the Legislature has after this decision.


SENATOR HABERMAN:  What are you offering?


LYNN REX:  What are we offering?  We are here to tell you, Senator, that as soon as those policy options are developed by people who are much ...


SENATOR HABERMAN:  What are your policy options?


LYNN REX:  Our policy options would be based on the options that are available, Senator.  We're not trying to punt.  What we're trying to say, Senator, is simply that you are asking us to come to you today with a long-term solution when it took the Nebraska Supreme Court two years to render this decision and we are trying to ascertain what it means so that we can come to you with that long-term solution.


SENATOR HABERMAN:  And you're asking me today to put a bill out on the floor (snaps fingers) just like that when we don't know any more about it than you do.  That doesn't add up to four.  It just doesn't add up, Lynn.  You want to put this bill up, put it out on the floor, then we'll work things out.


LYNN REX:  That's correct.


SENATOR HABERMAN:  I can't do that, I'm sorry.


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LYNN REX:  What is the difference, Senator, between that situation and ag land valuation when folks are saying that until we can work out a system that is going to be, that is going to accommodate ...


SENATOR HABERMAN:  Wait a minute now.


SENATOR HALL:  Now you know the rules.  We get to ask, you got to answer.


LYNN REX:  I understand.  Silly of me to think so.  Thank you.


SENATOR HALL:  Senator Hefner has a question.


SENATOR HEFNER:  Lynn, you were talking about exemptions?  Cities don't pay property taxes on their vehicles.  They don't ...


LYNN REX:  City officials do.




LYNN REX:  City officials do.


SENATOR HEFNER:  No, I said cities.


LYNN REX:  Yes, you're correct.


SENATOR HEFNER:  Okay.  Are you saying we should put property taxes back on city vehicles?


LYNN REX:  I think you need to look at all options and that may be one of them.


SENATOR HEFNER:  Okay, how about I think the cities are exempt from paying sales tax.


LYNN REX:  That's correct.


SENATOR HEFNER:  So you'd say toss them all out.


LYNN REX:  What I'm suggesting, Senator Hefner, is that I think before this committee can make a decision, a long-term decision, whichI agree with Senator Hall needs to be done and it needs to be done this year, in order for that to happen you need to have a clear delineation and I think in conjunction with the Attorney General's office, the Department of Revenue and others as to what your policy


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options are.  Once you know what those options are, then you can start assessing what needs to be done.


SENATOR HEFNER:  Okay.  If we throw all exemptions out, we throw homestead exemptions out, too, then, is that right?


LYNN REX:  I don't know whether or not we have to.  See, that's the questions we can't, those are the types of questions, Senator ...


SENATOR HEFNER:  You said we got to get rid of all exemptions.


LYNN REX:  ...  I regret that we can't answer.


SENATOR HEFNER:  You said we got to get rid of all exemptions.  So if we're going to get rid of all exemptions, well, then we throw everything out.


LYNN REX:  If you need to do that then I think that that is certainly something that we would support.  But I think what I'm suggesting to you, Senator, I know what I'm suggesting to you and what I'm suggesting is that in fact you need to understand we need to understand what the impact of this decision is so that you can make an informed policy choice.  I don't think you're here today.


SENATOR HEFNER:  I think I understand what it says and I'm scared of it.


LYNN REX:  I thought I understood what it said.  But in meeting with some folks who spent a great deal of time looking at this, this decision may not do what...


SENATOR HEFNER:  But, see, so many people come up here and say throw out all exemptions but then when we talk about them, well, then they, well, I don't know.


LYNN REX:  We're different.  We're here to tell you that if in fact you feel that you have to do that, we understand.


SENATOR HEFNER:  And that's probably the way it'll go if we throw one exemption out we'll toss them all out.


LYNN REX:  That may have to happen because I will tell you that there are people that are very, very frustrated with the present system.


SENATOR HEFNER:  And I know when we throw homestead


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exemptions out it's going to be tough on some of these poor elderly people.


LYNN REX:  Well, and that's the reason, Senator, why I think it's really critical that you make sure that there's a clear understanding of this committee in terms of what you really have to do, what you can do.  Because I don't think anybody today can tell you that.  I think there's simply too much homework that needs to be done before you can make that choice.  But one thing is clear.  Unless you're able to bring parties to the table, you're not able to do much of anything.  And there are folks that once they got their exemptions they left and we haven't seen much of them.


SENATOR HALL:  Senator Peterson.  SENATOR HALL:  Senator Peterson.


SENATOR PETERSON:  Lynn, you said ...  kick this out, I'm like Senator Haberman, by God I'm not going to kick this out today or tomorrow if I have my way.  And do you think in a month from now that you or anybody else in this room is going to understand what the Supreme Court really said?


LYNN REX:  I think that within that period of time ...


SENATOR PETERSON:  Because the stories that I ...  the people I have talked to are so, are reading so many different ideas or whatever the Supreme Court is supposed to have said, it is so muddled up as far as I am concerned and it took them so god dang long to get it out, which is unbelievable, and I don't know whether anybody in their mind will understand really what they said in a month from now.  But I do know that we are going to have to do something.  Also, those that ...  a lot of people have got exemptions are also homeowners and are paying a lot of property tax out there, wouldn't you say?




SENATOR PETERSON:  Okay, thank you.


SENATOR HALL:  Any other questions, if not Lynn, thank you very much.


LYNN REX:  Thank you.


GEORGE PENRY:  Mr. Chairman and members of the committee, I'll be very brief because of the lateness of the hour.  I am George Penry, I'm the Chairman of the State Chambers Tax


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Committee and I appear on behalf of the State Chamber this afternoon.  The State Chamber agrees with the governor's request that no bill be reported out at this time and that the hearings be continued to a later date and that we be given sufficient opportunity to fully explore the ...  a permanent and final solution to this problem to be addressed and passed yet this year.  There is one comment that we would like to make concerning 829 however and that concerns the inventory.  The State Chamber has not had an opportunity to fully explore the ramifications of the State Supreme Court decision.  However, the State Chamber for many years has been imposed to an ad valorem tax on inventory.  Most states, including over two-thirds of the states do not impose a property tax on inventory, None of the states surrounding Nebraska impose such a tax.  In fact, there are only five states west of the Mississippi River that impose a property tax on inventory.  In fact the Nebraska Supreme Court in its Stahmer decision in 1974 recognized the unfairness of such a tax, it stated (inaudible) is generally recognized the persons engaged in business with large inventories are in proportion to ability to pay heavily taxed.  Concerning the Supreme Court decision I think what we would suggest is that a group be appointed to seriously consider all of the viable options in light of the Supreme Court decision that those then be brought back to this committee and at that point and time the committees recommend an actual and permanent solution to the Supreme Court decision.  We think if we are given, the business committee and everybody else another two to four weeks we can probably come back with something that hopefully most people would be able to agree on as a good solution to the problem at that time.  Those are my prepared comments, thank you.


SENATOR HALL:  Questions for Mr. Penry?  Senator Rogers.


SENATOR ROGERS:  I have been wanting to ask this question of somebody, so I'll pick on you.


GEORGE PENRY:  That's fine Senator.


SENATOR ROGERS:  No, you talk ...  you are not necessarily in favor of tax on inventory.


GEORGE PENRY:  No, we ...


SENATOR ROGERS:  And, I understand that.  In my particular business I have got a good many dollars worth of buildings to make my living.  What is your comment on that?  Basically


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isn't that kind of the same?


GEORGE PENRY:  I don't think so Senator, for the following reason.  With our buildings and equipment generally our intent is to fully own those eventually to fully pay up and own them a hundred percent.  Most inventory is heavily financed, you don't really intend to make that a part of your business, it is more like a transition.  Depending upon how rapidly your inventory floats, you may turn that inventory over twelve times a year and another individual may turn it over one time a year.  That tax becomes a tremendous disparity based on your inventory turnover just in fact.  And, because it is not really an equity that you are trying to build up, it is more like a financing too.  Most inventories I'm familiar with are pretty almost a hundred percent financed and the intent isn't to keep it, it is to sell it and get rid of it right away.


SENATOR ROGERS:  No, but that individual you are talking about, that is the way he is making his living and this is the way that I am making my living.


GEORGE PENRY:  That and with the other property most likely is going to have, including buildings themselves, he will also pay the tax on his buildings.


SENATOR HALL:  Other questions?  George, you mentioned Stahmer, Stahmer didn't this decision kind of shoot a hole at Stahmer.


GEORGE PENRY:  A couple of the concurring judges yes did.  They thought that Stahmer should have been overruled, as I read the opinion.  Those were concurring opinions.  Apparently there was not a majority on the court that thought Stahmer ought to be overruled.  So I think technically Stahmer is still the law, back then, for Stahmer unfortunately we are looking at a different tax situation today.


SENATOR HALL:  You are a tax attorney.




SENATOR HALL:  Are you familiar with the situation, the 4-R Act situation as it is going on around the country.


GEORGE PENRY:  I can't say around the entire country, basically followed it in Nebraska, but not the other states and that is one of the things that we could explore in the


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next two to four weeks is how the other states responded.  Because, most states for example still exempt inventory even though they have a 4-R Act problem in their states.


SENATOR HALL:  But, aren't those in question?  I mean in actuality aren't those really up in the air as well.  Isn't Nebraska just basically the first one that ...


GEORGE PENRY:  No, Nebraska its my understanding Senator, is one of the later cases to be brought.


SENATOR HALL:  I understand that, but my point is it's the first one to incur a decision like this.


GEORGE PENRY:  Nebraska is the only one that has the Supreme Court decision that came out last week to my knowledge.  Which puts us in a unique situation.  Other states may have a uniformity clause but the problem is how does each state's supreme court going to interpret its uniformity clause.


SENATOR HALL:  Where are they moving?  Which way are the decisions moving?


GEORGE PENRY:  That I don't know.  That is why I think we need additional times to explore those.


SENATOR HALL:  Okay.  And, I'm not arguing that we don't need additional time, I think I even stated for the record that we probably should have another hearing on this issue, but, I think that they are tending to go this direction.  You know the talk of other states having it and this goes directly to the comment not only made just by you, but that other states have exempted inventory and things like that, that may well come to an end here shortly.  Other supreme courts may come to the same conclusion and may use Nebraska as a springboard from which you come to that decision.  Okay.  Thank you very much George, appreciate it.


GEORGE PENRY:  Thank you.


JUNE REMINGTON:  Senator Hall and members of the committee my name is June Remington, I represent the Nebraska Council of School Administrators and the Education Service Units of Nebraska.  I love it when people come before you and say, "I'm not an attorney but..." and then offer some sort of an attorney's position.  It appears to me, as a nonattorney, that what the Supreme Court has said is what is it about "no" that you don't understand.  It appears that the exemptions are not legal.  The Nebraska Council of School


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Administrators has always been in favor of a broadened tax base.  The broader the base, the lower the rate.  You have heard that all afternoon, that would be our preference.  I am not here to tell you that you must do this, but I'm to tell you that is where we stand.  We have members out there that are in the process now of developing the budgets for next school year.  Those must be done by August 25.  They need to know how to handle the reimbursements.  We are anxious to help you with this.  No one has suggested that "F Word" during this particular hearing, I've not heard the word, "Flat Tax".


SENATOR HALL:  I'm glad that is the "F Word" you were talking about.


JUNE REMINGTON:  That is something else that you might want to think about.


SENATOR HALL:  We've got to understand, I've got little kids at home and they...  you know that, never mind, go ahead June.  It is getting late.


JUNE REMINGTON:  Which is why I phrased it that way.  We also would support a sales tax on services, I wanted you to know that we really feel that this is an urgent situation and we would urge you not to delay.


SENATOR HALL:  Thank you very much.  Questions?  Senator Peterson.


SENATOR PETERSON:  Just quick, June, if we, which I hope we do, have another continuing hearing on this and lets say two, at the latest three weeks, do you think in that time what you are telling us that you would come in with any more positive or helpful testimony that what you could present today?


JUNE REMINGTON:  No, but I would hope that there were some people, who are attorneys and who are tax experts they could do that for you.


SENATOR PETERSON:  But in talking to your people, do you think you would generate some thoughts that would be beneficial to us...


JUNE REMINGTON:  Possibly, possibly.


SENATOR PETERSON:  ...  in two or three weeks?


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JUNE REMINGTON; I would certainly be willing to try.


SENATOR PETERSON:  And I mean that is a question to all of the people that are going to come up and testify.


JUNE REMINGTON:  I think everyone here today is going back to their constituency to do just that, to explain the issue and to see if there are solutions and consensus.


SENATOR PETERSON:  So your answer could be, "maybe".


JUNE REMINGTON:  My answer is "maybe".


SENATOR HALL:  Senator Hefner,


SENATOR HEFNER:  June, I'll pose the same problem to you, would the school administrators be in favor of putting the property tax on their vehicles, that the schools own?


JUNE REMINGTON:  If we talk a flat tax...  sure.


SENATOR HEFNER:  And, pay sales tax on everything too that you buy?


JUNE REMINGTON:  Senator Hefner, if the base were so broad as to include public entities as well as private entities I would think that the tax would be low enough that we would have to be able to manage that ...


SENATOR HEFNER; Well you said we don't want any exemptions ...


JUNE REMINGTON:  ...  we would certainly must look at that.


SENATOR HEFNER:  ...  so...


JUNE REMINGTON:  That is what I said.


SENATOR HEFNER:  That is what you said, okay.


JUNE REMINGTON:  That is what the court appears to have said is why.


SENATOR HEFNER:  Okay.  But, you kind of feel that public entities probably should be exempt.


JUNE REMINGTON:  I'm curious, I looked at the bill and I looked at the list of exemptions that are still there and asked myself, how can we leave these and take the others


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SENATOR HEFNER:  Yeah, yeah, I know, I know.


JUNE REMINGTON:  I understand...


SENATOR HEFNER:  Okay, thank you.


JUNE REMINGTON:  ....  thats why you and I get paid the big bucks.


SENATOR HEFNER:  That's right.


SENATOR HALL:  Thank you very much June.  Mr. Hallstrom is going to be our fifteenth testifier on this issue.  Can I see a show of hands of those who are going to testify in addition yet this afternoon?  Okay, about four or five more people, then we will move to the Department of Revenue.


ROBERT HALLSTROM:  Mr. Chairman and members of the committee, my name is Robert J.  Hallstrom, I appear before you today as registered lobbyist for the National Federation of Independent Business and it's 8,000 small business members.  I don't have a whole lot to add to the discussion other than I would echo many of Mr. Penry's comments on behalf of the State Chamber.  I believe that small business owners traditionally have and will continue to oppose any efforts to impose a tax upon business inventories.  However, I do think it is clear and obvious that although that is a traditional notion and there are probably some reluctance on the part of small business owners to look at any other types of taxes other than perhaps those that the other guy may pay that some of those traditional notions may have to go by the wayside in working with the political subdivisions, the Revenue Committee, the legislature in trying to pose a solution to the difficulties that we are currently facing in light of the Supreme Court opinion.  With that, I would pledge that I am going to be going back to my business owner members to try and elicit some type of response from them that might be helpful as we move along in this process and pledge our cooperation to the committee.


SENATOR HALL:  Questions for Mr. Hallstrom?  Bob, do you see it as an issue that is just not one of a taxation issue, from your memberships point of view or...  I mean the effect that it has on the local subdivisions effect that lies out here potentially of the shift over to real property because our members pay real property taxes as well.  I mean is hat the way you see it being interpreted on their part, or


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is it going to be interpreted as, "well they want to reinstate our inventory tax".


ROBERT HALLSTROM:  Well I think right now that their understanding of the issue probably stems more from the introduction of the bills rather than the Supreme Court opinion.  It has been too recent for them to have probably posed any determinations as to where this legislature might go in that respect.  I guess I would leave it at that as to where they are coming from.  It is going to be a question of posing the issue to them properly and hoping that they can come up with some response that is appropriate.


SENATOR HALL;:  Is your, I guess, introduction to them of this issue going to include that, that it is not just limited to ...  that the effect, I mean it effects them directly.  I mean not only just to which tax would I prefer to pay, but the local entity provisions with regards to subdivisions of government.  I think they are well aware of that but oftentimes these issues get boiled down to yeah, well they just want to put that tax back on.


ROBERT HALLSTROM:  I think it is going to boil down to, it is going to directly impact them regardless of what the solution is.




ROBERT HALLSTROM:  You mentioned earlier that if you fail to, or if you allow, in your words, to let the subdivisions eat it at this point, they are going to realize it at the local level on the real estate taxes.  If you put their business inventories back on, they are going to feel it there.  But in the course of undertaking this discussion there may be some off-sets.  If there are some things taken off on a different tax in its place, there is some give and take, I think, that hopefully in defining the solution constitutionally, that maybe can eliminate or minimize those problems.


SENATOR HALL:  Thank you Mr. Hallstrom, appreciate your testimony.


STAN SIBLEY:  Senator Hall and members, I represent the Omaha Public Schools and it was my hope today that I could sit and try to get a handle on these issues in the back of the room, but two or three people during the course of the, during the course of the hearing, used Omaha Public Schools in their testimony and I thought that it was important for


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me to come up and try to make it a complete record.  The purpose of my testimony is to do that.  I believe that it was Mr. Dickinson who had said that somebody had been quoted in the newspaper as saying that this issue would cost seven to ten cents, something like that on the property tax on Omaha Public Schools.  I apologize to the gentleman I only heard part of his testimony and I may not have, I may not fully understood what he was saying.  But, I think he was referring to an article in the newspaper this morning.  Essentially what that means, it was probably Mr. Miller incidentally, later that said it better than I ever could, that even that seven to ten cents is an important thing for our board and for our constituency.  However, placing it in its full context our understanding at this point is that if the centrally assessed personal property were to come off the rolls that would mean seven to ten cents, probably seven cents on Omaha Public Schools.  If the other personal property tax came off that would be an additional eleven point six cents to our personal, to our property tax and then in our worst case scenario if motor vehicles also came off of the rolls that would add another fifteen point nine cents over unto real property a total of about thirty-four point nine cents.  Now Senator Hall you live in our district, on a $50,000 home that is about a $175 increase.  On a $75,000 home, and I know sir that your home is valued at less than that from previous times in here ...


SENATOR HALL:  Yeah, you can go down below the fifty as a matter of fact.


STAN SIBLEY:  ...  but on a $75,000 it would be a $270 increase, and a $100,000 home that would be a $350 increase.  I can assure you that Mr. Miller is quite correct in his assessment that that kind of a shift is quite serious in our school district and I would not want to have it characterized in any other way.  With that I would end my testimony.


SENATOR HALL:  Questions for Mr. Sibley?  There are none Stan, thank you very much, appreciate your testimony.


STAN SIBLEY:  Thank you.


BARBARA BOTSCH:  Chairman Hall, Members of the Revenue Committee, I am Barbara Botsch, registered lobbyist for the Greater Omaha Chamber of Commerce.  This afternoon is probably one of the few times in my life that I have ever testified in a neutral capacity on anything.  I am here today, very briefly, to request that you consider the


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possibility of an additional hearing or a continuation of this hearing and I'll say two weeks down the line.  Very frankly we knew a decision was coming, we did not know what the decision specifically was going to be until Friday.  We had a taxation meeting today.  Our members are the ones that are involved, as far as personal property, inventory tax, pipelines, etc.  I think we have the expertise to attempt to be a help to you in a permanent solution of this problem, we are not ready at this point to do that, but you may rest assured that we are trying feverishly to come up with some thoughts on how, perhaps we can offer some expertise for a permanent solution.  I am here today only in the capacity to tell you that we stand ready to attempt to work with you in solving the problem and would like to have a continuation on down the line of this hearing.  Senator Haberman in answer to a question that you posed previously, we have no objection to doing that in an open hearing and we pledge whatever help we can give to attempting to solve this problem on a permanent basis that will stand up to the courts.


SENATOR HALL:  Questions from the committee.  Barb, I would have just one, and not really a question, can you give us a flavor of what your discussion was at your tax subgroup?


BARBARA BOTSCH:  It was more, Senator Hall, the position of informing the people there ...


SENATOR HALL:  The ramifications of ...


BARBARA BOTSCH:  Of the ramifications, what various people thought the decision did say and then to start a preliminary discussion on what could and couldn't be done.  We will continue that.  We will have subcommittee meetings ...


SENATOR HALL:  Was there any consensus on what the decision said?


BARBARA BOTSCH:  No, which unfortunately is part of our problem.


SENATOR HALL:  Okay.  Any other questions?  If not, thank you very much for your testimony, I appreciate it.  And, your neutral capacity is just fine.


ROBIN HENDRICKSEN:  Senator Hall and members of the committee I am Robin Hendricksen and I am Chief Administrative Deputy for the Lancaster County Assessor's Office.  I would offer also our assistance if we should be


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needed to assist this committee in any fashion in weeks and...  in days and weeks to come.  The first part I have a statement that I will submit, (Exhibit I) in essence of time, most of which has been touched on this afternoon.  I would like to bring up one point that the interpretation that possibly all tax, property tax in Nebraska might be in jeopardy exists out there.  In fact it has come to our attention that there are a few real estate owners who have planned to appeal to the Lancaster County Board of Equalization for a taxable, equalized taxable value of zero.  Should this ...  there are a lot of problems to this.  Should this catch on it becomes a very expensive issue for us as a governmental entity to handle all the...  administer the protests that come through, which initial estimates for us are somewhere in the range of $40 a protest.  As you can see that could be very expensive for a massive protest.  Secondly, should these opinions go, or these protests be appealed to District Court and District Court finds in their favor, it would certainly jeopardize and further add to the problems of our tax system as it exists today.  Personally, I feel that 829 has merit if it deals with the 1991 tax ear.  The ...  and I don't wish to be, if I might read, my personal statement, "I do not wish to appear callused and nsympathetic to those property owners to which the solution of 829 may have a substantial impact.  On the contrary, I would hope that you might somehow devise a program of rebate, rather than exemption,, be funded by sales and income tax that would not only satisfy the intention of the founding fathers but also minimize the impact of such a dramatic change in our present system.  This rebate program would also allow for the complete analysis of the impact of change of all property owners, rather than making a hasty unsubstantiated estimates.  Granted many administrative nightmares come to mind with removing all personal property exemptions, but I feel those obstacles must be dealt with to assure the survival of local government as we know it today."


SENATOR HALL:  Thank you Mr. Hendricksen.  Questions from the committee?  There are none.  Thank you very much for your testimony.


LINDA BERNEY:  I'm Linda Berney, I'm the treasurer and corporate controller of Chief Industries in Grand Island, Nebraska.  I would like to start talking a little bit about hat Chief does.  We sell over a hundred million dollars annually, primarily all outside the State of Nebraska, less than 20 percent of our sales are within the State of Nebraska.  We find that most of our competitors are located


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in states which do not have personal property tax.  One of our divisions, BonaVilla Homes in Aurora manufacturers mobile and modular housing.  Their market is anywhere from South Dakota, Iowa, Kansas, Missouri, Texas.  To impose an additional inventory tax on them would really be a hardship with the tight margins they have already with the transportation it costs that they have to get to those markets.  The same is true of our building division which is located in Grand Island, Nebraska.  We incur a double penalty being located in Nebraska because of freight costs.  We first have to bring all this heavy steel in from the east, where the steel mills are, and then a good share of our customers are back in the east so we then again ship the steel back east.  One recent building we quoted in Michigan cost us $30,000, would have cost us $30,000 to ship up there.  With tight margins in the construction industry, we just can't compete that way, so any edge we can get on taxes and other costs are a big benefit to us in marketing our products worldwide.  I have heard a lot of talk today about, "Don't tax me and where are these other taxes going to come from." Well I have worked a lot, Chief is registered with every state in the union and in several countries to do business.  I really think that Nebraska may be missing the boat trying to collect some taxes from people outside of Nebraska.  For instance, almost, a whole bunch of the states we do business in have what is called an Annual Report, and they just nickel and dime us to death.  If we do any business in their state, they require us to file an annual report with, perhaps a tax based on sales in the state or whatever, but they all.  put a minimum on, whether it is a $100 or $50 or whatever.  These taxes amount to several thousand dollars a year for Chief to do business in the states.  Likewise with sales taxes, several of the states have permission to do business in your state.  They levy a pretty hefty tax to even ship products into the state through the sales tax vehicle.  It would be an easy thing for the Department of Revenue to find these companies, when they come in and do sales tax audits, go through accounts payable, Chief alone has thousands of vendors from outstate that are selling to us in Nebraska.  I would like to see everyone of those companies pay a tax, whether it be a fee or whatever you call it.  I think a flat tax would be a good way to shift some of this burden outside of Nebraska.  I guess that is about all I have to say, and I'm so nervous.


SENATOR HALL:  Oh no need to be nervous, no need to be nervous.  Appreciate your testimony.  The only question I have is why don't you buy from vendors inside Nebraska?


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LINDA BERNEY:  That steel still has to come to Nebraska from the steel mills and the costs are going to be shifted to us regardless, some of them are within Nebraska.


SENATOR HALL:  Are these just steel buildings?


LINDA BERNEY:  We are a very diversified company.  We have a trucking division, we have a golf course, we have steel building, you know there are just a lot of wood products, for instance, come in from the west coast, so a good share of our products do come from outside vendors.  I think even if we bought from Nebraska customers a lot of those customers, they would be getting their products from outside the state, so lets get a tax on those people coming in.


SENATOR HALL:  Why did you locate in Nebraska to begin with?


LINDA BERNEY:  Its a homegrown company.  Virg Eihusen started it 35 years ago as a construction company and he likes Nebraska and we have grown, we have 1,100 people nationwide and 900 of them in central Nebraska.  We are in Aurora, Kearney, Grand Island and Hastings.  our payroll alone in Nebraska last year was over $20 million.  He has a real commitment to Nebraska but he says just don't help make us less competitive out there with you know, the other people we compete with.


SENATOR HALL:  Appreciate your testimony.  Senator Peterson has a question.


SENATOR PETERSON:  You say you buy most of your steel outside.  Do you buy any from Norfolk from Nucor Steel?


LINDA BERNEY:  Oh, yeah.  But, Nucor is going to have the same thing bringing the product in.  I'm saying no matter where you get it ...


SENATOR PETERSON:  Well they bring in the scrap and make it, melt it by electricity and makes steel.  Can they supply you all the steel you need?


LINDA BERNEY:  I can't really answer that.


SENATOR PETERSON:  I think you need to sit down with John Dordy and he will figure out a deal for you.


LINDA BERNEY:  I'm sure our purchasing department is in touch with steel people all over the United States.


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SENATOR PETERSON:  You go back and tell them to Norfolk, Nucor Steel, we'll fix you up.


SENATOR HALL:  If you weren't able to realize Senator Peterson represents Norfolk.




SENATOR HALL:  Thank you very much for your testimony.  Appreciate very much your patience for waiting to testify.


WELLAND BATES:  Senator Hall and committee, my name is Welland Bates and I represent myself only.  From what I have drawn the court seems to say we must create everybody equally.  One man made the suggestion we cut costs, which is a great thought.  The other thought that I might give is if you have a food tax, for example, why do you have exemptions on it.  If you have a tax on real estate you have exemption on all nonprofit organizations.  You are losing much revenue, public entities the same way, you are losing revenue from them.  It might be redistributed but nevertheless they should pay their fair share.  By the lateness of the hour I presume you will have another hearing, I hope.  I didn't find out about this until last night that you were having a hearing today, So I would answer any questions.


SENATOR HALL:  Questions for Mr. Bates?  There are none and I apologize the bills were introduced and the hearing schedule was published but we just ...  this is our last day of hearings, as a matter of fact, since we didn't have a Supreme Court decision at the time we scheduled the hearings I put them at the very tail end.  Lucky me that the Supreme Court would hand out a decision five days prior to the hearing, but that is the way it worked out.


WELLAND BATES:  I realize there were two ghost bills for that particular purpose.


SENATOR HALL:  Right.  And I'm thinking that we probably are going to have another hearing but we will have to discuss that in Executive Session amongst the committee members but I think that is probably more than likely.


WELLAND BATES:  I thank you.


SENATOR HALL:  Thank you very much for testifying, we appreciate it.


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JOHN MOORE:  Senator Hall, and committee members, my name is John Moore, I'm the Dawson County Assessor.  I also represent the assessors to the Nebraska Association of County Officials.  Very quickly, well actually I feel like I ought to wait until the Department of Revenue is done and maybe provide some rebuttal.  We had a legislative hearing, or meeting among the legislative committee members of the association Monday and those members want me to tell you that whatever you do in terms of '91 if you attempt to put personal property back on.  They want me to tell you they can't do it.  But, they don't want to say that, I mean they want to say that privately, I'm telling you publicly that they will do what they have to do, they don't mind working hard.  But, I want you to understand whatever we do is going to be ugly.  We are not going to be able to assure you that you are going to get high quality appraisal and high quality equalization under the current framework.  Other than that, I don't have anything else to say.  I just want you to know we would be glad to do the work but you have to realize that we are a month away from protesting, we are less than three months away from our initial assessments as far as how much valuation we have in the counties and in my county's case we would be looking at a swing of valuation that is absolutely astounding, particularly if LE 775 is considered no longer useable.


SENATOR HALL:  Questions for Mr. Moore?  John, the...


JOHN MOORE:  Excuse me, I also wanted to mention that you should understand that there are lids out there and four percent on last years tax call is our lid.  No matter what you do with valuations that is not going to change.  Adding refunds into that tax call, under a four percent lid, tends to create some real turmoil.


SENATOR HALL:  How long will it take before you can get on line and do a good job of ...


JOHN MOORE:  Well we give them sixty days now, January I to March 1 with a thirty day, not really a grace period, they can ask for a thirty day extension, it is not so much what can we do it is what will they do, how will they respond.  You are not going to have...


SENATOR HALL:  Are you basically...


JOHN MOORE:  ...  very happy people, no matter what you...  I mean we realize as assessors no one is going to come in and shake our hands for this, that is not really the problem, we


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are used to that, but...


SENATOR HALL:  I doubt that they are going to come shake ours any sooner, I mean, if we should make that decision.


JOHN MOORE:  You can bet that they will be referred to somebody.


SENATOR HALL:  I understand that exchange of ideas ...




SENATOR HALL:  ...  and phone numbers, addresses ...


JOHN MOORE:  I think one of the, perhaps one of the things that you can avoid a problem with is maybe giving, for '91, I'm speaking strictly of '91 now.




JOHN MOORE:  One thing I am concerned about is what is the legal date?  You can't say January 1, because I as the assessor didn't know what they had January 1.  You are going to have to change that, modify that.




JOHN MOORE:  On top of that we are looking at just a matter of the deluge of work, not that we can't do it, we don't necessarily have the budgets for it either.


SENATOR HALL:  So you are basically saying that there wouldn't be any audit function that went along with this.  You would just be collecting the information?  Whatever was submitted by the taxpayers?


JOHN MOORE:  Well, I'm afraid so.  Then of course you get into the period of time when ...  you have got some obvious limits but I think the Department of Revenue can probably tell you more about this.  I don't want to take up your time telling him...


SENATOR HALL:  I appreciate your testimony.  You have been more than willing to come forward on all the issues that are pertinent with your organization and we appreciate that.  Thank you very much.  While Mr. Helvey is coming forth, can I see a show of hands of others who are going to testify on these proposals in some capacity?  Mr. Helvey, you have the distinction of being the last testifier short of the


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DICK HELVEY:  Wow, I hope what I say then makes sense and so on, but I didn't..  I am Dick Helvey, I represent myself and the situation in my observation, limited as it is, no sooner than what the ruling came out and so on.  Basically as the person from the school said, the school district said, the answer is "NO".  But, how do you interpret that to try then to be equal in this state from hereafter.  I think you very easily can.  That was an intrastate decision in a way.  And, we are talking about interstates as to how to handle it.  Well interstate back in 1970 the voters allowed you legislatures to classify property and to tax it in distinct matters by your classifications.  What ...  with the sales and income taxes issued in 1969, and Amendment 10 then passed by the voters as a Constitutional Amendment that you have the right to differ as far as classification.  You must be equal within that classification.  You have the sole right to do this and live as we are living right now, as long as we are equal within that classification, if I understand it right.  That is my comment.  What you can research on that fine.  A solution, personal solution is, I know it is a mortal sin in this state to borrow money, but if you borrow money and let the tax base, as it broadens, take care of that borrowed money it will solve itself.  If the state continues to grow like what it is growing right now.  You have done it through some other bills here in the past to increase industry and the state will still grow, we are not stagnate.  Those are my two comments other than I have no objection to sales tax on services.


SENATOR HALL:  Thank you Mr. Helvey, as always appreciate your testimony.  Unless there is someone who came who would like to testify in some capacity on these proposals, we will move to informational testimony from the department.  I know there are those of you out in the crowd that would like to submit questions, but you can't, so, come on, pick a chair, lets...  You can sign in now or as you testifying, that is fine.


DENNIS DONNER:  Senator Hall, my name is Denny Donner with the Nebraska Department of Revenue.  What we have done is basically for informational purposes is design some charts which depict what has happened to the Nebraska tax base over the last twenty years.  These are four snapshots in time.  (Exhibit J) I'll walk through them and explain how we feel they represent what has happened to our tax base and 'low the court has addressed this happening.  The first chart, which you have basically was prior to the partial


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exemptions that started in 1972 when the various classes of property in Nebraska were all treated the same.  The proliferation of exemptions had not occurred at that time.  So, the various categories that subsequently got exemptions got listed here as basically equal taxpayers.  The second chart depicts what happened, or what began in 1972.  In 1972 we had the beginning of exemptions on farm machinery, livestock, farm inventory and business inventory.  This exemption at first was fully reimbursed by sales and income tax.  The burden for the exemption did not shift to other property taxpayers, however there were property taxpayers who were still paying on a hundred percent while other ones were receiving a favorable status under a constitutional amendment which allowed the legislature to classify property.  The third chart represents a picture in time when those categories, those classifications exempted by the legislature because became fully exempted and that the reimbursement of sales and income tax money became frozen, frozen at the $70 million level, What this chart attempts to depict is the fact that property tax needs of government continue to increase.  These particular classes of property were no longer contributing to the tax base and reimbursement to the political subdivisions for the loss of these was frozen.  The remaining taxpayer on the tax roll at that time picked up the additional burden.  It became a magnified burden on the remainder to pick up and compensate for the exemptions of specific classes of property.  I then turn to the fourth chart which merely represents the situation that we are in today.  In addition to the exemptions that began in '72, we now had several other types of, I don't want to call exemptions, but in a sense they effect the remainder of the taxpayers the same way.  The public service companies in the recent decision have basically, received an 80 percent forgiveness of their tax exemption, whatever you want to call it.  The railroads through the 4-R Act and subsequently the exemption of railroad rolling stock have received exemptions.  775 property has received exemptions.  Earth moving equipment, a small sliver, has received exemptions, plus other miscellaneous categories.  What we are trying to demonstrate here is what we feel the court was saying in that when you look at all the different classes of property that are receiving the benefit of exemptions it has become a disproportionate burden on the remainder who have to pick up the tax tab.  These four slides or four graphs really represent four snapshots in a continual of about twenty years, where this has occurred.  We offer this just as somewhat of an explanation to why we feel the court went the direction they did.


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SENATOR HALL:  Okay, questions from the committee.  Senator Haberman.


SENATOR HABERMAN:  What do the "R's" stand for?


DENNIS DONNER:  The "R's" stand for, Senator just my version of reimbursement.  The $70 million that went out to replace the tax loss, only now covers a portion of what those items would generate in tax.  As a practical matter the $70 million at one time shrank to around $60 in the ...  $60 million during the budget cut years and just recently, I think as close as three years ago, was reinstated at the seventy level.




SENATOR HALL:  Senator Hefner.


SENATOR HEFNER:  What do you figure that figure should be how for those three, farm machinery, livestock and farm inventory, or business inventory.


DENNIS DONNER:  Senator there is several ways to look at that.  If those items were put on the tax rolls and the tax rate was the same as it is today, they generate close to $300 million.  But, as a practical when those tax items are added to the tax rolls the rate adjusts and the aggregate of tax collections, absent any budget increases, remains constant.  In other words you collect the same dollars you would have broader base, lower rate in the areas that have that type of property.




SENATOR HALL:  Other questions?  I would ask kind of a broad question in terms of, I appreciate the charts because it does kind of bring into focus the issue of what has happened over the years.  But, can you give us, I know you followed the constitutional question over the years, can you give us, I guess as unbiased description or interpretation of what transpired with the decision we just received and what our options might be, I mean if you can't do that that is fine, I know it is, the public policy is for the Executive and Legislative branches to pursue but mention was made I think by Mr. Penry of the Stahmer case and, correct me if I am wrong, but the way I read the decision through a layman's eyes is that, you know, the court said there is no longer a distinction between real and personal property.  That they


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have been, I guess, blurred together.  So you can't do that and that Stahmer, or at least one of the concurring opinions so that.  Kath, what are we talking about there and could you state your name for the record.


KATHERINE LANG-MORRISSEY:  Yes, my name is Katherine Lang-Morrisey, I'm an attorney with the Nebraska Department of Revenue.  Very briefly I think what the court is saying constitutionally is that you have a constitution, the Nebraska Constitution that contains within it a number of "shalls".  The "shalls" are, you shall not have special legislation.  You shall have uniformity of all tangible property, real and/or personal.  You shall not commute taxes and the other shall that I would like to bring up because I heard some statements referenced to political subdivisions is, you shall not tax political subdivisions.  On the other hand the constitution has a number of "mays", and those "Mays" are, you may classify and exempt personal property.  You may treat tax motor vehicles differently.  You may preferentially treat ag land either in valuation of a class or through greenbelt.  I think what the court is saying in this decision combining both the percurium decision and the concurring opinions is that you can do those "mays" so long as they meet the standards set by the "shalls".  And the standards set by the "shalls" are, that if you are going to classify you have to do it reasonably and rationally and it must justify a legitimate state purpose.  You then can exempt property, but, if you are going to exempt it, you must treat all within that class similarly.  If you are going to tax it you.  must treat all within the class similarly.  That, I think, quite basically is the big picture constitutionally of what this case absolutely says.


SENATOR HALL:  Its a rough translation in terms of ...  and I think I am following you but what in terms of rough translation with regard to the issues in the two proposals specifically 829, which is a basically put it all back on concept.  Short of the exemptions that the court laid out in an opinion, the one dealing with the household items and the other being the charitable property, is there any exemption out there that could meet ...  that falls under the provisions in the "mays" that qualifies under the "shalls" and that is reasonable, rationale and fits the reasonable rationale test.


KATHERINE LANG-MORRISSEY:  Well, all I can say is to state that one property should be exempt because they don't want to pay any tax certainly is not a legitimate reason.  I think to maybe find some differences, real difference and


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distinctions within a class will then allow the legislature to then classify it and then exempt it, so long as that is reasonable and rationale and supports the legitimate state purpose.


SENATOR HALL:  REAL distinctions.  Emphasis on REAL, what does "REAL" mean?


KATHERINE LANG-MORRISSEY:  Well, as an example out of the case, they held that it was, or at least the concurring opinions, and excuse me, the pericurum opinion in holding that LB 7 was unconstitutional because that is a holding and that is the law now.  There was not a reasonable basis for doing ...  exempting railroad rolling stock either because it is not different from other common carriers or because it is no different from other income producing property.  And the court did use the pericurum opinion did use the term "income producing property".  And when, it seems to me anyway that that is their class.  That one kind of income producing property is no different and there is no real distinction among types of income producing property, real distinctions.


SENATOR HALL:  Whether it be ...


KATHERINE LANG-MORRISSEY:  Or real, and real or personal property within income producing property because we all know that you can have real estate that is income producing property and personal property that is income producing property.


SENATOR HALL:  Senator Warner.


SENATOR WARNER:  I was just going to proceed...


SENATOR HALL:  Go ahead.


SENATOR WARNER:  I have a real problem of trying to think of something that is not income producing property.




SENATOR WARNER:  (inaudible).


KATHERINE LANG-MORRISSEY:  And so do I, I mean it is hard to find what isn't.


SENATOR WARNER:  It is really difficult to...


KATHERINE LANG-MORRISSEY:  Except like maybe the Court


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Justices White and Fahrnbruch, (inaudible) and I say kind of off the top of their head because they didn't have any evidence in the record but maybe household and personal affects are not necessarily income producing property.


SENATOR HALL:  That was going to be my comment, my wife's clothes clearly don't produce income.


SENATOR WARNER:  No, but it attracts beauty and beauty is obviously a source of...


SENATOR HALL:  And you know I'm not going to argue with that.


SENATOR ROGERS:  You better not.


SENATOR HALL:  Enough said there.


SENATOR HEFNER:  She may be listening in.


SENATOR HALL:  Any other questions?  What about the whole issue that ...  the discussion that revolves around the, and we started to talk about it a little bit about the real versus personal and the argument that if you take it all off you jeopardize, you shift that last block of real estate, the burden on real estate with regard to the tax burden, you shift that over and make it all that much greater that you run the risk of jeopardizing the billion plus property tax base that it represents.  What can you tell us about that in terms of the opinions?


KATHERINE LANG-MORRISSEY:  Because the court has held that, and rightly so, that our constitution requires uniformity of all tangible property and that includes real and personal.  If there is not a difference with a distinction, (inaudible) say that right, between income producing real property and income producing personal property then you can exempt one and tax the other.  That is what I think they see at risk in the real estate base.  I think they also, and this is out of the White and Fahrnbruch concurring opinion, they make that comment and then they go on that okay, lets say that passed State Constitutional muster and we would say it is okay, they didn't think that would pass federal standards and I think, as I talked abut the Nebraska Constitution with its "shalls" and its "mays" we are then subject, even though we can have all sorts of standards and wonderful reasons within our own structure we are subject then to the US Constitution and the US Law so we are subject to the 14th Amendment of reasonable and rationale classification.  We are also


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subject then to the 4R Act.  The 4R Act, when you read these opinions, has been a kin to our uniformity provision and it is a very broad discrimination standard.  If there is any discrimination the tax is, in some cases I have read dealing with the 4R Act, if there is any discrimination the tax violates the provision and therefore you can not do it.  So I think what they are saying, is okay, lets say you passed that (inaudible) and you move on up and federally protected entities bring a claim under a standard that is, lets say looser than ours, broader than ours, you may not pass up there and you will be right back where you are again and again your real estate will be at risk.


SENATOR HALL:  When you read those other decisions that dealt with the 4R Act, what ...  where do you see those going in other states?  I mean, is there a movement out there in this direction, is our court going off on a tangent or do they make this decision in good company?


KATHERINE LANG MORRISSEY:  The 4R Act has allowed railroad entities, the railroad industry a protection and they have had, it has been interpreted that it applies to all taxes.  There is a clause in the provision that allows that.  In courts when they are faced with the litigation are looking now at big picture things.  They are looking at any discrimination in any tax program, if they find it it is out.  Florida, because people have been talking about inventory, Florida has current litigation pending and I'm sorry I don't know the current status of that litigation, I know it is still going on, where in that state they exempt pretty much just inventory.  It hits at about 40 percent of all income producing personal property and Trailer-Train I think is bringing this case down there.  Coupled with the 40 percent exemption, ours was 75 percent just to give you a comparison.  Coupled with the 40 percent exemption there the car company has also alleged that also that because of under reporting and under evaluation of those other classes of income producing property now exceeds the 40 percent and you are up, over fifty you are coming close too ...  and then of course they are going to want to use our Nebraska case and bring it down there and say, "Look, you have discrimination, you are over 50 percent"...  and I'm not even sure that is necessarily a magic number, so be careful, even though you are over fifty percent -the tax is discriminatory and you don't have to pay.  So inventory down there doesn't seem to be necessarily anything to protect the state from a 4R Act (inaudible).


SENATOR HALL:  So they basically have household, charitable


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and then they have inventory.


KATHERINE LANG-MORRISSEY:  Yeah, that is my understanding and it is rather limited so, but that is my understanding.  They don't have any of, like machinery and equipment exemption.


SENATOR HALL:  Are there questions?  Would you be willing to come back if we have another hearing?




SENATOR HEFNER:  Tim, I have a...


SENATOR HALL:  That is kind of a rhetorical question.  Senator Hefner has a question.


SENATOR HEFNER:  I have one question, I just thought of it.  Okay, say that we put all personal property back on the tax rolls and create an exemption.  I think Senator Hall had one with $175,000 exemption.  This was a bill last year I believe.




SENATOR HEFNER:  Could that stand the constitutional mustard?


KATHERINE LANG MORRISSEY:  Well one I think in the State of Nebraska in our court system, with our court, it would be viewed as a partial exemption and that would be violative of both the classification provision and then the uniformity provision both, because you haven't, they would probably find that the classification wasn't reasonably and rationally based and they would also say that you are essentially under valuing or you are giving everybody a preference up until a certain point.  Some people are going to have a hundred percent exemption and some people fifty and some people very little if they have a lot of input.


SENATOR HEFNER:  Okay, could you give a certain percentage as an exemption.


KATHERINE LANG-MORRISSEY:  As long as you would want to apply that to all tangible property be it real or personal.  Oh, the other thing that I wanted to mention with respect to your question on the threshold amount of lets say $175,000 is Iowa does that in their state and they were sued by the railroads and the railroads were victorious finding that


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that was a violation of the 4R Act.  Now the interesting thing is in the State of Iowa their court did not go as far as to grant that same 4R relief, I think it was to the pipeline industry in that state, but, we are not in Iowa with that respect so we would.


SENATOR HEFNER:  How long ago was that decision rendered?


DENNIS DONNER:  Four years ago.


SENATOR HEFNER:  But you think a percentage would stand...


KATHERINE LANG MORRISSEY:  As long as you gave a (inaudible).


DENNIS DONNER:  Senator, one thing you might consider about a percentage, leaves everyone in the same relative position and it is only a slight of hand as opposed to actual adjustment.  Everyone at 30 percent would be the same as ...




SENATOR HALL:  The percentage argument is really no different than the...  than some corporation coming in and saying equalize me, that is really all it is, it is just treat everybody the same, the argument on the ag land, the bills that were introduced on percentage of market.  Any other questions?


SENATOR PETERSON:  Well I don't know whether it is pertinent, but anyway, talking about exemptions what about a rebate, would that fit in?


KATHERINE LANG-MORRISSEY:  Through the sales and income tax?




KATHERINE LANG-MORRISSEY:  I guess if it were a dollar per dollar 'lets say on tax paid on personal property, the court would see through that and say that you are not using county dollars to do it or local subdivision dollars to do it but you are using state dollars to do it, as long as you were giving it to everybody and not just lets say the inventory or not just say to businesses but me too on my house, if you are giving it to everybody that would probably be okay.  If you are not, they will see through it and they will say that there is still not uniformity.


SENATOR PETERSON:  So there wouldn't be much difference


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between that or exemption then, really.




DENNY DONNER:  Across the board.




SENATOR HALL:  Any other questions?  Senator Haberman.


SENATOR HABERMAN:  I have a question that you can answer it by saying; yes, no, or no comment.




SENATOR HABERMAN:  Would it be possible that maybe the way to get out of this mess that we are in would be get a new Supreme Court?






SENATOR ROGERS:  You got your answer.


KATHERINE LANG MORRISSEY:  Be very certain that this Supreme Court is doing only what a hundred years worth of Supreme Court Justices have been doing and saying that this is no different from probably the first equalization case about a hundred years ago, that said the same kinds of things and they have only been building based on all the creative things that have passed before them.


SENATOR HALL:  One last thing, would ...  and you probably just answered it, you did.  I was just going to say ...  because a lot of people say well then since it is a federal I the 4R Act caused all that why don't you just go to the Congress and ask them to repeal that, but that doesn't solve the problem.




SENATOR HALL:  Any other questions?  If not, thank you very much I appreciate your testimony and your information, handouts and all the work you have done.  This will close the hearing, unless Senator Will would care to close.


SENATOR WILL:  I will waive it if you will.


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SENATOR HALL:  Your on.  This will close the hearings on LB 829 and 299.  we are done for the day.  Thank you very much.


Disposition of Bills:


322 - Advanced to General File, as amended.

LB 733 - Indefinitely postponed.

LB 829 - Advanced to General File, as amended.

LB 299 Held in committee.



Chairperson                                                                      Committee Clerk