Committee on Revenue

LB 1114

February 1, 1996


Page 35


SENATOR WARNER:  Fine.  Any questions?  Thank you very much.  Anyone else neutral?  If not, we will waive closing and we will go to LB 1114.  Mr. Kilpatrick.


LB 1114


GEORGE KILPATRICK:  Thank you, Chairman Warner, members of the committee, my name is George Kilpatrick, counsel of the Revenue Committee, K-I-L-P-A-T-R-I-C-K, introducing LB 1114 on behalf of Senators Warner, Coordsen, Hartnett, and Will.  This is probably, I suspect, what a number of the people are here for, this is the bill and the only bill, I guess, that I'm aware of that imposes comprehensive levy limits on local governments.  We've talked about it before.  I don't need to spend a lot of time.  These...  the limits imposed by this bill are somewhat higher than were present in LR 93CA that was introduced last year, and would have been a constitutional levy limit.  There are a couple of other new features, one of which is a...  is sort of the interlocal ...  special interlocal cooperative levy limits that we talked about in the last bill, that I won't go over in detail, except to say that it ends up making the total possible amount of property tax that could be levied if this were law, somewhat higher than they would have been without the cooperative provisions or the special levies for cooperation.  That doesn't mean they would be any higher in reality, but the possibility exists that the maximum would be higher.  And secondly is the notion that miscellaneous districts, those that are not listed anywhere on here for a specific levy cap, ought to be considered and ought to have levy authority, but it ought to be levy authority that is limited relative to each other.  And what this ...  this bill sets aside is 12 cents that could be levied by miscellaneous


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districts of any size.  And we'll hear from fire protection districts, I'm sure, but there are also airport authorities and hospital authorities and cemetery districts and road improvement districts and literally 30 or 40 other types of miscellaneous districts that do any number of generally single-purpose type government service.  And the bill does not change the levy limits that they have in statute.  Most of them are limited within their enabling acts, but it does suggest that they ought to be allocated, or that they ought to be combined no more than a certain amount, and the amount provided in this bill is 12 cents.  It also then states a goal ...  oh, I should add that those limits would be ...  would be operative in this bill for the tax year that begins January 1, 1996, so it would be the property taxes in two years that would be paid in three years.  It also sets a goal that by three years later, January 1, 2001, that the levy limits would be lower, and it is not ...  well, it does not spell those out by subdivisions.  It states that in cities, it ought to be no greater than $2.  In rural areas that are nonresidential, that it ought to be no more than $1.50.  And in rural areas that are residential but aren't in cities, and that could be SIDs, it could be acreages or anything else; again, sort of tracing through this concept of differential levies for certain purposes, at least.  In any event, that's set at $1.65 as the goal, I guess, for 2001.  Are there any questions?


SENATOR WARNER:  Questions?  Apparently not.  Thank you, George.  Anyone in support?  I was going to provide equal time, but I suppose that creates a problem.  (laughter)


SENATOR WICKERSHAM:  I'm beginning to think that the sponsors and cosponsors ought to testify.


SENATOR WARNER:  We'll go to those who wish to appear in opposition then, please.  Anyone in opposition?  Those of you who are, again, if you'll move up and sign in, you'll save us time but you also save yourself time.  That's our incentive program.


BRIAN HALE:  Okay.  Once again, I'm Brian Hale from the Nebraska Association of School Boards.  NASB has to go on record as being opposed to LB 1114 as a stand-alone measure.  This is not likely to be a real negative piece of testimony.  We do appreciate the committee's collective wisdom gained over the last year in realizing that a statutory solution to school finance is much preferable to the constitutional amendment route.  We also understand that that transition may well be the reason this bill has been separated from any


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possible replacement funding mechanism.  Our opposition to the bill is generated from the perspective that, as a piece of legislation unaccompanied by replacement revenue, this bodes pretty ominous for school districts.  Limiting school districts to a levy of $1.10 without the prospect of additional state support would be crippling to many districts, and it would hit our poorer evaluation districts in our analysis the hardest.  On a positive side, our delegate assembly, though, recently adopted a pretty revolutionary position for NASB which has historically opposed all lids and caps.  The new position says NASB supports legislative or constitutional limits or caps on budget, spending or levies if they are sensitive to local education needs and do not cause a lessening of educational opportunities for students.  I think this marks a pretty tremendous evolution in our organization and gives us a little bit more leeway to work with you in order to find a balance between maintaining a quality schooling system and assuring a high level of government responsibility in the spending, to attain those means.  Again, we applaud your hard work in helping us find an answer to this situation, and if this is indeed part of a larger property tax package, we want to reserve the right to reverse our fields and support your efforts to build a quality finance mechanism to support our schools.


SENATOR WARNER:  Thank you.  Senator Coordsen.


SENATOR COORDSEN:  You are aware, I suspect, that this bill provides something that's a little bit of a departure from tax policy in the state.  Someplace in there, there's a differential levy with an interlocal agreement that- on properties located outside of the ...  of the city limits of incorporated municipalities, a separate levy cap for residences as opposed to other property.  Do you think that an idea like that of providing a differential levy for residences might have some solution for the rather unique situation that exists for school systems that encompass a significant amount of agricultural property?


BRIAN HALE:  That's certainly an idea in the mix.  I mean, that's one of the...  in the bigger picture of things.  The agricultural areas are looking at that notion of taxing gigantic pieces of land in a different way.  We've taken efforts in this state, of course, to place a lesser percentage valuation on those already, but that's certainly a piece of the discussion.


SENATOR COORDSEN:  And certainly this ...  this next question


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does have, while not included in this, has I think subject matter that would be part of the argument.  Do you feel that our current, not only Nebraska but statewide system, of measuring the wealth of a district predominantly on property value per student is an appropriate measure of wealth for 1996, for the purposes of state aid distribution?


BRIAN HALE:  Well, I go back to our delegate assembly who has recently said that we should try to find a way -to incorporate, to measure the wealth of a district, using both property and income as a factor.  A lot of things need to be hammered out in finding something that's suitable to everybody, of course, but solely on property alone, it has shown its weaknesses historically.


SENATOR WARNER:  Anyone else?  If not, thank you.  Others to appear in opposition?


ROBERT DOYLE:  Mr. Chairman, members of the Revenue Committee, my name is Robert Doyle.  I'm an attorney with Walsh, Fullencamp & Doyle in Omaha, Nebraska and we represent approximately 55 sanitary and improvement Districts in Douglas and Sarpy County.  In Douglas and Sarpy County, there are 195 active districts, from the very small to the very large, and their operational levy ranges from about 2.25 cents to $1.05 per hundred dollars of actual valuation, with the average being about 36 cents.  Some of those with low levies are special districts with very limited functions.  A new district starts with very little valuation.  In other words, it has improvements but no houses, yet it has substantial operating expenses, the major one being to OPPD for street lighting.  There's also a couple of other mandated expenses like we have to have an audit every year.  Let me just give you an example.  SID No.  390, which is a new one, Arbor Ridge, is a 160 lot subdivision which is ...  which is adjacent to Elkhorn.  To date, it only has about $1,070,000 tax base but yet, between the audit and the street lights which you have to have because you're not going to get anybody to move in without street lights, you have a total bill of somewhere around $12,000 which, right off the bat, equals about $1.12 per $100 of actual valuation.  Now, as these sanitary and improvement districts build out, obviously the valuation increases and the levy can, thus, decrease even though they do have to pay off some accumulated debt.  However, at the 10 cents which you have in this bill, I don't think any of these districts would ever get out from behind the eight ball.  Most of the districts ...  most of the mature districts, which we represent, have levies between


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25-50 cents for their operations.  This, in many cases, depends upon the valuation of the districts and also whether they have any extraordinary expenses such as parks.  Not every SID has a park.  But I'd like to give you an example of a high-end mature district.  This would be SID No.  239, and once again, I'm using one that is adjacent to...  is adjacent to Elkhorn.  It has a 47.6 cent tax levy per $100 of actual valuation, but it has significant street problems.  And if you max it out at 10 cents, it will ...  in my opinion, this district would deteriorate into a virtual war zone, destroying the house values along the way.  This is a moderate income ...  these are moderate income people who have struggled for a substantial period of time with a problem district, and they have made it into a self-sufficient housing development of which they can be proud.  Unfortunately at 10 cents, I think you'd really take that away.  The ...  the improvements would be destroyed.  I think one of the ...  one of the problems with this bill is that there's some ...  there's some unintended consequences associated with it.  In my opinion, it would cause...  and I'm talking just with the sanitary and improvement districts.  It would cause a number of bankruptcies.  It would destroy some.  It would severely hinder others, and once again in my opinion, it would stop housing development as we now know it, in both Douglas and Sarpy Counties.  We do understand and appreciate that many people are upset with the ...  with the level of taxation.  However, I might add that sanitary and improvement districts are direct democracy at its lowest level.  Its only function ...  the SIDs only function is to provide very basic services.  They provide street and sewer maintenance.  They provide street lights and parks in some cases.  The owner of each one of these lots in the subdivision that is taxed has a vote for who sits on the governing board, the board of trustees.  We believe that they should be able to determine the manner and the degree of the condition which...  of which they are going to maintain their own public improvements.  Thank you.  I'd be happy to answer any questions if there are any.


SENATOR WARNER:  Thank you.  Questions?  Generally, what's the range of debt service in all those, or are you giving us numbers just for operating?


ROBERT DOYLE:  I'm...  I'm just giving you operational numbers because that's ...  that's all that is in this bill.  In other words, the bond debt is excluded.  The...


SENATOR WARNER:  From what you told us.


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SENATOR WARNER:  That's ...  yeah, that's what I wanted to be sure.  Anyone else?  Thank you.


ROBERT DOYLE:  Thank You very much.


SENATOR WARNER:  Others who are opposed?


DENNIS BAACK:  Senator Warner and other distinguished members of the Revenue Committee, for the record, my name is Dennis Baack, and I am the Executive Director for the Nebraska Community College Association and a registered lobbyist for the community colleges.  We appear here today in opposition to this bill simply because I want to bring to your attention what ...  what are the effects of the bill and what happens to some of the community college areas in Nebraska if we lower the levy limit for the community colleges to 7.5 cents, which also would include our capital levy.  Right now, if you went to the limit on ...  we have a 9 cent levy limit, then with a super majority of the board, you can go to 11.5 cents.  We also have a 1.8 cent levy limit for capital, and that would put us at 13.3, and this would lower it to 7.5.  We ...  we are very well aware that, as a property tax consumer, we've.  got to be part of the solution for the property tax situation.  We only levy across the state about 3 percent of all the property tax that's levied in Nebraska, but that's still ...  but we are still a property tax consumer and we need to be part of the solution.  And I want to applaud the efforts of the committee because I think you've worked very diligently at, at least starting to provide the kind of conversations and stuff that need to happen in order for this thing to be resolved.  I think Senator Kristensen, you brought it up earlier.  This is a very, very complicated issue, and everybody is going to have to compromise a little bit if we're going to get anywhere with this issue, and it's not...  and it's an issue that's been around, as you said, since 1919.  That constitutional convention had a big discussion about fair and how legitimate the property tax was for support of government.  So, I'm going to...  I'll have a Page pass this around if they would please.  (Exhibit 3.) And this just gives you some figures and shows you what the impacts would be.  And, as you look at it, you will be able to tell that some of the areas don't have very much impact.  I think it impacts the community colleges to the level of about $4.3 million across the state.  You will find a couple of areas that have very little impact at all because their levies right now...  their combined levies right


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now sit right about 7.5.  You have Northeast Community College in Norfolk sits about there.  And the Metro Community College in Omaha that sits there.  But you see a real substantial impact on Western Community College under this proposal.  You would see Western Community College lose about $1.2 million.  They cannot absorb $1.2 million from the budgets that they have now.  They've been going through a big restructuring at Western for the last couple of years.  They've closed a campus in Sidney, and downgraded that to simply a center there.  They've done a lot of reorganization as far as administration goes.  They've cut things a lot in those areas already.  Mid-Plains would be another one that would be affected substantially, and that would be about $1 million loss, and Central would have about $1 million loss, and Southeast would have about $1 million loss.  These ...  when I look at these bills, I realize that all of these issues have to be out on the table, and we have to be considered as part of the solution.  And we're willing to do that.  I would hope that in your consideration when you start looking at solutions, that you take a look at, are you going to provide revenues to replace some of these revenues that are lost because of the property taxes.  If those revenues are going to be provided, how are we going to divide those monies?  Because as you see, if we just go to a 7.5 percent levy limit, some areas aren't impacted, some areas are impacted very heavily.  I don't know that the distribution formula that we have now would ...  would correct that.  I don't know that.  There may have to be some other decisions made as to the way state aid is distributed so we make sure we can target it to the areas that are impacted by something like this.  But I just want to stress to you that we are ...  that we are very willing to work with- the.  committee, and to work with the Legislature in trying to come to a solution in this problem.  I think that the approach that you're using, going ...  using statutory changes is the right way to go.  I think that if you go with constitutional changes, as we all know, any time that you find problems with a constitutional change, it's very, very difficult to change that in the future.  If you use statutory changes, then I think we can work toward changing things.  If things don't function quite right under the changes that you make, there are ...  there is the ability by the Legislature to change that statute again and make it work more properly.  With that, I would be happy to answer any questions if there are any.


SENATOR WARNER:  Thank you, Dennis.  Questions?  Senator Coordsen.


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DENNIS BAACK:  Yes, sir.


SENATOR COORDSEN:  Dennis, if I may.  Mr. Speaker emeritus.


SENATOR KRISTENSEN:  Well, at least he called you distinguished.


SENATOR COORDSEN:  I was curious and, quite frankly, I've got the return from Legislative Research but I haven't looked at them, given other things.  But in the report that your organization so graciously provided to members of the Legislature, it broke down the attendance ...  the registration to the various community colleges by counties of residents...


DENNIS BAACK:  That's correct.


SENATOR COORDSEN:  ...  which was good -stuff.  I became curious as to how that compared to the property tax support of each district.  And as I said, I got this put together, haven't looked at it.  But I bet I find that, and this is probably true of all education that has some property tax...  it's not unique to community colleges, that the contributions, because of having property tax in the mix of support, are going to be disproportionate to the use, from the counties that are within any one of the districts.


DENNIS BAACK:  That's possible.  I've never done that analysis myself.  I'd be interested to see...


SENATOR COORDSEN:  No.  You see, I've haven't looked at the results.


DENNIS BAACK:  Yeah, I'd be interested to see that analysis.


SENATOR COORDSEN:  And the reason...  the reason that I did that, Dennis, was that I have this feeling that educational services ought to be paid for from sources of people's wealth other than property.  It's a general principle and I understand, of course, that the property tax support isn't the major support of...  of a community college system.  The state already...  and would ...  if...


DENNIS BAACK:  Yeah, the ...


SENATOR COORDSEN:  And the question is this.  If the Legislature found the monies to replace the property tax


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revenues in such a manner that the services that are currently being delivered by any of the various districts, because there are some variations between them, how large would the objections of the community college system be to moving off of the property tax partial-support onto General Funds for whatever the support, wherever those sources of funds were, other than property tax?


DENNIS BAACK:  Right, Senator Coordsen.


SENATOR COORDSEN:  Would there be a major objection doing that?


DENNIS BAACK:  Senator Coordsen, I think that would vary a little bit across the state as to the objection to that.  I know that, you know, if you have some discussions with ...  with Dr.  Harms at Western Community College, where they've had lots of struggles with ...  with funding out there because of their low...  low property valuation base and stuff, I ...  I think that he would be one that would be a lot more willing to look at that than some of the other ones.  I ...  I would say that the position of my board and the board that I answer to and the CEOs that I work for, they would be opposed to that because they believe very strongly that one of the...  one of the keys to the success of the community college is the fact of having that local property tax that they collect there, and having the ability to spend that there.


SENATOR COORDSEN:  Even though they would continue that opposition, even though they surely recognize some fundamental inequities in Nebraska in where the bulk of the money comes from?


DENNIS BAACK:  Yeah, I ...  I think that, you know, this would be a good discussion at one of my board meetings, I guarantee you, and a very lively discussion.  And I ...  and I think that it's something that I've tried to get my board to talk about more, and a lot of them don't want to talk about it because they don't want to face that.  But I think there's some reality that they know that there is a time that they may have to face that, and they may have to deal with this situation.  And...  and so I do understand that.  I ...  but right now, my position of my board would be, no, they would not support going to total state ...  to total state funding because they're worried about total state control of what they do in their local areas.  And they feel they can address the issues locally much better by having a property tax base that they can utilize and spend it in local areas.


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That's their position right now.


SENATOR COORDSEN:  Okay.  Thank you.


SENATOR WARNER:  Senator Kristensen...  Senator Wickersham and then Senator Kristensen.


SENATOR WICKERSHAM:  Oh, well, Dennis, does it make any difference in your answer if we did pass LB 1114, and the community colleges were limited to 7.5 cents, would then your group say 7.5 cents is just not enough, just fund us out of state dollars?


DENNIS BAACK:  You know, I don't know the answer to that for sure.  I think that that would certainly...


SENATOR WICKERSHAM:  Well, most of them are over 7.5.


DENNIS BAACK:  Yes, they are.  Most of them are over 7.5 cents, and I ...  and I suppose that they would have to look at that very seriously at that point.  If that...  if it came to the point where 7.5 cents was our limit, and then I would think that there would be several of the areas that would have to look very seriously at that, especially when you look at Mid-Plains and Western, for sure, would have to look very seriously at that.


SENATOR WICKERSHAM:  Well, Central's at...


DENNIS BAACK:  And Central's above that levy also.  And you'd have ...  they'd have to look very seriously at that situation at that point, if it was lowered to 7.5 cents.  Now, I know that, you know, the idea of local control, and you and I both know that idea is very, very strongly implanted in the minds of these people out there.  And they believe that that's the way that they maintain that local control.  And I'm...  I'm just telling you what my board believes and what those people believe.  And they believe it very strongly, and it may only be a perception and ...  but it is a perception that they believe in very, very strongly.  And I think that they would be ...  they would be hard pressed to say, yeah, let's go to state control ...  or to state funding ...  to total state funding.


SENATOR WICKERSHAM:  Yeah, well, Dennis, as you know, I can hardly resist commenting about local control.


DENNIS BAACK.  I would have been disappointed if you hadn't.


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SENATOR WICKERSHAM:  But I'm sure your boards are aware that the Coordinating Commission exerts considerable supervisory authority over what they do now.


SENATOR WILL:  Oppressive.


SENATOR WICKERSHAM:  Oppressive.  Okay.  And that if you're going to have capital construction projects, typically you come to the Legislature for approval.  What are they most interested in, in terms of local control?  I mean, the Coordinating Commission controls their programs, or they can offer given curriculum.  We control their capital construction budgets essentially.


DENNIS BAACK:  Well, the Coordinating Commission also controls their capital construction, and we have to go through them for capital construction also.


SENATOR WICKERSHAM:  Yeah.  And the Court of Industrial Relations may very well determine the salaries that are to be.  paid.  I guess if you're going to hire a president...  I don't know.


DENNIS BAACK:  Yeah, and I ...  and I know what you're saying, and I understand it completely.  And I believe, though, that they...  they would still ...  they would come back and say, but we have local community needs that are not going to be responded to if we don't have the local governing board to respond to those.  And I ...  I suppose if there was some way of setting up a total structure with the total governing board system the way it is now, and their ability to elect ...  to select a CEO of their campuses, some of those kind of things, some of those...  some of their fears might go away.  But I'm afraid that the basic ...  the basic one is is that they believe very strongly that they cannot meet those local needs, and the idea of community ...  that's why the board communities in our name ...  they believe that they would lose part of that by going to a state system.  I'm just telling you what they ...  what they believe and what they tell me.  We did a survey of all of the membership this last year, and...  and it's interesting to see that, and I'll share that with you, to see the thoughts of all ...  I think we got about 62 out of the 66 board members responded to that and told their thoughts as to why they think community colleges are important ...  why local control is important to community colleges and why their local property taxing authority is important to them.  And there's some interesting ideas in there.  There are also some people in that survey that ...  that would agree with your position, among board


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members.  I don't know which board members they are, but there are some board members that do agree with that, that do agree that they have very little control over their budgets now and are willing to...  and-are willing to look at a state system because I think they're under the...when you look at Nebraska and you look at higher education, you see most of higher education is funded by the state.  We're the one entity in higher education that's not fully funded by the state.  And so there is ...  there is something to that argument.


SENATOR WICKERSHAM:  Okay.  Thank you.


SENATOR WARNER:  Anyone else?  Oh, excuse me.  I forgot.  Senator Kristensen.


SENATOR KRISTENSEN:  Thank you.  Dennis, I think you said something that sparked my interest, and I think it was pretty insightful, and that was, "that's not a discussion my board has had.  It's probably one they don't necessarily like to have, but it would be a lively discussion." And I think there's probably more truth to that with a variety of these property tax proposals whether it's the city council in Minden or the Douglas County Board or your board of governors.  How do you make them have that discussion?  And the conclusion I reach is that you may pass this piece of legislation and, well, the effective date turns into...  and I'm struggling here...


DENNIS BAACK:  I believe it's July 1, 1998, 1 believe is the...


SENATOR KRISTENSEN:  198.  You give them a year or two to figure out how to make it work.  And during that year or two, that's when that discussion is going to occur, and then the discussion may well turn, well, we have another option.  We can ...  we can reduce property tax, become state-funded, or continue to reduce our services and...  and they're going to have to develop that plan.  Is that constructive, or is that just a collision course with the lobbying effort would be to repeal the law rather than to comply with it?


DENNIS BAACK:  It probably is constructive from your perspective.  It's probably destructive from my perspective.  Just ...  but seriously, I understand what you're saying and ...  and in some ways, you know, I ...  last year we had a board retreat, and one of the things that I wanted them to do was to discuss this issue.  And they just really couldn't bring themselves to discuss it because they really didn't


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want to.  And...  and in some ways, in some cases, I think if something like this did pass, it would certainly force them at that point to have that discussion.  I don't know what conclusion they'd come to yet.  Maybe they would come to the conclusion that ...  that they would, you know, just stay at the 7.5 cents, try to fight for more state aid and try to come up with another distribution formula, to still try to make that thing work, and keep...  and keep what amount of property taxing authority they possibly could.  I don't know that.  I don't know that for sure.  I think it would be a discussion that would vary by parts of the state also.


SENATOR KRISTENSEN:  Or the other conclusion is ...


DENNIS BAACK:  Or the other conclusion could be ...


SENATOR KRISTENSEN:  ...  to significantly reduce the service that they provide.


DENNIS BAACK:  Significantly reduce the service.  If you look at...  if you look at Western Community College, if they lose $1.2 million, the only place that they can go to really make some significant reductions, they got to just simply eliminate programs that they now offer.


SENATOR KRISTENSEN:  And that's ...  that's the real choice that's being made here, is that efficiency at Western isn't the issue.


DENNIS BAACK:  That's right.


SENATOR KRISTENSEN:  It's whether you have substantial decreases in services or not.


DENNIS BAACK:  And I think that as ...  as board members and stuff, that's part of the discussion that you really need to have.  Okay, if we're going to stay at 7.5 cents, and we're going to have these reductions, are we really meeting our role and mission, again at that point?


SENATOR KRISTENSEN:  Is that fair to those people, to force them to make those major reductions because I assume they're elected to meet the needs of their constituents, to provide that service.  So, they're in effect working against what we institutionally give them to do.  And is that fair to those board members?  And that's where you come that it's a lot easier to sit somewhere else removed and make those cuts in services than to expect the local to do it themselves.


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DENNIS BAACK:  Yeah, and especially when you look at, you know...  I mean we're ...  we're totally open-access institutions.  We can't have admission standards and those kinds of things to keep people out.  We cannot do that.  We are totally open access.  We are the only access in many areas of the state to any form of higher education that is ...  that is real accessible.  We're the only accessible part of it, especially for nontraditional students who are place bound in many parts of the state.  And those are all parts of the discussion that you have to have.  And can we ...  can we continue to meet that kind of a mission with a 7.5 cent levy?


SENATOR KRISTENSEN:  You may not be able to do it with your current levy.


DENNIS BAACK:  That's right.  In some areas of the state, you're ...  when you look at those levies ...  you look at those levies on the second to the last page.  Some of those people are pushing right up against the levy limit that they ...  that they have now, of 11.5 cents.  Can they continue to do that under 11.5 cents?  I'm not so sure John Harms from Western would sit here and say, yes, we can continue to do that forever.  I don't know that they can because they're seeing some tremendous growth in Western now.  Western, for the first time, has really turned the numbers around and are seeing some tremendous growth there.  Part of that are the decisions that they made to downgrade the Sidney to a center and consolidate some...  some programs in Scottsbluff.  But whether they can ...  whether it's going's not going to save $1.2 million though.  You're not going to save that kind of dollars by doing those things, and you've already done them.  You're going to have to simply close things or shut off programs.  And at that point, then you start looking at what your role and mission is, and whether we'll still be able to meet that.  Those are the kind of discussions I need to have.  My board needs to have those kind of things, and can they continue to still meet their role and mission under this kind of a financial scenario?


SENATOR KRISTENSEN:  Well, and in truth, the entire state needs to have that discussion.


DENNIS BAACK:  That's right.


SENATOR KRISTENSEN:  And what we're struggling to do is how do you get the state to have that discussion because it's ...  if it's just LB 1114, that's an easy one, as an


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individual piece, to come and oppose.  But it never gets us to the bigger picture and...


DENNIS BAACK:  Well, that's why I'm saying, you know, that's why the opposition is such that we do understand that you have to have all the pieces out there, to come up with a proposal and...  and that's why we're willing to work with this committee and encourage this committee to try to come up with a legislative package that can try to meet these things.  There's going to have to be sacrifices.


SENATOR KRISTENSEN:  And I think that community colleges are a perfect example of the entire state.  That...  it is that very choice that they're going to have to make, that's so difficult to make.




SENATOR KRISTENSEN:  It's easier not to ...  to enter into the discussion and walk away from it, and that's what's really happening statewide.  I assume that also the growth at Western probably is due to change in executive directors and so on, so I ...


DENNIS BAACK:  I'm assuming that that's the case.


SENATOR KRISTENSEN:  Yeah.  Thank you.


DENNIS BAACK:  No.  I don't think that our boards are any different than any other board or any other political subdivision.


SENATOR KRISTENSEN:  No, not at all.  Not all.  They're very representative.


DENNIS BAACK:  I think all of them are going to have to try to answer those questions.  And...  and are we at a property tax crisis in this state?  I don't know that we're at a crisis stage.  When you ...  when you look at some of the statistics ...  I know George has had a heart attack, but I'm not so sure that we're at property tax crisis, but there is a property tax problem out there, and whether it's real or perceived, it's probably irrelevant because the people believe that there's a property tax problem and we've got to do something to address that problem.


SENATOR KRISTENSEN:  Exactly.  Thank you.


SENATOR WARNER:  Senator Coordsen.


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SENATOR COORDSEN:  Probably an unfair question, but Senator Kristensen was talking about the potential of...  if all of this scenario would play out, that the community colleges would be quite probably or possibly faced with the scenario of reducing programs ...  and the reason I say this is an unfair question because I know that you're fairly recent as executive director.  But I would be a little bit curious.  You know, we have had some tremendous valuation changes in Nebraska because of, one, on the agricultural land and Supreme Court decision, and result of legislation action, that this committee has been insistent on equalizing valuations, trying to get to consistent sales assessment ratios that approach actual values across the state, which have ratcheted upward fairly significantly valuations upon which to apply whatever a levy that's authorized is.  Does there exist a potential that some of the programs in the community colleges may have came into being because all of once now we could afford it because we don't have to raise our levy, you know, if you're at 8 cents or 9 cents or whatever, but your valuations in the community college district have went up 30 percent, that they're free money so there have been programs that looked good and felt good and there was some demand for, that have been driven by the availability of resources because of the property tax availability?  And, you know, I just said, I think that's an unfair question, but ...


DENNIS BAACK:  Yeah.  Well, no, I don't...  I don't think that it is necessarily, Senator Coordsen.  I can't...  I can't point to an example of a program that maybe did that, but I ...  but I think I can say that I think, in most cases, I think they do a lot ...  do a pretty good job of reviewing what programs they're going to start and try to really look into the future and really assess the viability of that program in the long term.  And I think now with the Coordinating Commission in place and we have to do, any kind of program that we're going to start now has to go through a very stringent program review process that makes sure it's not duplicative and make sure that we're doing it efficiently.  We have to do all those kinds of things with what we do now.  I think there's some pretty good safeguards in place so that doesn't happen.  I'm not going to tell you that it didn't happen in the past because possibly it did.  I don't know that.  But, I do ...  but I don't think that anybody maybe thought of it in that way and said, oh, we've got some free money here.  Let's start a program in this.  I think most of the time that the demands come from the public.  You know, when Western opened a program in hazardous waste management,


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it came from the public.  They were going to open that hazardous waste plant south of Kimball, and there was a demand for people to work in that plant.  They opened up a program.  Now that program is one of them that they pull in students from all across the state, but they're the only program in.  the state.  And those kinds of things are good because you ...  you establish a good program in one area.  it draws students from other areas.  And it's a very efficient use of the dollars in that area.




SENATOR WARNER:  Senator Hartnett.


SENATOR HARTNETT:  Yesterday we had bills dealing with tax exemption, on the other side of the coin that we face in this Revenue Committee.  And there was a comparison of, you know, what we do with, in comparison with Iowa, you know, and Kansas, our bordering...  The mix that you have for funding here, Dennis, is that somewhat ...  how do other states fund their community college, or is that a...  as across the board?


DENNIS BAACK:  Senator Hartnett, it really is across the border.  We're one of the ...  we're one of the higher ones for reliance on property tax.  We are across the nation.  There are a few that are higher than we are, but not very many.  There's a number of them that are right in that same category with ...  that we are.  I do have a booklet, and I'll get that to you, that shows how all the other states are funded and their revenue mix.  I'll make that available to all the members of the committee, so you can see haw the other ones are done.  There are a lot of states that are totally funded by the state.  Probably if...  I'm...  I'm just guessing...  I went through that book a couple of weeks.  I'm just guessing there's probably more of those that are totally funded than ones that rely as heavily as we do, on local taxes.  Some of them don't say whether it's local property tax.  They just say local taxes, and I don't know if that includes ...  I don't know if that includes sales taxes or what, but in ...  in local ...  paying local taxes.  But I'll make that available.


SENATOR HARTNETT:  Okay.  Thank you.


SENATOR WARNER:  Anyone else?  I guess I'll ask a question in order to make a speech.  Well, that's not quite true.  Senator Kristensen touched on what is probably the central issue that we're going to be dealing with the rest of


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this...  if we do anything the rest of this session, in that how do we best develop...  citizens across the state, looking at this whole concept, and we can continue with bills being introduced, people come in and oppose.  We can try to put together a package this session in a way that we can lock those together so that it's a package that passes.  And we still won't know...  some people will be opposed...  I mean, it's not a reason to vote no.  On the other hand, we could pass LB 1114 with this delayed effective date, which does bring all of us across the state to the table.  it's ...  it's not quite as drastic as what some states have done where they went in and abolished all sources of revenue or some of the things that we've seen.  It's not as drastic as to do it in the constitution' which would ...  the unintended consequences you can't...  can't do anything about without another election.  But if we pass this, it obviously would become a principle, I would think, an election issue in 1996, for those who would be unfortunate enough to be running.  But I hadn't particularly thought about this until Senator Kristensen started asking the question.  There may be others who testify...  is how can we best develop the kind of approach across the state that will address it?  We attempted a lot, in everything we've done this summer and fall was to help provide an educational tool, if that's the right word, or an information base, to help start to pinpoint that discussion.  But maybe we have to pass something like 1114, with a delayed effective date, which if it turns out that this approach is totally "undoable," okay, so it's repealed and whatever else happens, happens.  But, would you think that that...  I guess I'm asking your personal judgment because obviously your board doesn't have a decision.  But would it be worth for us to pursue this with that concept in mind, in part, that would put the better, the greatest ...  best possible package that the Legislature might in their judgment, but you still have a delayed effective date for ...  to identify all the unintended consequences and to...


DENNIS BAACK:  Senator Warner, I think that way might be a very viable alternative.  And if you're looking at ways of making the conversations start, these kinds of things will certainly do that.  And if you're looking at...  and from our perspective, if you're looking at what's out there to generate that discussion, this is much ...  much less onerous than some of the other things that are out there, that might create this dialog and get this dialog going, as far as we're concerned.  And you're probably right, I know.  You know, I'm relying totally on my own past experience, but I know that people don't really, really get to the crux of an


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issue unless they have something ...  have some kind of a deadline facing them.  And that makes it difficult.  It puts you guys on the spot.  There's no doubt about that.  It puts the Legislature on the spot to have to pass something that has a deadline in it, but it is one way of making the conversations occur, and making...  and focusing those conversations for everybody across the state.  And it is certainly...  certainly an alternative that you ...  that you might look at doing.  And to me, by doing it this way with the statutory changes and having other legislative sessions later in the future when we can deal with these changes is much better than going about passing ...  putting something in the constitution as some of the petitions are doing out there now.  That is not a good solution as far as I'm concerned.


SENATOR WARNER:  Thank you.  Thank you, Dennis.  Others who wish to appear in opposition?  How many more are going to speak in opposition, would you hold up your hands?  One, two, three, four, five.  We probably better speed it up though.  Lots of questions ...  that's a comment to myself so I don't ask questions.  Mary.


MARY CAMPBELL:  Mr. Chairman and members of the Revenue Committee, my name is Mary Campbell.  I'm the registered lobbyist for the Educational Service Units Administrators Association, and also the Boards Association for that group.  (Exhibit 4.) In the interest of time, I would definitely echo and say ditto to a great many of the comments that Dennis just made, and also to the tone and the manner in which he framed the argument.  In many ways, LB 1114 is kind of a refreshing change for the ESUs in that it's mot eliminating them outright.  It's not eliminating their tax-levying authority outright and, for that, we are most appreciative and willing to have this kind of discussion today.  It is, however, a sizeable decrease and Senator Warner's last comments certainly add fuel the discussion and the consideration of that.  I'm not very good at...  at math, but if my higher math didn't fail me, I think it's about a 71 percent decrease in the maximum possible levy.  The 3.5 cents has been the maximum levy for ESUs since their inception in 1965.  In looking at the issue, I look to the two-part study that's been ongoing since the last session when the interests in ESUs and how they fit into the whole of this picture was raised by a good number of bills before this body.  The first phase, as you know, was the collection of a great deal of data.  The second phase that came out just before the holidays was one gentleman's assessment of policy considerations.  And I draw


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your attention, please, to his conclusions about the tax-levying authority.  He felt it was crucial that the ESUs continue to have that capability.  He went a step further than I will...  am prepared or authorized to go today, but he also recommended, on top of that state aid, to achieve the equity considerations that are also part of the mission of ESUs.  But looking just at the tax levying, he...  again, this is Dr.  Stephens' terms, called it a relatively modest and one of the best bargains in the state, according to his estimate.  The total ESU tax revenues in 93-94 were 1.92 percent of the total state tax revenues for all primary and secondary education, and his point is just there's a lot of bang for that buck, through the cooperative delivery of those tax dollars back to the school districts.  Other than that, so as to not beat this and tell you things that you have not already considered and know, I, in preparing for it, did get out and read to myself the nonbinding resolution that you all debated.  And I looked at the headings of that, which I've reproduced on the second page of my testimony:  cooperation, consolidation, accountability, levy caps, unification of service, equalized aid, and fiscal responsibility.  And as I was reading those ...  those headings, the words ESUs formed on my lips, that at least in concept, and if that concept is not yet pure and implemented fully, that's our purpose and our need to work.  together on that.  But at least in concept and in structure and in definition, that is what ESUs are about, and so I think that we're on target...  as participants in this discussion in that there ...  we are talking about an entity that is properly designed to do those things.  Whether it is properly executed is something we all have to keep working on.


SENATOR WARNER:  Okay.  Thank you, Mary.  Any questions?  Senator Coordsen and then Senator Hartnett.


SENATOR COORDSEN:  Only one, and really kind of a brief one, Mary.  Wouldn't ...  wouldn't those goals be more readily attained if educational service units did not have a property tax base, but more readily because they do do lots of things for groups of schools, so groups of schools have a more efficient way of receiving or providing for those services?  But wouldn't it be more accountable if the groups of schools within an educational service unit had to fund it rather than having an outside property tax levy available?


MARY CAMPBELL:  And the funding...


SENATOR COORDSEN:  Would flow through...  through the schools.


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MARY CAMPBELL:  ...  you're saying, then, would come through contracting for services and would be a direct payment?  That is an ongoing discussion that was certainly initiated last year.  I'm sure if the administrators had their druthers they would look at the comparison to other education service structures in other states.  And when they do that, they look at the ones that , in their minds, are most successful in accomplishing their mission, and they see that as ...  those people as having the tax-levying authority.  They've cited to me numerous times some of their counterparts in other states that are struggling for their existence because they don't have the reliability and the solidness of ...  of a capped levy as do they.  So I'm not...  I'm not saying, you know, no, no, and hell no.  I'm just saying from our discussions, I think they have examined that and feel extremely grateful to be in this setup that we currently have rather than in some alternative mixed revenue source situations.




SENATOR WARNER:  Senator Hartnett.


SENATOR HARTNETT:  Mary, how many are at the 3 point ...  how many are at the max?


MARY CAMPBELL:  I did not review that and have it.  I know it ranges from the penny that Lincoln has to a few that are at the max, I think more are more in the 2 point whatever of that.  But I can certainly get you those numbers.


SENATOR HARTNETT:  Yeah.  I ...  we were ...  we were discussing in the Revenue Committee.  We do a lot of talking.


MARY CAMPBELL:  Sure.  Especially this year.


SENATOR HARTNETT:  Yeah, among ourselves.  But it seems like that each of the ESUs, like in my area, have built a new facility.  I think in Senator Schellpeper's area, I think in Senator Wickersham's, and so forth, you know.  And I guess my point is where does this money ...  does that come from the 3.5 percent?




SENATOR HARTNETT:  Is that where it comes from, that they ...  that this board made that...or their boards make that decision?  Is that...


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MARY CAMPBELL:  And they have various funding mechanisms for financing those things, but ultimately, yes.




SENATOR COORDSEN:  Any other questions?  Seeing none, thank you, Mary.  Next opponent, please.


JERRELL GERDES:  Jerrell Gerdes from Franklin, Nebraska.  I do have a handout for the senators.  (Exhibit 5.) I'm a hospital administrator at Franklin.  I've been a hospital administrator for about 30 years in rural Nebraska.  I'm a fourth generation Nebraskan, so I don't have any of the other credentials of the predecessors that have spoke.  But one of the things that's been a concern to us, and we...  I came to speak in opposition to the bill, at least for some clarification, is that county hospitals were basically capped at 7 mills way back in 46-48 when the statutes were written, and they basically have kind of been somewhat a bastard child of county government.  And by that I mean is that the county supervisors appoint a board of trustees.  That board of trustees sets a budget that goes back to the county supervisors, and is compiled into their total and stays under the 50 cent limit that you speak of.  Senator Kristensen has represented our hospital in some legal transactions, to try to increase our levy, and our levy right now is at .0395.  We draw $100,000 which, in our area in south central Nebraska, we have a number of county hospitals that are three times that levy even in Senator Kristensen's district.  And so anyway, this bill totally ignores the fact that there's a hospital, county hospital, much like we've been ignored for the last almost 50 years.  We can't participate in county insurance.  We can't participate in county retirement, all those entities.  The only thing we really get is the levy, the 7 cents per $100, which is the cap.  In this legislation, our 7 cents is thrown out, too, as far as any protection for the hospitals, which is my understanding that the 1940 legislation...'48 legislation, was done to remove the hospitals from some of the politics of funding and to protect that hospital so that a board of trustees would be concerned to maintain a hospital within a limit and, at the same time, the county supervisor would be forced or controlled to budget to a certain levy.  Under this proposal, basically we're out there competing for the maintainer and the...  all the orange equipment and the roads, and the utilization of our hospital.  I use the term in here about essential and nonessential which is President Clinton's good term right now.  Well, we're nonessential


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until you are sick or have an injury, and then we're pretty essential.  But if it comes down to us vying for tax dollars with maybe a road or a bridge, I'm not sure that our county supervisors weigh in their options, they're going to consider much about county hospital.  My suggestion was that ...  that you should consider maintaining the county hospital as a separate funding area.  I'm not telling you that you have to leave it at 7 or 5 or 3 or whatever.  But I do have great concern about throwing county hospitals, most of us are rural county hospitals, struggling to survive, and we've lived off of either the State Department of Health help, University of Nebraska.  We've had all the...  Senator Schellpeper has been in on a ton of programs to try to keep rural health care alive.  And I guess I'm greatly concerned that the hospital services in a number of the county hospitals may be lost, and I know there's some people here that are going to address district hospitals, but I'm speaking specific of county, that I don't think that I will compete very well if their levy's at 30 cents and I come in asking for 6 cents for the operation of the hospital, which takes them down to 24.  We've suddenly got a major problem.  And I doubt that the hospital is going to get funded.  And a two-year implementation is all well and good, but that's just going to prolong me two more years because there isn't any gravy out there for the hospital to get.  The only other alternative that we would have would be entrepreneurs gifts, philanthropists, people like that, that might help us out.  They haven't been there for the last 50 years so I don't think they're there right now.  Thank you.


SENATOR COORDSEN:  Any questions?  I would have one, and this is not reflective of Franklin County Memorial Hospital because I've spent a number of years as a foundation director of Thayer County Memorial Hospital which is the same organizational structure.  But, you get $100,000.  By the way, my wife was born in Macon, so this is ...


JERRELL GERDES:  Oh, good place to be from.  It was there when I went through this morning.


SENATOR COORDSEN:  Well, it's not...  it's not unfamiliar territory to me.  But $100,000, of that if Franklin County...  and I don't know if this is accurate, but if Franklin County is typical of the other counties, probably $80,000 of that is paid by the owners of agricultural property.


JERRELL GERDES:  That's probably correct.


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SENATOR COORDSEN:  In your mind, is this a fair system?  Well, the majority of the people are going to live in Franklin.  Is Campbell in the edge of the district., or Campbell's out ...




SENATOR COORDSEN:  Campbell's still in the county?


JERRELL GERDES:  We think it's a fair system in our county right now because we've diversified.  We have medical clinics in Hildreth, Campbell.  We're in Red Cloud and Franklin.  We're taking service to the people.  That's not true ten years ago.  That's something that's new now.  I don't have a better method other than a capitation system, which we talk about managed care, but that means that all 3,938 people in the county would have to be under the same system, and we'd get so many dollars a head.  That hasn't come to pass.


SENATOR COORDSEN:  LB 1114 speaks to a separate levy in areas outside, for a different purpose, but separate levy for residential property as opposed to nonresidential property outside the city limits.  What would happen to the hospital in Thayer...  in Fillmore County, or Fillmore County ...  Franklin County., I'm in the general area.


JERRELL GERDES:  They're all about the same.


SENATOR COORDSEN:  The forgotten area of Nebraska, when we were looking at the community college thing, but anyway...  If the valuation support for a county hospital, which is a people service, was placed on residential value only...


JERRELL GERDES:  We wouldn't have enough towns to support it.  Franklin County is about ...  or Franklin, city is 1,500 ...  no, it's 1,100 people, and the other ...  there's seven little villages spread throughout the county that have less than 300 people.


SENATOR COORDSEN:  And the farm residences.




SENATOR COORDSEN:  And the rate, the levy rate would have to be higher then.


JERRELL GERDES:  Oh, yeah.  Main Street is pretty desolate.  There's not much there.


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SENATOR COORDSEN:  So if it wasn't for the owners of agricultural property, there probably would not be a hospital in Franklin County?


JERRELL GERDES:  That's true.  There's no doubt about that.


SENATOR COORDSEN:  Do the rest of the people in Franklin County who are not in the business of owning agricultural property understand that?


JERRELL GERDES:  I believe they do because we've been educating them.


SENATOR COORDSEN:  Okay.  Well, good.


JERRELL GERDES:  I would make one comment that in the seven years that I've been at this facility, we've had ...  we have a board of trustees that draws up a budget, all at public hearings, all advertised in the paper.  They have all their meetings.  Nobody comes.  We go to the county, and we put our budget in with the county accountant who puts it together for the county supervisors.  And the county supervisors twist my tail a little, ask some questions, and nobody comes.  And we have a public budget hearing, and nobody comes.  So I hear the cry that popular ...  that property tax got to come down, but I haven't heard that so much in Franklin.  I think we give a pretty good bang for the buck, sir.


SENATOR COORDSEN:  Thank you.  Any other questions?  Seeing none, thank you.




SENATOR WARNER:  Okay.  Next, please.  We've got three more bills to hear, folks, so...


BRUCE KEVIL.  I'm Bruce Kevil with ...  K-E-V-I-L, representing the Nebraska State Home Builders Association.  (Exhibit 6.) Kind of got me in a crux here because in one sense we're really not opposed to the work you're doing.  It's a good issue you're addressing.  It is the issue of the SID districts was previously testified here by Mr. Doyle.  I really agree and second the motion of the -unintended consequences.  There are probably well over 10,000 folks that would end up having their street lights turned off.  I'm sure invention would find some way eventually to resolve that problem, but really SID districts, the point that I


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want to make, is they really are a financing mechanism.  They are not an entity of local government with any kind of police powers or regulatory roles, and it really is to make housing more affordable.  Financing could certainly occur through private markets, but I don't really think the SID districts fit the issue and subject matter that you really need to address.  The other thing I would like to point out to you is my Home Builders Association did take some time in the fall to look at the different petitions and LR 93CA.  And basically, they kind of came to the conclusion you guys are on the right track.  The idea of lids makes sense.  But they had some difficulties because they really saw that this was a spending problem and if you're going to have property tax relief, obviously you can't have tax shifting and those kind of movements around.  And they perceive it as just that.  They thought perhaps a better solution would be go ahead and set an absolute lid, and then allow local government jurisdictions to have a supplemental passage based upon voters ...  vote of the people for a specific period of time, five years, and for a specific amount.  And that's basically, I think, the sense of what they feel at this point in time.  And although there's not the word opposition in the sheet of paper, I do think it is important and I want to register the importance that the SIDs can have some significant unintended consequences by turning out the street lights and not being able to pay those other bills.  Thank you.  Any questions?


SENATOR WARNER:  Questions?  Apparently not.  Thank you.  Next, please.


GERRI LINN:  Gentlemen, my name is Gerri Linn.  (Exhibit 7.) I'm a first-time testifier so if I seem a little nervous, I am.  I am also the Administrator of the Kimball County Hospital in Kimball, Nebraska.  I have some written testimony that your Page will pass around.  What I'd really rather talk about right now is that, as a property taxpayer, I appreciate your efforts.  And as I've listened to the earlier testimony, and I think that Senator Warner threw back a challenge to us is to come here and not.  just say, vote no, but to maybe come up with some other ideas.  As the hospital administrator, with several years of expense cutting behind in our hospital as a board member, as the administrator, I've realized that I have very little control over the revenue side.  So I can't go out and pass on the expenses that aren't going to be picked up by county tax revenues if you take $40,000 out of the dollars that could possibly come to the county hospital.  When you look at what else that you have to cover under these, and you come down


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and you mandate a lid on the property taxes, I guess I'd ask you to say, then, you need to tell me, is my hospital an essential service or not?  I think it is.  If you don't think I'm essential; if you don't think an hour away from any other health care is important, then we need to just talk about how we're going to shut down the hospitals and not...and not worry about trying to survive for another couple of years, if you really want me just to be a stabilized and ship place, then you need to tell me those things.  I'll never agree with it as long as you're supporting football and sports in the schools.  You know, I think we need to address getting back to educational and some essential services in education, and every time that I go to the school board and talk about things, they always say, well, it's the state of Nebraska.  I don't think we have any local control over a lot of things.  As long as you mandate things and we can't finance them, then ...  then it's not going to work, and I guess that my suggestion would be the 30 percent...  30 cents on the $100, then you need to tell us what is going to be the essential services, what are the services you're willing to cover on those things.  And really the rest of you can read my testimony.  Do you have any questions for me.


SENATOR WARNER:  Thank you.  Questions?  If part of the proposal for, what 12 cents ...  how much do we got ...  yeah, 12 cents is unallocated for a variety of things, would that ...  you know, may or may not be adequate in some areas, I'm not arguing that, but...


GERRI LINN:  Well, is that 12 cents on top of the 30 cents?




GERRI LINN:  Then we're probably where we're at, but that means they've just got to go do it.  I mean, we're kidding ourselves if we think we're really going to do a lid and everybody's going to go right out and vote in the 12 cents because you're going to take away the services.  I think we really need to find out what it is you think are essential services that ought to be paid for by the property taxes.


SENATOR WARNER:  Okay.  Thank you.


GERRI LINN:  Thank you.


LYNN REX:  Senator Warner, members of the committee, my name is Lynn Rex, representing the League of Nebraska Municipalities, and we appear today in opposition to


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LB 1114.  First of all, we want to commend the committee for the work that you've done on the property tax issue.  We think it's critically important.  We appear in opposition today, not because we are opposed per se to levy limits.  In fact, first class cities have had the levy limit of 87.5 cents per $100 of valuation for decades.  Cities of the second class and villages have had a levy limit of $1.05 cents per $100 of valuation for decades.  So it's not a function of levy limits.  In fact, I would suggest to you that one of the concerns that we have, and the main concern we have, is that the number of cities will be seriously impacted, and we hope not even ...  not destroyed by a proposal that would cut them back from $1.05, for example, in dealing with some of our small villages, to a 50 cent level or a 60 cent level.  And I'd just like to share some numbers with you, and this came out of the Urban Affairs, I wish Senator Hartnett was here, but I know that your Committee Counsel has worked with the Urban Affairs Committee, and I know that Senator Warner has, as well.  Of the 28 cities of the first class, if you're looking at even a 60 cent limit, and they ran the numbers based on 60 cents per $100 of valuation, not 50 cents.  I don't know why, but that was the number that they chose.  Four cities of the first class would be impacted.  If you look at the Ill cities of the second class, population 800-5,000, 81 of those, 81 of the 111 would be impacted.  And if you look at the 383 villages, 150 of them would be impacted.  And my ...  my comments are made with the caveat that as we've indicated in past testimony on other measures, it's very hard to compare villages to villages and cities to cities, based on the reporting forms that are now there.  It's very difficult to tell whether or not it's an operating levy, whether or not it's operating plus a bonded indebtedness, because the forms don't generate that information.  They're more than happy to provide it, if the form is requested, indicate that they separate it out that way.  But based on the Urban Affairs Committee report to the full Legislature on property tax, these are the numbers that were generated.  In essence, in going around the state and talking to our members about this issue, again the issue is not levy limits.  We've had them forever.  The question, though, becomes when do these really result in what becomes a destruction of especially our smaller municipalities, because we have cities right now, many of them, at $1.05.  And again, it's not because they have big budgets.  It's not because they are big spenders.  It's that they don't have the financial capacity to generate it elsewhere.  And the services they're providing are such that they view them as essential services, and they ...  they've been at $1.05 for a long time, and they have been at that


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limit even notwithstanding the budget limits that you have, but rather the limits on anticipated property tax receipts.  In essence and in summary, what I would just like to say is this.  We are very happy to work with the committee to look at levy limits that are appropriate by size.  What we would suggest is that you separate out cities by classification, by size, by population, and look at appropriate levy limits for them based on that.  And the Urban Affairs Committee report, as Senator Hartnett well knows as chair of that committee, is simply one that clearly the second class cities and villages would be severely impacted, many of them, by this proposal.  And again, they're providing services right now that are indeed, most of them, the only services they're providing are services that are mandated, short of taking care of streets and short of taking care of some of those services, because in fact, we've had some villages call our office and inquire whether or not their best option...  and these are mainly the villages obviously ...  whether or not their best option is to disincorporate.  I mean, I hope that is not the solution to the property tax problem, and I emphasize we think it is also a problem.  It is not a crisis.  We think the initiative drives that are going ...  the three petition drives that are going off across the state of Nebraska would create a crisis, but we don't think this is a crisis.  We think it is a problem.  We think there are issues dealing with uniform valuation assessment that need to be addressed, and we commend the Legislature for their systematic review of how those issues could be addressed.  And we know that you've been working on that for some time.  So in closing, the issue is not that we are opposed to levy limits.  We've had them forever.  The issue is, what are appropriate levy limits.  And I would emphasize this.  Cities of the first class have had an 87.5 cent levy limit ever since I can recall, and I've been with the League since 1975, and there are only four of them that are up...  I mean, that would be impacted by a 60 cent limit.  What does that tell you?  What that tells you is that people just have not gone up to the maximums.  That's not what's happening.  We think local elected officials have been accountable.  They are responsible, and they're doing the best they can.  But what I can tell you is we have heard from many representatives from villages that have simply told us they ...  with the numbers that you have here, with 50 cents, they could not even provide what you would view as your mandated services.  They simply couldn't do it.  So we're pleased to work with the committee on this approach.  We think this is a logical one to take, but we think it needs to be separated out by class of city.  I'd be happy to respond to any questions


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that you might have.


SENATOR WARNER:  Questions?  I'll just comment.  We're not unmindful, as you well know, the equalization aid distribution is an attempt to address that, the issue that you bring up.  The bill we've already heard to expand the cooperative efforts with additional funding, that's to address the same issue.  Whether it does it appropriately or adequately in every case is certainly subject to discussion, but I think we attempt at least to recognize that ...  that concern as a legitimate one, so,..


LYNN REX:  And we do appreciate that, Senator:  In fact, that's one of the concerns that I know other groups have taken other positions, but our role has been to look at each one of these issues in isolation, quite frankly in fear that only certain bills will advance and not in concert with others.  So again, it depends what package this committee puts out, and I believe, even in my testimony, that bill, even though we opposed it in that format, we indicated we may very well be in strong support of that, in concert with other measures.


SENATOR WARNER:  Senator Wickersham.


SENATOR WICKERSHAM:  I wasn't going to ask, but I have to ask, and if you'll just provide me with the information later, I'll be happy about it.  The cities that wouldn't be impacted, are those the cities that have keno, that have the local option sales tax, that take advantage of MIRF, that take advantage of other state revenues?  Is it because of those that they aren't impacted?


LYNN REX:  I will tell you that the reason ...  and again this is just based on the numbers that I've seen ...  the reason why the 20 of the...  if you're looking at a 60 cent limit per $100 of valuation, the reason why only four of the cities of the first class are not impacted by a 60 cent limit is because of local option sales tax.




LYNN REX:  And I would also tell you that, Senator, as we've indicated before, we would never recommend, nor would we ever support, using gambling dollars for operational expenses, not ever, not if it's a local government and not if it's a state government.




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LYNN REX:  We think they're great for one-time projects, and they've certainly helped cities tremendously, and we appreciate the Legislature giving us the option on keno.  But, it's not for operational expenses, should not be.




LYNN REX:  Thank you.


SENATOR WARNER:  Okay.  Thank you.  Others in opposition?  How many more are going to appear in opposition?  Anyone else?  Is this the last ...  two in opposition?  If you are, please come up and sign in.  We'll ...  we got a problem.  Go ahead.


JOHN ROBERTS:  Chairman Warner and members of the Revenue Committee.  Again for the record, my name is John Roberts, registered lobbyist for the Nebraska Association of Hospitals and Health Systems.  (Exhibit 8.) Due to time and the consideration of the chairman to move things along, I'll depart from my testimony that's being handed out.  We would just like to point out a couple of things, as you study this issue.  Thirty-six of Nebraska's 93 hospitals are either county hospitals or district hospitals.  In 1994, half of those hospitals received some type of funding for operations, from local property taxes.  Twelve of those hospitals, even with the tax subsidy, lost money from operations for that year.  1995, 1 imagine, would be very similar to that.  With the impending area of managed care, the large Medicare and Medicaid tax cuts coming on the federal level, rural facilities don't have a bright light for many alternative funding sources.  And many of these hospitals, as has been pointed out by the two administrators that were here, are in remote areas of the state where other medical care may be 50 miles away.  So we would ask that, as you address this issue, to be mindful of the fact that access to care will be, impacted, or could be possibly impacted, by some of the levy limits, and by the ability of the county hospital to go in and seek funding.  With that, we've provided for you some charts that show where the county district hospitals are located in the state, and where those hospitals, if they should be faced to close, what areas would be impacted in the state.  And we have also provided for you all the district hospitals and county hospitals and the funds that they have received in 1994 through local property tax support.  With that, the only other thing I have is the letter from the Harlan County Health System that I would like to have incorporated as part


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of the record.  (Exhibit 9.) I'd be happy to answer any questions you might have.


SENATOR WARNER:  Fine.  Thank you.  It will be done.  Senator Hartnett.


SENATOR HARTNETT:  John, on your property tax levy lid.  I'm looking at page one of it.  Brown County Hospital, it has no tax levy.  Is that simply part of the county, is that right?  I'm just...  I'm just looking at the first ...  do you see where I'm at?  County hospitals.




SENATOR HARTNETT:  Brown County Hospital in Ainsworth.




SENATOR HARTNETT:  Brown County, it has no tax levy.




SENATOR HARTNETT:  It has a tax subsidy.  Does that come from ...  where does the $124,000 come from, do you know?


JOHN ROBERTS:  I think it comes from the county but I ...  we probably don't have the specific levy within that.


SENATOR HARTNETT:  It's part of the...




SENATOR HARTNETT:  They don't break it out, as ...




SENATOR HARTNETT:  Okay.  Because I see later on there are some...  some levies.  I just...  thank you.


SENATOR WARNER:  Senator Wickersham.


SENATOR WICKERSHAM:  Well, the last sheet shows county hospitals.  Several of them have no property tax reliance at all.


JOHN ROBERTS:  That's correct.


SENATOR WICKERSHAM:  Is that unusual for the year 1994, or has that been their operating history, or do you happen to


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JOHN ROBERTS:  My guess would be that that's been their operating history, as they have not asked the county for any type of support.




SENATOR WARNER:  Anyone else?  If not, thank you very much.  Next?  Anyone else in opposition?  Anyone else in opposition?  Anyone neutral?


JERRY MATHIASEN:  My name is Jerry Mathiasen, M-A-T-H-I-A-S-E-N.  I'm Executive Director of the Nebraska Association of Resources Districts.  Guess I'll start out, first I do have a short statement.  We are ....  the association is neutral on this particular area today because we had our Legislative Conference on January 29, and we wanted to at least expose you to our basic property tax position that we developed over the last few months through our Legislative Committee.  They had several meetings, and we've come up with what we think is a historic change that comes from political subdivisions.  So I'll just go ahead and read that.  Again, my name is Jerry Mathiasen, Executive Director of the Nebraska Association of Resources Districts.  Thank you for the opportunity to address LB 1114.  Our NARD Legislative Conference was held January 29 and 30 here in Lincoln.  It was a successful conference with over 250 natural resources leaders in attendance.  The NRDs may have taken an historic step.  Most political subdivisions talk a good game of cooperation with legislators, for example, at hearings like this.  But the NRDs are different.  We're doing it.  The NRDs took a proactive position on the property tax and spending issue at our conference.  Last September at our Annual Conference, the districts opposed constitutional amendments on the issue because they believe legislation would be a better tool than adding to the state's constitution.  Thanks to the hard work of the directors and the managers on the NARD Legislative and Government Affairs Committee...  like I said, they met I think four times in the last six months.  One member said, Jerry, we've never met before.  What the heck is going on?  But I think it was real important to get their input as well as the other districts, and the near unanimous vote at the Legislative Conference...  real quick on that vote.  it was ...  we have five votes per district at our conference which was just held Monday, so that's 115 votes.  This position paper that I'll be going through passed 108-7.  So we wanted to present that to you, and if I may, I'd like to


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go, just make...  since this is the first time and I know you have some other people waiting here and I've got Steve Oltmans with me from the Papio-Missouri River District who's going to touch a little bit on this particular bill, but I want to touch with you on, since this is the first time, on the property tax paper.  I do have additional copies here for anybody else, too, that wants to look at it.  (Exhibit 10.) 1 guess the first thing is that we want to ...  we are making an historic step here.  We're going to be a little different and say that, after our hard work on this issue, that we're going to take a look and see what we can do with you.  First, in the first paragraph of our statement it says, fair share.  The districts only have about 1 percent of the property taxes, but we will work with you to do our fair share.  If you look at the first five bullets...  I'll just go through them real quickly ...  we have already consolidated into subdivisions ...  or into 23 political subdivisions, so we've gone through that.' We already have a statutory limit, tax limit.  It was 7 cents when it first started back in 1969.  1 think that was changed when the bill was finally passed, and it's been kind of back and forth, but did start off at 7 cents.  Rarely do our districts get up to the statutory limit.  They're very frugal.  Third quick bullet there, we don't have general obligation authority...  or the fourth bullet.  And the fifth bullet is simply that we'd like to have some uniformity.  There are some proposals out there that say that you have to have approvals of all of the counties, those types of things that could be kind of an administrative nightmare for some of our districts that are pretty large.  Again going through the paper real quick, taxing authority limits.  Probably the key thing would be just the sentence that they ...  the association passed.  Down toward the middle, it says, however, NRDs are willing to consider some reduction in their total ...  that's probably a key word ...  taxing authority.  But we are willing to consider some reduction.  And I think that's probably a credit to the local directors who are out there on those votes.  Those are the people that have the...  the farms and the property and they know that it's not business as usual.  Reorganization or consolidation is the next position.  Just real quickly on that.  We are willing to take a look at our...our efficiencies.  We think we're real efficient now but there's nothing wrong with trying to make improvements.  If you go to the next page, expenditures or budget level limits.  The districts discussed this quite a bit at the conference.  If you go to the last sentence, a limit on property tax levels would be a preferable approach to property tax relief.  That's because I think most of those districts, as you well know, feel that if you had


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budget limits or expenditure limits, it would be really difficult with long-range projects, to put some money away for a dam or do some cash reserve work, things like that.  So it is kind of difficult.  They think the levy limits.  would be a little bit more flexible.  And only two points left.  Cooperative efforts with others.  They did pass that we still, even though we're frugal, we want to be more efficient, take a look at what we can do as far as cooperating between districts, cooperating with other governments and try to do the best we can there.  And finally, alternative funding sources, certainly take a look...  in fact, there's a bill now that we're going to testify on tomorrow, I believe, on user fees for...for public access to ...  to some of the recreational areas.  I mean, there's a variety of ideas up there.  We've talked to the Environmental Trust people to see if there's ways to use that dollar for our ground water management studies.  -We had all those approved, you know, just taking a look at a variety of things.  Just wanted to share with you today what the position of the...  of the conference was.  And if you have any questions for me, I'll be happy to try to answer.


SENATOR WARNER:  Thank you, Jerry.  Any questions?  Apparently not.  Thank you very much.




SENATOR WARNER:  Others to appear neutral?  How many more we got to appear neutral?  One, two, three.


LOU D'ERCOLE:  Mr. Chairman and members of the committee, my name is Lou D'ercole, D-E-R-C-0-L-E.  I'm Finance Director of the city of Omaha, and my comments are being offered from a neutral posture for several reasons.  First of all, just to break the routine of all the opposition you've heard, and secondly, as is often the case, there are sections of the bill that we do not oppose, and there are other sections of the bill that we cannot support.  Let me be a little more specific.  Section I gives a detailed listing of levy limits for various subdivisions of government, and we understand what that's all about, and we try to cooperate and work with you on those.  And it goes on to provide an exemption for bonded debt from those levy limits.  We do not oppose Section 1, or the concept or what you're trying to do.  We understand that.  We sympathize with it ...  with you and we'll try to work with you in implementing Section 1.  Section 2, however...  Section 1, as you know, would become effective in 1998.  Section 2 transitions the limit to an overall combined levy limit and ...  but it's silent as to how we make


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the transition from the limits in Section I to Section 2, and we think there needs to be some clarification as to how that ...  how that transition is made, from a district by...or a subdivision by subdivision government to an overall combined levy limit.  Section 2 or 3 also goes on to provide a levy exemption for bonded debt, for pension funds, and for judgments.  However, that exemption is limited to cities of the first class, cities of the second class and villages.  And I'm not quite sure why cities of the metropolitan class were not extended that same exemption as those cities.  In the interest of brevity, I'll stop there and I'll just summarize by saying that, well, I think we need our two ...  two things to be done.  First of all, clarification as to how we transition from the 1998 limit to the 2001 limit and, secondly, the municipality...  cities of the metropolitan class being afforded the same exemption that the other cities are afforded in exempting those debt service limits from the levy.  Our investors that buy city of Omaha bonds do so with the understanding that the levy will be unlimited for repayment of debt, and by putting the debt service levy subject to the limits would be devastating to the repayment of those bonds.  Unless you have any questions, so...


SENATOR WARNER:  Any questions?  Those sections you mentioned, we'll check them out, but ...  but those were harmonizing sections with existing statutes so, I mean, like the sections that was picked out only affected class ...  first and second class and villages, but it may be ...


LOU D'ERCOLE:  We ...  we spoke to Bill Lock and it was his understanding...




LOU D'ERCOLE:  We spoke to Bill Lock and it was his understanding that the concerns that I mentioned were intended to be taken care of in the bill, but the language may not have ...  have ended up in that posture.


SENATOR WARNER:  Right.  I appreciate that a lot.  Thank you.


LOU D'ERCOLE:  Thank you.


SENATOR WARNER:  Neutrals?  Steve.


STEVE OLTMANS:  Senator Warner, fellow members of the Revenue Committee, Steve Oltmans, representing the Papio-Missouri River Natural Resources District out of


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Omaha.  I sit here and thought as you were trying to do something in serving the public, obviously the constitutional amendments would be a much greater impact on natural resources districts as we look at them, as what you're trying to do, and so we commend you for what you're trying to do.  I also sit here and realize that Senator Warner is the only person in the Unicameral that was here when we passed the NRD legislation which called for 7 cents tax levy at that time.  At one time, we ended up at 3.5, and now we're at 4.5.  Obviously the 4.5 that we have in this bill would eliminate 2.3 cents that districts can do for additional services like ground water management areas, ground water quality areas, and so forth.  We think this ...  our district, at least in our analyzation, thinks this is the least of the evils, particularly in comparison to the petition drives that are out there.  I just commend you, Senator Warner, for your suggestion that maybe we pass a bill similar to the one being proposed here in 1114, with a delayed effort.  I look back at the NRD legislation, which was very controversial, consolidated mandatorily 154 political subdivisions, some of which had 7 cent taxing authority at the time.  You, in your wisdom, passed that legislation in '69 but you made it operative in July 1, 1972, and many of those controversies were settled out in that three-year span, and so your suggestion here earlier today might be most appropriate in terms of LB 1114 or something similar.  Thank you very much.


SENATOR WARNER:  Thank you, Steve.  I think that's the way the bill is drafted, so it's not new.


JERRY STILMOCK:  I am Jerry Stilmock, testifying on behalf of the Nebraska State Volunteer Firefighters Association, in a neutral position for LB 1114, recognizing that the fire protection districts are in the funnel provision for the 12 cents at the end of the bill.  Of course, we'd much rather be a stand-alone entity within the bill, but we're willing to work with the committee in trying to resolve the issue.  And if we are, the fire protection districts, left with the funnel provision with 12 cents, it would be helpful that perhaps have some guidance as to how that 12 cents is sorted out.  First come, first served, who's ever the biggest; some type of guidance or clarification.  And finally, for the...  for the Section 2 provisions, the ...  whether or not-the bonded indebtedness exemption, is that a carry-over that would last through the year 2001, or is that eliminated because there's a reference just to Section 1 of the...  of the levy exclusion?


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SENATOR WARNER:  It should be carried on, but...


JERRY STILMOCK:  I ...  I would expect it would but I ...  I couldn't read it for sure in the bill.


SENATOR WARNER:  Okay.  Appreciate the comment.




SENATOR WARNER:  Anyone else?  Thank you.  Any other neutral?  Two more.


LARRY HAMILTON:  My name's Larry Hamilton, Millard Suburban Fire Protection District, Douglas County, Nebraska, I'm here on behalf of my board of directors, and they commend you on what you've tried to do with your spending lids.  Their concerns are with the rapid growth that takes place in Douglas and Sarpy County and inside of our fire district.  With the current lid, it could become very possible that we cannot continue on with the quality of services that we are providing at this time.  My comments are brief.  If you have any questions, I'll accept questions at this time.


SENATOR WARNER:  What is your levy now?  Do you know?


LARRY HAMILTON:  Ah, .111775.


SENATOR WARNER:  Almost 12 cents.


LARRY HAMILTON:  Almost 12 cents.


SENATOR WARNER:  Senator Wickersham.


SENATOR WICKERSHAM:  Oh, I guess I'm a little confused by your remark because the previous testifier noted that the fire districts are being included in a catchall.  When you say the lid, do you mean the existing statutory lid?


LARRY HAMILTON:  The existing one, yes.


SENATOR WICKERSHAM:  Okay.  Have you used the exemption for emergency equipment?


LARRY HAMILTON:  I'm not sure on that, Senator.


SENATOR WICKERSHAM:  All right.  Thank you.


SENATOR WARNER:  Anyone else?  Thank you very much.


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LARRY HAMILTON:  Thank you for the opportunity.




JACK MILLS:  Senator Warner and members of the committee, for the record, my name is Jack Mills.  I'm appearing here on behalf of the Nebraska Association of County Officials in a neutral position.  I apologize about even testifying, but I have a couple of things I want to leave with the committee.  First, it's my opinion that you have the vehicle here, of all of the vehicles that I've seen thus far.  to begin your march toward some solution.  And it's going to cause some pain.  We all know that.  I'm passing out to you a copy of the levies of the counties that levied this year.  (Exhibit 11.) That is only for county government.  It does not include anything else.  When you look at it, you'll note that if this bill passes as it is, it'll have hardly any impact in Douglas County, Lancaster County.  I assume if this bill passes, have little impact as to Omaha, Lincoln.  But for the rural folks and some of the other communities, you're going to see some major changes, and we acknowledge that.  I'd like to make a suggestion here to the committee for your consideration, and I know Senator Warner has touched upon this, not only verbally but in some legislation.  I think that it ...  something of this sort is doable.  I think you ought to develop some type of equalization proposal, even maybe perhaps for jails, the cost per prisoner.  For example, using state aid to education, we use a cost per pupil.  And prisoners, we could do something of that sort.  We could take the ...  take the largest one who operates the most efficiently, and they would probably get nothing, but to help some of those who are ...  who are smaller.  I think those are areas that would ...  we could develop some equalization, and leave these levies where they are.  But you can see the impact if you leave the levy at 30 cents.  I also want to note to you a concern that I have, and I'm sure George has discussed this with you, or you've done it in committee, is that constitutional provision of counties.  And I'm not here saying that we're going to object through court or anything.  But I ...  I've heard it discussed both ways, one that the constitution does allow the 50 cents, but the Legislature could pass a law saying we'll put a limit.  I just...  I just bring that caveat.  The next thing I bring to you is in the state of Iowa, they have variable levies.  They have a levy in rural Iowa and a levy in the communities.  I think Senator Hartnett brought a bill to that sort.  Again, we have something of that sort with the ...  with the townships but, again, we can't recognize that completely.  When we


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discussed this bill originally, we had ag land at 80 percent...  or excuse me...  at 100 percent, and this is ...  it is in the statute at 80 percent, and I know those who are agriculturally interested do not want to see it raised to 100, but there is another suggestion, and I'm not advocating.  I'm just throwing it out, as you discussed at one time before.  The other thing I would suggest to you, as we look at this, is hospitals perhaps ought to be separated out as subdivisions.  Currently there's a mishmash there.  Those hospitals have to bring their budget before the county board, but the county board has very little authority.  This has been a sore spot in our state.  I think this is one that you ought to look at and move hospitals into a subdivision, make them accountable, all those things that you have to do.  So I think that's a real question.  Further, again we're trying to be neutral about this, but I think you also have to look respectively at the townships.  We have 27 counties that have townships.  They would be included in this what has been described as a catchall, but I think respectively you have to look at townships and perhaps bring the whole base together.  Again, I'm sorry about the time I had to take here, but I did want to make a matter of record several of those issues.  Thank you.


SENATOR WARNER:  Would it be any help, Jack, off the top of my head...  some of these...  like ...  well, I'll use townships which are difficult to roll in here, they vary a lot, if that was just left out of any overall limit, and they establish it by a vote locally and then that's it?


JACK MILLS:  Well, it could.  I ...  I'm so discouraged about the township issue myself, when I hear people in the county governments talk about trying to find folk to run.  We've had ...  there's been votes in four counties to dissolve them.  In one particular county, Senator Warner, in Hall County, there is three miles of township road.  There's no active folks.  They put it on the ballot, and it was still voted down.  So, in answer to your question, it isn't I don't trust the electorate, but I'm not certain how that would be received when we don't have the interest.


SENATOR WARNER:  Thank you.  Anyone else neutral.  With that, we'll waive closing, and we'll go to the three constitutional amendments.  We'll hear them all together.  First the proponents.  Senator Brown, do you have ...  do you want to go first since you're here and then you can go on your way?  Committee counsel is going to do ours, but ...  he's got to stay anyway.  Sorry about that.  Go ahead, please.