LB 269 (1997) - Property Taxes and Local Government Finance

LB 269, a proposal given superpriority status by the Speaker, contains numerous property tax provisions, but only some of them are important policy changes relating to the Legislature's 1996 property tax reforms. Especially noteworthy is the change in the property tax levy limit for community colleges and the changes made to the Municipal Equalization Fund's eligibility rule and distribution formula.

The provisions of LB 408 were amended into LB 269 to change the property tax levy limits for community colleges so that community colleges can levy property taxes up to $0.08 per $100 of assessed value for FY1998-99 and FY1999-2000 ($0.07 per $100 for operations and an additional $0.01 per $100 to establish a capital improvement fund and sinking bond fund) and up to $0.07 per $100 for FY2000-01 and beyond ($0.06 per $100 for operations and an additional $0.01 per $100 to establish a capital improvement fund and sinking bond fund). Laws 1996, LB 1114, a component part of last year's property tax reform legislation, provided for a levy limit of $0.08 per $100 of assessed value for FY1998-99 through FY2000-01 and $0.04 per $100 of assessed value for FY2001-02 and beyond. Also, LB 269 affirms the Legislature's recognition that "community colleges should be financed through a funding partnership from property tax, state aid, tuition, and other sources of revenue" and creates the Community College Property Tax Relief and Equalization Program which, beginning with FY1998-99, will provide property tax relief to community colleges that (1) have levied the maximum allowable property tax levy and cannot generate 40 percent of their operating revenue or (2) do not receive 40 percent of their operating revenue from state aid and (a) levy the maximum allowable property tax levy or (b) the greater of 0 a minimum levy of $0.063 per $100 for FY1998-99 and FY1999-00 and $0.053 per $100 for FY2000-01 and thereafter or (ii) a levy that raises 40 percent of its operating revenue. The bill also provides a formula for distributing such equalization aid to qualifying community colleges.

The provisions of LB 304 were amended into LB 269 to change the eligibility rule and distribution formula for state-funded equalization aid to municipalities under the Municipal Equalization Fund (MEF). The MEF was established by Laws 1996, LB 1177, a component part of last year's property tax reform legislation. Under LB 1177, a municipality was ineligible for MEF funding if the municipality's property tax levy for operational purposes was less than the statewide average municipal property tax levy for operational purposes. LB 304 changes the eligibility rule by providing that any municipality that had a property tax levy for operational purposes of less than $0.40 per $100 of taxable value in the immediately preceding fiscal year may qualify for MEF funding, but that the dollar amount of such state aid will be reduced by an amount equal to "twenty percent for each one-cent increment that the levy was below forty cents." (Thus, MEF aid to a municipality would be completely phased out if the municipality's levy was $0.35 per $100 of taxable value or less.) Also, LB 269 changes the MEF distribution formula so that a municipality will receive MEF funding in an amount equal to (1) the municipality's current population multiplied by the average per capita property tax levy of "the appropriate population group," minus (2) the municipality's average property tax levy multiplied by the certified valuation of taxable property within the municipality. But if this calculation results in a negative number, the municipality will not receive any MEF funds. LB 269 also requires an average per capita property tax levy to be calculated separately for each of three population groups (municipalities with populations of 800 or less; between 800 and 5,000; and 5,000 or more). Current law provides for a prorata distribution if total MEF funds are insufficient to meet claims, while LB 269 provides that excess MEF funds will be transferred to and distributed from the Municipal Infrastructure Redevelopment Fund. These provisions become operative July 1, 1998.

One of the original provisions in LB 269 repeals the authority of a county board to levy a property tax for the noxious weed control fund. Another original provision changes from October 15 to November 1 the date by which a county board of equalization is required to levy the necessary taxes for the year.

LB 269 also provides that, through 1997, the county clerk must certify a "preliminary property tax rate" by September 10 for "each political subdivision" which received property taxes in the previous year. But beginning in 1998, the county clerk must certify a preliminary property tax rate only for each county, municipality, school district, sanitary and improvement district, natural resources district, educational service unit, or community college that received property taxes in the previous year. However, none of these rules or the other rules in Neb. Rev. Stat. sec. 77-1601.01 apply to "levies for the retirement of bonded indebtedness approved according to law and secured with a levy on property."

The bill makes a coordinating change to Neb. Rev. Stat. sec. 77-1601.02, which permits a governing body to override the "preliminary levy" certified by the county clerk; that is, beginning in 1998, the preliminary levy certified by the county clerk will be considered the final levy as set by the county board of equalization unless the governing body of the county, municipality, school district, sanitary and improvement district, natural resources district, educational service unit, or community college passes by a majority vote a resolution or ordinance setting the levy at a different amount. Additionally, LB 269 provides that, beginning in 1997, the deadline for overriding a preliminary levy certified by a county clerk is October 31 (formerly October 15) and that a school system with multiple school districts has until October 20 (formerly September 15) to hold a hearing to approve or modify the preliminary systemwide levy certified by the county clerk.

LB 269 also provides that "[a]ny tax levy" will be "construed as an unauthorized levy" if the "levy" is "not in compliance with" the rules of Neb. Rev. Stat. secs. 77-1601.01 and 77-1601.02 pertaining to preliminary property tax rates and preliminary levies. Additionally, tax levies that exceed property tax levy limits will be "considered unauthorized levies" unless they are voterapproved excess levies. (A property tax levy limit may be exceeded under current law if a majority of voters approve the excess levy; however, LB 269 permits a levy limit to be exceeded only by an amount "not to exceed a maximum levy" approved by a majority of voters.) The bill indicates that an "unauthorized levy" is, at least until the Tax Equalization and Review Commission (TERC) determines otherwise, a levy (or portion thereof) made by a county board of equalization that (1) any taxpayer judges to be for an unlawful or unnecessary purpose, or in excess of the requirements of a political subdivision, and (2) such taxpayer perfects an appeal of the levy to the TERC.

Other provisions in the bill state that a property tax levy for the support of a community nurse is subject to property tax levy limits no matter which type of political subdivision makes the levy. Property tax levy limits also apply to the property tax levies that are permitted for promoting aviation and for airport purposes.

Additionally, the bill's municipal "allocation" rules provide that a property tax levy authorized by law for the support of a city or village community nurse, airport authority, community redevelopment authority, transit authority, offstreet parking district, public library or museum, or for erecting certain monuments or memorials must be allocated toward the levy limit of the city or village if the levy was authorized by the city or village; however, there is an exception for levies for preexisting lease-purchase contracts approved before July 1, 1998, and for bonded indebtedness approved according to law and secured by a levy on property. Also, LB 269 entitles a metropolitan transit authority to receive, upon request, an allocation from the county board of at least $0.03 per $100 of taxable value of property located within the city that is subject to the authority's property tax levy.

LB 269 also provides that the county "allocation" rules apply to the property tax levies of political subdivisions which are subject to municipal allocation (eg., offstreet parking district) and to all other political subdivisions (eg., county agricultural societies) except school districts, community colleges, natural resource districts, educational service units, cities, villages, counties, and sanitary and improvement districts. The county allocation rules require the levy of a political subdivision that is subject to allocation (eg., offstreet parking district or county agricultural society) and that is authorized by law and the county board to be counted in the county levy limit, but the property tax levies of all political subdivisions that are subject to allocation may not "collectively total" more than $0.15 per $100 of taxable value on any parcel or item of taxable property except for preexisting lease-purchase contracts approved before July 1, 1998, and bonded indebtedness approved according to law and secured by a levy on property. In addition, LB 269 allows a county agricultural society to exceed a county board's allocation of property tax levy authority, but the total property tax levy for a county agricultural society cannot exceed $0.035 per $100 of assessed value.

The bill repeals the ban on the creation of new weather control districts after 1996 and adds fire protection districts to the list of other political subdivisions (i.e., counties and municipalities) that are authorized to provide for the joint financing and operation of public safety services pursuant to an agreement under the Interlocal Cooperation Act. The bill also permits the parties to such an agreement to appoint a separate fire protection and emergency services commission if the county's population exceeds 100,000 inhabitants. It also allows a county to allocate to such political subdivisions up to five cents per $100 of the county's levy authority for the support of an interlocal agreement, for the purpose of supporting the political subdivision's share of revenue required under an agreement executed pursuant to the Interlocal Cooperation Act.

Provisions contained in two other bills were amended into LB 269 as well, including the provisions of LB 84, which provide that, in cases of conversion, replacement tangible personal property is subject to taxation based upon the date the converted property was acquired and at the Nebraska adjusted basis of the converted property unless insurance paid for the converted property (the amendment also defines the phrases "converted property" and "replacement property") and the provisions of LB 305, which reallocate money in the Insurance Tax Fund. Municipalities will still get 30 percent of the money in the fund until July 1, 199 8, at which time that money will be reallocated to the Municipal Equalization Fund, as provided for by Laws 1996, LB 1177, and the state Department of Education will still get 60 percent of the money in the fund for distribution to school districts as equalization aid, as provided for by current law. Counties will still get 10 percent of the money in the fund, as provided for by current law, except that LB 269 reallocates $100,000 of the amount earmarked for counties in each of the next two fiscal years to provide funding for the Nebraska Commission on Local Government Innovation and Restructuring (NCLGIR) which was established by Laws 1996, LB 693, a component part of last year's property tax reform legislation. Also, LB 269 requires the NCLGIR to (1) issue a report by January 1, 1998, on the current structure and restructuring possibilities for the provision of public safety services, including an analysis and examination of 911 emergency services, fire protection services, and law enforcement services; and (2) examine the possibility of local level review of facility needs.

LB 269 contains a number of other provisions as well, such as those pertaining to takeover of a county's assessment function by the state Property Tax Administrator and conversion of employees of the county assessor's office to employees of the State of Nebraska.

LB 269 passed with the emergency clause 42-1 and was approved by the Governor on June 5, 1997.