COMMITTEE ON REVENUE
February 9, 1995
LB 613
The Committee on Revenue met at 1:30 p.m. on Thursday, February 9, 1995, in Room 1520 of the State Capitol, Lincoln, Nebraska, for the purpose of conducting a public hearing on LB 613, LB 490, LB 527, LB 675, LB 549, and LB 364. Senators present: Jerome Warner, Chair; George Coordsen, Vice Chair; D. Paul Hartnett; Doug Kristensen; David Landis; Stan Schellpeper; William Wickersham; Eric Will.
SENATOR WARNER: I think we'll convene. Senator Coordsen is on his way. We'll have a full quorum at today's hearing. our six bills, starting with LB 613, we'll follow the usual procedure, with proponents, opponents, and anyone who wishes to appear neutral. And then the introducer has, or their designee, would have the choice to close if they wish to. The room is not very full but we do have a lot of bills so we appreciate your testimony as concise and specific as you can make it. So with that, Senator McKenzie.
SENATOR McKENZIE: Senator Warner, and members of the Revenue Committee, for the record my is Jan McKenzie, M-c-k-e-n-z-i-e, and I represent the 34th Legislative District. I'm here this afternoon to introduce LB 613 at the request of the Governor. All of us have heard the concerns of our constituents in regard to spending by local and state government and we all understand that property taxation is a direct form of taxation that constitutes the primary part of the revenue raised in our state for the education of our children and the budgeting of our political subdivisions. As Nebraska history reflects, it has been a formidable objective to obtain valuation of the land in a state so uniquely settled and to acquire an equitable and accurate valuation of property in Nebraska. We currently rely on a system developed through LB 1059 that can work but not without absolute devotion to responsible spending. LB 613 will reduce the political subdivision lids in section 77-3441. These lids are in place to establish a simulated devotion to responsible spending. The lid gives simulated comfort to the taxpayer but that comfort level is dissolving. Currently, school spending is expanding at near a rate of six percent a year, available aid is growing at a rate of around three percent per year. LB 613 is an effort to redevelop those comfort levels by reducing lid political subdivisions from five to four percent and the limitation
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range for school districts from a range of four to six point five percent to a range of three to five point five percent. LB 613 also eliminates the additional one percent districts can take with the super majority of the school board and eliminates the unused budget authority available to districts. On a statewide level, no data is available on how much tax authority this provision has made available to schools. We are talking about one to two percent. This is a much smaller request than the five percent requested of state agencies. The introduction also changes the definition of growth as the exemption of depreciable livestock, without this change some counties may have a negative growth in their personal property. Alexander Hamilton said, a small land tax will answer the purposes of the states and will be their most simple and most fit resource. This tax is no longer small or simple and without a more serious development of understanding between representatives at every level of government and our constituents, it will continue to expand. There is no part of the administration of government that requires such extensive information and a thorough knowledge of the principles of political economy so much as the business of taxation. We have been given a difficult task. LB 613 was not introduced to place blame for budget deficits. As policy makers, public servants, and employees, we have been asked by the people of this state to Blow down, curb the growth of spending. The only power, real power of government, lies with the people alone. The request has been made to control spending. We must understand the needs of our constituents and work within the limits and depths of our financial resources. I would also like to share with you a chart and copy of the projected revenue rates and spending rates related to LB 1059 on schools and with that would answer any questions you might have. (Exhibit 1.) 1 will be followed by Lieutenant Governor Robak, speaking on behalf of the Governor, and Ms. Morrissey would be here from Revenue who could answer any specific questions you might have as well as a few other experts who may be needed.
SENATOR WARNER: Thank you. Any questions of Senator McKenzie? Apparently not. Thank you. Lieutenant Governor.
KIM ROBAK: This chair is very low. I don't know if you've sat here. It sinks. There's a reason for that?
SENATOR SCHELLPEPER: Just to give you that feeling that you're sinking.
KIM ROBAK: Thank you, Senator. I have that feeling.
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Senator Warner and members of the committee, for the record, my name is Kim Robak and I'm here on behalf of Governor Nelson in support of LB 613 which was introduced at his request. I think Senator McKenzie explained what the bill does fairly well and I can go through that again but, very basically, what the bill does is extend the current budget limitation on political subdivisions except schools, and reduces from five percent to four percent what that limitation is. The bill also redefines the limitation in regard to personal property as she said. It significantly changes the budget limitation on schools as well, those will be moving from four percent ... the range of four to six and a half percent to three to five and a half percent; and, also takes away the unused budget authority of schools. I want to preface my comments by saying that we have quality public servants in our cities and counties and schools. We have an excellent school system in the State of Nebraska. I am a mother who has a daughter in the school system here in Lincoln, I'm a former schoolteacher, and I'm also a taxpayer; and the real question that we have to answer is, what can we afford. Limitations on budgets are absolutely no fun and we wish that they were not necessary but as we travel across the State of Nebraska, we hear over and over from the constituents of this state that they are mad about property taxes and they want the state to do something about it. Now property taxes, as you are all very well aware, are local taxes. They are levied locally and they are spent locally, and the state cannot control that. What we do have control over, however, is the ability to put on a lid; and that is why we are doing so with this bill, tightening that lid because that's what the taxpayers of this state want. We hope that this lid will allow the local flexibility and answer the public's cry for decreases in the growth of spending; and as you will notice on this lid, we do not take away the flexibility of schools or local government with regard to the exemptions in the lid for the Americans with Disability Act, for growth, and for other issues that the local governing authorities have. The changes in the lid simply better reflect the growth of personal income. The CPI was reported by the Department of Labor at three percent for each of the last two years and we believe Chat the reduction of one percent is reasonable in our efforts to control spending. Now the argument can be made that we can't have it both ways, that we can't mandate and then put on a lid. We are committed to reducing and eliminating mandates and any unfunded mandate, the Governor looked me directly in the eye and told me, any unfunded mandate is subject to veto scrutiny. We will be taking a look at mandates which are being ordered from the state and federal
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government and we must remove some of those mandates; but we need to develop partnerships in looking at those mandates and finding solutions to them. So we encourage the cities, the counties, and the schools to work with us and to come forward with mandates that can be eliminated. There is one area of this bill that is controversial and you, I'm sure, will hear testimony on it today and that is the issue of the unused budget authority. Our goal is not to punish anyone for prudently saving and using money in the event of an emergency. Our goal, however, is to prevent the storing of funds in order to prevent the decrease of property taxes, and that is, that you can take money and store it away and not use that money to reduce property taxes. If this bill encourages local governments to tax more, to spend more, then it has not achieved its purpose; and if there is anyone who can find a better way to draft this bill, to encourage local governments and school districts to send back unused money in the form of property tax relief, we are more than happy to look at that other alternative. This proposal is one way to deal with the problem that's associated with property taxes. I'm sure that there will be testimony that says this proposal doer-, not go far enough; and I'm absolutely certain that there will be other testimony that says it goes too far. But Governor Nelson believes, and I agree with him, that this is a good compromise, that does not hamstring the subdivisions, yet protects taxpayers; and I would encourage you to advance the proposal out of committee and to the floor of the Legislature; and, at this time, I would be happy to answer questions.
SENATOR WARNER: Questions? Senator Hartnett.
SENATOR HARTNETT: Just a comment. Lieutenant Robak, I'm going to introduce a bill in front of the Health Committee that the state government is putting a mandate of about ... unfunded mandate on our county, Sarpy County, of about four million dollars according to their fiscal note. So ... on another matter. it's not related to this.
KIM ROBAK: You're saying that if we're serious about the mandates ...
SENATOR HARTNETT: Yes.
KIM ROBAK: ... you want us to look at that bill. Senator, I'd be happy to look at the bill or I'll have someone from our office contact you on that. Absolutely.
SENATOR WARNER: Anyone else? I assume that someone will
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probably identify, as an unfunded mandate, the statutes requiring negotiation.
KIM ROBAK: The CIR, is that what you're referring to?
SENATOR WARNER: Yeah.
KIM ROBAK: At this point in time, Senator, I believe that the CIR is asking for input and for suggestions that they are having hearings or informal hearings across the state and I'm glad that you raised that issue because we would encourage school districts and cities and counties to speak to the CIR about their concerns and their needs but, obviously, that is a concern in terms of budgets having a large amount of ... being allocated to salaries.
SENATOR WARNER: Okay. Other questions?
SENATOR COORDSEN: I have...I suppose what would be defined as a stupid question, but on page 4, it says "except that for tax year 1995, the prior year's valuation shall not include the taxable value of depreciable livestock." Why have that in the bill because that's the way it is? You know, we don't have...we certainly don't have a various depreciation mechanism for personal property or any of the other schemes, this is a change made by the Legislature last year and that became not part of the valuation on January 1, '95 and I'm curious as to why it was felt necessary to include that ... that line in this particular bill, it doesn't hurt anything by being in there but what's the rational for doing that?
KIM ROBAK: Senator, if that were a stupid question, I would be able to answer it, so it clearly is not and Cathy Lang-Morrissey can. Thank you.
CATHY LANG-MORRISSEY: Senator Coordsen, the purpose for having this in is the bill is that what we're comparing is personal property taxed ... the value of personal property taxed in one year to personal property taxed in the next year. If we do not remove taxable livestock from the prior year's base, i.e. 1994.
SENATOR COORDSEN: Okay, I'll back up. It was a stupid question. I was ... my thought process was calendar year 1995, not tax year 1995.
CATHY LANG-MORRISSEY: Right, and so what we want to make sure ...
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SENATOR COORDSEN: Okay.
CATHY LANG-MORRISSEY: ... of is that we don't have negative growth for any county for their personal property portion.
SENATOR COORDSEN: Yeah, okay. Question withdrawn.
SENATOR WARNER: Anyone else? Senator Wickersham.
SENATOR WICKERSHAM: I thought I heard you mention the removal of some unfunded mandates? Do you have any favorites?
KIM ROBAK: I personally do, yes, but, well, we'll have, I'm sure another time when we can talk about my personal favorites but there are...
SENATOR WICKERSHAM: Has the administration caused bills to be introduced to...
KIM ROBAK: No, not this year, Senator, what we have done, however, is, I believe last March, the Governor convened an efficiency conference which started the dialog with cities, counties, and school districts, and say, look, we have a problem, let's start talking about it. Since that time, although he has not formally sent a letter requesting mandates, we have asked for any mandates that school districts or cities or counties find to be the most onerous that are no longer necessary. We would like the subdivisions to identify what they believe to be the most ... the ones that can be most easily eliminated or the ones that ought to be eliminated rather than, again, the state telling them what we think they ought to do. So we want it to come from them first. In the event we don't get that information, we are committed to moving forward in that direction.
SENATOR WARNER: Anyone else? Apparently not. Thank you.
KIM ROBAK: Thank you, Senator.
SENATOR WARNER: Next to appear in support? Ed, how are you, sir.
ED JAKSHA: Very well, sir.
SENATOR WARNER: How did your meeting go last night?
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ED JAKSHA: Fantastic.
SENATOR WARNER: Pardon.
ED JAKSHA: Fantastic.
SENATOR WARNER: Fantastic. Good. Well, I sat and listened when I was feeding steers on a cold Saturday morning last Saturday explaining the purpose of your meeting.
ED JAKSHA: Mr. Chairman, Senators, I'm appearing on behalf of the Governor's office, on behalf of the Nebraska Taxpayers Association, and on my personal behalf. I like the direction of LB 613, but it should be no surprise that I think it should be even more severe. Referencing your initial query, Senator Warner, and Cathy Lang-Morrissey was at the meeting last night, just to give you a feel and to confirm what Senator McKenzie has said and Ms. Robak about the attitude of the people, we had called a meeting, suggested a meeting locally at Omaha, to discuss the property tax issue; and we had anticipated, we had set up for a hundred people, hoping we that we might get the front row filled, and you've been in many public meetings where that's the case; the management of the Holiday Inn Convention Center had to move us out and moved us over to a larger room where, by count of Dave Heineman and some other people, there were in excess of nine hundred people, and none of them were in support of property taxes, to put it lightly. So, that... to give you some indication, and I'm sure, at least people were not only from the Omaha area, they were from the territory and I suggest to you to seriously consider the attitude of the people and to reflect upon that very carefully, studiously as you proceed through this session. The direction again of LB 613 is laudable. It has always been excessive, four and five and six percent allowable increases are in excess of the cost of living, annual cost of living, the rate of inflation, and at any time that governmental bodies increase their levy of taxes at a rate higher than the rate of inflation, they contribute, in my humble opinion, to the problem of inflation. Often, I'll be criticized and, particularly by school districts, and I've got friends in school districts, too, who say, well, Ed, the reason we have to increase our budget five and six and seven percent is because of inflation. Well, when you remember that governments collectively take about half of earned income and when that half is increased at a rate greater than inflation, then they become contributors to inflation so the very persons, who use inflation as an excuse for increasing, are
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contributors to the problem; and the only way we're going to correct that is by reducing that level of spending. We cannot keep eating into the burden of the taxpayer without seriously damaging the system and I would respectfully suggest to you that maybe this is being recognized at the national level but we can't rest with it being recognized only at the national level. We, locally at the state level, also have a responsibility to solve the problem. If we don't solve the problem, we seriously damage the future of this society. So, those are my comments. Thank you very much.
SENATOR WARNER: Thank you. Questions? Senator Schellpeper.
SENATOR SCHELLPEPER: Yes, Ed, you mentioned
ED JAKSHA: Yes, sir, Senator.
SENATOR SCHELLPEPER: ... you mentioned that you had about nine hundred people there last night. Are those people willing to sign a petition to do away with property taxes or to lower property taxes?
ED JAKSHA: I can't tell you exactly. Some would. Some would go so far as to eliminate all property taxes. I think that would be too, too extreme, personally, and I ...
SENATOR SCHELLPEPER: What...
ED JAKSHA: ... but I think that there is an area with, between change and elimination of all. Frankly, a thought that runs through my little pointed head is that since the residential property taxpayers are the ones; first of all, their property is non-income producing, and particularly in Douglas County, the result of the State Board of Equalization order impacted residential property owners creating a ... sorry cases; I would wonder seriously about eliminating property tax on residential property, retaining property taxes on the balance of other real property. it might be a compromise. Yes, I know, people are going to say, well, what are you going to do when you eliminate property tax revenues and this sort of thing, there's a dual solution. One, of course, is to increase sales and income or some other source of revenue, the other is to cut the cost of government and those two would have to go hand in hand.
SENATOR SCHELLPEPER: I don't like your idea, Ed. I'm going
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to tell you that.
ED JAKSHA: I'm not surprised. I'm not surprised. (laughter)
SENATOR SCHELLPEPER: Ed, what in opinion is a fair percent of property tax, as you mentioned to use some other taxes, but if you were going to say, have a ... some idea that you could use so much sales, so much income, and so much property. What is a fair percent of property if we leave it the same way and not take out all homes as you suggested.
ED JAKSHA: I think all the residential property owners love me but...
SENATOR SCHELLPEPER: Well, I would, too.
ED JAKSHA: Well, I'm of the old school. I'm almost in a school as old as Senator Warner. He and I have had discussions for a long time of one kind or another, usually he's won but I like the old one-third, one-third, one-third formula which was sort of an informal, I don't know that it was ever statutory, Senator Warner, it was sort of an understanding and it was almost achieved on a couple of occasions. I think the closest we got to one-third in property taxes was in the area of thirty-six, thirty-seven percent. But still, I would... along with that, we must always look at the total level of expenditures and that's got to be brought under control, otherwise we'll never address any of the problems.
SENATOR SCHELLPEPER: Was it your interpretation last night though, that people are to the point where they want to take action and they're willing to sign petitions or anything to...
ED JAKSHA: Absolutely. There's no question in my mind, Senator.
SENATOR SCHELLPEPER: ... I see it in rural Nebraska.
ED JAKSHA: If... in fact, they were... you know, I'm known as the guy that carries petitions and I'll tell you, I'm not really very excited going through any more of them, I'm wearing out, but I sometimes think this is the only answer, if we can't get support from our Legislature, particularly, then the people have the right and may seize the opportunity to do so. As you know, there is one going around... Stan Dobrovolny up in Atkinson, is recirculating an older
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petition, and we had some conversation last night about using the Local Option Tax Control Act, which I see is on the agenda for discussion. Surprisingly, I think, it seems to me it ought to be over in the Government Affairs committee rather than before Revenue, but nevertheless. And it's not unlikely that a petition will rise, I've been asked by a couple of groups this morning, if we'd be willing to join in an effort. No decisions have been made but it could happen and it's never a pleasant affair because it results in confrontation and some unpleasantries. It's a lot of work that shouldn't be necessary. There are a lot of other things that are a lot more fun to do than run around and bruising yourself over a petition drive.
SENATOR SCHELLPEPER: It seems like we're being watched this session and if something doesn't happen, the voters are going to attempt something.
ED JAKSHA: I think you can count on it, Senator, and even despite the fact that we're working under a new rule as far as petition signatures are concerned, and that is also an abomination; but I think the people are willing to undertake that burden.
SENATOR SCHELLPEPER: Thank you.
ED JAKSHA: Yes, sir.
SENATOR WARNER: Senator Coordsen.
SENATOR COORDSEN: Mr. Jaksha (inaudible).
ED JAKSHA: Yes, Mr. Coordsen, Senator.
SENATOR COORDSEN: ... always good to see you. After you pass the mid-point of life, it's good to see anyone.
ED JAKSHA: Well, I wish I weren't that far past the mid point.
SENATOR COORDSEN: I had a thought while you were talking or expressing your philosophy. Well, we may agree on many philosophies but the one you recently expressed is totally opposite to what my logic leads me ...
ED JAKSHA: Which one is that?
SENATOR COORDSEN: The one about no taxes on residences and the ...
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ED JAKSHA: Wouldn't you like to have no property tax on your house?
SENATOR COORDSEN: ... the way this... the way this thing works, it's my personal opinion and you would certainly look at the holes in the logic, but ... and there are people who share that opinion, they wish to tax only income producing property but it appears to me that all income in the State of Nebraska flows through and ends up in some person's hand and that person has a residence, that for the most part, although there are exceptions, is reflective of the income of the household, so by my definition, it is the most logical tax to ... or a way to measure tax, if all of the taxes, when measured against the income available to a household who pay the taxes, and that a property tax on my house is a much fairer tax, a much more logical tax for the support of those government services, then what those taxes are on income producing property that flow on through. I was reminded of a little story I heard about Czechoslovakia in the years following World War II. Czechoslovakia, as you probably know, was fundamentally created by the League of Nations until they were overran by Hitler's armies and then with the new government after the war, they put in place a great number of social programs and the funding of the social programs was done in a very simple painless non-revolutionary manner. They let the people own their homes and they didn't tax the homes but they taxed, put the burden of all of the social programs on income producing property. Five years is the length of time it took to collectivize, to nationalize all income producing property in that country. Now is that the type of system that you're proposing with your statement or is there something else in mind?
ED JAKSHA: Well, I'm not proposing a system, I'm proposing that we eliminate property taxes on residential property.
SENATOR COORDSEN: If we're going to measure equity, if we're going to measure equity in taxes by the income of people, that is the total resources available in the household, then certainly we must measure that equity by all forms of taxes contributed by a household and individuals ...
ED JAKSHA: You can be sure, being a first generation Slovanian, American for the first generation with Slovanian heritage, that I am not at all interested in fostering any return to the philosophies ...
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SENATOR COORDSEN: Now we're moving off the subject a little bit.
ED JAKSHA ... of the country of my ancestry.
SENATOR COORDSEN: But I mention that to indicate what happens under the system that you proposed. It seems to be...
ED JAKSHA: I would hope we would be wiser than that because you and I, we could take care of that.
SENATOR COORDSEN: ... we could come up with a wonderful system that would please us. Thank you, Ed.
ED JAKSHA: Yeah, yeah.
SENATOR WARNER: Anyone else? Apparently not. Thank you, Ed.
ED JAKSHA: You bet.
SENATOR WARNER: Anyone else to appear in support? How many more will appear in support? You're apparently the last speaker in support.
DAVID HUNTER: My name is David Hunter. I'm here representing myself and I'm also representing a little group here in Lincoln called Committee for Responsible Lincoln Public School Budget and I think, in fact, you'll hear a little more about this in another bill that they're trying to deal with. We've got a petition drive going here. In fact, we're not carrying the petitions, we put them in the newspapers so I think in a few... in another hour, we'll probably discuss that a little bit. But, Lincoln is kind of considered to be the educational bastion of the state and the last place that anyone would put a lid on property tax on a public school system would be Lincoln, Nebraska. And I can't tell you at this time how many thousands of signatures that we've obtained in less than thirty days on that issue. And that tells me something, and it tells me that there's more to this than property tax. I think a lot of people will testify in later days than have prior that property tax is a problem. Property tax is not the problem. The problem is management and prioritization and how to live within a means and operate your school system and your municipality on a spending basis rather than a revenue generating basis. That's the issue and that's why I support LB 613 because it seems to be the only way that people that manage some of
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these political subdivisions can be told that they have to deal. with spending and they have to prioritize. One of the problems that we've observed within the Lincoln Public School system is a continual adding of programs, which are excellent programs, but never the deletion of prior programs, never the sitting down at the table and say, if we're going to replace this program, do we need to delete this program? Do we accomplish the same thing? This is the issue. This is why LB 613 has merit. If nothing else comes of it, it will force political subdivisions into establishing some priorities and indicating that there is no bottom to the pit and that you have to manage the system. So I would encourage you to send LB 613 forward and do it on the basis, of not a property tax lid, but a signal to local political subdivisions that they have to properly and adequately manage their resources and finally decide that they can't be all things to all people at all times. Thank you.
SENATOR WARNER: Thank you, Mr. Hunter. Questions? Senator Schellpeper.
SENATOR SCHELLPEPER: Dave, would you favor a zero percent lid?
DAVID HUNTER: We talked about that and that could be a little traumatic right off of the ...
SENATOR SCHELLPEPER: You'd sooner see ...
DAVID HUNTER: ... hopper.
SENATOR SCHELLPEPER: ... something phased in...
DAVID HUNTER: Sure. There has ...
SENATOR SCHELLPEPER: ... maybe...
DAVID HUNTER: There are certain standards of growth and you have to have certain increases and I think as time goes down the road, you people have dealt with this a lot longer than I have, we're going to look at increased assessed evaluations and increases in growth and that. But I don't think just to turn the faucet off is the answer. I don't think zero necessarily is the way to do business.
SENATOR SCHELLPEPER: Do you favor a shift to other forms of taxation?
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DAVID HUNTER: Shift s don't solve the problem either. In other words, you're shifting the revenue base, you're still not driving home the incentive to manage and prioritize. A shifting is not the answer. See, I think a lot of people really believe property tax is the problem. It's not the problem. The problem is the way we manage our political subdivisions; and then, when that is dealt with, then I think we decide how to level out the revenue generating base but just to shift it, that isn't going to solve the problem.
SENATOR SCHELLPEPER: It would solve the problem if you own property.
DAVID HUNTER: I agree with that and I'm trying to avoid the property tax side of it and try to concentrate on the other side and I think there's enough people that are involved in the other. And I agree with what you're saying but I think the two have to go hand-in-hand, we cannot ignore the management side of it.
SENATOR SCHELLPEPER: Do you agree that property currently is funding too much of the budget for our local governments?
DAVID HUNTER: Yes, I do agree with that. I think it's a ... if I had a philosophy on it, I think it potentially is unfair because it does not take into consideration income, it does not take into consideration all the other things where like the elderly end up in a... losing their homes over excessive property tax. Yeah, I think it's an unfair situation and I think there needs to be a balance and we don't have that balance currently.
SENATOR SCHELLPEPER: I agree with you. Thank you.
DAVID WINTER: Thank you.
SENATOR WARNER: Senator Kristensen.
SENATOR KRISTENSEN: Dave, what happens if I have a school district, and I'm not saying there's a lot of them, but let's say I have a school district that has experienced growth in numbers of students because it's maybe a population center or ... but it's growing. They have school bonds, they build new schools, just physically, I'm not talking about Lincoln, okay? But that they have to build new buildings just to accommodate the increase in growth of students. okay, that's the facts. I'm not... you're not going to have to argue whether they need to do that or not, let's just stick to the fact that they... and they've relied
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on that unused budget authority because they knew that they were having those problems. They've economized, used... saved up that unused budget authority to be able to operate the new buildings because they knew in a few years when they came on line, they were going to have to do ... do you think it's fair to slice that right now and say, as of next year, that you can't use that? Or would you favor a phase-in and say, look here's what the rules of the game are going to be in the future and give them a chance to adjust to that?
DAVID HUNTER: You might give them a one year phase-in but let me give you one additional answer to that. One thing that school districts have historically, across this state, not done and that is they have not done projected budgets like you do, like other municipalities, political subdivisions do. They do this year's budget, they don't project three years ahead or two years ahead. Those figures you're referring to regarding growth are available with the statistical information and knowledge we have today, most planning departments, the Department of Economical Development of the state, can do a lot of projections of growth figures and you can plan ahead. And I agree, maybe we shouldn't turn it off, right this year; maybe we should give a year before it happens. But if these school districts would plan ahead and pay attention and prioritize ahead and plan their budgets ahead and publish those budgets and plug those growth figures in, we wouldn't be having this discussion today. But I do believe what you're talking about has merit, to phase it in.
SENATOR KRISTENSEN: Then what about the philosophic question? The reason you have property tax is that it's a local tax and the people who live in the district generate the money and you probably agree that they have the opportunity to make decisions about spending through their elected representative being the school board. What happens if a school district wants to spend more money? Their school board gets reelected, their school board wants to spend more money, and they want to use their unused authority to spend. How do you argue philosophically that they shouldn't be allowed to do that? If that's what they want to do using their locally elected school board officials? Why should the state come in and say, you can't do that?
DAVID HUNTER: I don't have an answer to that. I'm not for sure ... you're concerned about the big brother approach.
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SENATOR KRISTENSEN: Well, it's a ... I mean, you and I have people ... we get hit all the time about if the state does something that the people don't like, it's none of your business, we want local control; and if it's something they can't deal with, we need the state to help... I mean, we all get torn in different directions. It comes down to a philosophic question and I'm not sure... the best interest that you can ... you can't make a bright light for every situation.
DAVID HUNTER: I think the state is fair and I think LB 613 is fair because the state has agreed, and if you look at the Governor's projected budget, LB 1059 is increasing this year. LB 1059 is increasing next year. The state is putting money in. The state indirectly is providing property tax relief, and by all theoretical concept, to do what you're talking about ends up being replaced by some of the increases in 1059. So I think you do have that right to say, we're going to give you this from LB 1059 but in the process, we're going to give the people of the state some property tax relief via this vehicle because we have elected as a body to help over here on this side. So I think it's fair and I think it's appropriate. I think LB 613 reflects that, that this is kind of a balance between what's being done and what you're being asked to do for 1059. So I think it's fair, I don't think anyone loses in this, and I think the people gain.
SENATOR WARNER: Senator Hartnett.
SENATOR HARTNETT: Are there too many ... Dave, are there too many political subdivisions, do you think?
DAVID HUNTER: There's too many school districts.
SENATOR HARTNETT: Counties?
DAVID HUNTER: There's a lot of stupid things out there. For example, why do we have all of these county superintendents? I mean, why do we have all these school districts? Why don't we consolidate city and counties more than we do? You're absolutely right because every one has their own management team here and it gets very competitive and creates a problem. You're absolutely correct. That's part of the problem. Again, it's a management issue.
SENATOR HARTNETT: Yeah, but I think it also goes back to what Senator Kristensen says, is, you know, with local control, because... at lunch, I sat down with the
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superintendent, he was talking about, you know, their district is being affiliated and he's got, you know, an elementary teacher one place working with eight students and I don't know, to me, that's not very efficient Use of money but this local district, has decided that to them, they want that to be and that's, you know, that's part of the problem, I think, is, you know, they want that local program. They want to have, you know, education for, you know, for eight students. I ... to me it's a ... it's not using resources very, you know, very effectively.
DAVID HUNTER: Do you know why they like that? It's because they have a fear, a lot of times, the fear of consolidation is the fear of excessive property tax assessments after they're consolidated. They're comfortable with their eight students with that one teacher. They know the revenue source. They know their spending source. They know if they consolidate, there's a tremendous fear, LB 613 puts maybe an opportunity there of what they can plan on.
SENATOR COORDSEN: Other questions? Seeing none. Thank you, David. Any other proponents, please? Seeing none, we'll move to the opposition. You had me worried there.
JIM GRIESS: I wanted to make sure that I was on the right side.
SENATOR COORDSEN: Well, you know, I thought we were at a revival meeting and you said, glory be, I see the light.
JIM GRIESS: Senator Coordsen, and members of the Revenue Committee, I'm speaking against LB 613. I'm the Executive Director of the Nebraska State Education Association and you might think that because I'm speaking against LB 613, that I think we don't have a property tax problem.
SENATOR COORDSEN: Would you do us a favor?
JIM GRIESS: Sure.
SENATOR COORDSEN: Give the transcribers your name, please. We all know who you are.
JIM GRIESS: Jim Griess. G-r-i-e-s-s.
SENATOR COORDSEN: There you go. Thank you.
JIM GRIESS: Okay. The purpose of LB 613 is to further reduce the eligible growth in school district budgets
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through the imposition of a three percent lid. The assumption behind LB 613 is that school districts' spending is out of control and that this results in property taxes which are too high. During the past six months, I have served on Governor Nelson's Property Tax Review Committee and I've also been a member of Citizens for Responsible Tax Policy, a broad-based coalition of education and farm organizations interested in promoting property tax reform and property tax reduction. In fact, that organization held hearings around the state in November which are reported to you in the report that I've handed to you. (Exhibit 2.) And, we found that property taxes are a major concern of citizens across this state. That doesn't come as any surprise. But we also found that citizens are not interested in dismantling essential local government services and I would contend that public schools and the programs that are provided by public schools are, in fact, viewed by most Nebraskans as an essential public service. As a result of the work of both of the groups that I've been a part of, I'm personally, absolutely convinced that property taxes are too high in Nebraska but not for the reasons suggested by LB 613. LB 613 will not lower property taxes, it simply freezes into our tax system all of the inequities that are already there. The most recent data I have seen on Nebraska's tax system confirms that when expressed as a percent of personal income, Nebraska ranks eighteenth in the nation in terms of reliance on property taxes to fund local government but it ranks twenty-seventh and twenty-eighth in terms of sales and income tax ranking. It is that lack of balance in our tax system and the over reliance on property taxes for a source of revenue to fund public schools that, in fact, creates our property tax dilemma today and LB 613 does absolutely nothing to address that inequity. And what about overall state spending of local government? On the following page I have a chart that was taken from data provided by the Department of Revenue and associated with an article that was put together by two professors at the Ag College. (Exhibit 3.) Take a look at what spending has done in the State of Nebraska from 1968 through 1992. If you look at these tax revenue sources as a percent of personal income, the total cost of state and local government from 1968 to 1992 averages almost a constant eleven percent. In terms of property taxes, when expressed as a percent of personal income, we've gone from a high from about seven percent back in 1968 to four point four percent of personal income in 1992, and that's largely the result of the ratcheting down of property taxes afforded by LB 1059. You can also see, of course, what's happened to sales tax and income tax as a percent of personal income
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since 1968 and, of course, the reason they have gone up is because we've offset property taxes through LB 1059. Let me say to you that I believe public education in Nebraska is an absolute bargain. Clearly, Mr. Hunter is correct, there are inefficiencies in K-12 education and those could be addressed by this Legislature. They include the number of school districts in Nebraska, they include such things as setting efficiency standards before a school district receives state, aid and eliminating financial disincentives to school reorganization contained in the state aid law. If a school district wants to hold a classroom open for eight kids, then perhaps they ought to choose to fund that from their own taxes and not expect citizens from all over the state to contribute to that. We need to establish some reasonable efficiency standards and they're not there right now; and there are bills to do many of these things now pending before various committees, including the Education Committee. Well, let's look at Nebraska overall. When Nebraska's per pupil expenditure is compared with those of other contiguous states, the data proves that Nebraskans received a bargain. We simply cannot agree with the assumption that we have arrived at the right mix between sales, income, and property taxes. The data, particularly in reference to K-12 education, simply does not support that conclusion. When compared with other states, our per pupil cost in Nebraska is thirty-first in the nation, only South Dakota and Missouri of the contiguous states spend less. Every other state surrounding us spends more and we're $498 below the national average. If per pupil spending is not the cause of high property taxes in Nebraska, then what is? Simply put, property taxes in Nebraska would not be at their present level if state government assumed more of the cost of local government. To claim, somehow, that local government is the problem and that their problem cannot or should not be solved by state tax dollars, in my opinion, is ludicrous. All local governments are creations of the state. If we have too many, if they cost too much, if they result in property taxes that are too high, it is because the state allows them to continue to exist without regulating or addressing the problems. Other states provide a much greater share of the cost of local government and thereby significantly reduce the level of property taxes on ag land, commercial property, and homes. Compare Nebraska with its contiguous states. In 1992-93, the State of Nebraska provided 41.9 percent of the cost of public schools, while the remainder of revenue had to be raised from property taxes. Nebraska ranked thirty-first, that means thirty other states provide a much greater share of the cost of public schools from state revenue sources and
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that means lower property taxes in those states. Take a look at the chart which compares us with our neighbors. Nebraska ranks thirty-first; Wyoming, Kansas, Iowa and Colorado all provide significantly more in terms of state aid; and Wyoming, Kansas, and Iowa all average above fifty percent of the cost of public education from state revenue sources. Now we ranked thirty-first because we were at 41.9 percent back in '92-93. The fact is, in '94-95, the state share of the cost is now 40 percent or slightly over, even less than it was in 1992-93. If Nebraska matched Wyoming, Kansas, and Iowa's efforts, property taxes would be reduced by $132 million in this state from that single tax or property saving program. That is the major reason why Nebraska's property taxes are too high. But, again, LB 613 simply ignores that issue. We simply cannot accept the assumption that the mix between property, sales, and income taxes in Nebraska to fund state and local government is correct. And to Senator Schellpeper's question earlier, NSEA would be more than willing to support some kind of a one-third, one-third, one-third approach which would place reasonable limits on property taxes. But we can't support an overall limitation on public schools. What does LB 613 really do? It places public schools in a financial straight jacket and threatens the financial integrity of one of the most successful public institutions in our state. Nebraska students rank in the top ten in nearly every measure of achievement. What will LB 613 do? It threatens the very success of our public schools by preventing adequate budget growth. Lids on K-12 districts are totally arbitrary, make no provision for excess growth, geographic disparities, and a host of other issues that must be considered. Fix the system by defining efficiency and creating both effective and efficient school districts. But do not punish everyone for the sins of some by imposing arbitrary and inflexible lids which freeze into the system all the inequities that are already there. What LB 613 really proposes is wage and price controls on public schools without a corresponding control on the private sector. No one in the private sector will support wage and price controls for their sector because they fly in the face of our own free enterprise system. Unless you control prices and wages in the private sector, say the cost of energy or health care or doctors' fees, how can anyone expect school districts and other governmental subdivisions to live under this kind of a restrictive lid. The CPI is 2.7 percent this year but with the 3 percent lid in place, what happens when the CPI creeps back up to 5 percent or 7 percent or we get medical inflation that returns from where it is now to 15 percent? You all know that Nebraska teachers have been extremely
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disappointed in the level of compensation they have received in recent years. The chart below outlines what the history of compensation has been. Why do Nebraska teachers' salaries rank where they do in the nation? This year we rank fortieth, last year we ranked fortieth. Back when we had adequate health funds, we had actually jumped up to thirty-eight but now we're back down to fortieth. Why do they rank there? There are two clear reasons. The first is that we rely entirely too much on property taxes to fund schools and the second is that the lid that's now in place is choking the life out of school district's ability to pay a comparable wage. The teachers of Nebraska simply cannot accept an even more restrictive lid and will vigorously work to defeat this legislation. There is a direct cause and relationship between low per pupil expenditures and low teachers' salaries. The problem of high property taxes can be solved but not by passing LB 613. Restructure public school districts for greater efficiency, yes. Create a fair tax mix to reduce property taxes through state aid increases or a state takeover of some costs, yes. If property taxes are the issue, then why an income tax reduction which ignores the property tax issue? Putting all school districts into a straight jacket and bringing great harm to our students and to one of our most successful governmental institutions, no thank you. That approach is like eating your seed corn and it's not only simple, it's simplistic. It never solved the real problems which cause excessive government, which promote high taxes, and that is our seeming inability to distinguish between essential services and less essential, and then making the hard choices needed to solve the real problems, because we've got too much government and too many local taxing authorities. To that end, I am providing each of you with a copy of a report produced by Citizens for Responsible Tax Policy which has a wide range of suggestions for solving some of the property tax dilemma. Most of the ideas set forth in that report are also backed by specific legislative bills which have been introduced during this session and we hope will serve as vehicles for solving some of that property tax dilemma. I urge your careful consideration of the report, and, finally, I urge you to indefinitely postpone LB 613. It's the wrong solution. In fact, it's no solution at all to the property tax dilemma in this state because it will only serve to weaken our public schools while further antagonizing taxpayers because property taxes will continue to remain too high. Thank you for your time and consideration.
SENATOR COORDSEN: Thank you, Mr. Griess. Questions? Senator Schellpeper.
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SENATOR SCHELLPEPER: I don't always agree with the views Of the NSEA, but I do today. Would you agree that property taxes or high property taxes are a state problem?
JIM GRIESS: Absolutely.
SENATOR SCHELLPEPER: I've heard the Governor state that that is not a state problem, it's a local problem and I've always insisted that it's a state problem and that we need to do something about it. But under our current bills, or under our current funding for education that we have now, I don't see any other way to go, to move, unless we can get the support of the Governor.
JIM GRIESS: Well, I wish the Governor was supporting solving the property tax dilemma as well, and I understand that he believes that 613 is an appropriate approach and I don't fault him for that; but I clearly believe you're not going to do anything about property taxes until you generally address the mix between property, sales, and income; and until you do that, you simply can't get at lower property taxes. Until you address the issues of efficiency, until the Legislature puts some pressure on local governmental subdivisions, or perhaps looks at whether we have too many, and provides some leadership in that area; I don't think we'll get at the efficiency issue. You can't ask any local governmental subdivision to sit around thinking up ways to slit their wrists so they can bleed to death. That's not going to happen. it's totally unrealistic and that direction has to come from this body; and I think Mr. Jaksha is absolutely correct, that if the Legislature does not act, there will be petitions. In fact, I talked to the circulator of the Trio Amendment. He was at our meeting last November, in Norfolk when Bryce Neidig and I were up there talking to the farm community and to other groups. And I have to say to you, that if something isn't done, you might even see the Farm Bureau and the Nebraska State Education Association circulating petitions and that would be a first. But something has to be done. Something has to be done.
SENATOR SCHELLPEPER: I think by raising the valuation in Douglas County has really angered the residents of Omaha and that was one of the problems we had before. They were not upset, I think ...
JIM GRIESS: They are now.
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SENATOR SCHELLPEPER: They are now and that's what it takes.
JIM GRIESS: Yes.
SENATOR SCHELLPEPER: Before it was just rural people and now we have the city behind us so I think it's ... maybe we can get something done.
JIM GRIESS: I certainly hope.
SENATOR COORDSEN: Further questions? Senator Hartnett.
SENATOR HARTNETT: Is 1059 funding going up? That was from one of the witnesses earlier.
JIM GRIESS: I believe that the Governor has proposed a four percent increase in funding for 1059. 1 believe that's correct.
SENATOR COORDSEN: Other questions? Senator Kristensen.
SENATOR KRISTENSEN: Jim, you spoke about need to address the mix of taxation. One of those mixes would be, Senator Schellpeper has talked about it, that we raise sales or income taxes and reduce property taxes. Let's just take that scenario. We raise sales and income taxes and I assume the only way to reduce property tax, doing that would be to send that money back. Is that correct?
JIM GRIESS: There are a couple of ways that you could do it and in the report we recommended several approaches. One approach is to simply take over some programs that now exist at the local level...
SENATOR KRISTENSEN: That's the one. Let's do with that one.
JIM GRIESS: Okay.
SENATOR KRISTENSEN: Because that's the one that probably is true. If we take over those, because the locals just have less to spend it on because you and I both know that if we send money back, there's so many needs locally that you'll have no guarantee of property tax, right?
JIM GRIESS: Right.
SENATOR KRISTENSEN: Plus you don't like lids and nobody else does so the lids don't work so there is no ... that's not
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a good way to do it. Just raising money in sales and income tax, sending them back will never work. Might change one year but ...
JIM GRIESS: Correct.
SENATOR KRISTENSEN: ...so the only way is to reduce those. Seventy-five percent of those expenditures though are your Association's employees.
JIM GRIESS: Well...
SENATOR KRISTENSEN: Now, for ...
JIM GRIESS: ... take a look at page 9 in the report that I gave you. There are a whole series of things that we ...
SENATOR KRISTENSEN: Well, but I mean, you agree that seventy-five percent of local expenditures are for school ...
JIM GRIESS: ... are not NCSA members' expenses ...
SENATOR KRISTENSEN: Well, they may not be your members, but they'll be teachers' salaries, employees ...
JIM GRIESS: They may be employee expenses. They may be cooks, custodians, bus drivers, teachers, administrators ...
SENATOR KRISTENSEN: But ...
JIM GRIESS: ... secretaries, yeah.
SENATOR KRISTENSEN: But the large...
JIM GRIESS: Correct.
SENATOR KRISTENSEN: If you want to make a five or ten percent decrease in property tax, we can deal with some of these things, but if you want to make meaningful property tax relief, which I ...
JIM GRIESS: You'd have to do twenty to twenty-nine percent.
SENATOR KRISTENSEN: Or better.
JIM GRIESS: Or ... yeah.
SENATOR KRISTENSEN: Which means you're going to have to cut into staff.
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JIM GRIESS: Perhaps.
SENATOR KRISTENSEN: Well
JIM GRIESS: Perhaps.
SENATOR KRISTENSEN: Perhaps.
JIM GRIESS: What's going on right now out there, if, in fact, we had a fairly vigorous school reorganization program, I think what we would see is that we have a lot of graying teachers and, in fact, if there were fewer teaching Positions out there, I believe that most of them probably could be taken off through attrition over time. I don't believe that you have to get into cutting teaching staff. Clearly, if you got one teacher with five or six or seven kids, that's not an efficient way to teach kids. It may...
SENATOR KRISTENSEN: Unless those kids have to travel fifty miles for an education.
JIM GRIESS: And if there is a need for geographic attendance centers, they ought to stay open and when we talk about eliminating the number of school districts, we are not talking about eliminating essential attendance centers. We're talking about the administrative hierarchy of that structure that needs to be addressed. We rank about fifth in the nation in terms of the number of school districts, it's 707; and we rank thirty-fifth in the nation in terms of student population.
SENATOR KRISTENSEN: okay, let's ... let's follow down this track. We could wipe out all administration from every school in the state couldn't we, and really have a minimal impact on property tax?
JIM GRIESS: Probably true and I wouldn't advocate that ...
SENATOR KRISTENSEN: No.
JIM GRIESS: ... you wipe all ...
SENATOR KRISTENSEN: Yeah.
JIM GRIESS: ... the administration out.
SENATOR KRISTENSEN: But I mean, so that argument doesn't work. What we really got to do, I mean if we follow that,
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is to deal with staff and teachers. I mean, when you talk about efficiency, another way to do that is, if we have to have less teachers, and that also fits into what you need to do because if you want to pay teachers better, if there's the same amount of money and we have less teachers, they get paid better. So is your Association willing to come in and say, we need less instructors and less teachers and if there were bills to do that, would you be supportive of doing that?
JIM GRIESS: If the process were done orderly, if people were not mass laid off, if you had programs where there could be some early buy-outs for retirement, and other kinds of programs, we've addressed those in that very report that I've given you, but when I talk about government efficiency, I'm not just talking about K-12 public schools. We need to address the other massive government subdivisions that we have and how they're organized. Do we have too many counties? I think it would be political suicide to say we're going to abolish the county system. But there are a whole lot of ways where we could pool the resources and provide services on a regional or state basis that would be much more economical and take those out of the hands of the counties and take them off the property tax rolls and we've also made a number of recommendations on page 9 of that report in that regard. There are a whole series of things that we could do to take anywhere from $300-400 million off the property tax rolls.
SENATOR KRISTENSEN: If we're going to take three or four hundred million dollars off the property tax rolls, the easiest way to do that is make teachers state employees.
JIM GRIESS: I know you had a bill like that ...
SENATOR KRISTENSEN: But you didn't like that ...
JIM GRIESS: ... we came and...
SENATOR KRISTENSEN: Yeah.
JIM GRIESS: ... talked to you about it, and the reason we didn't like it was because of the way the legislation was written. We also said to you that if we could work out some of the difficulties of that legislation, we would be willing to explore that...
SENATOR KRISTENSEN: But, conceptually...
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JIM GRIESS: ... we know that public schools are clearly the biggest users of property tax, that's a given.
SENATOR KRISTENSEN: But, conceptually, you'd agree that making teachers state employees is conceptually where you have to go if you're going to have meaningful property tax relief.
JIM GRIESS: Maybe, maybe not. I think there are other ways to do that as well. You've got meaningful property tax relief in Iowa and Kansas and in Wyoming, and in other states you've got meaningful tax where they're paying as much seventy percent of the cost of public education and the teachers are not state employees in those states. There are ways to do that.
SENATOR KRISTENSEN: Yeah.
SENATOR COORDSEN: Senator Wickersham.
SENATOR WICKERSHAM: Well, I hope this isn't an unfair question but I'm a little bit perplexed. There was a hearing in the Education Committee on Monday. It's a bill that proposes that the state take over funding of community colleges. A representative of the division of your organization came in and testified and said they didn't think that was a good idea. That group would provide a little over $62 million for property tax relief. it certainly does remove a political subdivision from the tax rolls which, I'm glad to hear you agree, is about the only way to address the problem. If we can't do community colleges, if we can't do indigent defense, if we can't do county jails, if we can't do ESUs, what ... how are we going to have property tax relief?
JIM GRIESS: That's an excellent question. It's not unfair and I'm glad you asked it because when we put this Citizens for Responsible Tax Policy Coalition together, we decided that we would lay all our organizational issues aside and we'd put all the issues on the table; and clearly taking over the property tax base, the community colleges was one of the issues we put on the table and it's in our recommendation, okay, as the coalition. But we also represent employees at the community colleges and they... and the ESUs, and they have the same concerns that our other members had when Senator Kristensen proposed his bill that all of a sudden, all public school employees become state employees. Then whose pay schedule do you use? East Overshoe and West Pumphandle or Omaha? You know, if we're
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going to ratchet up all of the rural school districts to the pay scale that Omaha has; you bet, our members will come down here and sign petitions to join that structure immediately. If you're telling Omaha and Lincoln that their salaries are going to be ratcheted down to what they're paying in East Overshoe and West Pumphandle, then we've got major problems. With leadership from the Legislature and with cooperation from all the organizations, sitting down and dealing with this issues comprehensively, I believe we can find solutions to the property tax problem but we got to eliminate the potential threats; and as I said earlier, anybody at the state level who says to local subdivisions, go sit in a room and think about how you can slit your wrists and bleed to death, that isn't going to happen. And our members are not going to let us come in here and advocate things which they feel is going to totally eliminate their without any provision for their future. But on the other hand, I can pledge to you, personally, that our organization is willing to work in reasonable ways to find greater efficiency in local government.
SENATOR WICKERSHAM: Yeah, it says that throw...it's almost a throwaway term that we need to have greater efficiency in local government. I participated in several meetings over one summer trying to identify areas in which we could find efficiencies in school districts.. It was, I think, for many of the people, kind of a frustrating experience. We just didn't find very many except, as Senator Kristensen suggests, we should have fewer employees. Everyone recognized that that wasn't really practical. I know that the great mantra has always stated that we need fewer school districts but, by golly, we do need school districts out there in Cherry County, we need those in Sheridan County, we need those in Sioux County. It's always a little bit unclear to me which ones we don't need and, in addition, it's always been unclear to me exactly how changing those districts finally would save money. We still need buildings, we still need teachers, we still need textbooks, we still need science labs, we still need... in fact, we may increase transportation costs. I, quite frankly, I've just been unpersuaded that that is necessarily the answer that many people believe and I wonder if you can say anything or show me any numbers that really would convince me that the efficiencies ... that the efficiencies are there.
JIM GRIESS: The last ... yeah, the last time that anybody did a study like that, I believe, was the Syracuse Report and I think it was done by the Legislature and I think there were some numbers in there. Of course, it wasn't acted upon. I
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recognize that when you start talking about reorganization of local government, you've just grabbed one of the hottest political hot potatoes there is in the state; and that's why it's not going to get solved unless we sit down together and attempt to solve it; and there has to be some give and take on all sides. Efficiency is an issue but, the argument I hear you making is that, in fact, all of those units are essential; and if they are, then how can you punish them by putting lids on them when, in reality, in my opinion, the problem with property tax, is the mix.
SENATOR WICKERSHAM: I'M sorry if you misunderstood me. I'm not saying that all of them are essential. What I'm saying is that it is my gut reaction that the efficiencies in terms of total dollar savings that are being held up, if you have massive consolidation, are probably not there because you do not eliminate the need for buildings, you do not eliminate the need for teachers....
JIM GRIESS: It's true.
SENATOR WICKERSHAM: ...YOU don't eliminate the need for books, you may increase certain costs, as you know...
JIM GRIESS: You may if you have to transport students long distances. Those are all part of the dilemma.
SENATOR WICKERSHAM: Yeah, and there may be other costs associated with those things. I'm just apprehensive when people say that efficiency is consolidation. Consolidation, by itself, is not necessarily efficiency in terms of dollar savings. It may be some kinds of efficiency in terms of having one administrator that controls a school with two hundred students in it. You may have that kind of efficiency but whether it produces any dollar savings, I think is a very, very different question and I'm ... quite frankly, I think, I haven't seen anything that convinces me that you do actually save dollars.
JIM GRIESS: Well, I'm not ... I'm not in a position to debate you on that, so...
SENATOR WICKERSHAM: Yeah. No.
JIM GRIESS: ... and you have a good point.
SENATOR COORDSEN: Any other questions? Senator Schellpeper.
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SENATOR SCHELLPEPER: Jim, did your group have any vote to
advance these ... your views here?
JIM GRIESS: Absolutely, there are bills that cover almost every one of those issues that have been introduced this session. In fact, we had a bill taking over indigent care ... indigent legal assistance to the counties, LB 444, that went before Judiciary. It's down the toilet. I think Revenue has a committee bill like that which will also address that kind of thing. There are a lot of bills that have been introduced that will attempt to address those kinds of things. There are various groups that will appear to oppose it but if you could put a package together that would, in fact, address all the things that we raised in that report; you could lower property taxes by over 20 percent and you'd take $300 million off the tax rolls.
SENATOR SCHELLPEPER: I guess it's my belief that you're not going to get these things until you get a petition that forces us to do something about it.
JIM GRIESS: And that may be reality and that's why there are an awful lot of people talking about petitions these days.
SENATOR SCHELLPEPER: Yeah.
SENATOR COORDSEN: Senator Kristensen.
SENATOR KRISTENSEN: Well, I got to sit and disagree a little bit. I mean, petitions are great. What are the answers in those petitions?
JIM GRIESS: What are the answers?
SENATOR KRISTENSEN: What answer would you put in a petition that you'd circulate that would solve this problem. I want to know x, y, and z.
JIM GRIESS: I would probably, if I had to come up with one off the top of my head right now, mandate that you couldn't raise revenue for local government from property taxes in balance with other revenues in the state, by more than one-third.
SENATOR KRISTENSEN: And you'd be in here the very next year saying, my teachers can't get a pay raise because they can't raise it from property tax and I need the state to pay my money...
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JIM GRIESS: Probably.
SENATOR KRISTENSEN: ... and I need more money and you'd be in here moaning about how tough it is at the local level.
JIM GRIESS: Probably.
SENATOR KRISTENSEN: Well, how did that help me?
JIM GRIESS: It addresses property tax relief, that's how it helps people who are property owners and you would probably then say, well, let's make teachers state employees. I mean, something would happen.
SENATOR KRISTENSEN: So let's do that now instead of going through all of this thunder that's going to happen.
JIM GRIESS: Well, if you can convince twenty-five senators to do that and if you can convince all of the school districts to support that, then I guess that's a possibility.
SENATOR KRISTENSEN: I'll get twelve if you can get thirteen. (laughter) Thank you.
JIM GRIESS: Thank you very much.
SENATOR COORDSEN: Any other questions? Jim, most of the questions I would have had have been asked by some of the other members who have had you on the hot seat for about a half an hour but there is one thing I'm curious about. I think every person in this room is aware of the quality education that our K-12 system is producing when compared to other systems. Are there any studies that indicate a correlation between teacher-pupil ratios and the type of results that we have?
JIM GRIESS: Sure, there are.
SENATOR COORDSEN: What, then...
JIM GRIESS: They... those studies generally say in elementary grades that you ought to have a ratio somewhere around fifteen to one. But, quite frankly, in terms of the affordability of that approach, we only have a few school districts that have the luxury of providing that kind of thing. Most elementary students are taught in classes that are twenty-five students on up; and if we match that
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approach, clearly we would have a much higher property tax bill than we do now.
SENATOR COORDSEN: Well, how does Nebraska rank, given the number of schools and the ... how does Nebraska rank on a scale of pupil-teacher ratios, either elementary, secondary, or combination?
JIM GRIESS: We're high on the elementary and primarily because we do have almost ... 1 don't know, it's about three hundred and fifty Class I districts that continue to have a much lower elementary per pupil-teacher ratio than the K-12 districts do and particularly the Class IIIs, IVs, and Vs.
SENATOR COORDSEN: Where are we at on secondary then?
JIM GRIESS: Ah, well, secondary I would guess that we're about the ... about average because other rural districts or states have the same kind of problem we do in terms of educating high school kids. I would guess, however, that if you compared us with Wyoming where they have, I think, only forty school districts or roughly that number in the state, that we would have a much lower per pupil ratio at the high school level than they do in Wyoming.
SENATOR COORDSEN: Well, it just seemed to me from larger statistics on ... not on the teacher-pupil ratio but that this area of the upper Midwest, Kansas, Iowa, and Nebraska, some of the other states, rank consistently in the top ten states in the nation in measures of educational excellence and I just ... I guess I was curious because when we talk about reducing the number of school districts, that brings with it the greater probability of increasing that average ratio.
JIM GRIESS: Right.
SENATOR COORDSEN: And certainly, for example, a few years back when you were trying to get some measure or the other on behalf of the members of your organization, I recall comparing educational costs, and teachers' salaries, and Nebraska, I think, with the exception of Wyoming, when you bring in what we're spending, not on the plant and not on support staff, but what we're spending on teachers' salaries, benefits, and educational materials, that Nebraska ranked highest with exception of Wyoming, at that point, whatever year the statistics were.
JIM GRIESS: I don't recall that particular issue, but.
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SENATOR COORDSEN: But, I do recall seeing that, that we were spending a lot of money per pupil in the state on educational costs but as some of our rankings, for example, on teachers' salaries, and when we separate that out, so statistics always do interest me a little bit and I wondered. So we'll let you off unless there's some other questions, Jim.
JIM GRIESS: Okay. Thank you very much for your time.
SENATOR COORDSEN: Next opponent, please. Well, whoever is next gets the next half hour of questions so I should have told you that before you decided among yourself, I guess.
DIANE HEISER: Thank you. Senators, members of the Revenue Committee, thank you for allowing me to take some of your time this afternoon. I'm Diane Heiser, I'm a farm wife and a mother of four from Lynch, Nebraska, in Boyd County. Yes, there is intelligent life there, and I am also privileged to be the president of our local school board there. We have a K-12 Class III school. Before I really get started, I would like to say that it's really hard to look into the big brown eyes of a nine year old child and tell her, I have to spend the day in Lincoln, I have to come down and talk to our very wise and important lawmakers and try to convince them how important she is. When it comes to dollars, we feel that our kids are worth it. I'm here today to speak for the small schools. I'm here to speak for the little guy. Kind of a voice in the wilderness, maybe, but nonetheless a voice. In reference to this LB 613, sometimes we hear a phrase that's tossed about maybe with a little bit of disdain that you people who are small by choice, just have to suffer. We're small, yes; but not by choice. We're small because that's how many people we have. If we had a choice, believe me, we'd be a little bit bigger; at least big enough where we wouldn't have to shiver in fear every time we hear things like fifty-fifteen and how close to the next school are you and the way we're going to save money is to cut off all these little districts. Those are frightening things -to hear. Are the city schools large and crime-ridden by choice? I don't think so. If you'd pass through our doors, you wouldn't find a metal detector there. We don't worry about those things in Lynch, Nebraska. On any given day though, you might find a snow shovel or overshoes. We believe in our law-making system and we, at Lynch, through the combined efforts of a very capable and qualified superintendent, a dedicated school board, some of whom dedicated years of their lives to this cause. We have an extremely supportive community and we've been very
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privileged to have a really decent and well run little school. We have a 1922 building. We're not asking for a new building. We're asking for heat, lights, money to pay our teachers. We don't want to get big or important or have any influence over anybody, we just want to be. We willingly accept the responsibilities and sometimes the challenges that are created for us by our elected law-makers. You have created the paths that we Must, and we do, willingly, follow. However, small schools like us wonder if we're heading toward a dead end. Sometimes a well-intentioned and extremely practical seeming idea can mean potential death for a small school like ours. Ideas and laws and regulations can become an ever-tightening noose about our small necks. It then becomes a slow, systematic, but nevertheless, relentless strangulation; and for small folks like us, the death... it's the death of our community. When a community is forced to give up their children, there's nothing left. LB 613 will hurt us. We believe that although we are probably not a designated target, we invariably wind up in the line of fire. We have limped along with our wounds from time to time but at every corner, we have to stop and wonder, is the next hit going to be fatal? It's a lot of pressure to work under. We, as local boards, feel that we are the closest to our people, to our patrons; yet we are being told by people who don't know us, don't know how we feel, don't know what we want or what we need, we are told what is perceived as good for us. The regulations and mandates are not loosened. However, now we must bear an ever increasing financial burden. In other words, it's as if you told a starving man he had to gain twenty pounds and then gave him a piece of bread and a glass of water. We know we can't be heard unless we speak; and no one knows that we're hurting unless we stop and say, ouch; and that's why I'm here today, we're saying, ouch. If we are forced to consolidate, where's the equity for our children. If we are then required to turn over more than sixty percent of our assets to another district, where's the fairness in that for our kids? An additional budget lid, and certainly a no allowable growth, will definitely cripple US. The question must be, why punish a small school for being efficient? We are efficient in Lynch, Nebraska. Our budget went up by less than one percent, yet we feel we're being punished for someone else's mismanagement. If we cannot carry forward our unused budget authority that we worked hard for, we are forced into a tax and spend situation. What may be dollars to some, to us it's our kids; for some, it's money at stake; for us, it's our children and our future. We are not here to make demands, rather we are here to ask. We are here to ask for some
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consideration for us and for other small schools like us when you are designing these laws. We hope that we never see selective enforcement. We also hope that you will consult with the Department of Education and work with them and try to alleviate some of our pain. Our patrons have let us know that they want their school. They're willing to pay for it. I've recently been elected to a third term on our local board and I have never had a person come to me and say that they are not willing to pay their taxes. When it comes to our kids, it's worth it. Our patrons will probably empty their pockets. I must ask again, why must we be punished for someone else's mistakes. Although it's been said here today that that's not a goal, you must be aware that that will probably be the outcome. Then, last, but not least, we provide our children with a good education. Above all, we try to instill in each child a sense of self worth. We tell them that they are important, worthwhile, that they matter. We know we're small, we just hope we're not insignificant. Please remember us and thank you.
SENATOR COORDSEN: Thank you, Diane. Questions? Seeing none, I'm not going to let you off that easy. What is the size of Lynch, the school population?
DIANE HEISER: I believe we're right around one hundred twenty.
SENATOR COORDSEN: Okay. The reason I ask that is because I have sixteen K-12 schools, I have a rural district, by the way, with sixteen K-12 schools, ranging from fourteen hundred on down to those that says, are we going to make it this year, to the limit, so I identify with you. In the scheme of things, and this is a question that's not being asked critically but more for information for the committee. How would you say that the mix of valuation from which you get, as a school of your size, almost all of your support comes from property tax, I would assume that the... and I know the answer to this certainly in schools of your size in my district, but about how much of the support, percentage wise, is paid by the owners of agricultural property?
DIANE HEISER: I don't know. Mr. Dahl, would you have that information?
SENATOR COORDSEN: Okay, I thought perhaps as a long time board member, you know, that's not essential because I do know the approximate answer to that.
DIANE HEISER: Okay, he tells me that because we're in two
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counties, probably twenty-five to 'thirty percent would be paid for by the agricultural ...
SENATOR COORDSEN: And the rest is paid for by the residents of Lynch, the valuation in the city. That's a most unusual situation, typically it would be the other way around. For an example, in my school, and they're fine schools, but about an average across the board, about twenty-five percent of the pupils come from outside the village and seventy-five percent of the support of education is probably typical in our area of the state. But those are just things I was a just little curious about the size because we do have. Now having spent nine years on the board of the school, at one point in time, probably about your age, I suppose, when I had children in school; we always lived in fear of the same thing, we finally ran out of people totally and merged with another school. What sort of distances would we be thinking about? I recall being on a school board when the State of Nebraska or the Department of Education was proposing schools of a minimum of either two thousand in population... of school age population or twenty-five mile radius, and I don't know, now we hear fifty-fifteen and all of those sorts of things. But knowing Butte County, about... for an example, in that area, you... the Legislature established a criteria of a minimum of six hundred between kindergarten and twelfth grade, about how large of an area would that take? To accomplish a consolidation like that? How many school districts might it take? Quite a few?
DIANE HEISER: I don't know. Well, I'm not... no, it wouldn't take many.
SENATOR COORDSEN: It wouldn't take many.
DIANE HEISER: No.
SENATOR COORDSEN: Okay. Thank you.
HARLAN METSCHKE: Senator Coordsen, members of the Revenue Committee, my name is Harlan Metschke, M-e-t-s-c-h-k-e. I'm Superintendent of the Papillion-LaVista School District and today I also represent the Nebraska Council of School Administrators as a member of their legislative committee. I'm here to speak in opposition to LB 613. Our foremost concerns with regard to this legislation include the elimination of the unused budget authority, currently provided in the law; the elimination of a local board of education's options to exceed the limit by one percent and the establishment of expenditure lids. The Nebraska Council
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of School Administrators strongly endorses local control by school boards over budget matters and we, therefore, oppose the imposition of tax lids on local governmental subdivisions. My school district ... many school districts have unused budget authority for a variety of reasons. In a growing school district that must open additional buildings, that unused authority represents insurance to handle the additional costs that arise. Unused budget authority represents an amount a board of education elected not to spend, yet have the amount available in the future. Had this authority not been allowed, many political subdivisions would have budgeted to the maximum amount allowed to maintain flexibility for future emergencies. Having the unused budget authority available allows a board of education to consciously budget less than the limit allowed and yet know that they Are not jeopardizing future education for their students. In essence, by eliminating unused budget authority, the Legislature would effectively penalize efficient school boards. The three percent, the five and one-half limit, and the elimination of the one percent provision as proposed in LB 613 eliminates the local control of the school board over budget matters. Our board has made a very conscious effort to keep school spending at a minimum while providing programs for students to compete in tomorrow's world. We have made a very conscious effort to review our current practices and restructure schools so that our programs will allow our students to do just that, to compete in the twenty-first century. Not always can you make the necessary changes at a cost near the consumer price index. That's why we elect local school boards, to make those decisions. I appreciate the opportunity to express my school district's views and those of the Nebraska Council of School Administrators and I would try to answer any questions that you might have.
SENATOR COORDSEN: Thank you, Harlan. Questions? Questions, Senator Hartnett?
SENATOR HARTNETT: Harlan, that part of the... from my superintendent or the superintendent that I represent I guess, two school districts, basically, Bellevue, but I also have a little bit of Omaha, that is the part that seemed to bother the one superintendent I have in most of my territory. But I ... you know, I agree that there needs to be, you know, I suppose in business, it would be called reserve, you know. But what is a good figure, what's a good percentage or?
HARLAN METSCHKE: A good percentage, you know, I think you'd
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kind of have to look at maybe what could be down the road. I think one thing I want to correct though, when we equate it to reserves, and maybe Lieutenant Governor Robak kind of indicated that this was an amount of money collected that the board has gotten from taxpayers and we're sitting on it. That's not the case. This is an authority to collect or to budget a certain amount. So rather than budget the maximum, we have budgeted less than the maximum but yet, with the limits in 1059, you develop an authority to do that and so, we budgeted less than we could have; and in our case, knowing that we were going to be opening school districts in the future and in the specific year you have to do that, there are start-up costs that the growth provision doesn't allow for and so, in our case, we have budgeted less than the maximum. Now had that provision not been there, it would have been very difficult not to make the maximum the minimum every school district would budget. And so that's why the unused budget authority, I think, helps taxpayers; it allows boards to be very efficient; but yet, it doesn't lose their flexibility and it keeps their future options open.
SENATOR HARTNETT: What do you have in unused budget?
HARLAN METSCHKE: We have a little over a million dollars in our district.
SENATOR HARTNETT: What's your budget then?
HARLAN METSCHKE: It's right at 30 million. We do have a reserve to help with uneven tax collections but in our case, we have carried over a little more than a million dollars and that's basically a million dollars that we had allowed.
SENATOR HARTNETT: Out of a $30 million budget.
HARLAN METSCHKE: Yeah, but we anticipate, you know, with a new elementary opening next year that we're going to have some costs beyond normal. Our students have grown to a level. We're basically getting 140 students out of a very crowded elementary school; and so, you know, it's not like we're going to have a number of additional students to help pay for this new building that we're opening; and so we're going to have to use some of that unused authority and, hopefully, it's going to be there. It would be a little bit of a ... a little bit discouraging, having done that in the past with that thought, and then having to be concerned that, all of a sudden, with this statute, it might be gone, or with this change.
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SENATOR COORDSEN: Senator Wickersham.
SENATOR WICKERSHAM: Well, I know that often-times we can produce unintended results because we aren't...you know, members Of the Legislature typically are not experienced administrators or superintendents but I'm wondering if you wouldn't be able to utilize your existing budget authority to create reserves, for example, depreciation accounts, necessary cash reserves, and that even if you lack the ability to carry over taxing authority, you might very well be storing away... instead of storing away your dollars in the pockets of your taxpayers, storing away dollars in your bank accounts for future activities.
HARLAN METSCHKE: And I would see eliminating unused authority doing just that. We would have probably... I would have probably recommended budgeting to the max and putting that into reserve or contingencies. Contingencies are something we've never had the privilege to know, you know, to experience but, yes, if that...if we would not have had the opportunity to know that we could carry forward this authority, we would have probably budgeted to the max.
SENATOR WICKERSHAM: Do you use depreciation reserves?
HARLAN METSCHKE: No, we don't. In fact, we haven't until just recently, had any cash reserves so we were constantly borrowing from one fund to the other in order to make payments. Now 1059 has helped us in that regard because now we get ten equal payments instead of two times in the year when you get large tax receipts; and so 1059 ... and we are ... we do receive a lot of equalization aid in our district; and the ten payments has maybe eliminated somewhat our need for a reserve that, unfortunately, we never had in the past anyway.
SENATOR COORDSEN: Other questions of Mr. Metschke? Seeing none. Thank you, sir.
HARLAN METSCHKE: Thank you. I do have copies of that testimony if I could have a ...
SENATOR COORDSEN: Could we have a Page?
LYNN REX: Senator Coordsen, members of the committee, my name is Lynn Rex, representing the League of Nebraska Municipalities. I appear before you this afternoon in opposition to this measure. First, I'd like to tell you a
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little bit about what we think about lids and about the issues that have been raised and discussed today. Just very briefly because I know you've had a long afternoon and there are many others that want to testify behind me. First of all, the issue, is this really about property taxes? Yes, it's about property taxes and property taxes are too high. Secondly, is this about management? Yes, it's about management, this bill does address those kinds of issues in the context of limiting some flexibility. And is it about priorities? It's about priorities, because, in fact, that for us is one of the most critical issues facing cities and villages in the State of Nebraska. If we had a roomful of mayors and village board members and council members today, they would tell you that they don't really have a lot of control over setting their priorities. And I think this is an issue that Senator Coordsen and perhaps Senator Warner had raised earlier in the hearing today. Most of our cities have between seventy and seventy-five percent of their budget is already off the table, that is other than laying off employees, what they pay is based on comparability as mandated by the Legislature in chapter 48, article 8. Senator Coordsen has a bill in and earlier this week we actually had a hearing on that measure which would actually say that we would like the Commission of Industrial Relations to codify the concept of geographic proximity. We've had an idea as revolutionary as saying, that if we're going to pay comparability, we want to pay employees fairly, they should be paid fairly, but shouldn't they be paid based on, at least, looking at those comparables that are closest to the municipality as opposed to those that are on either coast or depending upon the class of city that's involved. In order words, should an Omaha be compared to those comparables that are closest to Omaha, and I'm not saying not comparing to comparability, and not using comparability in the context in which it is intended, but rather codifying the concept of geographic proximity. That bill has been in repeatedly, that bill's never even made it out of committee. So if you want to talk about management, the biggest amount, the biggest percentage amount, that cities and villages in the State of Nebraska have, in terms of their budget and their expenditure, is, in fact, on wages. Now that doesn't mean you wouldn't pay somebody something. You would. And it doesn't mean you ought not pay your employees fairly because you should. But it does say, that in the issue of comparability, that when you have up to seventy to seventy-five percent of your budget off the table, short of layoffs, there isn't much else that you can do. I was at a presentation recently with Mayor Johanns and the numbers that he used are very similar to what other mayors have told
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me and what the numbers revealed, if you want to go through some of the budgets that cities and villages have submitted to the State Auditor's office, and that is precisely this. When you take seventy to seventy-five percent off for personnel related expenditures that are mandated under chapter 48, article 8, when you take into account other expenditures that are mandated and that amount will be increasing, and I will, in all fairness say, the bulk of those deal with federal mandates, you have frankly, less than between ten and fifteen percent that you can really control. And by control that means even being able to address any of your local priorities. So when it comes to mandates, we are concerned about that. And, quite frankly, I would like to compliment Governor Nelson, although we're not thrilled with LB 613, 1 can tell you that he has done an outstanding job, both nationally and on the state level, of trying to address the issues of mandates. He really has. He has set people together, he has asked us to talk about it, we've got another meeting planned, and we're going to be discussing with him some of the concerns that we've got about... for example, when you have state agencies that require through regulation more than is required by federal law, federal regulation, state law or state regulation. Because that does translate into higher cost so there are some tangible things that can be done in the issue of mandates. But in the same light, the reason why, I guess, we're really opposing 613 is not because the world will come to an end for cities and villages if LB 613 passes. Because as you know, the budget ... the limitations, if you will, on cities, villages, counties, and others, other than school districts, we have a lid on property taxes and that's embraced, obviously, in LB 613; and what this is saying is we go down a percentage from five percent with... or you go up to CPI and then the percentage and the differential that goes from five to four percent. It's not going to end the world for cities and villages but it will has a disparate impact on some of them because in some of the smaller ones, what we're finding is, in some of the larger municipalities, they don't go up to the maximum always. In some of the smaller ones, they almost have to because the budgets are so small. When you buy a fire truck, that's a lot of money if you're only dealing with a few people, and in terms of mandates, it's not just the CIR; we have pension laws, we have cities in the state that are still struggling, quite frankly, trying to deal with unfunded liabilities created by pension programs for first class city police officers and firefighters that were mandated in the mid-60s, not by any of you here; but mandated in the mid-60s. We still have cities trying to accommodate those interests. And I know
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Senator Wickersham, pardon me
SENATOR COORDSEN: We were pointing at the empty seat.
(laughter)
LYNN REX: Oh, I'm sorry. And if Senator Warner was here, I would have given him that exception with all fairness to him and he's been very sensitive to retirement issues as Senator Wickersham is as chair of that committee but sometime next week there's going to be a hearing to provide pension program, or at least that option, for volunteers. And I know funding that out of pickle cards or pickle card revenue, but what happens when that revenue's gone, who's going to pick up the tab then? That's just yet another example and it has been incremental and it has been profound. And let me share with you, it's not just the issue of mandates. In the area of property taxes, the issue of property taxes, are they too high? My response is, yes. The League of Nebraska Municipalities would tell you the answer is, yes. But let me just very briefly, in terms of an historical perspective, tell you that I first started, as a matter of fact I was kind of on the tail end, of the effort that occurred when LB 518 passed to exempt livestock, business inventory, and farm equipment. That's not to say those were not legitimate exceptions and exemptions, if you will; but rather there was a fund put together, there was a governmental subdivision fund put together prior to that, then there was a personal property tax relief fund put together, and lo, and behold, the Nebraska Supreme Court, on several occasions said, you have a frozen class, you just can't send money back to cities and villages, counties and schools, based on a fixed class because then Governor Exon said, you know, we're not going to give you everything that you're losing. The original deal was, we will send back all this money. We're going to give you these exemptions, they're fair exemptions, they need to be there, so we're going to send this money back to you so you don't have to worry about the property tax side. And then Governor Exon looked at it and said, gosh, now I don't know if we can do that, we got to put a seventy million dollar cap on that. Well, I can assure you that that when Vard Johnson was chair of this committee, we paid a consultant and that consultant indicated to us at that time, based on numbers even that the Department of Revenue stipulated to and the railroad cases that were ongoing which, you know how those occurred and what happened and how it happened with Amendment One over a period of time so I don't need to reflect that because 1 know many of you have been involved in the more recent history of this. But at that point, local governing bodies
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in the State of Nebraska, local governments, lost a base of well over two billion. dollars in base, in actual revenue and this is when Vard Johnson was chair of this committee, lost over two hundred and fifty million dollars of revenue, of actual revenue at that time. So what happened incrementally, and I know you're aware of this, but I'll feel a lot better I in saying it, is that over a period of time, where, yes, you've got a property tax base, and yes, it's higher, but when you exempt and you exempt and you exempt, I'm not saying those are not legitimate, you have fewer and fewer people paying more and more. And the people that are paying more and more, and in our view, primarily residential homeowners, are saying enough already. So where are we? We have mandates that seem to never end. We are grateful with sl, we are grateful with some of the activities that are going on in Congress, but that won't be back ... that won't be retroactive, that won't deal with some of the safe drinking water act considerations, that won't deal, how do I tell Waverly, Nebraska, figure out how you're going to pay for an 800 percent increase in safe drinking water act issues. And just to finish this little scenario, once you ended up with a governmental subdivision fund and the personal property tax relief fund, that then became "state aid" because the court said you can't have a frozen class, so we're now going to call it state aid. Local governing bodies for cities and villages, our cut of that was supposed to be seventeen point nine million, I can count on one hand, I can count on probably three fingers the number of years that that was fully funded, that didn't even begin to reimburse cities and villages for the amount of money and the amount of revenue they lost. So what the Director of the NSEA was saying to you is, some shift at some point is something that needs to be addressed because what has happened is the State of Nebraska has shifted and they have shifted that back on property tax owners but fewer and fewer of them paying more and more. So in summation, what I will share with you is, LB 613 in its present form will not be the end of cities and villages in the State of Nebraska but it just underscores several critical issues, and issues of principle, and that is that, when over a period of time, not those of you that are members now, but over a period of time, when the Legislature said, local governments, don't worry, be happy, we're going to send those dollars back. It didn't happen. When the state needs to balance its budget, and I understand you've got those concerns and I appreciate that, but we took a 33 percent cut in one year in one fund, and we've come in this year to try to restore some of those funds. on infrastructure, roads, streets, those don't end, trying to maintain those and
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trying to deal with those, those kinds of things don't end, and the mandates don't seem to end. So we do compliment Governor Nelson on his issues and what he has done with respect to mandates, both nationally and statewide. Executive Order 194 of last year, which he signed and proclaimed, basically told state agencies, stop it already. If you don't have to do it, don't do it. We are going to be addressing with him some of the issues that we think those state agencies need to be addressing now but when you look at the property tax issue and what has happened historically, where there has been a shift, a dramatic shift, from income and sales back to property taxes, there's no question that property taxes are high and they're too high, and when you have mandates that are unfunded, some of them, and again, the biggest one from the State of Nebraska, undoubtedly, is the requirement of comparability. We are even asking, in Senator Coordsen's bill, for some very, what we would view, as pretty minor changes in that. Those are the kinds of things we are looking to try to shape, should there be more consolidation, should there be more efficiency in government, yes. In particular, I'm sure there are things that cities and counties can do in particular because of some of the common interest that we have and that we can work at and do better and I think county officials are trying hard all the time, city officials are trying hard all the time to do that. So, in Closing, what I would say, is I would encourage you to look very carefully at LB 613. Those that are testifying on behalf of schools today, testify with a different perspective because they're dealing with a totally different lid but ours is on anticipated receipts for property taxes and it is tight; and for those individuals, and I do applaud them for their involvement, whether it's David Hunter, who, by the way, used to be the Chairman of the Village Board of Hickman when I first started at the League, and was a very good village chairman. Now that city is a city of the second class, and a matter of fact, the reason why it is is because he was progressive, because he did some things that needed to position that city to move forward and I can remember more than one phone call just as a new staffer at the League of Nebraska Municipalities, about why do we have to do all this stuff, Lynn Rex? Well, it's because we're required to do it by state or federal law. And lie didn't like it then, he probably doesn't like it now but I think that it would be important like Mr. Hunter and Mr. Jaksha, these are bright people, these are smart people, and they, obviously, do have some time to commit to this and to civic involvement. They are the ones that need to also come with those solutions, submit their name to run for election. They're the ones
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that need to submit their name to serve on school boards, city councils, county boards and commissions, to help shape and-resolve these kinds of issues. I'd be happy to respond to any questions that you might have.
SENATOR COORDSEN: Questions of Ms. Rex? Well, maybe we couldn't listen fast enough, Lynn. (laughter)
LYNN REX: I really tried to slow down.
SENATOR COORDSEN: And I, of course, am on the other end of that. I speak so slow people forget what I started to talk about when I'm halfway through. But listening to your presentation, there were no questions, I think, I didn't see any so that gives me free reign. It appears to me, based upon your historical perspective of the tax exemptions and problems from your view, it would appear to me that you would share Mr. Jaksha's view that the only property that ought to pay taxes was income producing property and the residences should be exempt?
LYNN REX: Not necessarily, Senator.
SENATOR COORDSEN: Would that be true?
LYNN REX: Not necessarily. I think there needs to be a balance.
SENATOR COORDSEN: Well, I was a little bit curious about that because in 1992, in the mix of things that were paid, residences, I believe in Nebraska paid about $555 million in property taxes from a multiple of billions of dollars of personal income as reported to the Internal Revenue Service. I don't have committed to memory the corporate real estate taxes but in that year, the agricultural community paid $400 million in real estate taxes and after paying that, because it's a business deductible item, they had $225 million left in gross income to live on so I have a great deal of concern for equities in the tax system as you do but having said that, I have been approached, as all of us on this panel, and all the members of the Legislature knew we need to do something about property tax and my suggestion to the people, well, why don't we pay for schools totally out of income tax, not use that for anything else. Oh, oh, that sounds like a fine idea, doesn't it? It, would result in a sixty-one percent decrease in property tax across the State of Nebraska. That's a good idea, by golly, I like this better all the time. By the way, it would take an increase in state income tax, bringing back in what the
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state is using in general funds, it would take an increase of more than fifty percent in the income tax collections in Nebraska, rate changes. Suddenly, property tax relief doesn't become such a good idea and I know that throughout this system here this afternoon I've heard comments relative to state money. Now certainly you've been around government longer than I have and maybe I have a little more years of being around but, where does the state get its money from, Lynn?
LYNN REX: I believe from individuals and citizens who pay sales and income taxes.
SENATOR COORDSEN: I'll be darned. I thought so.
LYNN REX: It's a novel idea. That's right. Corporations, also.
SENATOR COORDSEN: Okay, so if we achieve property tax relief though sales and income tax, who pays property tax?
LYNN REX: Obviously, you've got citizens, you've got other folks that do that, too. And I guess your question, because I know where you're heading with this.
SENATOR COORDSEN: I know where I'm heading, too, because it's just an interesting paradox to me that the state's supposed to have all this money and the only place I know to get it from is Lynn and Cary Rex.
LYNN REX: Well, I would submit to you, maybe Cary Rex.
SENATOR COORDSEN: No, I ... no, I'm not going to pester you any more, Lynn, but when we talk about things like this, it's always interesting that someone else is always going to pay and I'm still looking for that person.
LYNN REX: Well, Senator, I think that your question or your comments reflect what I think needs to be part of a solution and what will be necessary to be part of a solution if the State of Nebraska wants to come to grips with property tax, and I think that I've talked to enough Senators that do, and that is, I don't think that there is a simplistic answer. I don't think it is all about saying, residential home owners pay nothing. That doesn't work. I don't think it's about saying, there shall be no property taxes in the State of Nebraska. That doesn't work. I don't think it's about saying that the State of Nebraska should do away with everything that's on the books relating to certain kinds of
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prescriptions and requirements on government. That's not going to happen, but I think what does need to happen, Senator, is a combination. I think that there should not be mandates unless they are absolutely necessary and if they are, you need to look at a funding component because somebody's, you're right, Senator, somebody's going to pay for that. In the same light, I think there does need to be greater efficiencies in government and I know cities are working on that. Every level I know is working on that. And I think there needs to be, first and foremost, participation because I will tell you, I was pleased to hear that Mr. Jaksha was able to get nine hundred some people to come to a meeting to discuss issues relative to property taxes. I can assure you, there isn't a first class city, Lincoln or Omaha, that's ever had that many people show up for a budget hearing. Gosh, I think it'd be great if they'd come to the budget hearing and say, here's what we want you to cut, here's what we'd like you to do, because that's the place where they have an appropriate way and an appropriate way to be involved in the process. So in closing, I appreciate your comments, Senator Coordsen, and I think as well it is a multi-faceted problem and it's going to have a multi-faceted solution. I don't think that there's a simple solution to this issue.
SENATOR COORDSEN: Thank you, Lynn. Next opponent, please.
MARTHA FRICKE: Senator Coordsen, members of the Revenue Committee, my name is Martha Fricke, I'm Director of Government Relations for the Nebraska Association of School Boards. The Nebraska Association of School Boards appears today, of course, in opposition to LB 613. The longstanding position of NASB is to oppose lids, caps on budgets, spending, or aggregate receipts from state and local tax sources for school districts. We believe that lids or caps imposed on school districts by the state cannot be sensitive to local education needs and should stand apart from any comprehensive school finance structure. However, schools have been under a lid since the adoption of LB 1059 and we must point out, that had the state met their obligation on funding, the growth in property taxes would have been far less under that bill. We are very concerned about property taxes and the many bills that have been introduced this session that instead of lowering property taxes and local taxes, are mandating further expenditures on that you look very the lower level and we would ask that carefully, there's a number of these bills. Many of us have
devoted long hours looking at all users of property taxes
and have made suggestions as to how we can lower the
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reliance on property tax and 1 think, at this point, I'd like to say, are we looking at simply lowering the reliance on property taxes or are we looking at cutting far back on services and this has not been talked about at all. All we're talking about is lowering property taxes with no talk whatsoever at the result of that. Bills have been introduced in this session with some very interesting solutions and some of my people who preceded me have talked about that. We would simply ask that you look at all of the alternatives, all of the different ideas that have been presented before the lid is lowered further on someone else that has not been mentioned hardly at all this afternoon, and that is the children of Nebraska who will certainly be the ones who will suffer if the education budgets have to be cut. I would also like to suggest to you that the use of budget authority is indeed the planning that Mr. Hunter said that boards didn't do. By keeping this unused budget authority, that's exactly what school districts are doing. They are planning ahead, and I would simply suggest to you that if that is removed, it will take away that ability to plan. And I will be happy to answer any questions.
SENATOR COORDSEN: Thank you, Martha. Senator Schellpeper.
SENATOR SCHELLPEPER: Martha.
MARTHA FRICKE: Yes, sir.
SENATOR SCHELLPEPER: First of all, let me say that I don't like lids, I never have liked lids, but how many school districts do you think raise to the maximum each year when they probably wouldn't have to just because they want to always stay at that maximum.
MARTHA FRICKE: I would have no idea.
SENATOR SC17AELLPEPER: I think there's probably quite a few entities that do that because they know that if they don't, next year they're going to penalized.
MARTHA FRICKE: Well, and, obviously...
SENATOR SCHELLPEPER: So each year, you have to keep going...
MARTHA FRICKE: They're going to be hit right now if they've done that.
SENATOR SCHELLPEPER: Yeah, that's right, you have, each
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year you have to ...
MARTHA FRICKE: I don't know, I 'could try to get that information for you, but I don't know.
SENATOR SCHELLPEPER: Well, I think it would be pretty hard to find the actual figure because they're not going to admit, a lot of them, that they do it but I, in talking to some of the boards, they do admit that that's one reason that they were...
MARTHA FRICKE: Someone might say that that was good financial planning.
SENATOR SCHELLPEPER: Well, it is if you're going to have a lid...
MARTHA FRICKE: That's right.
SENATOR SCHELLPEPER: ... I would sooner put more faith in my school boards and my town councils than I would in 'Lids.
MARTHA FRICKE: Well, you know, local budgets are so individual and what is good for ... what one particular school district needs or needs in their planning and has to have, the school district down the road doesn't need at all, and that's why lids are unfair. It isn't fair.
SENATOR SCHELLPEPER: If we would have more fair taxation in Nebraska to all forms of taxes, we wouldn't have to be worried about them.
MARTHA FRICKE: Yes, and I would add my support for the idea of a balanced, a far more balanced tax system.
SENATOR WARNER: Anyone else? If not, thank you, Martha.
MARTHA FRICKE: Thank you.
SENATOR WARNER: Next, please. How many more are testifying, I assume you are in opposition. Two. Okay.
JERRY STILMOCK: Hello, Senator Warner, members of the committee, my name is Jerry Stiltriock, testifying on behalf of the Nebraska State Volunteer Firefighters Association, in opposition to LB 613. The history that I bring to you on behalf of the volunteer firefighters is that of rural and suburban fire protection districts when the lid was put in place. From a perspective given to me by other members of
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our association, that the fire districts, some of them throughout the state, budgeted at peaks and valleys and when the fire protection districts that were in a valley mode and the bill came in on top, they are really suffering right now. They're unable to meet their requirements of protecting the fire districts and the people that are within that district. And if it is that LB 613 is advanced, we'd ask that in some way we allow some relief for the fire protection districts, some reportedly operating at an annual budget of as small as fifteen hundred to two thousand dollars. They simply cannot afford to take that next step, allowed in the statute right now, and that's to hold an election cause they do not have the money to pay for that election; especially if that election would fail. It's a lose, lose situation. They've lost out, they've lost tax dollars to put on... to carry out an election, and then they've also lost out on budget dollars that could have otherwise been used for the safety of people and property. There is an item in the statutes right now, it's 77-3438.01 that allows some relief but that only goes to the purchase of equipment and emergency vehicles. It appears that even with that in the laws, it has been since the inception of the lid law, that that simply is not enough for some of the very small fire protection districts that were caught in the valley of their conservative nature in which they budgeted.
SENATOR WARNER: Questions? Apparently not, thank you.
JERRY STILMOCK: Thank you.
SENATOR WARNER: Next.
STAN KRAVIG: Senator, committee members, I'm Stan Kravig, President of the Nebraska Rural Community Schools Association, also the superintendent at Benedict Public Schools, here in opposition to LB 613. We do think that the goal of LB 613 is admirable, the reduction of budgets and spending, and indirectly, property taxes; but it's not very realistic. We, at Benedict, of course, would love to reduce our property taxes since our district residents pay over eight-five percent of our receipts for our school district, as I mentioned, come from local property taxes. So we'd love to see property tax relief, but this is not the answer. Why? One, two-thirds to four-fifths of school budgets are teachers' salaries, Oil top of that you've got administrators' salaries, non-certified salaries; but the teachers' salaries alone, since each year they are subject to collective bargaining and comparability eat up the entire allowable growth rate in themselves at the existing four
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percent that we're under. If this is reduced to three percent, cuts are going to have to be made and those cuts will surely eventually come in teaching staff or in equipment and supplies and will have a direct or indirect result on the education of children. So, again, we certainly support getting a hold on budget growth, on spending, on property taxes, but there's got to be a better answer than this. Concerning doing away with the unused budget authority, I think most of it has already been said but it seems to me like if you do this, you're encouraging spending. Use it or lose it. And for those who have built up an unused budget authority, it would seem very unfair at this point to take that away from them since they have used it to plan ahead for possible emergencies or other situations. And one more comment, I'm happy to hear Senator Wickersham say that he has yet to see what savings could come from the consolidation of school districts. I've looked at that, too, and I'm not sure that I agree or disagree that there are too many school districts but I've looked at it really closely and I cannot see that massive reorganization is going to save a lot of money. It may make for better educational opportunities, possibly, but I think those decisions are best left to the local school boards. Thank you.
SENATOR WARNER: Questions? This hearing has gone a long time but just a couple of questions since you do budgets. When you start out to make a budget for your school, at what point do you look at what you anticipate available revenue to be? During the budget making process?
STAN KRAVIG: Well, as early as possible, some of those things are told to us by the state and we don't get those figures very early but you base it upon what's happened in the past. As I mentioned, in our school district, 10 to 15 percent of our receipts come from other than property taxes so we just pretty much know that.
SENATOR WARNER: I understand, but the reason I asked the question, when I first became chairman of appropriations, we had none of the process we have today and I learned the first week, in fact, it was the first three days, that everybody said yes to everything when viewed without a total picture and I was there, by the second week, we adopted a number as to what the total budget was going to be with no increase in taxes. We had to estimate, we didn't have the sophisticated system we have now; and then we began to make decisions against what was available and we forced ourselves to establish priorities. I noticed a newspaper story here a
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while back of a school district, which I got the impression they approved new programs during the course of the year, and I know of no educational program that's bad, and then it got to the budget time and, gee whiz, we've approved five programs earlier and now we got to put them in our continuation budget. Gee, that's going to put us over and I was amazed, a sophisticated school system that I read this about, and I was amazed that, I mean, anybody ought to know if you're expanding your program in the middle of the year, you've got a built-in obligation with no consideration what that total budget was going to be except they boxed themselves in, and I would think that a budget process that you were forced initially to stay within, it makes no difference what the revenue sources are, that you were not going to go more than so much than the year before would be the process you need to go through to establish a priority system at all. Cause you can't do it on a basis, this is good and that's bad, because there isn't such good and bad, particularly, for education.
STAN KRAVIG: I don't disagree with you but a couple of years ago, for example, our board made a decision early on that property taxes were just at an extremely high level for our district and we were going to try to do the very best that we could not to raise those property taxes and so that's what we built our budget from. Our budget did increase due to other factors but we did not ask for any more taxes in that next year. Now, the following year, we did have to ask for more to make up for that year, so to speak. Every year, we do look at possible ripping or staff change, possible reductions if necessary, to keep our budget at the point where we need to have it. So I think we do take a look at some of the things that you're asking about.
SENATOR WARNER: I was in a hearing the other day, not in this committee, where the CEO of a public institution indicated that as valuation went up, the budgets went up. It was kind of like, well, we've got more money now because of valuation. We're not increasing the levy so that's not increasing taxes.
STAN KRAVIG: Yeah, levies are misleading.
SENATOR WARNER: And it is rather disturbing to sit and hear. Okay, thank you.
STAN KRAVIG: Thank you.
SENATOR WARNER: Is this the last opposition?
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DAVID BURKHOLDER: Senator Warner and members of the Revenue Committee, I'm Dave Burkholder. I appear here as Chairman of the Taxation Committee of the Nebraska Cattleman. We originally voted in our legislative meeting to oppose this bill. We consider it kind of a band-aid approach to the property tax problem that we have. We think ceilings tend to become floors. This bill does not address any of the duplications and inefficiencies that we think probably exist in some of our local units of government, it doesn't address the issue of mandates, both state and federal, that the units of local government are under a lot of times. As I've been sitting here listening to all of the testimony today, I wondered if I shouldn't have been on the other side of this bill. If you want to know the truth, it occurred to me, as everybody focused on the lid, that the particular board is under, without an election, that the way that this bill probably could be written that would bring about some real property tax relief would be if it took, you know, any increase in your budget that you wanted, you just submitted to election each year and that would probably be a very efficient check on all the services that the various people that appeared here before me today have been telling you all that their constituents needed very badly. Thank you.
SENATOR WARNER: Any questions? Thank you, David. Anyone in neutral? Is this neutral?
JOHN MOORE: Yes. Not even neutral negative. Just neutral. Senators, My name is John Moore. I'm the Dawson County Assessor. I don't think... I'm also representative of NACO but I believe we decided it didn't do much good to oppose or support this. Simply because we're already living under the lid with the fifty cents anyway. That's probably our worst problem for most of our counties regardless, so the lid situation isn't that much of a change for us. I did see a couple of red flags, one was in reference to, and I can't remember if it's 652 or 352. There was an amendment put on one of those bills to shift the personal property tax payments to the real estate tax payments and that will create an artificial problem for most of those subdivisions in terms of having to increase their reserve, for the cash flow problem. So you might want to consider that as a kind of a problem under a lid.
SENATOR WARNER: It's LB 452.
JOHN MOORE: Yeah. And the other thing I wanted to tell you, at least in my experience as far as school lids go, I
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don't why you 'call them a lid. I ... the three largest districts in my county this year, their tax call increased twenty-three, eighteen, and forty-two percent. So for my money, there is no such thing as a lid when it comes to putting it on a budget rather than on the tax call. Now there are a lot of reasons for that but that's the way the taxpayer sees it. They look at the bottom line, they don't really care much, they have a short memory, I've discovered.
SENATOR WARNER: Would I be correct to assume that they had a big swing in state aid?
JOHN MOORE: Two of them did and one didn't. One had more state aid.
SENATOR WARNER: Their tax collections or their budgets went up?
JOHN MOORE: Tax collections.
SENATOR WARNER: Tax collections.
JOHN MOORE: The amount that they called for in taxes on their budgets, that line.
SENATOR HARTNETT: What was the percentage again?
JOHN MOORE: Twenty-three, eighteen, and forty-two percent.
SENATOR HARTNETT: What county?
JOHN MOORE: Dawson County. The one that got more state aid but still increased was my district, Lexington, and that I think you can probably attribute that naturally to the growth.
SENATOR HARTNETT: The growth factor.
JOHN MOORE: But the people in that ... the constituents don't really care what you call it as far as they're concerned when they have three and four hundred dollar increases in taxes, 'Chat was their concern.
SENATOR WARNER: Okay. Anyone else? Thank you for coming in.
JOHN MOORE: Thanks.
SENATOR WARNER: Now is there any more neutral? Anyone else
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who is neutral, can't be more or less neutral. Senator McKenzie to close.
SENATOR McKENZIE: Thank you, Senator Warner, and I will try to be brief. I repeatedly heard two or three issues addressed by, and in particular opposition, testifiers that I wanted to address. The first had to do with local control and concerns about a lid affecting their ability to really exercise full local control and I will argue that I think in ... on page 15, the section that allows a vote of the people to exceed that spending limit is local control and I find it frustrating when people talk about local control meaning let us manage and make the decisions but when those hearings are held, no one attends. And if we really want to talk about local control, I guess I might agree with the neutral testifier who says, maybe every year the budget should have to be approved by the taxpayers and the voters. Probably not good policy and it would be horribly expensive but I think local control has to be considered both on the decision making side and on the spending side. The second thing I heard a lot was about property tax relief and property tax relief in terms of how we establish the mix and we need to address that. We don't need to address spending. But I would argue, having sat at the knee as people said, this summer of Senator Warner and the Revenue Committee who taught us all about ... a little more about tax policy, that we cannot just think about one Bide, we also have to think about spending. And as I campaigned, I heard from almost everyone I talked to about property taxes, that they did not just want a shift, they wanted serious consideration for spending. I don't like lids necessarily either but the concern that I mentioned in opening about the rate of spending outpacing the revenues generated to support 1059 is the reverse of the argument we heard about whether or not is it the spending that's causing the problem or is it the fact that we're not fully funding 1059 that's the problem. it's probably both but they are related and it can't go one way or the other. Finally, I would say, just on a personal note, this is probably, for me, one of the most difficult issues that I would ever choose to carry; but I've lived on both sides of this issue all my life, as both a landowner and a farmer and as an educator, knowing and negotiating salaries for teachers realizing it would be my taxes that might increase if I was able to get a raise as an educator so I think I can be, I guess, broad minded and see both sides of the issue and appreciate the patience of the committee this afternoon, the very excellent testimony of all those in support and in opposition, in hope that we can work together to come to some agreement on LB 613 in its
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final form.
SENATOR WARNER: Any questions?
SENATOR McKENZIE: I think I'm also supposed to be ask that it be advanced to the floor.
SENATOR WARNER: Okay.
SENATOR HARTNETT: In this pristine form, you mean.
SENATOR McKENZIE: Well, we can talk.
SENATOR WARNER: Okay, thank you, Senator McKenzie. That'll close the hearing on LB 613. We'll go to LB 490, Senator Kristensen. How many people are going to appear on LB 490? Okay, four. All in favor? We've got four bills to go so we're going to move. Those of you who are going to speak, we'll appreciate it if they're short, concise and to the point, because I don't want to... I'll have all these guys madder at me than they already are. Senator Kristensen.