1990: Review

In the history of the Nebraska Legislature, there are very few bill numbers that have the fame or infamy of Legislative Bill 1059.  There were bills under the same number designation before 1990 and since, but anyone remotely interested in politics and education in the 1990s, and even today, would conjure the same legislative topic upon hearing the number "1059."

LB 1059 (1990) was the embodiment of the final report from the School Financing Review Commission, which was established two years earlier.  LB 1059 arguably represents one of the most remarkable feats of political achievement in the modern era of Nebraska history.  The bill would be passed by the Legislature during a 60-day (short) session, perhaps the most unlikely scenario for a measure proposing wide-sweeping education and revenue reform.  The bill would accomplish a major shift in the source of funding for Nebraska's public schools with the promise of property tax relief in exchange for income and sales tax increases.  Finally, LB 1059 would not only survive a gubernatorial veto, but also a popular referendum seeking its repeal.  In the final analysis, the people would have the final say on this legislative proposal.

LB 1059 created the Tax Equity and Educational Opportunities Support Act.  The measure provided legislative intent to create a finance system that (i) provides state support for 45% of aggregate general fund operating expenditures of districts, (ii) reduces reliance on property tax for support of schools, and (iii) assures greater equity of educational opportunities for students and also property tax rates for support of schools.

LB 1059 dedicated 20% of all income tax receipts collected by the state net of credits and refunds and directed the return of 20% of identifiable individual income tax receipts to the school district where such originated.  The measure required the Department of Education to place all school districts in average daily membership tiers of comparable size in order to calculate each school district's tiered per student costs for use in the equalization formula.  The legislation provided for a hold harmless provision such that a district would not receive state aid for the first three years of implementation that is less than 100% of aid received in 1989-90.

LB 1059 created a minimum levy provision so that no district would receive state aid in an amount that would result in the district having a general fund tax levy of less than 60% of the local effort rate.  The legislation proposed the use of adjusted valuation for purposes of calculating state aid, although this provision would take a few years for final implementation.  The measure limited growth in school district budgets based on allowable growth rates to be set annually by the Legislature.  The basic allowable growth rate was set at 4% and the allowable growth range was set at 4% to 6.5%.  Specific exceptions to the lid were provided for (1) new or expanded programs or services mandated by changes in state or federal law, (2) a districts' project enrollment increases for the ensuing school year, (3) construction, expansion, or alterations of school buildings, and (4) additional special education students who enroll in the district.

LB 1059 created a school finance review committee to monitor implementation of the new finance plan and suggest needed revisions.  The committee would review the implementation and operation of the average daily membership tiers, budget growth limitations, the need for a continuing hold-harmless provision for state aid, and expenditures of districts.

The 1990 Session would also mark the year for resolution of the long-standing issue of Class I district affiliation and the common levy.  In 1990, there were 278 K-12 school districts in Nebraska.  There were also more than 600 Class I school districts.  Within about two-thirds of the Class I districts, property was taxed to support the elementary school and a nonresident tuition fee was assessed to cover the cost of educating Class I students in neighboring high schools.  The other one-third of Class I schools were part of Class VI (high school only) districts.  Class I schools had been alleged as being tax havens for patrons residing in such districts due to the often lower tax levy than that found in high school districts.

LB 259 (1990), the affiliation bill dovetailed nicely with the intent and provisions of LB 1059 to implement a new school finance system and to address tax equity, both for the good of public education and for taxpayers.  Under the provisions of LB 259 all real property and all elementary and high school students shall be in school systems that offer education in grades K-12 by July 1, 1992.  A Class I district could either merge, become part of a Class VI district, or affiliate with one or more Class II, III, IV, V, or VI districts.  Bonded indebtedness incurred for high school facilities prior to the adoption of any affiliation plan would remain the obligation of the high school district unless otherwise specified in the petitions.  The measure provided that, on July 1, 1994, the budget of operational expenses of each high school district and Class I district in an affiliated school system must be certified to the county superintendent and county assessor for computation of an affiliated school system (combined) tax levy.

Following the 1990 Session, small school advocates and Class I supporters formed a petition movement called Operation Fight Back.  The movement chose to utilize the initiative petition process to outright repeal LB 1059, the new school finance formula, although it did not repeal LB 1059A, the accompanying appropriation bill.  The petition also proposed to repeal LB 259 (1990), the affiliation and common levy bill, and also LB 940 (1988), which created intent language to form K-12 school systems and established a sunset provision for use of nonresident tuition fees.  The petition also proposed to repeal the bulk of LB 611 (1989), which among other provisions would cause the automatic termination of the School Foundation and Equalization Act, the old school finance formula.  However, on July 6, 1990, the petition movement admitted that it had not secure enough signatures to place the initiative on the General Election ballot.

The Nebraskans Against Higher Taxes, a coalition of business interests, did obtain sufficient signatures to place a referendum to repeal LB 1059 and LB 1059A on the 1990 General Election ballot.  On November 6, 1990 the voters made their choice in favor of LB 1059, in favor of the Legislature, and in favor of public education.  Over 56% of the voters voting on the referendum supported retention of the school finance law and of raising their taxes to support K-12 education.  Many of the rural counties supported the measure by 2-1 or 3-1 margins.  Voters upheld the school finance legislation in 76 of the 93 Nebraska counties.