Bill Summary, LB 829 (1991)
Legislative Bill 829 was the subject of two separate public hearings in the same session and would become one of the major pieces of legislation addressed in 1991. It would serve as the first salvo fired by the Legislature in response to a Nebraska Supreme Court opinion relevant to personal property taxes and taxable property. LB 829 would serve as the Legislature’s attempt to respond to the court’s opinion but the response would only lead to a succession of other bills in future sessions.
On March 1, 1991, a few days before the first public hearing for LB 829, the Nebraska Supreme Court issued a decision in Natural Gas Pipeline Co. of America v. State Board of Equalization. The court held that previous legislative attempts to resolve the personal property tax issue (legislation passed in the 1989 special session) were unconstitutional. The decision left many confused about what move the Legislature should take next, and also whether the next move would be struck down as unconstitutional.
Through lengthy debate and review of various options, the Legislature chose to use LB 829 to exempt all personal property with the exception of motor vehicles for the 1991 tax year only. This amounted to a complete reversal of the recommendation forwarded by the Tax Commissioner, but it became a much more politically palatable, short-term solution for the politicians. One of the consequences of such a mass exemption, of course, was the loss of revenue to local governments that count upon all property tax receipts. School districts would certainly be among the losers. It was decided, therefore, that the Legislature would “reimburse” local governments by a variety of revenue generating measures designed to offset the lost revenue.
It was estimated that the total loss of revenue to local governments by the one-time, one-year personal property tax exemption would be $97 million. To provide reimbursement to these political subdivisions, the Legislature agreed upon temporary revenue measures, including a 2% tax on depreciation expenses claimed on federal income tax returns by businesses and individuals, a corporate income tax surcharge, increases in all occupation tax rates, and the institution of sales tax on electrical and fuel purchases by manufacturers, electrical producers and hospitals. The additional revenue would nearly match the amount of projected lost revenue to local governments. It was estimated that all the revenue schemes combined would produce $93.2 million, which was still shy of the projected loss of local revenue.
Reimbursement of funds to local governments for lost property tax revenue had the potential for another problem, at least as perceived by certain politicians. Governor Nelson argued that local governments, including school districts, might accept the reimbursement funds and at the same time increase their property tax levies. The result would be a windfall profit to local governments, or at least the potential for such a windfall profit. In any event, the Governor would take no chances and proposed a zero percent lid for all political subdivisions for 1991-92 only. Such a move would “take away many of the worries about taxes,” Nelson said.
Notwithstanding the overall debate on what to do about the personal property tax crisis, the temporary zero percent lid proposed by the Governor was politically acceptable to just about every lawmaker during the debate on LB 829. Even Senators Withem and Moore, the champions of LB 1059 (1990), accepted the proposal as part of the short-term solution to the personal property tax crisis. Accordingly, Withem and Moore took it upon themselves to co-introduce an amendment during Select File debate in order to clarify the intent concerning the zero percent lid.
Under the Withem-Moore amendment a similar two-part process would continue to apply to school districts, except that the school lid provision would apply to expenditures rather than resources. The first vote would permit a local school board to consider a vote to increase its budget of expenditures from the previous year. The first vote would require a three-fourths, super-majority vote of the board. If the first vote passed, the board may then consider a separate motion to increase its spending from the previous year. The amendment was adopted by a 26-2 vote.
In all, LB 829 amended TEEOSA in only two areas. The first, as discussed above, was the inclusion of a zero percent lid for the 1991-92 school year in order to ensure fiscal responsibility in relation to the reimbursement of funds due to the one-year exemption of personal property. The second area of change to TEEOSA under LB 829 really had nothing to do with the personal property tax crisis. Instead, the change had to do with one of the original goals of LB 1059 (1990) concerning the implementation of an adjustment factor for each class of property within each school district.
LB 1059 required the Department of Revenue to annually certify to the Department of Education the adjusted valuation of each district for the second preceding tax year by application of an adjustment factor for each class of property in each district so that the valuation of property for each district, for purposes of determining state aid, would closely reflect actual value. The purpose of the adjustment, as Withem explained, was to “provide an adjustment in locally certified valuations of property so that they would be equalized to a point where no county would be rewarded for unfairly undervaluing the property in their district.” Essentially, the provision would create a statewide equalization system for purposes of determining state aid. The concept, Withem explained, would require more time and more review before implementation. Accordingly, Withem offered an amendment to delay the implementation date of the adjustment factor to 1994. The Withem amendment was adopted by a 25-0 vote.