Class I Reorganization and Referendum 400

Ongoing issues surrounding school finance and the inadequate funding of the School Foundation and Equalization Act would continue to mount over a period of several decades.  In the mid-1980s, both school finance and school organization would have a prominent position on the public agenda.  The two issues would be coupled together in an effort to address what some lawmakers believed to be a fundamental problem in Nebraska:  too many school districts.

On January 22, 1985, a bill was introduced in the Nebraska Legislature that would have a long-lasting impact on both public education and state politics.  It would divide policymakers, school officials and citizens along rural and urban lines.  It would ultimately play a role in the 1986 General Election, and would have an impact on the gubernatorial race.  It would also serve as a rallying cry for groups of citizens some 20 years after its introduction.

The bill was LB 662 (1985), which was chiefly introduced by Senator Peter Hoagland of Omaha, and co-sponsored by Senator Vard Johnson of Omaha and Senator Dave Landis of Lincoln.¹  As introduced, LB 662 had two main features.  The first feature related to the method by which agricultural land was valued.  The bill suggested a new method by which such land would be valued based on its earning capacity for purposes of property taxation.  Valuation would be determined by applying capitalization rates of 11% for irrigated land, 9.5% for dry land, and 8% for range and meadow land to the earning capacity.²

The second feature related to school consolidation.  The bill proposed that Class I (elementary only) school districts that were not within a Class VI (high school only) district on September 1, 1985 be merge with an existing Class II, III, IV or V (K-12) school district prior to September 1, 1989.  County reorganization committees would be directed to dissolve Class I districts that do not comply with the merger requirements.³

Prior to 1985, school organization was considered one of the most unmovable, controversial topics faced by the Legislature.  It remains so even today.  For decades prior to 1985, the issue of school organization was a common feature of legislative sessions, but very little came of the debates in terms of new law.  Senior statesman Senator Jerome Warner of Waverly once said, "I've been in the education arena for 30 years, and I've become pessimistic about the chances for passing any of these (reorganization) bills."⁴

LB 662 was not the lone reorganization measure floated in the 1985 Session.  LB 679 (1985), introduced by Senator Dan Lynch of Omaha, proposed the concept of one school district per county (93 school districts).⁵  LB 679 was never advanced from committee, but it did serve to create a political contrast, and actually made LB 662 the more preferable proposal to some lawmakers.  Senator Lynch demonstrated his commitment to school reorganization by later adding his name as a co-sponsor of LB 662.⁶

Divisive from the Beginning

The underlying purpose of LB 662 was to simultaneously reduce the number of school districts in Nebraska and reduce the overall property tax burden.  In a newspaper article published the day after LB 662 was introduced, Senator Vard Johnson said, "This is the school reorganization bill that generates a lot of controversy, but it's a property tax issue."⁷  Senator Warner classified the legislation as having a better chance than in previous years.  "There's more interest in taxes and the disparity between (school) districts," Warner said.⁸

The bill was referred for disposition to a rather unusual joint committee comprised of members of the Education Committee and the Legislature's Executive Board.⁹  Referral to a joint committee is somewhat unique in and of itself, but this particular joint referral was even more unique since the Executive Board typically does not take on such substantive issues.  The Executive Board serves a dual role of providing leadership to the Legislative Council (the legislative body) and as the Reference Committee, which assigns each bill or resolution to the appropriate standing committee for disposition.¹⁰

The committee assignment of LB 662 was one of a series of controversies surrounding the legislation.  In a rare occurrence, the Reference Committee (i.e., the Executive Board) was initially deadlocked on attempts to assign the bill to a standing committee.  On January 31, 1985, the Reference Committee considered three separate motions to refer the bill either to the Education Committee, the Revenue Committee, or to both committees jointly.  All motions failed to receive a majority vote.  Finally, on February 1st, a compromise motion was passed to give jurisdiction of the bill to the Education Committee and Executive Board jointly.¹¹

Upon the announcement of the referral decision, three separate motions were filed on the floor of the Legislature to re-refer the bill.¹²  On February 4, 1985, Senator Howard Lamb of Anselmo filed a motion to re-refer the bill to the Education Committee alone, a committee on which he served as a member.¹³  Senator Lamb would become the chief opponent of LB 662 throughout the 1985 Session.  Senator Vard Johnson, a co-sponsor of the bill, filed a motion, also on February 4th, to re-refer LB 662 to the Revenue Committee, on which he served as chairman.¹⁴  A day later, Senator Rex Haberman filed a third, compromise motion for re-referral to the Education and Revenue Committees jointly.¹⁵

Committee jurisdiction of a bill can be a matter of survival or death for a legislative issue, especially one as controversial as mandatory school consolidation.  With regard to LB 662, lines of division were generally drawn along rural versus urban opinions of school organization.  The rural-based senators generally opposed "forced" consolidation, while the urban-based senators viewed the issue in terms of property tax relief and the overall efficiency of the public education system.  In truth, consolidation measures also were less likely to impact urban communities than rural areas where Class I districts were more prevalent.  The issue of proper referral demonstrated the sensitive nature of the bill and the belief that certain committees, and perhaps certain members of certain committees, should or should not have control over such an important issue.

The re-referral motions were considered by the Legislature on February 5, 1985.  Both the Lamb motion (Education Committee only) and Haberman motion (Revenue and Education Committees) lost, and the Johnson motion (Revenue Committee only) was withdrawn.¹⁶  The Legislature, in effect, had upheld the decision of the Reference Committee.  Senator Lamb was later quoted as saying, "Very clearly, these bills should have been referred to Education Committee."¹⁷  He labeled the referral process as "a power play to put these bills somewhere so they have a good chance of coming out of committee."¹⁸ He accused various lobbying groups, including the Nebraska State Education Association (NSEA) and the Nebraska Association of Schools Boards (NASB), of working against his motion to re-refer the bill.

Senator Chris Beutler of Lincoln, then chairman of the Executive Board, denied allegations of a power play and instead called it a compromise based on the sensitive nature of the bill.  "It is a matter of trying to accommodate all the competing interests in the Legislature," Beutler said.¹⁹

Advanced from Committee

The public hearing for LB 662 was held in the evening of February 14, 1985.  More than 350 people attended the hearing and another 400 or more listened throughout the Capitol hallways and within the rotunda where TV monitors had been arranged.  "It's a glacier force that we are putting into motion that should not be stopped," said Senator Vard Johnson, "The bill does everything within its power to protect local authority and autonomy."²⁰  Johnson would later defend the proposal saying that, "This is a state issue, not an urban issue or a rural issue."²¹  Opponents of the measure countered with arguments of local control, student/parent choice in educational setting, and a host of evidence that seemed to indicate that smaller is better, at least for some communities.  "Some Class I (schools) should be merged but not all Class Is should be merged," Senator Lamb said.²²

The selected chair of the joint committee was Senator Tom Vickers, chair of the Education Committee.  Five days after the public hearing, on February 19th, the joint committee met in executive session to consider the fate of the legislation.  The committee first voted to amend the bill by:  (1) removing the provisions relating to agricultural land valuation; (2) allowing Class I districts to become part of existing Class VI districts; (3) providing that elementary school attendance sites would not be closed without a vote of the pre-reorganization district; (4) and providing that Class II districts falling below 25 enrolled students must close and merge only if the high school was within 15 miles of another high school.²³

The second and final vote taken by the joint committee served to officially advance the bill to General File, the first stage of floor debate.  The bill advanced by an 8-5 vote with one member present, not voting, and one member absent.  The motion for advancement required a minimum of eight affirmative votes from the 15-member panel.²⁴

The Controversy Widens

The first and second rounds of debate on LB 662 involved some of the most heated discussions among lawmakers in recent years.  Proponents argued for progress in public education while opponents fought for the survival of their rural communities.  The lobbying effort was relentless by education groups, school officials, and the general citizenry.  But the true drama of the controversial issue was yet to unfold.

On March 19, 1985, LB 662 had reached Final Reading, the final stage of consideration, and had survived a motion to indefinitely postpone and a separate motion to re-commit the bill to committee.  As the bill arrived on Final Reading, it maintained substantially the same provisions as it did upon advancement from committee.

Even when a bill arrives at the final stage, it is not uncommon for one or two additional amendments to be considered late in the process.  In such a case, a motion must be made to return the bill to Select File, in order for consideration of a single, specific amendment.  The "motion to return" must first pass before a second vote on the actual amendment can take place.  In most cases, if the motion to return passes, the amendment itself will likely also be adopted.  A separate motion is then made to re-advance the bill to Final Reading.²⁵

In the case of LB 662, no less than sixteen separate motions were filed to return the measure to Select File for specific amendment.  By any standard, this amounted to a substantial number of efforts to change provisions of the bill very late in the legislative process.  From April 10th through April 18th, the Legislature considered each separate motion.  Eight of the motions lost, two were withdrawn, and six passed, thereby amending the bill six additional times before a final vote to pass the legislation.

One of the approved motions to return would change the destiny of the bill.  On April 11, 1985, Senator John DeCamp of Neligh proposed an amendment that set in motion a firestorm of controversy.  The amendment proposed to increase the state sales tax rate by 1% (from 3.5% to 4.5%) in order to both increase funding for education and to provide property tax relief.²⁶  The proposed sales tax rate increase would occur on January 1, 1987 and would generate an estimated $44.5 million in state revenue per year.²⁷  The DeCamp amendment was adopted on a 29-6 vote. ²⁸

The success of the DeCamp amendment was partially due to a morning speech given by Senator Jerome Warner in which he cautioned his colleagues about committing the state to certain program expectations without proper financing.  The program expectations to which Warner referred had to do with a major commitment by the Legislature to boost funding to public schools.  It was this commitment, as much or more than the reorganization provisions, that gave particular significance to LB 662 in the history of Nebraska school finance.

Prior to the adoption of the DeCamp amendment, the Legislature had amended LB 662 with intent language to establish an "adequate financing system for primary and secondary public schools" recognizing that this was "ultimately a state responsibility."²⁹  The Legislature officially acknowledged that the existing funding of public education unduly relied upon "excessive or unfair property taxes as the financing base for such education system."³⁰  Accordingly, the legislation stated that no more than 45% of total operational costs of public schools would derive from property taxes beginning with the 1987-88 fiscal year.  The DeCamp amendment, therefore, was meant to finance the increase in school funding.  The 1% sales tax rate increase would become operative on January 1, 1987, and the bulk of this additional funding would be diverted toward state aid to public education.³¹

Senator Warner's concern was that the 1% rate increase might not produce enough revenue to adequately meet the funding objective of LB 662.  Senator Warner, who served as chair of the Appropriations Committee at the time, unsuccessfully attempted to amend LB 662 with a 2% sales tax rate hike.³²  Such an increase would have produced about $90 million in new revenue.  "The issue is, if you aren't willing to put the money in when you make the policy decision, you've done nothing," Warner said.³³

Senator Warner's experience with school finance and revenue issues was certainly well known among his colleagues.  However, as events would later tell, there was more afoot during the debate and last minute amendments to LB 662 than mere good intentions to fund public education.

In any event, the amended version LB 662 did foreshadow some of what the Legislature would incorporate into a comprehensive school finance measure five years later.  It served as a blueprint for the development of a well-designed distribution formula with an emphasis on study and research prior to enactment.  As amended, LB 662 created the Education and Taxation Advisory Committee, comprised of members of the Legislature, to:

1. Study existing laws and practices affecting the public educational system;
   
   
2. Study financing alternatives for public education;
   
   
3. Propose recommendations for providing quality education financed equitably, taking into account the diverse needs of the state, and conduct a public hearing on such recommendations on or before December 21, 1985; and
   
   
4. Present to the Legislature on or before January 1, 1986, the committee's recommendations for alleviating the inequities in the property tax burdens imposed to finance education and for addressing deficiencies in the current educational system.³⁴

The committee would be required to meet and confer with local and state education officials, consult with and utilize the services of agency staff, and even employ its own staff, as deemed necessary, to carry out its duties.³⁵

LB 662 was passed by the Legislature on April 18, 1985 by the narrowest of margins (a 25-23 vote).³⁶  Those monitoring the electronic voting board at the front of the legislative chamber observed that Senator John DeCamp, who proposed the 1% sales tax increase, initially pressed the green light for voting aye, until a majority had voted in the affirmative, at which time he changed his vote to nay.³⁷

Governor Bob Kerrey deliberated whether to sign or veto the bill until the very last hour of his allotted five-day consideration period.  On April 24, 1985, an estimated 2,000 people marched on the grounds of the Capitol to protest LB 622 but failed to personally meet with the Governor.  Finally, at 9:30 p.m., Governor Kerrey signed the bill into law.  "I have this evening signed into law LB 662," Kerrey said at the late night press conference.³⁸ He had until midnight to make his decision.

Governor Kerrey said he did not particularly care for the way small schools would be bullied into consolidation, but that the flaws in the existing organizational system warranted his support and action.  "I believe the uniformity of taxation which is possible under LB 662 is so desirable that I am willing to run the risks which now surround the tasks that face us," he said.³⁹ Kerrey made a public plea to the Legislature that the funding elements of LB 662 be eliminated through an amendment to another pending bill.  In short, he did not wish to have the 1% sales tax increase remain law for long.

However, if Governor Kerrey had any hope of cooperation from the Legislature, he would be disappointed, as would most observers believing in a nonpartisan Legislature, at least that particular year.  On April 26, 1985, Senator Tom Vickers, a Democrat, attempted to carry out the wishes of Governor Kerrey, a Democrat, by removing the 1% sales tax increase provision.  The Farnam area senator sought to amend a pending bill, LB 505 (1985), with an amendment to eliminate the sales tax increase contained in LB 662 (1985).⁴⁰  LB 505, sponsored by Senator Wiley Remmers of Auburn, proposed to increase funding for public education.⁴¹  After a very heated debate, the body voted against the Vickers amendment (21-23) generally along party lines.⁴²  At the time, there were 24 Republicans, 24 Democrats, and one independent among the members of the body.

Realizing he did not have the votes to pass, Senator Remmers felt pressured to indefinitely postpone his own bill on the same day.  His motion was approved.⁴³  While not all were playing politics on the issue, it was relatively clear that an attempt was made to place the blame of a tax increase on the last to touch it:  Governor Bob Kerrey.  "If Gov. Kerrey believes the financing mechanism of LB 662 creates problems, he shouldn't have approved a flawed bill in the first place," said Senator Bill Barrett, a Republican who opposed LB 662 but also opposed removing the 1% sales tax increase under LB 505.⁴⁴

Given the partisan nature of the issue, one might ask whether LB 662 was about school finance, school consolidation, a tax increase, or a means to shape the outcome of the 1986 gubernatorial election.  Perhaps it was a little of each.  At the time, the race for Governor was wide open since Kerrey had chosen not to run for re-election.  Some Republicans and party leaders may have felt that blaming the Democrats for the passage of LB 662 would enhance the odds for a Republican victory in the gubernatorial race.

Within a short time after Governor Kerrey signed the bill into law, a citizen-based group organized to repeal LB 662 through a vote of the people.  On one side of the petition movement were the supporters of Class I schools along with a considerable organization of business interests.  On the other side were many of the public education interest groups, including the State Board of Education, the Nebraska Association of School Boards, the Nebraska State Education Association, and the Nebraska Council of School Administrators.  The subsequent campaign, both for and against the petition, was hard fought with few if any tactics left unused, including legal challenges.

On August 30, 1985, leaders of the petition effort filed the remainder of the signatures gathered to place the measure on the 1986 General Election ballot.  Secretary of State Allen Beermann reported that the group had not only gathered sufficient signatures to place the issue on the ballot, but also sufficient signatures to suspend the enforcement of LB 662 until the people have spoken on the matter.  In total, 83,554 signatures were gathered from around the state and among the requisite number of different counties.  The petition group needed to gather valid signatures equaling 5% of the votes cast in the 1982 gubernatorial election to place the issue on the ballot (or 27,395) and twice that number, 10% (or 54,790), to suspend enforcement of the law.  Beermann also reported that the number of signatures gathered by the group to repeal LB 662 was the most gathered by any referendum or initiative petition drive in the history of Nebraska to that point in time.⁴⁵

Referendum 400 appeared on the November 4, 1986 General Election ballot and almost 68% of all registered voters participated in the election.⁴⁶  No doubt the heavily publicized and hard fought battle over Referendum 400 had a significant impact on the high turnout.  The ballot question to retain LB 662 was answered loud and clear.  No.  A full 66.5% voted against retention of the 1985 legislation while only 33.5% voted in favor.⁴⁷  No matter why voters voted the way they did, the outcome was the same.  LB 662 had been defeated.

Ballot Question:  Shall LB 662, enacted by the Eighty-Ninth Legislature of the State of Nebraska in its first session, the purpose of which are to require public elementary-only school districts to merge, affiliate or become a part of public school districts containing a high school, to limit the percentage of total operational costs of the public school system derived from taxes on real property, and to increase the amount of state financial support to the public schools through an increase in the state sales tax be retained?

Was it the school consolation issue or tax increase that sank LB 662?  Even a few of the advocates for Class I schools took the election results as less an endorsement of their small schools as a resounding defeat of a tax increase.  "Oddly enough," said Rick Baum of the Nebraska School Improvement Association, "it was the finance portion of the bill that seemed to pass the bill in the Legislature, but it was the finance portion of the bill that defeated the bill on the ballot."⁴⁸ The Nebraska School Improvement Association was instrumental in launching the referendum effort, but many believe it was the state and local chambers of commerce that had most to do with the success of the repeal effort.  The business community was simply unwilling to go along with a sales tax increase.

In fact, some attribute the tough stance taken by Republican candidate Kay Orr against the tax increase as a major contribution to her ascension to the Office of Governor in 1986.  Orr, who served as State Treasurer at the time, made the 1% sales tax increase a cornerstone of her 1986 campaign.  Helen Boosalis, the Democrat nominee for Governor, supported LB 662.  The war of words on the issue never ceased throughout the months leading up to the election.  At one point, Orr's campaign unveiled a television campaign advertisement that included the statement, "There is no doubt about it, LB 662, or Referendum 400, it's all a tax increase."⁴⁹  The advertisement emphasized Orr's position against the tax increase while promoting Boosalis' position in support.  "No doubt about it," a voiceover stated, "Helen Boosalis wants to raise your taxes and Kay Orr does not."⁵⁰  Kay Orr would win the election by a relatively close 53% to 47% margin (298,325 to 265,156).⁵¹

Following the emotional battle over consolidation in 1985 and the subsequent referendum election in 1986, the Legislature was literally back to square one at the outset of the 1987 Legislative Session.  Senator Ron Withem, chair of the Education Committee, took it upon himself to address the issue, but this time the hard-hitting provisions found in LB 662 (1985) would be absent.  The focus of the next attempt toward consolidation would be procedural in nature rather than overt attempts to force a reduction in the number of school districts statewide.  Senator Withem originally introduced LB 444 (1987) in order to change practices at the county level concerning reorganization efforts.  The bill lowered the number of petition signatures required to force a consolidation or change boundaries of school districts from 60% of the voters from each district affected to a simple majority of the voters in each district.⁵² The result of this change, as hoped by some proponents of the bill, would be to make consolidation efforts slightly easier for those who favor such a move.

"This bill doesn't close one single school in this state," Withem said, "It puts the decision back on the county level."⁵³  Nevertheless, opponents of the bill saw similarities to the legislation faced just a few years before.  "You're going to stir up hard feelings in small communities that have all the problems they need," Senator Jerome Warner said.⁵⁴  "It's not worth the price of tearing up a small community and waiting a generation for it to heal," he added.⁵⁵ But LB 444 was far from just a rural-oriented bill.

During General File debate, Senator Howard Lamb, a rural school supporter, successfully amended the bill to apply to urban Nebraska as well.  As amended, the bill required that, "Any independent school district within the incorporated area of a city of the metropolitan class shall be subject to reorganization... ."⁵⁶  The provision was specifically aimed, perhaps for political purposes, at Westside Community Schools (District 66) in Omaha.  The Lamb amendment would subject the urban school district to the same reorganization provisions as any other school district in the state.  The amendment, according to Lamb, was not vindictive so much as a statement against consolidation in general.  Said Lamb, "I believe District 66 should be left alone just as much as the (small districts) should be left alone."⁵⁷

As the bill moved though the legislative process, the old dividing lines between lawmakers on the issue of consolidation were appearing once again.  By the time the bill cleared second-round approval (on a close 26-14 vote), it was clear to most that another showdown was on the near horizon.⁵⁸  Governor Orr, trying to avoid the same situation faced by her predecessor, Bob Kerrey, agreed to "pledge her support" to further study and asked that the bill not be considered on Final Reading.⁵⁹  Withem relented and LB 444 faded into legislative history, but the bill did serve as a catalyst for an interim study and later a comprehensive study on school organization and finance.