Public Hearing, LB 397 (1997)

Transcript prepared by the Clerk of the Legislature,

Transcriber's Office

Committee on Revenue

LB 397

January 29, 1997

Page 19

SENATOR KRISTENSEN: We have a rule in Transportation. If it takes longer for the introducer in the public hearing than it does for the Committee to process the bill, the bill's killed. That probably will not be the case today with this one. For the record, members of the Revenue Committee, my name is Senator Doug Kristensen, representing the 37th Legislative District. I'm here this afternoon to introduce LB 397. LB 397 is what I would term a cleanup bill and a transition bill to carry out the policy that was established by this Legislature and by the citizens of the state of Nebraska with LR 3CA that was occurring in the '95 session which was the constitutional amendment that would authorize the creation of a Tax Equalization and Review Commission which would take over the duties and obligations of the State Board of Equalization. Then there was also LB 490 which created the Commission, the office of Property Tax Administrator and gained some independence from the Department of Revenue for the Property Tax Division. The bill that I bring to you today contains many of the necessary items to provide for the transition of statewide equalization away from the State Board of Equalization. There are those that will argue that because of the passage of the constitutional amendment that it's self-executing and that there's no need to do anything else. That may be true in terms of the power and the authority to do statewide equalization, but you still have a number of statutes that still make references out there to the State Board of Equalization. What most of LB 397 does is to come through and change those powers from the State Board of Equalization to the Tax Equalization and Review Commission. It also helps establish some of the appeal process and flushes that out a little bit more than what was done in LB 490 and cleans that tip. There is also an amendment that I have. I think that Mark Reynolds, the chairman of the TERC will be present, can discuss that amendment. I think ... yes, and I do see our Property Tax Administrator, she's here as well. I know there are a number of issues that she wishes to describe and so, instead of going to a section-by- section, which I was prepared to do, I want to lay the basic parameters of what the bill does, why it does what it does, and then allow them to fill in what some of the specifics of the changeovers are. And the amendment that I will give... I don't know, George if you have that or not. If the amendment is present, we would offer the amendment. It helps clean up some of the items since we've drafted the

Committee on Revenue LB 397

January 29, 1997

Page 20

bill, particularly removes, there's a per them figure that was in the bill, which would have allowed the Commissioners a per them figure for some of their travel and things that are needed to be done. The amendment removes that so there won't be a fiscal impact on the bill. It also sets a date for the Property Tax Administrator to give the Tax Equalization and Review Commission a report of the levels of valuation, the quality of assessment throughout the state. In effect, what it does is helps dovetail the Property Tax Administrator into the TERC procedure and into the Commission. Things that still ... there's still some policy choices that need to be made. I would hope that Cathy as the Property Tax Administrator, if she doesn't do, they will have the opportunity before this Committee. There are a number of other issues that we may have to decide as a matter of policy, and the relationship between the Property Tax Administrator and the Tax Equalization and Review Commission. In other words, is it an assistant, an advisor, an advocate or a prosecutor before the Commission, and what is the relationship between those matters of policy that this Committee needs to, some day, decide to do? With that, I'd be happy to answer any questions, and I would waive closing.

SENATOR COORDSEN: Oh, you didn't know I could sleep with my eyes open, did you? A question.

SENATOR KRISTENSEN: Do I have to answer that one?

SENATOR COORDSEN: That was a question. Questions of Senator Kristensen? Senator Hartnett.

SENATOR HARTNETT: Doug, you said which were the choices, what roles. Is that going to be explained later, whatever was said?

SENATOR KRISTENSEN: Well, I think... and I'm looking to Cathy. I'm hoping that... she and I have not, obviously, coordinated our presentation, but there's a variety of policy choices, that what role should the Property Tax Administrator play in equalization throughout the state. Is she responsible for just giving information and saying, here are the facts? Here's where it's good, here's where it's bad. Do they rely on her to sort of be the prosecutor and say, okay, these counties are not doing what they should do.

Committee on Revenue LB 397

January 29, 1997

Page 21

Here's the evidence of why they're doing that. Or, is it sort of an advisor and an assistant to say, okay, if I were you, this is what I'd do. Here's how we're going to handle this. Matters of what approaches do we want the Property Tax Administrator to handle. And this bill does not necessarily ... those are unanswered questions by the bill, although there are some things here, particularly with the amendment, setting dates for the Property Tax Administrator to say, here are the practices that are going on. Here's the levels of assessment. Here are the levels of value. Here's the quality of assessment, and this area is good. The quality of the assessment over here may be poor.

SENATOR COORDSEN: Other questions? Seeing none, thank you, Senator Kristensen. Those who would be in support of LB 397, please.

MARK REYNOLDS: Good afternoon, Mr. Chairman and members of the Revenue Committee. My name is Mark Reynolds. I'm the Chairman of the Tax Equalization and Review Commission. The Commission strongly supports LB 397. This bill and the proposed amendments to it are designed to enhance the provisions of LB 490 and LR 3CA. These prior actions of the Legislature set in place a process to improve the quality of assessment practices in this state. The Commission has a key role in that process. The Commission offers an accessible and affordable system of review of decisions made during the property valuation cycle. The proposed changes enhance the Commission's role in that cycle. Although there are several technical amendments contained in LB 397, there are only a handful of substantive issues. Those issues may be summarized as follows: One, transfer the statewide equalization duties from the State Board of Equalization and Assessment to the Tax Equalization and Review Commission. Two, clarify and strengthen the appeal system. And, three, address certain financial issues. The first substantive issue involves the transfer of statewide equalization authority. LB 397 is essential in order to effect that transfer. An emergency clause is also necessary since the statewide equalization process begins April I and must end by May 15. I'd note for the record that all the senators have been provided with a packet of information. (Exhibit 4) In the supporting documentation, there is a calendar showing the assessment and valuation cycle which has been prepared by the Property Tax Division.

Committee on Revenue LB 397

January 29, 1997

Page 22

Furthermore, since the Commission must adopt rules and regulations regarding its statewide equalization duties prior to April 1, and since the adoption of these regulations takes approximately 60 days, early adoption of this bill, if it meets with your approval, is absolutely essential. The second area of proposed changes clarifies the appeals process in four key sections: Sections 26, 32, 33 and 3S. Of these, the changes contained in Section 26 are the most easily addressed. This proposed amendment to the statutes simply reinstates the provision of an earlier state statute. Again, that original statute is enclosed with the materials presented to you. The remaining sections, if adopted, will enhance the Tax Equalization and Review Commission Act by allowing improvements in the quality of the hearings, and by shortening the length of the process. Section 35, for example, will require the Commission to issue findings of fact and conclusions of law only where a final decision is involved. This change is significant. There are 38 cases which are currently awaiting decisions. Twentyone of those 38 cases involve preliminary decisions for which the Commission must issue findings of fact and conclusions of law before a hearing can be held. Finally, Sections 32 and 37 deal with financial concerns. Section 32 would alleviate disparate financial treatment of Commissioners which arises as a result Of residential requirements. Section 37 creates a revolving fund for the Commission in order to tract revenue and expenses regarding appeals, the statewide plan of equalization, and other activities of the Commission such as the Special Master Training Program. The Commission, in light of the improvements offered by the bill, supports LB 397 and its proposed amendments. Thank you for your consideration. I'd be happy to answer any questions you might have.

SENATOR COORDSEN: Questions of Mr. Reynolds? Senator Kristensen.

SENATOR KRISTENSEN: Mark, first of all, I'd like to tell you that I'm very pleased with the way that TERC has handled itself and begin to organize because it's been a... it's been a tough start...

MARK REYNOLDS: Thank you, Senator.

Committee on Revenue LB 397

January 29, 1997

Page 23

SENATOR KRISTENSEN: ... and lots of things going on. What role would you see for the Property Tax Administrator with the TERC. And we're not going to hold you to it, but other than we're... I guess we're going to look for some answers to that.

MARK REYNOLDS: Senator, the most ... this is a very important issue, particularly in light of the assessment calendar. In the materials that you have in front of you, that calendar shows that on April 1, the statewide equalization duties begin. There is a long line of Nebraska Supreme Court cases which state that actions of the statewide equalizing body will be affirmed if the records supports their actions. It's of great concern to the Commission that if, for example, a county came before the Commission, when it's exercising its statewide equalization duties, and said, this is what our indicated level of value is and we received no ,other information. If that's the only record, we might be prohibited from taking action when action should be taken. Under these circumstances, the role of the Property Tax Administrator becomes very important. I believe that the amendments proposed to LB 397 clarify some of those duties before the Commission during the statewide equalization process. Since that process starts in just a couple of months, obviously that's an issue that needs to be addressed. That's why the Commission is most anxious to have LB 397 with the amendments adopted. When the Property Tax Administrator appears before the Commission during the statewide equalization process, it is very important for the Administrator to make a record, not only of what information the county has provided, but also to provide a broader picture of the activities of the county and the assessment process. The Commission started to address that issue in the statewide plan of equalization for 1997 which has been provided to all senators. I In that plan, the Commission noted that for 1997, the Commission will not just look at the summary's statistics. The countywide level of value for agricultural property, for example. The Commission wants to look at the agricultural profile. Examples ... or actually the 1996 statistics in the profiles for each class of property are included in the statewide plan of equalization. Because the Commission is a full-time body and because the Property Tax Administrator has the ability to prepare and submit that information to the Commission, the Commission feels it incumbent upon it to act in a fashion which most

Committee on Revenue LB 397

January 29, 1997

Page 24

effectively addresses problems which are indicated in the county profiles. We don't want to take action affecting an entire class of property where the only issue involves a particular subclass; for example, residential houses with a value of less than $30,000. We'd like to limit our actions as much as. possible in order to address the issue. The Property Tax Administrator is the person in a unique position to provide that information to the Commission. As a sidelight, the Property Tax Administrator can also make the record which substantiates the Commission's action. I've gone on a little longer than I should have, probably, but I hope that answers your question.

SENATOR KRISTENSEN: In summary, though, the Property Tax Administrator would be the person, then, who ... well, I'm searching for a word.

SENATOR COORDSEN: Makes everybody mad.

SENATOR KRISTENSEN: Yeah, well, it's sort of the conscience of the state, if you will, or is sort of the truth barometer that says, now, wait a minute. Here are the other things you need to consider, and the other things you need to consider are X, Y and Z. She or he would sit in front of the Commission instead of sitting beside them at, the hearing.

MARK REYNOLDS: Senator, you're right.

SENATOR KRISTENSEN: She could also be an advocate for the counties...

MARK REYNOLD S: Absolutely, and that's when you...

SENATOR KRISTENSEN: ... as well as being the conscience of the rest of the state, saying, well, that may not be accurate, as opposed to being your legal counsel, your body of reference and information.

MARK REYNOLDS: There's two issues that you've raised that I think are very important. First, you're absolutely correct. The Property Tax Administer is not a prosecutor in front of the Commission. She is presenting relevant information regarding the indicated levels of value in the county. That may support the county's request, it may oppose the county's

Committee on Revenue LB 397

January 29, 1997

Page 25

request, or it may be neutral. Second, the Property Tax Administrator cannot serve as legal counsel to the Commission. Contained in LB 397 is a section, Section 32, which directs that the Tax Equalization and Review Commission will hear appeals, from decisions of the Property Tax Administrator. The Commission must be independent from the Tax Equalization and Review Commission and vice versa. If we're hearing appeals regarding decisions made by the Property Tax Administrator, there cannot be any overlap. The Property Tax Administrator and the Commission must be separate and independent bodies, which is contemplated by the Tax Equalization Review Commission Act, and I don't think there's anything in this bill that affects that. But the Property Tax Administrator would wear one of several hats; helping the county, being neutral, or presenting information which might contradict the county's information. I want to stress something, however. In the statewide plan of equalization, the Commission noted that, out of the 93 counties, almost every county applauded the efforts of the Property Tax Administrator by providing field liaisons. .They are people out in the field helping the county assessors getting to where they should be. If that ongoing cycle continues, there is no chance the Property Tax Administrator would ever be a prosecutor, because everyone is working in the same direction, and that is to improve the process.

SENATOR KRISTENSEN: Thank you.

SENATOR WARNER: Senator Coordsen.

SENATOR COORDSEN: A mechanical question, if I may, Mr. Reynolds, since you're here.

MARK REYNOLDS: Yes, sir.

SENATOR COORDSEN: The process of determining whether a county falls within the guidelines. Yesterday morning I was approached by a person with a complaint, and I think your response would provide me the answer. Whether ... does the Tax Equalization and Review Commission look at, and will speak only to a class of property, residential property, all residential property within a county, or individual parcels of real estate, residential property in a county? The point of this being that there's a feeling that, one, the average

Committee on Revenue LB 397

January 29, 1997

Page 26

residential value in one of the communities might be 81 percent of the sales/assessment ratio; in another community, 105; another community, 96; another community, 88; with the aggregate being 99.9; and yet there's a significant amount of distress that within the county those assessments aren't being performed equitably. Now, how detailed does the ... does TERC get in that particular area?

MARK REYNOLDS: Senator Coordsen, the Page... I brought... I just brought one copy of the statewide plan of equalization, and I'm having the Page show that to you because that is an example of the residential county profile. You can see that there are six or eight different categories. The categories range from the date of sale to the sales price of the property to the city that the property is located in and...

SENATOR COORDSEN: And I've seen something similar to this. It's not this exact thing, but the question was, these are county aggregates. The question to me was that within this, we'll pick a range from no more... $30,000 to $39,000... $30,000 to $40,000 range of residential property that, in fact, within the various communities of the county, those valuations were not, for tax purposes,, were not being applied equitably although the county average for that range might well be the target figure. Is there any way that the Tax Equalization and Review Commission can get to inequities of that type?

MARK REYNOLDS: Yes, sir.

SENATOR COORDSEN: Do you do it by individual sales assessments or some mechanism?

MARK REYNOLDS: During the statewide equalization process, the Commission has announced in the statewide plan of equalization that we will be looking at the breakdowns which you just indicated. Because we're full time, we have that ability because the Property Tax Administrator can provide the information to us. That's what we're going to be looking at starting April 1. We want to make sure that in each city, in each subclass of property, the county assessor has met the target ranges. Now that's only in the statewide equalization process. During the appeal process where we hear appeals regarding individual parcels of property, we can also act on that individual parcel.

Committee on Revenue LB 397

January 29, 1997

Page 27

SENATOR COORDSEN: And those appeals might indicate trouble spots within the state, too, troubled counties that are having problems if appeals come in, a number of appeals from a community or a class of property within a...within an area.

MARK REYNOLDS: That's absolutely correct, sir. And when this Committee approved LB 490, and when it was voted on by the Legislature, Section 77-5012, which talks about the statewide plan, said that the Commission can take into consideration problem areas which it has identified through its experiences. And that's... that meshes the situation you described.

SENATOR COORDSEN: Okay. Thank you. That's good to know.

SENATOR WARNER: Senator Wickersham.

SENATOR WICKERSHAM: I have ... there's... I have a question that relates to Section 26, and I understand why language is being added to 77-1510, and I'm sorry we don't have the language of 771510.01 because it probably answers my question. The section prohibits the county board from, in essence, entering into an agreement which would discharge the appeal to the Tax Equalization and Review Commission. I take it that 77-1510.01 or some other section allows the petitioner and the Commission to reach an agreement and then offer that to the county as a settlement, so you don't actually have to go through the whole process. If everybody agrees about what to be done, what should be done, you do it.

MARK REYNOLDS: There's actually a safety valve built into 771510.01. If the county wants to settle the case at a designated number, it makes the offer to the taxpayer. It also advises the Commission that the offer has been made. The safety valve is if the Commission approves the offer, which is strictly, you tell us you're making the offer, and we approve it. Once the offer has been approved, if the taxpayer does not take advantage of the offer and does not recover more than what was offered after a fullblown hearing, the taxpayer is responsible for all the costs incurred after the offer.

Committee on Revenue LB 397

January 29, 1997

Page 28

SENATOR WICKERSHAM: Okay.

MARK REYNOLDS: So, with the except ... your comments are correct with the exception of the safety valve provision.

SENATOR WICKERSHAM: Okay. And then you ... when you were testifying, you indicated that there was a section that dealt with the expenses of the members of the Commission.

MARK REYNOLDS: Yes, Senator.

SENATOR WICKERSHAM: I see that a couple of them are restricted to $6,000. 1 ... that is so peculiar I have to ask you, what in blazes are you doing?

MARK REYNOLDS: Senator, I believe the Committee, through the amendment, may strike that provision.

SENATOR WICKERSHAM: Okay.

MARK REYNOLDS: What I want to give you, just a real short background. We have two Commissioners, one from the First District, one from the Third. The Commissioner from the Third District, who has to be in the office almost every day unless she's hearing ... holding hearings in the field, has to rent an apartment in Lincoln and commute 250 miles a week. The Commissioner who lives in Lincoln doesn't have any of those expenses. The two Commissioners do exactly the same job for exactly the same pay. The Commissioner from the Third District, however, incurs over $8,000 a year in living expenses.

SENATOR WICKERSHAM: Yeah.

MARK REYNOLDS: I understand that this section is not going to appear in the final form of the bill, but that was what the intent of the request was, to alleviate that disparity in treatment which is required because the Commissioners must reside in each one of the three congressional districts.

SENATOR WICKERSHAM: All right. I guess we could remove the disparity, we could make the court house in Harrison available as a seat for the Commissioners, and then ... then the Commissioner from Lancaster County would have the

Committee on Revenue LB 397

January 29, 1997

Page 29

opportunity to incur the expense of traveling to Harrison. I could probably find an apartment, I was just wondering. At any rate, a peculiar provision, right? Okay.

SENATOR WARNER: Senator Hartnett and then Senator Kristensen.

SENATOR HARTNETT: Mark, in this handout that you got here, there is...I'm looking at real property appeals and then I see you've got a schedule, and you've already started the schedule. Is that...

MARK REYNOLDS: Yes, sir.

SENATOR HARTNETT: Already started. Now, how did these people appeal? They went to the county, the county said, no, you don't have an appeal, then they're flipped up to you, is that...

MARK REYNOLDS: That's correct. The appeal ...

SENATOR HARTNETT: And then what happens to your ruling? If you agree with... if you agree with the county, you say, you know, or agree with the taxpayer, then you tell the county you were wrong?

MARK REYNOLDS: Yes, we issue written findings of fact and conclusions of law in each contested case. That notifies the parties of the Commission's decision. A party who is unsatisfied with that decision has a right to appeal directly to the Court of Appeals. The appeal is limited to the record before the Commission, which is why we're going to some pains to make sure that there is a complete record provided to the Court of Appeals.

SENATOR HARTNETT: Yeah, I notice both ... when you have some... later on you have some counties, I think, that are appealing, when I look at this. The County Board of Equalization are appealing...

MARK REYNOLDS: We only have one case where the tax ... where someone other than the taxpayer is an appellant. We have a county assessor who is challenging...

SENATOR HARTNETT: Oh, these are all ... these are already

Committee on Revenue LB 397

January 29, 1997

Page 30

done. I see now. I looked... the closing date was the 26^th of 196. There are eight ...

MARK REYNOLDS: That's last year's,

SENATOR HARTNETT: That's last year's. I'm just looking-okay, I didn't look at the date. Thank you.

SENATOR WARNER: Senator Kristensen.

SENATOR KRISTENSEN: Mark, just real quickly, after your discussion with Senator Wickersham. Commissioners, are they reimbursed for actual expenditures now?

MARK REYNOLDS: For mileage and living expenses, no.

SENATOR KRISTENSEN: Right. So she's out of her own ... out of her own salary, she's living down here?

,MARK REYNOLDS: That's correct, sir. And that's why Section 31, 1 believe it was, was originally placed in there. There's some problems with the language in there which is why it probably should, unfortunately, be deleted at this time. I want to...

SENATOR KRISTENSEN: How am I ever going to get anybody from the Third District to ever serve in these if I don't reimburse them?

MARK REYNOLDS: Senator, that's a great question. Let me give you a better example. Assuming, for example, five years from now, you have someone from Scottsbluff representing the Third District, you have someone from South Sioux City representing the First District. You have someone from the northern edge of Douglas County representing the Second District. That situation is even more egregious. Then you can have three Commissioners who have to live here and commute once a week to see their families. But I need to stress to the entire Committee, the Commission's statewide equalization duties start April 1. If this bill meets with your approval, we need it to be adopted so we can adopt rules and regulations to do our statewide equalization duties. We have deliberately withheld adopting rules and regulations because we wanted to know what the final form of the changes by the Committee and

Committee on Revenue LB 397

January 29, 1997

Page 31

the Legislature would be.

SENATOR KRISTENSEN: So if I wanted to do this, maybe what I would do is, in another bill, put in that there should be reimbursement of actual expenditures for the purposes of serving and then that won't require an A Bill...

MARK REYNOLDS: Yes, sir.

SENATOR KRISTENSEN: ... so this bill doesn't have to wait to the end to be done.

MARK REYNOLD: That's ... yes, sir.

SENATOR KRISTENSEN: I'm kind of slow, but it takes me a

while. Okay. Thank you.

SENATOR WICKERSHAM: And I'm sorry that I misunderstood your earlier response. I was assuming that you were paying per diems.

MARK REYNOLDS: No, sir.

SENATOR WICKERSHAM: There's no statutory authority for you to pay per diems?

MARK REYNOLDS: Not that we're aware of, sir. There is ... the section that is referenced...

SENATOR WICKERSHAM: 8313.01?

MARK REYNOLDS: Yes, sir. There's language in there that prohibits reimbursement for the city that you reside in or the city in which your principal office is located. Well, if you live in St. Paul, Nebraska and you commute to Lincoln, that knocks you out on both counts. Both Commissioner Edwards and myself, I'm putting on 550 miles a week if I'm just coming to Lincoln. Last week I was in Grand Island and the week before was in Kearney, holding hearings with the other Commissioners. We are reimbursing for a trip when you're in Lincoln to Grand Island or to Kearney but, otherwise, none.

SENATOR WICKERSHAM: I'm sorry. I misunderstood what you were telling us. I thought it was peculiar you were

Committee on Revenue LB 397

January 29, 1997

Page 32

limiting it to $6,000, but you were saying you couldn't do anything at all.

MARK REYNOLDS: Yes, sir.

SENATOR WICKERSHAM: All right.

MARK REYNOLDS: That's correct. And the $6,000 was just trying to pick a somewhat reasonable cap.

SENATOR WARNER: Anyone else? Apparently not. Thank you, Mark.

MARK REYNOLDS: Thank you for your consideration.

SENATOR WARNER: Others to appear? Cathy.

CATHY LANG-MORRISSEY: Good afternoon, Senator Warner and members of the Revenue Committee. My name is Catherine Lang-Morrissey. I'm the appointed Property Tax Administrator. I am here today in support of LB 397. It is my position as Property Tax Administrator that nothing should be done to slow the passage of this bill at this time, that the responsibilities of statewide equalization are on the horizon and we need to meet them head-on. I have reviewed the bill and offered both to the Tax Equalization and Review Commission and through cover letter from the Commissioners to Senator Kristensen and Senator Warner some very technical amendments within the bill. I'd like to very quickly review those. Some of them, I believe, will help to clarify the process that we're facing when we get to statewide equalization. Some of these amendments may not need to absolutely be made in LB 397 because, as I said, I would not want to do anything to slow its passage, and certainly we could add them to LB 270 as that, hopefully, progresses through the process. But there are some issues that have to do with the filing requirements of county assessors, providing information at the beginning of the process. We start statewide equalization on April 1, but the Agricultural and Horticultural Land Valuation Boards, the regional boards, of which I think there are eight, are still meeting, and meet between April I and April 15. If a board, a regional board, makes an action, or takes no action, I believe that those boards need to make a report to the Tax Equalization and Review Commission stating that they

Committee on Revenue LB 397

January 29, 1997

Page 33

did or did not take an action. The reason I say that is that I think that it may help expedite the process. If they act early on, in those first few days of April, like the 5th or the 3rd or something, and they submit a summary or a one-page report to the Commission that says, we reviewed the ag land values in this area, we make no changes, then the Tax Equalization. and Review Commission knows that, for all intents and purposes, those ag values in that region are set, and they can start to analyze those. They also need to make a report if they do make a change, not only so that the Tax Equalization and Review Commission knows that those changes have been made, but they need to order the county assessor to recognize those changes, and the county assessor needs to amend the abstract, to represent any change that a regional board makes, such as decreasing all of the irrigated land in Dawson County. The Dawson County Assessor needs to represent that on the abstract and report that in to the Tax ... or to the Property Tax Administrator so that we can then modify anything we need to do to prepare our report to the Tax Equalization and Review Commission. The other issue that I would offer for your consideration as an amendment would be the responsibility to police the orders issued by the Tax Equalization and Review Commission. It is... I would certainly offer the services of the Property Tax Administrator and the Property Tax Division for orders issued by the Tax Equalization and Review Commission and then the review made by the division, by the Property Tax Administrator, and a report back to the Tax Equalization and Review Commission before the August process that, yes, the county did implement the 10 percent decrease to residential property in Buffalo County, whatever it might be. That way, if ... when we get to August, a county hasn't implemented an order that was issued by the Tax Equalization and Review Commission, we can talk about what might need to happen at that point in time. Lastly, still in the April and May process, if the Tax Equalization and Review Commission makes an order to a county, I believe that the county assessor needs to go back, make those changes, as they are legally obligated to do, and then report that effect to the abstract of assessment back into the state, so that the abstract, which is filed on April 1, but can be amended by actions of regional boards, amended by actions of AHLVBs, or by the TERC, can also be fed back into the process, so that by the time we get to May IS, we have a clean, clear abstract of the value within a county. And the only person who can do

Committee on Revenue LB 397

January 29, 1997

Page 34

that, especially depending on specificity of the order by the Tax Equalization and Review Commission is the assessor. In the past, it used to be that the State Board recertified the abstract back out to the county. In other words, a 10 percent decrease to residential property in Buffalo County, you would just factor down their total residential value by 10 percent and say, your residential value in your county is thus and so. However, as we discovered this last year with regard to one of the orders made by the Tax Equalization and Review Commission is we had no way by which to adjust the value of residential property. The order was to decrease the value of homes valued $30,000 and less. And that's a very small subclass of which we have no information in our data base as to how much of those kind of homes are out there, how much of the value base is made up of those homes. Only the assessor is able to do that by going back implementing the order, 'totaling up the county for the abstract again, and certifying it back into the state. Once that is done, the process moves on to the County Boards of Equalization who can hold ... or holds hearing on the protested properties. In August, however, there is a process by which a county can petition to come back to the Tax Equalization and Review Commission for issues that they may have discovered during the protest process, classes and subclasses of property that continue to be out of line and need to be adjusted. That process continues to exist in this bill and one of the things I would offer for a possible amendment is that not only should the county be able to petition for that, but the Tax Equalization and Review Commission may well need to call a county to come back in August, especially if an order that was issued before by the Commission has not been implemented. And I would suggest that there needs to be a way to make sure that if the Commission does issue an order, that it is implemented and that there is some mechanism by which to police that process. On page 23 of the bill, there's a wrong statutory cite. I would offer that and certainly work with the Counsel to the Revenue Committee to correct that. And then lastly, there are some sections in here that deal with the homestead exemption process. And one of the things that has been implemented in legislation over the last couple of years is that if a county is not within the level of value set by statewide equalization process, that their homestead exemption reimbursement can be decreased by the percent that they are outside the range. In other words, if your

Committee on Revenue LB 397

January 29, 1997

Page 35

residential property is not between 92 and 100 percent of market, any percent by which it does not meet that standard will be a ... can be a reduction to your homestead exemption reimbursement to the county. I believe that the PTA needs to certify and there needs to be a provision of law that requires the PTA to certify to the Tax Commissioner that, in fact, all counties are or, if they are not, which counties are not possibly within that accepted range, so that the Tax Commissioner has something by which to say, they've been reviewed and, yes or no, the reimbursement should be adjusted. And, again, it's technical and that particular amendment could obviously be made in LB 270. The amendment that has been offered to you, and I have reviewed it, there's some missing language or I guess I would argue there's some missing language that I would ask the Revenue Committee to consider. Section 12 of the bill, and the ... and then the amendment can ... that's in front of you right now really does set and clarify the role of the Property Tax Administrator before the Commission for statewide equalization. The conversation that you had earlier, both with Senator Kristensen and Chairperson Reynolds is that, I guess I would characterize it that the Property Tax Administrator is going to Bit in the capacity of an expert witness before the Commission. You heard a discussion, and then with Senator Coordsen about statistics and, obviously, yes, we have those statistics. We will provide them and the amendment makes that a requirement, but the amendment also requires that we provide narrative reports and then an opinion about whether or not the county's level of value and quality of assessment meet the standards. What the Property Tax Administrator has available to him or her is a broad base of information about a county, not just the raw statistics. Obviously, as everyone knows, our constitution requires uniform and proportionate values. Equalization process is the method by which we achieve proportionality. But our court has set up some standards that allow for broad judgment to be brought into the process and considered. We do not have to rely solely on raw statistical calculations and , in fact, the court has suggested and opined for probably a good 100 years that this is not a mathematically precise science. We are dealing with, you know, millions of properties that are being assessed. The goal of the assessment process is to get as close to the target as possible, but they have accepted some deviation from the standard, and the standards

Committee on Revenue LB 397

January 29, 1997

Page 36

and the order of the Tax Equalization and Review Commission set that out. We have a range. A range accepts that deviation. We have both the calculation of the COD and the PRD which are measures by which you can judge the quality of the assessment process within the county, and we've accepted a range there. And so what the Tax ... or what the Property Tax Administrator can bring forward to the Tax Equalization and Review Commission is the statistics, a narrative explanation of the work that's being done in a county and then an opinion that, based on the statistics, based on the narrative and based on the knowledge of the Property Tax Administrator, the county is within the range. The county does meet the quality requirements established by the Tax Equalization and Review Commission even though quite possibly, in some situations, the statistics may not absolutely indicate that. But that way, we can bring forward some of the broader picture about what's going on within the county. The other thing that I'd like to just bring to your attention so that you have an understanding of how this process works, and where the Property Tax Administrator may fit in, is the county's presumed to have done its job correctly. There is a legal presumption, a hurdle if you will, that's been established by our court that says, until you can prove that they have not done their job, the county is presumed to have done their job. And, in fact, one of the things we're going to be asking for on the abstract of assessment for 1997 is we want the county assessor to tell us, what is your level of value of residential property in your county. We believe that meets ... that sets up that first hurdle. I believe I'm at 92 percent of market, I believe I'm at 95 percent of market, whatever it is. That allows us to understand what the county thinks about their assessment level and then allows us to review our information and build our case or our evidence for the Tax Equalization and Review Commission for their consideration and statewide equalization. The other matter that's contained within the bill is the statewide plan of equalization. There is no change made except that the date for issuing the statewide plan has been moved up to September 1, and I think that that builds in a real important process that can take place after that plan has been issued. The Tax Equalization and Review Commission will do statewide equalization until May 15. They'll end up finishing up any protest that they may have from the prior year. And then they're going to move right into setting up

Committee on Revenue LB 397

January 29, 1997

Page 37

the statewide plan of equalization for 1998, and that plan needs to be, according to the bill, issued by September 1, 1997. The PTA is responsible for providing information that the Tax Equalization Review Commission will use to develop that plan. At one point in time, it had been talked about whether or not the Commission should have the authority to issue orders in the plan. Now, obviously, the bill in front of you does not contain that. So the next question is, if the Tax Equalization and Review Commission issues a plan of statewide equalization, basically the road map, here's where we're all going to go. The Commission, the Property Tax Administrator and the assessors, we're all moving down this road together. This is the road map for assessment. We're going to move it forward, we're going to improve it, and here is how we believe it is best to go about doing that. And identifying problems areas and then setting those out for all of us to work on to correct. The Property Tax Administrator does have current statutory authority in about two or three different ways of reviewing assessment practices of counties, issuing orders on... to the county on how to carry out those assessment practices. So, what hasn't happened in this bill, but there is a process to set up the way we move down the road, is the Commission will draw the road map for us. The Property Tax Administrator will have the ability, then, to review. the assessment practices of counties. If a county has assessment practices that we don't believe, based on evidence and information that we have about the county, that they can further themselves down the road along with everyone else. We can hold a hearing, investigate and then perhaps issue orders to the county to say, we believe that in order for you to catch up with the rest of everyone and to meet the goals of the statewide plan, you need to do thus and so, and we would list those out, and as Mark has already suggested, that would be an order from the Property Tax Administrator. And that order, if it were egregious or the county disagreed with it, could then be appealed, to the Tax Equalization and Review Commission. Since they weren't issuing orders in the statewide plan, but the Property Tax Administrator, was, it allows the Commission, upon review of that appeal, to decide, did my order for this county meet with the standards of the statewide plan to help move this county along, or did it not. And so I think it sets the process up quite nicely, but I wanted to lay it out for you so that you could get a picture of where we're going to move with this, and that the

Committee on Revenue LB 397

January 29, 1997

Page 38

fact that we've got three very independent groups out there. We've got the Commissioners, we've got the Division which we've already described as being independent of the Commission, and we have 93 independently elected county assessors. We all need to move together, and I think the statewide plan sets up the road map for that, but it's how we do that in the scope of authority of the three of us, if you will, and where we might overlap and there is some overlap in the statute, and those are things that I'd like to work on as we move forward. But there's also some gaps of authority, and I'd like to work with the Commission, the assessors and the Revenue Committee to fill those in so that there's a very clear direction about where we're headed with all this, and the scope of authority of the three of us. That would conclude my testimony. I think that covers the issues that I wanted to raise, both technically with regard to the bill and then the big picture. And I would be happy to answer any questions.

SENATOR WARNER: Thank you, Cathy. Anyone? I think you covered it.

CATHY LANG-MORRISSEY: Thank you very much.

SENATOR WARNER: Are there others to appear in support? Mr. Peters.

BILL PETERS: Mr. Chairman, members of the Committee, I am Bill Peters. I am appearing here today as a member of the Board of Directors of the Nebraska Tax Research Council to support most of LB 270 as introduced. There have been so many amendments, which we haven't seen, that we can't give .. you know, we'd like to see them first. After hearing the testimony, it'd be our position that you pass the minimal bill possible this year, transferring jurisdiction, cleaning up the old state board stuff. It's not that the other issues aren't very important. We would suggest they are too important to meet the time frame that's needed by the TERC as far as passage. Particularly, I'd like to first mention this relationship which is really mixed up, in our opinion, between the Property Tax Administrator and TERC. There's got to be an adversary somewhere, on countywide equalization matters, because I don't think the passage is constitutional ... or the amendment, is going to change the attitude of some of the counties when they think they're

Committee on Revenue LB 397

January 29, 1997

Page 39

absolutely right on their level of value, and they're summoned in. I've represented those folks, a lot better than when I was on the other side. They come in in an adversary mode, and are we adversaries with the judge? When we appeal, who ... who are we appealing? You know, who represents the appellee? Is it the TERC, or is it the Property Tax Administrator? I think Mark made an excellent point. Somebody's got to present some evidence when they are lapsing into their court mode. When there's no evidence, we win on a thin showing. Now the situation works well when it's the taxpayer versus the county because the parties come up defined. But I think the relationship, and Cathy's gone into it in much more detail, is something that ultimately has to be worked out, but perhaps we work it out best with a little bit of experience. The only other point that I would like to address right now is the issue that's brought to your attention by the provisions on page 35, representing living expenses. I think that should be carefully considered. My first... first reaction we had was, hey, what's wrong with the First District? A First District appointee from Sioux City can be the farthest away. And, you know, looking down the road; then we got to thinking, wait a minute, what's the distinction between this and a judge of the Supreme Court, or the Intermediate Appellate Court, or anybody else taking a full-time state job? The job's there, the salaries are set. Now certainly, when they have to go out on the road to hold a hearing from the place of the office, they should have the normal expenses of any other state employees, but we really need to think more about this issue of whether or not, just because you're appointed as a representative of the Third Legislative District ... Congressional District, excuse me, why that entitles you to additional money for a full-time job. I think that really has to be taken a look at. And with that, I would conclude my general support, urge the passage of the cleaning up the language and getting it transferred truly to the TERC and from the State Board, and continue the dialog on the relationship between the TERC and the Property Tax Administrator.

SENATOR COORDSEN: Questions? Senator Wickersham.

SENATOR WICKERSHAM: Well, Mr. Peters, I don't know if you'd feel differently about the per them issue that's arisen, but my understanding is the statute requires these persons to

Committee on Revenue LB 397

January 29, 1997

Page 40

live in their district, so they're not exactly like some of the other folks that your citing. They're required to live in their district, which may be some distance from Lincoln. or are you suggesting that we all wink about where we live and go on our way?

BILL PETERS: I would... I think I'd be a little careful of this one on where we live. I would suggest that perhaps that might be the better solution.

SENATOR WICKERSHAM: That after they're appointed, they're required to reside in Lincoln?

BILL PETERS: Yes. I see no ... personally, my first reaction is the difference between any of our Supreme Court judges. I mean, the judge from the 7th Judicial District, do they get paid extra for their living expenses in Lincoln?

SENATOR WICKERSHAM: I ... okay.

BILL PETERS: I mean, that's the question we would raise.

SENATOR WICKERSHAM: Okay. I think that perhaps part of the reason, although Senator Kristensen, I think, is the author of the issue, but it seems to me that the members are required to live in the districts that are specified because they're deemed to have special knowledge about those areas and be more conversant with those special issues. And if they no longer reside there, there becomes some sort of a perception that if they ever had that specialized knowledge, that has become lost or corrupted, some of the phraseology that is bantered about these days.

BILL PETERS: I think that's a valid point. I would suggest that we not pursue it too far, because to have a person living in any of our congressional district that has specialized knowledge of all properties in the district becomes a bit of a challenge. However, we... the position here of the Tax Research Council is that we think those issues should be explored in more detail.

SENATOR WICKERSHAM: Do you know how the members of the Public Service Commission are treated?

BILL PETERS: No, I don't.

Committee on Revenue LB 397

January 29, 1997

Page 41

SENATOR WICKERSHAM: Would you think the members of the Public Service Commission are similar to the TERC?

BILL PETERS: Yes.

SENATOR WARNER: Senator Kristensen.

SENATOR KRISTENSEN: It probably doesn't behoove me to go on and make this the form of a sermon or a lecture, but the attitude that to be a state employee, you've got to move to Lincoln is offensive to me, and that this state has enough problems that everything occurs in a five block radius of this building to institutionalize that is even worse, and that the small price of allowing them to travel to and from their homes for government service is a small price to pay to have the state drawn together and have good and decent people because what you really come down to is that you can be in government service providing you can afford to move to Lincoln. And that after a while, everybody who lives here, it's like moving to Washington, and the good thing is we're not Washington. And perhaps the best thing is that Omaha is not the State Capitol because at least they can get away 50 miles. The trouble is that this state has got a lot of other distances. And I would hope that this isn't an observation that the people in the Third District don't belong or that people in the Third District don't have the expertise and, if they do have those expertise, they ought to move to Lincoln so they can use it. And I assume that's not the purpose of your testimony.

BILL PETERS: No, it's not, Senator. And if that... if that's a policy decision then, as I commented earlier, then why discriminate against people that live in the First District outside of Lincoln? Right now if we had an appointee on TERC that was a resident of Sioux City, I believe they'd be further away from Lincoln than any of the existing members of TERC, but yet the proposed statute does not provide them any reimbursement.

SENATOR KRISTENSEN: No, and I would ... as a matter of fairness, they ought to be able to do that.

BILL PETERS: And, Senator, from the Tax Research, we raise this as an issue. It's ... and I suggest that it's something

Committee on Revenue LB 397, 344

January 29, 1997

Page 42

that should be addressed further as we work out all of the relationships between TERC and the Property Tax Administrator, but expedite the balance of this bill so we got ... can gain more experience.

SENATOR KRISTENSEN: And I think that's a fair observation. I agree.

BILL PETERS: I might add that it's not an issue for this Committee. Our observation has been since day one that TERC's underfunded.

SENATOR KRISTENSEN: It is. Thank you.

SENATOR WARNER: Anyone else?

BILL PETERS: Thank you.

SENATOR WARNER: Thank you, Bill. Anybody else to appear in support? Anyone in opposition? Anybody neutral? Doug, do you want to...

SENATOR KRISTENSEN: I'd waive closing, Senator. Thank you.

SENATOR WARNER: That'll complete the hearing, then, on LB 397, and we're ready for LB 344. Senator Withem.