The 1996 Legislative Session

LB 1114 and LB 299 - Levy and Spending Lids

Genesis - LR 93CA/petition drives

The 1996 Session produced some of the most important legislation in the history of the State of Nebraska, its local governments, and its taxpayers.  By the end of the session, school districts, educational service units, and all other political subdivisions, would be faced with statutory property tax levy limitations, and taxpayers would be given the impression that their property tax bills would be reduced.  The property tax relief package of 1996 actually consisted of six separate bills, of which five passed and became law, including LB 1114.  Legislative Bill 1114 would change the way local governments operate, and, for the public school sector, eventually result in necessary changes in the school finance system.

The genesis of the levy lids under LB 1114 involved both immediate political circumstances and the long-standing, perhaps overdue issue concerning the overall property tax burden in Nebraska.  By 1995 there were already movements afoot by tax activist groups and other organizations to pursue petition efforts designed to limit property tax rates.  The considered opinion among these groups was that any such limitation ought to be placed in the Nebraska Constitution rather than state statute, thus providing more permanence.  In fact, some prominent members of the Legislature would join, albeit briefly, the idea of using the Constitution rather than statute to implement the levy limitations.  Nevertheless, the petition drives, coupled with Governor Nelson's personal agenda to control government spending, brought a sense of urgency among some legislators to act on the issue.

The sense of urgency became apparent by the unusual introduction of a legislative measure late in the 1995 Session.  On April 12, 1995 (the 61st day of the 90-day session), the Legislature agreed to Senator Jerome Warner's request to suspend the rules in order to permit the consideration of a constitutional amendment to limit local property tax rates.¹ Legislative Resolution (LR) 93CA would produce the first look at an array of tax lids on various political subdivisions, an array which would essentially become part of the subsequent statutory solution contained in LB 1114 a year later.

From a larger perspective, most state lawmakers viewed the property tax issue as a matter of crisis proportions.  Something, they felt, must be done to reduce the property tax burden.  This was particularly evident during the floor debate on Warner's motion to introduce LR 93CA.  Senator Stan Schellpeper, a co-sponsor of the resolution, rose to support the resolution and said perhaps what many were thinking:

I think everybody realizes that we have to do something.  To do nothing is not acceptable.  I think there's going to be some referendums on the ballot if we do nothing, and hopefully this [LR 93CA] will give the taxpayers and the voters an alternative, something that will be fiscally sound, that we'll know exactly where the dollars are going to come from and who they're going to come from and where they're going to be going. ... We need to take that first step to property tax relief in this state.  It's past due, something has to happen, and I think this is a way to go about it that we can have a solution, hopefully, to some type of property tax relief in this state.²

Both rural and urban senators alike were united on the existence of a problem, as indicated by the unanimous vote to suspend the rules and permit introduction of LR 93CA late in the 1995 Session.³

And it certainly did not hurt their cause, or the timing of events, to have the senior-most member of the Legislature, Senator Jerry Warner, serving in the capacity of chair of the Revenue Committee at the time.  The Legislature had, among its own membership, a man who could personally attest to decades of attempts by the Legislature at property tax relief.  In fact, Senator Warner's three decades of experience in the Legislature would not only help pave the way for a seemingly viable legislative solution, but also create an atmosphere of relative trust, although perhaps not total agreement, among the body.

The sense of trust, agreement, and recognition of leadership was apparent during the debate on Senator Warner's motion to introduce LR 93CA.  The senator distributed a handout to his colleagues on the floor that outlined very succinctly the past legislative efforts at property tax relief.  Some of the efforts noted by Senator Warner may have, in reality, been more reactionary than proactive, but the result was the same.  He noted, for example, that the Legislature had adopted sales and income taxes in 1967 "to broaden the tax bases available to Nebraska government and lessen the burden of the property tax."⁴ Of course, the adoption of a new state tax base was inevitable in 1967 since the voters of Nebraska had approved the 1966 initiative measure to eliminate the state property tax.  The Legislature simply had no choice.

The Legislature did have a choice, as did the voters ultimately, in the passage of LB 1059 (1990), which Senator Warner pointed out as having a major influence toward lowering property taxes, at least for a period of time.  The handout distributed by Senator Warner claimed that LB 1059 represented the "largest property tax relief bill" in the history of Nebraska.  The document further claimed:

Over the two years it took to be fully implemented, LB 1059 provided over $250 million in property tax relief.  Actual property taxes levied fell by more than 5 1/2% immediately.  What's more, unlike some other programs, all proceeds from the tax increases passed in LB 1059, continue to flow to school aid, giving some permanence to the relief provided.  1994-95 marked the first year in which the property taxes levied for the operation of schools exceeded the amount levied in 1989 in actual dollars.⁵

In fact, upon the passage of LB 1059 in 1990, some viewed it as a school finance bill with a collateral impact to reduce property taxes while others viewed it primarily in terms of a property tax relief measure.

Senator Warner's handout noted the "inadequacy of past efforts" at sustained property tax relief, which gave rise to the concept of permanent levy limitations as proposed under LR 93CA.⁶  The handout outlined three goals to help guide the discussion process that would follow:  (1) Restructuring local and state government services in Nebraska; (2) Reducing the use of the property tax to finance public services; and (3) Restructuring state aid to local government to enable reaching goals (1) and (2).⁷  The handout hinted at the virtue of levy limitations in relation to the issue of equity for both services and tax rates:

The levy caps would also tend to make property tax levies more uniform statewide for the same services, dealing with one of the greatest disadvantages of the tax as it exists in Nebraska.  The fact of a cap will prevent, to a great extent, the rising cost of providing government services from being reflected in greater and greater property tax rates.  Certain services, especially those with high growth rates, may have to be shifted to the state.⁸

The key, of course, was the extent to which state government would be willing to absorb the shift in financial responsibility, an issue the Legislature would bat around in various directions in subsequent years.

LR 93CA specified an array of levy lids for various categories of political subdivisions based upon each $100 of actual market value of the taxable property subject to the levy.  The school general fund operating levy limit was established in the proposal as $1.00.  Municipalities would be subject to a 60¢ lid, unless the property within the municipality also was subject to a separate fire district levy.  In such a case, the municipality would be subject to a 50¢ lid.  Fire districts would be allotted a 10¢ limit, sanitary improvement districts, a 50¢ limit, and county governments, a 30¢ limit.  Community colleges would exist under a 7¢ cap while natural resource districts would be subject to a 3¢ cap.  The only exclusion to the levy limits was bonded indebtedness since bond levies are generally adopted by a local vote of the people, a choice that would be preserved in this proposal.⁹ Educational service units were ignored in the proposal, as were such other entities as county agricultural societies, libraries, airport authorities, and public building commissions.  These entities, it was believed, would have to compete for funds from the other entities that were allotted levy authority.

A public hearing for LR 93CA was held on May 1, 1995 before members of the Revenue Committee.  The hearing was conducted during a legislative recess day with the principle hearing location at the State Capitol in Lincoln.  Satellite television connections were also established in Kearney, Chadron, North Platte, Norfolk, Scottsbluff, Omaha, and Hastings.  The hearing lasted for nearly eight hours and managed, as Senator Warner hoped, to bring to the forefront the opinions of both private citizens and representatives of local governments.  Interestingly, there was widespread support for the proposal with a recurring recognition that a property tax "crisis" or at least problem existed in Nebraska.  Naturally, those with an understanding of the legislative process had the advantage of knowing that LR 93CA would likely not have a chance to advance in the 1995 Session.  But then neither Senator Warner nor perhaps any other member of the Revenue Committee actually believed the resolution was meant to go the distance in 1995.

LR 93CA may have represented, as much as anything else, a hopeful signal to all concerned that the Legislature was on top of the issue and would, in fact, address the issue in due time.  There was still a concern among some legislators that, absent any sign of leadership from their end, a well-organized citizen action group would likely take the matter into their own hands and succeed with a petition effort.  In essence, LR 93CA had to be seen by some as a means to stall on the issue long enough to undertake a serious study of the issue and then pursue a final proposal in the 1996 Session.  And that was exactly what happened.

One of the most interesting outcomes of the hearing for LR 93CA had nothing to do with what was emphasized so much as what was not emphasized.  Very few testifiers outwardly questioned the problems inherent in placing levy limits in the Constitution rather than in statute.  This is not to say, however, that such discussions were not happening behind the scenes.  In fact, the issue was a central point of discussion among representative groups for various political subdivisions, including schools, municipalities, counties, and community colleges.  Many of these groups would ultimately form a coalition to address the issue of property taxes from the perspective of local governments.

In 1994, a variety of associations agreed to meet and discuss possible solutions to overhaul the state's property tax system without sacrificing necessary government services and functions.  The meetings were primarily held at the offices of the Nebraska State Education Association (NSEA).  Eventually, the group would form the "Citizens for Responsible Tax Policy," a coalition comprised not only of local government-related associations but also such notable groups as the Nebraska Farm Bureau.  By 1996 the coalition was largely disbanded with the exception of two gourps, the NSEA and the Farm Bureau, due to disagreements about whether to place a property tax solution within the State Constitution.  The remaining two groups would eventually pursue an initiative petition campaign to impose levy limitations within the Constitution.¹⁰

The Package

As noted earlier, the property tax relief package of 1996 was comprised of six separate measures (five bills and one constitutional amendment) of which five (four bills and one constitutional amendment) would pass, but only four would ultimately become law.  Five of the six measures would be designated as individual senator priorities for the 1996 Session, and two of these five prioritized measures would be granted further designation as Speaker major proposals ("super priorities").

Legislative Resolution 292CA (1996), which was prioritized by Senator Owen Elmer of Indianola, represented a constitutional amendment to provide the Legislature authority to establish methods for counties to merge with other counties or with cities.¹¹  Such mergers could occur only by vote of the affected citizens.  The measure would allow separate tax rates on property inside and outside cities to facilitate mergers and consolidations.  It also would remove constitutional requirements concerning distribution of motor vehicle taxes, the effect of which would permit only counties, cities, villages, and school districts to receive motor vehicle tax proceeds.¹²  LR 292CA was passed by the Legislature on a decisive 46-1 vote and placed on the November 1996 General Election ballot.¹³  However, the voters would have the final word on this proposal, and the word was "no."  LR 292CA, which became Amendment No. 2 on the 1996 General Election ballot, failed to pass by a margin of 47% (for) to 53% (against).¹⁴

Legislative Bill 1176 (1996), which was the only measure of the 1996 property tax relief package lacking a priority designation, would have established a fee-based system in place of the property tax system on motor vehicles.  The legislation would also establish a statutory distribution of motor vehicle fee revenue among political subdivisions.  LB 1176 was advanced to first-round debate by the Revenue Committee, but did not pass.  It was generally believed that LR 292CA would first need to be approved by the voters before any such legislation could be passed by the Legislature.  Since LR 292CA (i.e., Amendment No. 2) failed at the 1996 General Election, the idea of a fee-based motor vehicle tax would have to wait until after approval of a similar constitutional amendment in 1998.

Legislative Bill 1177 (1996), prioritized by Senator Jan McKenzie of Harvard, created the Municipal Equalization Fund for the purpose of providing state-funded equalization aid to qualifying municipal governments beginning July 1, 1998.¹⁵  The dollar amount of such state aid would be equal to (1) the municipality's per capita property tax levy multiplied by the municipality's current population, minus (2) the municipality's average property tax levy multiplied by the certified valuation of taxable property within the municipality.  The measure also contained a number of provisions pertaining to the joint financing and operation of public safety services under Nebraska's Interlocal Cooperation Act.  Among other things, the provisions (1) authorized counties to levy sales and use taxes in certain instances and (2) granted additional property tax levy authority under some circumstances.¹⁶  LB 1177 passed on a 43-3 vote.¹⁷

Legislative Bill 1085 (1996), prioritized by Senator Bob Wickersham of Harrison, and contained a number of property tax-related provisions aimed principally at county government.¹⁸  The measure contained procedures for the use of "preliminary" and "final" property tax levies; changed provisions governing the state assumption of county assessment functions; changed certain levy powers of county boards; changed procedures for inter-county and intra-county consolidation; provided for a study of natural resources districts; and changed residency requirements for certain county officers.¹⁹

LB 1085 required county clerks to certify a preliminary property tax rate for each political subdivision by September 10th each year.  The preliminary property tax rate was calculated by dividing the amount requested for property taxes in the budget of the previous year by the final valuation in the political subdivision for the current year.  The preliminary levy would be deemed final unless changed by the political subdivision's governing body before October 15th following the adoption (by a majority vote and after holding a special public hearing) of an ordinance or resolution setting the levy at a different amount.²⁰  LB 1085 passed on a 45-0 vote.²¹

The other two pieces of legislation were LB 1114 (1996), concerning levy limitations for political subdivisions, and LB 299 (1996), concerning spending/resource limitations for political subdivisions.

LB 1114 - Introduction and Hearing

On February 1, 1996 the Revenue Committee held another historic public hearing on the issue of property tax levy limitations on local governments.  The focus of this hearing was LB 1114, a statutory solution to the property tax issue based in part on the proposal set forth in LR 93CA (1995).  LB 1114, sponsored by Senator Warner, was introduced as a direct result of interim studies, hearings, and numerous meetings conducted a year earlier.  As demonstrated in Table 49, the statutory solution embodied in LB 1114 was very similar to the constitutional solution proposed in LR 93CA (1995).²²

Table 49.  Comparison Chart of LR 93CA (1995), LB 1114 (1996)
as Introduced, and LB 1114 (1996) as Passed

	LR 93CA (As introduced) Beginning in FY2000-01	LB 1114 (As introduced) Beginning in FY1998-99	LB 1114 (As passed)
			Beginning in FY1998-99	Beginning in FY2001-02
Public schools	$1.00	$1.10	$1.10	$1.00
Municipalities	.50a	.50b	.45d	.45d
Sanitary improve. dist.	.50	.10	.40e	.40e
County governments	.30	.30c	.50f	.50f
Community colleges	.07	.075	.08	.04
Natural resource districts	.03	.045	.045	.045
ESUs	--	.01	.015	.015
Fire districts	.10	--	--	--
Other political subs.	--	.12	.15	.15
TOTAL LEVY	$2.50	$2.25	$2.74	$2.60

^a A municipality with no fire district may levy up to another 10¢.
^b Plus up to another 10¢ for interlocal agreements.
^c Plus up to another 15¢ for interlocal agreements.
^d Plus up to another 5¢ for interlocal agreements.
^e Only for SIDs that have been in existence for more than five years. SIDs that have been in existence for five years or less would not have a maximum levy.
^f Except that 5¢ may only be levied to provide financing of interlocal agreements. The county may allocate up to 15¢ of its authority to all other political subdivisions not specifically named in the legislation.

Sources:  Legislative Resolution 93CA, Constitutional amendment to establish ad valorem property tax limitations for political subdivisions, sponsored by Revenue Committee, Nebraska Legislature, 94th Leg., 1st Sess. 1995, title first read 12 April 1995; Legislative Bill 1114, Change and provide limits on property tax levies for governmental subdivisions, sponsored by Sen. Jerome Warner, Nebraska Legislature, 94th Leg., 2nd Sess., 1996, title first read 8 January 1996; Legislative Bill 1114, in Laws of Nebraska, Ninety-Fourth Legislature, Second Session, 1996, Session Laws, comp. Patrick J. O'Donnell, Clerk of the Legislature (Lincoln, Nebr.: by authority of Scott Moore, Secretary of State).

LR 93CA provided for only one exception to the levy limitations.  The constitutional amendment provided that bonded indebtedness secured by a levy on property would not be included within the limitations.²³  LB 1114, as introduced, also would contain one exclusion to the levy limits, which was bond debt secured by a levy.²⁴ It was obviously the intent of the sponsors for both measures to avoid the political game of adding levy exclusions, which would thereby create additional levy authority for political subdivisions.  But bond debt was viewed as a reasonable exclusion since most bond debt occurs as a result of a bond election and approved by the people.  The bond debt levy exclusion was in keeping with the political philosophy that the decision of the people reigns supreme over any action taken by the Legislature.  In any event, the lobbying groups representing political subdivisions had everything to gain and nothing to lose by advocating an expanded array of levy exclusions under LB 1114.  And, at least to some degree, they succeeded.

During the hearing for LB 1114 on February 1, 1996, lobbyists and member representatives from school boards, community colleges, municipalities, hospitals, educational service units, and sanitary and improvement districts all testified in opposition to the legislative proposal.  In fact, there was emphatic opposition to the concept of levy limitations.  This was in stark contrast to the LR 93CA public hearing a year earlier when the content of most testimony focused on recognition of the problem and the willingness to participate in a solution.  This may have been due in part to the nature and venue of the public hearing for LB 1114 in relation to LR 93CA.  In 1995 the public hearing for LR 93CA was conducted in a very public setting via satellite connection to eight different Nebraska communities, including the base site in Lincoln.  The public hearing for LB 1114 was conducted as part of the normal hearing schedule, with no special provisions for participation or testimony.  Only those who chose to make the trip to Lincoln would observe and/or participate in the hearing.

Brian Hale, representing the Nebraska Association of School Boards (NASB), said his organization opposed the bill "as a stand-alone measure."²⁵  Hale noted that the NASB supported the concept of levy limitations so long as there was an adequate replacement funding mechanism.  Said Hale:

Our opposition to the bill is generated from the perspective that, as a piece of legislation unaccompanied by replacement revenue, this bodes pretty ominous for school districts.  Limiting school districts to a levy of $1.10 without the prospect of additional state support would be crippling to many districts, and it would hit our poorer evaluation districts in our analysis the hardest.²⁶

Neither LB 1114 nor any companion piece of legislation in 1996 offered replacement revenue to school districts.  Hale did say, however, that his organization preferred a statutory rather than constitutional solution if levy limits were to be implemented.

Dennis Baack, representing the Nebraska Community College Association, opposed the bill based upon the dramatic impact the levy limits would have on local colleges.  Baack said community colleges were already under statutory limitations that permitted a maximum tax rate of no higher than 13.3¢, including extra levy authority for capital improvements.²⁷ LB 1114 would reduce community colleges to a maximum 7.5¢ levy, which would force local colleges to raise tuition and fees to compensate.  This, of course, was not a surprise to members of the Revenue Committee who knew that shifts in funding and resources would naturally arise under a system of levy limitations.

Mary Campbell, representing administrators and boards of educational service units, echoed the concerns expressed by previous testifiers concerning the loss of revenue and the general impact upon ESUs.  She also noted, however, that LB 1114 had at least one positive component in that the legislation actually granted ESUs levy authority where LR 93CA (1995) did not.  "In many ways," she said, "LB 1114 is kind of a refreshing change for the ESUs in that it's not eliminating ... their tax-levying authority outright and, for that, we are most appreciative and willing to have this kind of discussion today."²⁸ However, she noted, the amount of levying authority provided under LB 1114 represented a sizeable decrease in revenue sources.  This in turn would have an impact on the services that ESUs were able to provide to member school districts.

Testifying in a neutral capacity, Jack Mills of the Nebraska Association of County Officials (NACO) applauded the effort of the Revenue Committee.  "First, it's my opinion that you have the vehicle here, of all of the vehicles that I've seen thus far, to begin your march toward some solution," Mills said.²⁹  He noted, however, "It's going to cause some pain."³⁰  Mills also raised an interesting constitutional issue with regard to the proposed legislation.  He noted that the State Constitution already contained a 50¢ levy limitation for county governments.³¹  The constitutional levy limit was one of the successful ballot issues at the 1919-20 Constitutional Convention.³²  Mills further noted that the introduced version of LB 1114 provided for a 30¢ levy limit for counties, which clearly did not correlate with the constitutional provision.  Ultimately, this situation would be addressed in the committee amendments to the bill by allotting county governments 50¢ total levy authority including 5¢ for interlocal agreements and up to 15¢ for levy authority to political subdivisions that did receive specific levying authority under LB 1114.³³

Following the public hearing for LB 1114, the Revenue Committee would meet in executive session four separate times between February 28 to March 7, 1996 to consider action on the legislation.³⁴  The committee adopted seven amendments to the bill before taking a final vote on March 7th to advance the bill by a 7-1 vote.³⁵

Table 50.  Executive Session Report, LB 1114 (1996)

Date	Motion	Motion by	Vote
Feb. 28	Motion to amend by adding the provisions of LB 1062 (1996), giving counties control of the levies of miscellaneous districts.	Will	7-1
	Motion to allow political subdivisions to exceed the levy caps with a vote of the people and also allow miscellaneous political subdivisions to exceed the limits at a "town hall" meeting attended by a quorum of at least 10%.	Will	7-1
Feb. 29	Motion to create two-stage levy restrictions for schools and community colleges.	Coordsen	8-0
Mar. 6	Motion to amend by adopting harmonizing and clean-up language.	Kristensen	8-0
	Motion to amend by adopting a 7¢ limit for community colleges.	Kristensen	6-2
	Motion to amend to allow an exemption for federal impact aid.	Hartnett	8-0
Mar. 7	Motion to amend by changing the community college levy caps from 7¢ in 1999 and 6¢ in 2002 to 8¢ and 4¢.	Will	7-1

Source:  Committee on Revenue, Executive Session Report, LB 1114 (1996),
Nebraska Legislature, 94th Leg., 2nd Sess., 1996, 1-4.

It was during the closed sessions that members of the Revenue Committee decided to utilize a two-stage, phase-in of the maximum levy for schools.  The maximum levy would be initially set at $1.10 beginning in fiscal year 1998-99 and would automatically lower to $1.00 beginning in fiscal year 2001-02.  The idea was to give schools a chance to gradually make the financial and operational adjustments necessary to arrive at the legislative goal for a uniform one-dollar levy.  In order to assure themselves that school districts would in fact adhere to their timeline and make the necessary adjustments, the Revenue Committee decided upon a temporary spending authority restriction, which was embodied in LB 299 (1996).

LB 299 - Introduction and Hearing

Legislative Bill 299 had a much different legislative history than LB 1114, but the two measures would eventually become mutually essential components of the 1996 property tax relief package at least from the perspective of lawmakers.  Introduced in the 1995 Session by Senator Warner, the original purpose of LB 299 was to create a legislative vehicle to increase the sales and income tax rates.³⁶ It is not unusual for the chair of the Revenue Committee to introduce such a bill in the event that it becomes necessary for the Legislature to consider tax increases.  LB 299 was never used for its intended purpose nor was it advanced from committee in 1995.  It was, therefore, an available vehicle in the 1996 Session to be used as needed.  And there would be a need.

The Revenue Committee decided to "gut" LB 299 and use it, in legislative terms, as a "shell bill" to house the expenditure limitations in conjunction with the proposed levy limitations.  The committee amendments to LB 299 replaced the original provisions of the bill to provide an expenditure limit on all political subdivisions that have the authority to levy a property tax for two years only, fiscal years 1996-97 and 1997-98.  The purpose was to "bridge the gap between now and the imposition of levy caps" to be imposed under LB 1114.³⁷ In essence, the purpose was to force political subdivisions to begin the process of evaluating services, existing operations, necessary personnel, etc.

As advanced from committee, LB 299 would essentially provide a uniform spending lid on political subdivisions for the two-year period prior to enactment of the levy limitations.  For 1996-97, the lid would equal 2% over the prior year budget plus growth in population, if applicable.³⁸  Growth in population, for school districts, would mean the percentage increase or decrease in average daily membership compared to the prior school year.³⁹  For 1997-98, the lid would equal 0% over the prior year budget plus growth in population.⁴⁰  The committee amendments excluded financing for capital improvements, expenditures in relation to interlocal agreements (for two fiscal years only), and expenditures to repair damage to infrastructure due to natural disasters.⁴¹  Political subdivisions would be allowed to carry forward unused budget authority.⁴²

One of the problems with the committee version of LB 299 was that it treated all political subdivisions in the same manner in terms of how budgets were constructed.  Since the inception of the TEEOSA in 1990, school districts were held to a lid based upon spending patterns, but did not have a limit on property tax levy authority.  The idea was that schools could only utilize the amount of tax revenue permitted by their applicable allowable growth rate (i.e., their spending limit).  Schools might be able to collect a certain amount in tax revenue, but they could only spend that amount permitted by the spending limit.  On the other hand, cities, counties, and all other political subdivisions utilized a restricted fund budget system.  Under such a plan, the budget growth was tied to the tax resource growth.  In other words, a city council, for example, could roughly spend the amount collected in tax revenue.

For political subdivisions other than school districts, therefore, the type of budget lid proposed under LB 299 was not all that different than what had existed prior to 1996.  School districts, however, had existed on a more flexible spending lid in order to account for past spending patterns and other cost requirements unique to schools (e.g., special education services).  The school lid also was designed to address the issue of equity among school districts, large and small, rural and urban, etc.  The lid proposed under LB 299 provided no such flexibility to schools for a period of two fiscal years.

Another problem with the committee version of the bill was that it repealed outright those sections of the school finance formula relevant to expenditure lids.  Whether intended or not, once the "LB 299 lids" expired after the 1997-98 fiscal year, school districts would have no expenditure limitations on which to fall back since the "TEEOSA lids" would have been eliminated.  Perhaps the intent was to simply place all political subdivisions in the same budget structure.  Perhaps the intent was to address the post-LB 299 spending limitations during the 1997 or 1998 Legislative Session.  In any event, the issue would emerge several times during floor debate.

LB 299 and LB 1114 may have had different legislative histories in the beginning, but they would be intertwined for the remainder of the 1996 Session.  These two bills represented the cornerstone of the property tax relief package.  This was made particularly evident on March 12, 1996 when the Legislature's Executive Board approved Speaker Withem's sugggestion that the measures become two of the first "major proposals" under a new rule of the Legislature.⁴³

At the beginning of the 1996 Session, the Rules of the Legislature were amended to allow the Speaker to designate up to five measures as "Speaker major proposals" (often referred to as "super priorities").⁴⁴  In order to qualify as a major proposal, the measure must also have been designated as a senator priority or otherwise represent a general appropriation (budget) bill, and all major proposals must be approved by a two-thirds vote of the Executive Board.  But perhaps the most interesting aspect of major proposals was that they take precedence over all other prioritized measures and permit the Speaker to establish an order for debate on pending amendments and motions.⁴⁵  This newly vested power in the hands of the Speaker would prove helpful during the debate on LB 299 and LB 1114.  "I expect these two bills will be knock-down, drag-outs until the very end," Speaker Withem predicted in announcing his decision to designate the two lid bills as super priorities.⁴⁶

General File Debate on LB 1114

Floor debate on the 1996 property tax relief package began on March 19th (the 45th day of the 60-day session).  The Legislature gave quick and resounding first-round approval to LB 1085, a bill to provide procedures for merging county offices within or between counties.⁴⁷  But the relatively smooth advancement of LB 1085 did not leave some veteran lawmakers any allusions.  "The debate's gone well, although these are still the warm-up bills," said Senator Roger Wehrbein of Plattsmouth.⁴⁸  Senator Warner agreed with Wehrbein's assessment.  "There seems to be a good level of support for the broad issues," Warner said after the debate.⁴⁹  "The real test comes on the next two bills," he added in reference to LB 1114 and LB 299.⁵⁰

While the early success of the property tax relief package bolstered the hopes of its proponents, it did not deter opponents of the legislation to launch a full-scale lobbying effort.  Members of the Nebraska State Education Association (NSEA) held vigil in the Capitol rotunda during the first day of debate and urged senators to understand the consequences to schools and children.  The NSEA paid travel expenses to about 75 teachers who appeared at the Capitol that day and even paid the cost of hiring substitute teachers to their employer schools.  The teachers were briefed earlier in the day by NSEA President Craig Christiansen and encouraged to tell senators how the spending lids under LB 299 would eliminate teaching positions and limit opportunities for students.⁵¹

Two days after the initial debate, the Legislature would resume discussion of the property tax relief package.  Shortly after the lunch recess, on March 21, 1996, the body commenced debate on one of the most significant pieces of legislation in the history of Nebraska.  Proponents would ultimately view the legislation as a great victory for the taxpayer while opponents called it a lid on essential services or, from the school perspective, a "lid on kids."  Unfortunately for the opponents, their ranks consisted mostly of those with a vested interest in the status quo, and most state senators were listening to the taxpayer side of the issue rather than the concerns of teachers, city officials, and the like.  The political atmosphere of the day simply did not bode well for those who opposed the perceived elemental truth that a property tax crisis existed and had to be addressed.  It was not so much a matter of whether LB 1114 would pass as what formit would pass.  It was a matter of haggling over details rather than general, conceptual acceptance.  To be sure, there were a few narrow, close votes on some crucial amendments and even some lukewarm votes to advance.  But the vote to pass would be considered solid even by those interested parties who vainly hoped for a different result.

Lobby groups, particularly from schools and municipalities, worked feverishly to point out the folly of spending and levy limits, both to the public and to individual senators.  At the same time, however, most saw the "writing on the wall" clearly enough to work quietly with key legislators in an effort to carve some livable space within the proposed limitations.  Interest groups for public schools knew in advance that several crucial pro-education senators would likely vote to adopt levy limitations.  These leaders included Senator Ardyce Bohlke, then chair of the Education Committee, and Speaker Ron Withem, chief architect of the existing school finance formula.  Both legislators ultimately voted to pass LB 1114 and LB 299.  But both also helped to alleviate as much anticipated financial misery to schools as politically possible.

Similar to other major legislative battles, the principle proponents and antagonists of LB 1114 made their presence known early in the legislative process.  During General File debate on March 21, 1996, it was quickly apparent that a few members of the Revenue Committee, particularly Senator Warner and Senator Doug Kristensen of Minden, would lead the proponent discussion on the bill.  They would serve as the unofficial "point people" to whom others would look for guidance to understand the measure and, perhaps, to seek support for possible amendments.  Naturally, the pressure would be placed squarely on the principle proponents of the bill to sell the concept to their colleagues.  Once again, Senator Warner's reputation as a thoughtful and highly regarded lawmaker certainly did not hurt the prospects of the pro-levy limit camp.

Two of the principle opponents of the bill were Senator Dave Maurstad of Beatrice and Senator Chris Beutler of Lincoln.  Senator Maurstad, a former school board member and mayor of Beatrice, would primarily focus his attention on the concerns raised by municipalities.  In 1996 Senator Maurstad was serving in the second year of his four-year term of office.  Senator Beutler, on the other hand, was a seasoned veteran of the Legislature in 1996, having been first elected in 1978, and, after resigning in 1986, was elected again in 1990.  Senator Beutler was particularly concerned about the impact of levy limits on public schools and also natural resource districts.  At the time, Senator Beutler was serving as a member of the Education Committee and the chair of the Natural Resources Committee.  Both Senator Beutler and Senator Maurstad would win some and lose some of the battles they forged to amend the levy limit measure.

In addition to Senators Maurstad and Beutler, one member of the Revenue Committee, Senator Stan Schellpeper of Stanton, would also raise some concerns to his colleagues during floor debate.  Schellpeper was the only member of the Revenue Committee to vote against final passage of LB 1114.  In fact, one of the first successfully adopted amendments to the measure came by way of Senator Schellpeper.

The Schellpeper amendment concerned lease purchase contracts engaged by political subdivisions, and was brought to his attention by county officials.  Senator Schellpeper was a farmer and livestock feeder by trade and had a strong background in county politics.  The amendment offered by Schellpeper applied to all political subdivisions with property tax levy authority.  The amendment simply provided that property tax levies for any preexisting lease-purchase contract approved prior to July 1, 1998 would be excluded from the levy limitations.⁵²  Schellpeper argued that a local government's ability to perform these contracts depends upon their ability to levy property taxes.  "If these contracts are not exempted from the levy limits it could create some serious legal questions with respect to the impairment of the contracts when the levy limits come into effect in 1998," he said.⁵³

As would become customary throughout the debate on the property tax relief package, proponents of the legislation often awaited a response from Senator Warner to help determine the viability of an amendment.  Senator Warner was not known for lengthy or well-articulated speeches, but this never detracted from the respect afforded by his colleagues.  A simple nod or a few soft-spoken words from the senior statesman was usually sufficient to let the body know how he felt about an issue.  In the case of the Schellpeper amendment, Warner said merely, "I think it would be appropriate to adopt."⁵⁴  The Schellpeper amendment was adopted without opposing debate on a 26-0 vote.⁵⁵ The amendment represented the first successful levy exclusion proposal in addition to that proposed by the Revenue Committee under the committee amendments.  The only levy exclusion originally provided in the committee amendments involved property tax levies for bonded indebtedness, which was a consistent provision in both LR 93CA (1995) and LB 1114 (1996).

Immediately following the adoption of the Schellpeper amendment, the body took up discussion on the first of many amendments offered by Senator Chris Beutler, most of which would prove unsuccessful.  Public schools represented one of the major concerns to Senator Beutler, who felt the levy limitation would unfairly treat schools in comparison to other types of local government that have non-property tax revenue sources.  Said Beutler:

It seems to me that we have done a lot in this particular bill and in the other related bills in the package to at least attempt to protect cities and attempt to protect counties, and there are various alternative taxes and mechanisms by which those two entities can move to protect themselves under this particular proposition.  But the school districts ... but the school districts are left out there extremely exposed.⁵⁶

Beutler believed counties and municipalities, in particular, could offset limited property tax revenue with other forms of revenue, such as increased fees and other taxes.

It was Beutler's belief that schools would be facing between $150 and $250 million in lost revenue with no means of making up the difference.  Accordingly, the first Beutler amendment to LB 1114 during the fist day of debate was designed to force the Legislature to either makeup a large portion of the lost school revenue, through increases in state aid, or, in the alternative, refrain from limiting school property tax levies.  The amendment provided that if the Legislature fails to enact legislation to raise taxes and increase state aid to schools by at least $150 million by July 1, 1999, then the levy limits pertaining to schools under LB 1114 would not be implemented.⁵⁷  The chosen date in the amendment corresponded to the date on which the levy limits were to be implemented under the committee amendments.  From the public school perspective, Senator Beutler was considered the hero of the day.  For the majority of the Legislature, the amendment was taken as a sincere yet impracticable proposition.  The amendment failed after a short debate on an 11-28 record vote.⁵⁸

During the first day of General File debate of LB 1114, sixteen amendments, including the committee amendments were considered along with one unsuccessful motion to bracket the bill until April 2nd (essentially killing the bill).  The bracket motion, offered by Senator Ernie Chambers of Omaha, was taken up early in the debate and failed by a substantial margin, which indicated a strong willingness on the part of the Legislature to continue discussion.⁵⁹  Other than the Schellpeper amendment noted previously and the adoption of a few minor amendments, all other amendments were either unsuccessful or were withdrawn.  The committee amendments were adopted as amended by a 30-1 vote, but the Legislature adjourned for the day before a vote to advance could be taken.⁶⁰  On the whole, however, proponents of LB 1114 were optimistic after the initial day of debate.  "This is some of the best debate we've had in terms of tax policy since I've been here," said Senator Doug Kristensen, an eight-year veteran of the Legislature.⁶¹

LB 1114 returned to General File debate on Monday, March 25, 1996, and would advance on this the 49th day of the 60-day session, but not before some hard questions were asked of its chief sponsor, Senator Warner.  The questions were posed by Senator Beutler who said he had received a number of concerns from teachers and school officials at Lincoln Public Schools.  Said Beutler:

The people in the Lincoln school system, like people I am sure in many other school systems, think they have a real quality education system, and they are extremely worried about the potential destructive effects of this particular bill, long term, in the sense that the only mechanism here by which they can make up any revenues under the current ... under the current bill is to have an election of the people that would allow them to exceed the levy cap for at least a period of five years.⁶²

Senator Beutler was referring to a provision in the committee amendments that allowed a political subdivision to exceed its levy limitation for a period of not more than five years through a ballot issue presented to the voters of the affected local government.⁶³

Senator Beutler raised three very relevant questions concerning this provision.  First, what is the rationale for a five-year limitation?  Second, why would the Legislature want to limit or otherwise interfere with the will of the people to tax themselves for the benefit of their own local government?  And third, if mandatory tax revenue reductions were imposed, does the Legislature have a responsibility to provide replacement revenue through state aid?

Senator Warner responded to the first question by admitting the five-year period of time was "in a sense, arbitrary."⁶⁴  He said the Legislature could always adjust the provision in future sessions.  Senator Warner answered the second question in a more indirect fashion by referring to the property tax relief package as a whole and also the process of building public confidence.  Said Warner:

I think we need this period to engage people across the state with exactly what they are getting for their tax dollars, what they need to know that there is going to be, through this process, the potential for greater consolidation, cooperative efforts, merger efforts.  Their other option is going to be to support a higher property tax levy or to support a merger or consolidation to the extent that that can be done, and I think that is going to be a positive without a mandate of saying how it is going to he done.⁶⁵

The third question, concerning replacement funding, was answered in a more straightforward manner.  If there is a "dollar for dollar" shift from local revenue to state revenue, Warner said, "[T]hen no efficiency would occur."⁶⁶ The overriding objective, therefore, was to force local governments to become more efficient even if that meant depriving local voters from unencumbered control over the duration of a levy override.

Warner's response qualified as an answer, but not necessarily satisfactory to Senator Beutler.  "I feel very content with most everything that's in the set of bills with the exception of leaving the schools hanging out there with absolutely no replacement revenue," Beutler said.⁶⁷  "I still feel great hesitancy and qualms about myself doing the irrational, and also in doing the irrational putting at risk the school system in the sense that we all know in here today that to avoid the destruction of the school systems there has to be replacement revenues," he added.⁶⁸  The Lincoln senator would renew his battle during Select File debate.  After a brief discussion, LB 1114 would advance, although less than spectacularly, on a 25-2 vote (14 senators were listed as excused, not voting at the time of the vote to advance).⁶⁹

General File Debate on LB 299

After the first-round vote to advance LB 1114, the Legislature immediately turned its attention to the companion piece of legislation, LB 299.  While LB 1114 was designed to implement permanent levy limitations, LB 299 was designed to implement stringent spending limitations to help political subdivisions transition to reduced spending authority.  The spending lids proposed under the measure would be in existence for two fiscal years (1996-97 and 1997-98), then the measure would automatically sunset at the same time the levy limits became operative.

The spending limitations under LB 299 applied to all political subdivisions, but the central focus of that first day of debate was the effects on and circumstances of public schools.  The body would consider 22 amendments, including the committee amendments, on March 25th, and nine of those amendments had a direct and sole relation to public schools.  The vast majority of the pending amendments (16) were withdrawn without debate.  Four of the nine amendments related to schools were adopted.

The first successful amendment to the committee amendments focused on several key issues for school districts, but also carried helpful provisions to other political subdivisions.  The comprehensive amendment, offered by Senator Warner and Speaker Withem, would do the following:

1. Allow the spending lids for schools in place prior to LB 299 to return automatically after the 1997-98 fiscal year;
   
   
2. Allow receipts for special education services to be excluded from the spending limitations under LB 299;
   
   
3. Permit a governing body to exceed the spending limits under LB 299 by an additional 1% upon a 75% affirmative vote of the governing body; and
   
   
4. Permit carry over of unused budget authority.⁷⁰

Speaker Withem noted in the introduction of the amendment that, without the first provision, schools would have no spending limitation after the sunset of LB 299.  The committee amendments, as filed by the Revenue Committee, proposed to outright repeal those sections of the school finance formula relevant to spending limitations.  Under the Withem-Warner amendment, schools would at least know what to expect after 1997-98.

The second provision, related to the exclusion of special receipts, would make a tremendous difference to school districts due to the high costs associated with special education services.  The third and fourth provisions, related to additional budget authority and unused budget authority, applied to all political subdivisions and would permit limited flexibility for local governments that did not otherwise exist under the committee amendments.  In all, the Withem-Warner amendment represented a clear victory for political subdivisions, particularly school districts.  The amendment was adopted unanimously on a 28-0 vote.⁷¹

In addition to the Withem-Warner amendment, three other school-related amendments were adopted, all of which related to budgetary guidelines for school boards.  The first of these amendments, offered by Senator Pam Brown of Omaha, provided legislative intent that any reductions in a school district budget, in compliance with the spending limitations of LB 299, "affect classroom expenses as a last resort."⁷²  If budget reductions occur, the amendment required school boards to consider reductions in funding for extracurricular activities, student transportation, school building and ground maintenance, and "other related school business expenses" prior to considering reductions in the "funding of academic programs involving students."⁷³  In her introduction of the amendment, Senator Brown said she had filed a similar amendment that required first priority reductions in administrative positions, administrative travel, and professional association memberships.⁷⁴  Naturally, she noted, "administrators and lobbyists reacted rather strongly to this" and she ultimately decided to substitute a less threatening version of her original amendment.⁷⁵  "I substituted [the amendment] because it is not my intention to pit administrators versus teachers," she said.⁷⁶

Senator Brown anticipated the accusations that her amendment violated the age-old concept of local control and the notion that local governments are best in position to make determinations about their own local situation, needs, etc.  However, she insisted, "This is not just about local governing boards and what they do, this is about the future of children."⁷⁷  Said Brown:

People have criticized the amendment a little bit because of ... that it ... because it might take away local control, but I believe that if we are willing to tell districts what their budget can be, then I think we should be willing to tell them that we have some intent about protecting children in this whole process.⁷⁸

The "people" to whom Senator Brown referred as being critical of the amendment included some of her own colleagues.  Senator Joyce Hillman of Gering, for example, rose to voice her concern that the amendment created additional restrictions on school boards over and above those created by the spending and levy limitations.  She did not believe the language in the Brown amendment would motivate school boards "to do the kinds of things that we would like to see them do."⁷⁹  She added, "I think we need to give them a certain amount of credit for knowing what it is we are trying to get to, that they recognize what their purpose is, and that we should encourage them to attain ... the finest education for kids."⁸⁰  Senator Curt Bromm of Wahoo agreed and discussed the micromanaging nature of the Brown amendment.  "I think it would be interpreted as a little bit of a slap in the face by local school boards," Bromm said.⁸¹

However, the proponents of the amendment seemed to outnumber the opponents in the case of the Brown amendment.  Several members of the Revenue Committee, including Senator Warner and Senator Wickersham, spoke in favor of the amendment and indicated that the concept had been discussed in committee.  Said Wickersham:

I think it does call into question what we would consider to be the good-faith actions of the local elected officials in how they are going to deal with the limitations that may be placed on them through 299 and 1114.  I guess it is all of our hopes that they will act in a way that most effectively and efficiently reduces their spending without actually getting to the meat, if that is possible.⁸²

The chairwoman of the Education Committee, Senator Bohlke, also rose in support of the amendment, but reminded her colleagues that it represented intent language only.

At the conclusion of the short debate, Senator Brown summed up her purpose of the amendment:

I truly believe that this is a part, an essential part of having the discussion on lids, and that is the only justification, in my mind, for having lids, is engaging in the discussion with the people who are going to be voting on the local level as to what is important in our society.⁸³

The Brown amendment was adopted on a relatively narrow 26-5 vote, seven present, not voting, and 11 excused from the chamber.⁸⁴

The adoption of the Brown amendment was one of the more noteworthy policy decisions relevant to the spending lids of LB 299.  The Legislature clearly established a concern for the welfare of children attending public schools even though the consequence of the Brown amendment would likely cause some reductions in educational opportunities.  While it was not said aloud during debate of the Brown amendment, the real intent was to protect the positions of instructional staff at the expense of other aspects of local school budgets.  By protecting classroom teachers, it was believed, students would be best served, due largely to the maintenance of existing student/teacher ratios.  For local school boards, however, the amendment would leave very few options since the largest single component of any school budget is labor costs, specifically teacher salaries.  Many of the other major portions of the average school budget included fixed costs, such as utilities and fuel, over which a school board would not have much control.  While not said aloud on the floor, the aim of the amendment was likely directed toward school administrators, and the perception that some districts employ too many.

The Brown amendment could certainly be interpreted as a victory for those concerned about the loss of teaching positions due to the stringent spending limitations under LB 299.  But the body was not yet finished with the issue.  Shortly after the Brown amendment was adopted, Senator Lindsay offered a floor amendment that enhanced the "hierarchy," as he labeled it, for budget cuts made by local school boards.⁸⁵  The Lindsay amendment maintained the language of the Brown amendment, but added a first tier priority for any budget cuts to school administration.⁸⁶  Said Lindsay:

What this amendment would do is to insert in that language that the school districts shall first consider reductions in funding administration, and shall then consider reductions in funding extracurricular activities, and then finally would be the reductions in academic programs.  So it keeps the academic programs, again, the last place to cut, but it moves administration to the first place to cut.⁸⁷

Senator Lindsay said it was important that some "leverage be placed" against administrators in the budget cutting process since administrators would be those proposing the cuts.⁸⁸  The debate on the Lindsay amendment was relatively short, which often times indicates a certain level of unanimity on one side of the issue or another.  However, the vote on the Lindsay amendment contradicted the norm in this case.  On a record vote, the Legislature narrowly adopted the amendment by a 25-12 vote.⁸⁹ But the matter was not over yet.

Following the adoption of the Lindsay amendment, negotiations began in the rotunda of the Capitol between the teachers' organization (NSEA), the administrators' organization (NCSA), and a few of the legislators involved in the previous amendments.  Lobbyists for the organizations agreed on a compromise amendment that did not specify any particular hierarchy for local budget cuts, but it did create legislative intent to keep the cuts away from the classroom if at all possible.⁹⁰  Senator Eric Will introduced the amendment on the floor as a better approach than spelling out a list of items a school board had to review in making budget reductions.  Said Will:

I think this sends the message ... that budget reductions in a school district are to affect the children last, are to affect the classroom last and, at the same time, not getting into a barter, a bartering arrangement over which specific deductions we want to be made prior to the classroom.⁹¹

The amendment was generally met with acceptance although some would have likely preferred the Brown-Lindsay language to remain in tact while others would have preferred the entire issue dropped.  The compromise amendment was adopted, just barely, by a 26-2 vote with 15 members present and not voting.⁹²

Immediately after resolution of the school budget cutting process, the committee amendments to LB 299 were adopted as amended and the bill was ready for a vote to advance after a lengthy debate.  In closing on the bill, Senator Warner said, "Elected officials can only do the things the public is willing to accept and support."⁹³  This was a line Senator Warner often used during debates on major legislation, and certainly no less fitting for this particular bill.  LB 299 was designed to usher in the levy limitations of LB 1114 and cause local governments to re-examine their own organization and operation.  The question, as Senator Warner alluded, would be the acceptance and support of the public in relation to changes in services due to budget reductions.  Warner said:

I would hope that during these two years, as we develop more and more understanding generally of ... state and local government and taxes and services, that that will result in the kind of support for looking at this whole restructure and reorganizing of government to be more cost effective.⁹⁴

The Legislature was sufficiently swayed to advance LB 299 on a solid 29-0 vote.⁹⁵

Select File Debate of LB 1114

Second-round debate on the property tax relief package resumed on April 2, 1996.  LB 1114, the levy limitation bill, came up for debate during a late night session.  Senator Beutler would once again take up the mantle of extra support for schools in light of the loss of revenue to schools along with other relevant issues.  His first attempt was an amendment to change the duration of a levy limit override from a maximum of five years to a maximum of ten years.⁹⁶  His basic arguments were local determination and stability of school budgets in terms of long range planning.  "I think it would build in a lot of stability into the system if you allowed local control, a little more local control to vote to overcome the levy cap for a period longer than five years, at least up to ten years," Beutler said.⁹⁷  Senator Bernard-Stevens came to Beutler's aid on the amendment.  "I do think that Senator Beutler is giving to local control, the local boards, at least a possibility, an option, if they want to try to push for something that's above five, if they want to try to push for a six-year commitment or a seven," Bernard-Stevens said.⁹⁸

However, as with other amendments, the body waited to hear the opinion of Senator Warner for guidance on the issue.  Warner briefly reminded the body that Senator Beutler had brought the same issue on General File debate and his opinion had not changed.  The five-year duration, he said, was an arbitrary timeframe, but it offered a more reasonable and, perhaps, more acceptable timeframe for local voters.  Senator Kristensen came to Warner's aid in defense of the existing timeframe and reviewed the thinking of the Revenue Committee to set the five-year levy override period.  While Beutler's focus was principally schools, Warner and Kristensen's focus was the taxpayer.  The five-year timeframe, Kristensen said, offered a reasonable limit and a sort of checks and balances on the use of the extra revenue.  "So if the money that they voted to increase isn't going for the causes and the purposes they thought, there was an escape hatch," Kristensen said.⁹⁹

The relatively short debate on the Beutler amendment, as usual, signified a strong opinion of the body one way or another.  In this case, the prevailing opinion was not on Beutler's side.  On a record vote, the body rejected the amendment by a 6-16 count (18 senators were present, not voting).¹⁰⁰ Undaunted but slightly wounded, Senator Beutler had other ideas to propose, but his efforts would be interrupted shortly before 7:00 p.m. that evening due to another scheduled item the Speaker had placed on the agenda.

The following day, April 3rd, the 55th day of the 60-day session, would witness some of the most intense discussion concerning LB 1114.  The Legislature resumed second-round debate just prior to its noon recess.  Following the lunch break, the body took up another major amendment offered by Senator Beutler concerning the impact of the levy limits on schools.  Senator Beutler once again asked his colleagues to consider an increase in the sales tax rate, in this case a one-half cent increase, for the purpose of dedicating additional funds for state aid to schools.¹⁰¹  Beutler referred to the amendment as the last but "very most important" amendment he would offer to LB 1114.¹⁰²  The sales tax increase, he said, would produce approximately $80 million in new revenue for the state, all of which would be dedicated to offset lost revenue to school districts.¹⁰³

Senator Beutler gave an eloquent oration on the higher values in politics and appealed to the better judgment of his fellow politicians to do the right thing even if that thing was unpopular.  He asked his colleagues to rise above the fear that if the Legislature did not impose levy limits by law then some petition movement afoot would succeed in doing so.  And if the body was determined to pass LB 1114, Beutler believed, then adoption of his amendment to offset lost revenue to schools became imperative.  Beutler succeeded in briefly snapping the mood, as he put it, albeit briefly.  And some of his colleagues accepted his invitation to look at the issue more philosophically, including some the ardent supporters of the legislation.  They commended, or at least understood, his conviction, but not to the degree that they would support a state tax increase.

Senator Warner rose to address the proposed amendment immediately after Beutler's remarks.  "You deal with things the way they are, not as you wish they were," Warner began, adding to the philosophical vein Beutler had initiated.¹⁰⁴  "But what I do believe is that there is a belief that we need to be looking at restructuring how we provide local services, that a we need to be looking for ways to be more cost efficient," Warner said.¹⁰⁵  Senator Roger Wehrbein, chair of the Appropriations Committee, also rose to cast his opposition to the amendment saying a tax increase may, in fact, be necessary in the future.  "But at this point I think, in spite of what some say, and I know it's difficult for me to say, I think we need to keep the pressure on," Wehrbein said.¹⁰⁶

Senators DiAnna Schimek and LaVon Crosby, both of Lincoln, did their best to sway other members of the Legislature in favor of the Beutler amendment.  Both referred to conversations and surveys they conducted to demonstrate concern over potential budget reductions affecting public schools.  The debate continued for about an hour before Senator Beutler was asked to close on the amendment.  Perhaps sensing failure in gaining the needed support, Beutler used the opportunity to speak to the overall problem with LB 1114, as he viewed it:

And I think part of the problem is simply the fact that the heroes of education in this particular Legislature are all on the side that have made a tactical decision, which says we are abandoning you temporarily because we must do this in order to save you in the long term.  In order to get to the place of low property taxes and quality education, we have to take this enormous risk. ... And I'm not willing to take that chance myself without some measure of good will, without some indication from this Legislature today that we're on a course that looks to a balance and that looks both towards quality education and towards reduced property taxes.¹⁰⁷

Beutler also noted his disappointment that even the public education lobby was "in such confusion and disarray" on the issue of a tax increase to support schools, especially, he said, when they were supposed to be the advocates of education and children.¹⁰⁸  For all his efforts, the Legislature resoundingly defeated the amendment by a 10-27 vote.¹⁰⁹ True to his word, it would be the last amendment he would pursue concerning LB 1114.

The Beutler tax increase proposal represented the last controversial amendment to the bill.  But it was not the last hurrah for those trying to win concessions to political subdivisions, particularly school districts.  It was clear to everyone the bill itself would survive and would pass, but not before the adoption of one other amendment.

The last substantive amendment to be adopted was brought forward by Senators Ray Janssen of Nickerson and Curt Bromm of Wahoo.  Both former school board members, Senators Janssen and Bromm supported LB 1114 and the concept of levy limits, but they also understood the impact the limits would have on school boards and other governing bodies.  Their jointly filed amendment would serve to provide a degree of flexibility for school districts and perhaps make the levy limits slightly more bearable.

The Janssen-Bromm amendment proposed to exclude from the school levy limitations:  (1) amounts levied to pay for early retirement incentives in exchange for a voluntary termination of employment; and (2) amounts levied to pay for special building funds and sinking funds established for projects commenced prior to July 19, 1996, for construction, expansion, or alteration of school buildings.¹¹⁰  The amendment also contained a third levy exclusion, applicable to all political subdivisions, for judgments obtained against a local government, but only to the extent the judgment was not paid by liability insurance coverage.¹¹¹

The Janssen-Bromm amendment was met with general acceptance by the body.  Senator Warner also supported the provisions of the amendment with just a few exceptions.  The first issue Warner had with the amendment involved the proposed cutoff date by which building funds may be excluded from the levy limitations.  The date selected by Senators Janssen and Bromm was July 19, 1996, which was the projected operative date for LB 1114.  Legislative bills that do not contain the emergency clause or any other specified operative date automatically become operative 90 days after the final adjournment of the legislative session.  Since the 1996 Session was set to adjourn sine die on April 18th, LB 1114 would become operative on July 19th.

Senator Warner, however, believed the July 19th date would permit school boards to commence projects for the sake of excluding extra amounts of levy authority even if no real building project was in the works.  Therefore, Warner proposed to change the date to April 1, 1996, a retroactive date that prevented school districts from misusing the levy exclusion proposed by Janssen and Bromm.¹¹²  The Warner amendment to the amendment was adopted unanimously on a 26-0 vote.¹¹³ Interestingly, the other relevant concern to the building fund provision was the use and meaning of the word "commence" with regard to when a project actually began.  Senator Doug Kristensen, a lawyer by profession, raised the issue briefly, but nothing came of the discussion.  It was believed by some that the April 1st retroactive date would resolve any dispute over the intent of a school board since the amendment, as revised, would offer no opportunity for maneuvering.  In fact, the issue would reappear in later sessions.

The second concern voiced by Senator Warner over the Janssen-Bromm amendment involved the exclusion of levy authority for amounts to pay for early retirement incentives.  Senator Warner believed the proposed exclusion was a potential windfall for school districts since the concept of early retirement incentives was designed to encourage higher paid employees to retire so that the district can either hire a lower paid replacement or simply not fill the position.  Either way the district would save money.  Warner, therefore, proposed to eliminate the exclusion for early retirement incentives from the Janssen-Bromm amendment.¹¹⁴  Senator Janssen disagreed with Warner and argued that the expense of providing the early retirement incentives, which in reality were contract buy-out programs, would still exist for the school district.  After a short debate, Senator Warner withdrew his amendment in the interest of moving forward with the legislation.  The Janssen-Bromm amendment was adopted, as amended by the first Warner amendment, on a 26-0 vote.¹¹⁵

Later in the afternoon of April 3rd, the list of amendments had been exhausted and all that remained was a vote to advance the bill to the final round.  Several senators rose to address their colleagues and voice their opinion on the broader ramifications of the legislation.  No one seemed to question whether LB 1114 would produce property tax relief as intended.  The dividing lines appeared to be on the impact on rural versus urban localities, the loss of local control, and the concern that the legislation provided no replacement funds to local governments, particularly to school districts.  Senator Ed Schrock of Elm Creek, a rural senator, spoke about the local control issue:

I will continue to vote against 1114 because I believe it takes away the budgeting authority of our local governmental subdivisions.  If we elect our school boards, our city councilmen, our county supervisors or commissioners and we don't like the way they're spending money, we have the responsibility as taxpayers of that local governmental subdivisions to put the pressure on them at that level.¹¹⁶

Senator Stan Schellpeper of Stanton, another rural legislator, voiced his concern that LB 1114 would have a disparate impact on rural communities and local governments.  The impact of the legislation, Schellpeper said, would "kill our small towns and our small schools."¹¹⁷  "I know it's the cornerstone of the entire package," he concluded, "but I just don't think that this is the right way to have property tax relief in this state."¹¹⁸

Senator Warner had the last word prior to the vote to advance.  He noted the bill had evolved for the better since advancement from committee, but the fundamental goals of the legislation remained in tact.  Warner said the legislation would provide a two-year window for local governments and communities to prepare and to consider alternatives:

It's obviously going to depend upon the cooperation of a lot of people, but I also believe there's a lot of people who are ready to do exactly that; that they want quality of service, they want to feel comfortable that it's being provided in a cost-efficient manner, and whether it's real or perceived it's almost immaterial.  The important thing is we need to build confidence in government and I think this process can help accomplish that goal ... ."¹¹⁹

Immediately following Warner's closing remarks, the Legislature took action to advance LB 1114 on a 26-7 vote.¹²⁰ Sixteen senators were either present and not voting or excused at the time.

Select File Debate of LB 299

Second-round debate on LB 299 began on the afternoon of April 3rd immediately after advancement of its companion piece, LB 1114.  By early evening the bill would be advanced, but not before several very important amendments were adopted.  The subjects of the amendments included the method by which the spending limit would be computed for school districts, the creation of an unfunded mandates task force, and the adoption of several important spending lid exclusions, among others.

One of the first amendments discussed represented a key change in the bill for school districts.  The amendment was sponsored by Senator Warner along with several other senators from the Revenue and Education Committees and was supported by several groups from the education lobby.  The purpose of the amendment was to permit the two-year spending limit under LB 299 to apply to the expenditure side rather than the revenue side of the budget for school districts.¹²¹

As LB 299 emerged from committee, all political subdivisions were held to a spending limitation based upon revenue sources.  This represented a significant departure for school districts since the state aid formula, as per LB 1059 (1990), established a spending lid based upon expenditures rather than revenue sources.  Said Warner:

What this amendment does is returns schools so the limitation is on expenditures.  It has the same growth and exceptions that was contained before, that is two and zero percent for the two years, but it could be three and one percent with a 75 vote.  It allows for growth through average daily membership.  It excepts out special ed, as was the case before.  It allows out of the limitation capital improvements, as before.  It retains the authority for the schools to use unused budget authority and it also has the exception for disaster.¹²²

Warner' amendment was adopted with very little discussion since many members of the body had been aware the proposal would be offered.¹²³ The school lobby did its part in informing senators before hand that the amendment would be forthcoming and that they supported the concept.

The next major amendment considered by the body involved an official review of state mandates applicable to political subdivisions.  The issue was brought to the attention of several senators early in the legislative life of LB 299 by the lobbyist for the Nebraska Council of School Administrators.  In fact, similar amendments were originally brought forward during General File debate but were withdrawn.¹²⁴ Between General File and Select File debate, various parties involved with the amendment met to determine exactly how the proposal should be drafted.  It was then decided that Speaker Withem should offer the amendment on Select File debate on behalf of all parties concerned.

The Withem amendment proposed to create a Task Force on Unfunded Mandates, which would be comprised of various chairs of legislative committees and other leaders within the Legislature.  The task force would also consist of representatives from organizations of political subdivisions, including municipalities, counties, and the education community.  The purpose of the task force would be to identify and review all programs and services enacted by the Legislature that resulted in an increase in expenditures by political subdivisions.  The task force would then provide a written report to the Legislature by December 1, 1996, which may include recommendations for changes in state law in order to modify or repeal identified programs and services.¹²⁵  The idea behind the amendment would be to reduce the financial burden upon local governments by repealing unnecessary state mandates.  The idea was sufficiently sound to be adopted by a unanimous vote (25-0).¹²⁶

The last two amendments adopted relevant to schools involved exclusions to the spending limitation to harmonize, at least to some degree, with the levy exclusions provided under LB 1114.  Senator Janssen offered the first amendment to exclude expenditures to pay for judgments obtained against a school district to the extent the judgment is not paid by liability insurance coverage.  The Janssen amendment would also provide an exclusion for expenditures to pay for early retirement incentive programs in exchange for voluntary termination of employment.¹²⁷  The Janssen amendment was adopted by a 27-0 vote.¹²⁸  However, later in the evening, Senator Kristensen would successfully amend the provisions of the Janssen amendment to specify that judgments against a district do not include orders by the Commission on Industrial Relations.¹²⁹

The provisions of LB 299 applied only to the two fiscal years prior to the implementation of the levy limitations under LB 1114, but the temporary provisions were deliberately stringent and potentially crippling to local governments.  The operative word concerning LB 299 was "force," as in forcing political subdivisions to re-examine current operations and services and to necessitate down sizing in time for the mandatory levy limitations.  LB 299 was advanced to final-round consideration without any closing remarks on a 34-10 vote.¹³⁰

Final Reading

The morning of April 11, 1996 was an important day in the 1996 Session.  It was the 59th day of the 60-day session and for all practical purposes the last full working day.  The Legislature was about to pass and send to the Governor a property tax relief package that would likely be viewed as a major landmark concerning the issue of property taxes in Nebraska.  The two pieces of the legislative package most relevant to public schools were LB 299 and LB 1114, and schools, in fact, were a major consideration and point of discussion throughout the legislative process.  Public schools had won some minor concessions during the long debates, but there was little doubt that the concessions would not be enough to save some districts from dramatic operational changes.

Throughout the debate on the property tax relief package, Speaker Withem had placed LB 1114, concerning levy limitations, ahead of LB 299, concerning spending limitations.  But on Final Reading this would change.  On this day, the spending limit bill would be considered first followed by the levy limit bill.

Prior to the final vote on LB 299, Senator Kristensen rose to address his colleagues and somehow put an historical perspective on the legislation they were about to cast final judgment.  Said Kristensen:

[T]he property tax debate is not new to this state, that goes without saying.  It's been the subject of debate since this state was born.  It's as old as the state.  And the passage of this package of bills won't end that debate.  It will help shape it, but it won't end it.¹³¹

Kristensen noted the intensity of the debate and recognized that senators were under pressure from many different perspectives on the property tax relief package.  "But the bottom line is, you really are doing a service to the state, the entire state, even though it may be painful at times to do," he said.¹³²  Immediately following Kristensen's remarks, the body voted 36-11 to pass LB 299 with the emergency clause attached.¹³³

Table 51.  Record Vote:  Final Reading, LB 299 (1996)

Voting in the affirmative, 36:
Abboud	Hartnett	Kristensen	Pedersen	Vrtiska
Bohlke	Hilgert	Landis	Pirsch	Warner
Brashear	Hillman	Lindsay	Preister	Wehrbein
Bromm	Hudkins	Lynch	Robak	Wesely
Brown	Janssen	Matzke	Robinson	Wickersham
Coordsen	Jensen	Maurstad	Schmitt	Witek
Dierks	Jones	McKenzie	Stuhr	Withem
Engel
Voting in the negative, 11:
Avery	Beutler	Cudaback	Klein	Schimek
Bernard-	Chambers	Fisher	Schellpeper	Schrock
Stevens	Crosby
Excused and not voting, 2:
Elmer	Will

Source:  Neb. Legis. Journal, 11 April 1996, 2029.

The final vote on LB 1114 would take considerably more time than LB 299.  From start to finish, more than an hour of discussion would take place before a final vote.  Senator Bernard-Stevens lead the discussion, but his intent was neither to filibuster nor delay the inevitable.  It was simply a matter of putting the issue into perspective.  In fact, Bernard-Stevens knew he was serving his last year in the Legislature.  He chose not to run for re-election.  But, as a former school board member, he understood the gravity of the proposed bill, and had some very relevant points to make.

Bernard-Stevens began by publicly noting the Legislature appeared to have competing ideals for the state versus local governments.  He pointed out that the Legislature had already taken action on a mid-biennium budget bill that did not seem to uphold the same restraint on spending as the budget restrictions imposed by the same Legislature for political subdivisions.  He warned that the impact of the spending and levy limitations would catch up both to the state and its local governments:

A year from now and two years from now is where it's going to get real difficult because you're going to have to ... you're going to have to fess up to what you're going to do here today, because a year or two years from now you're going to have to ... you'll be faced with the ... reality of what you're doing to local subdivisions.¹³⁴

Bernard-Stevens went on to warn of the probable reluctance among legislators if not the executive branch to provide a shift of state resources to offset the impact of the lost revenue to political subdivisions, particularly schools.

Senator Warner responded to Bernard-Stevens, but he did so in characteristic style and grace.  He acknowledged Bernard-Stevens' comments but he also acknowledged Senator Kristensen's remarks just prior to the final vote on LB 299.  Senator Warner had served 33 years in the Nebraska Legislature through the 1996 Session.  Little did anyone know that it would be the last complete session that he would serve as a Nebraska lawmaker.  The property tax relief package of 1996 would, in fact, be a part of his legacy, both the good and bad aspects.  But on that April day, Senator Warner understood, as perhaps no other, the magnitude of the decision before the Legislature.  Said Warner:

Instead of government being bad and evil and annoying, it can return to what I used to know when government was looked upon as ... with great respect, great confidence, public support, and I think that can be the end result of this and I would hope that the body would continue to give that opportunity a chance to build that public confidence again that I think can be the end result of all of this.  No disaster is going to occur.  This body won't let it happen.  But what can happen is all positive and I would hope that is the attitude that everyone would participate in over the next two years.¹³⁵

His comments were certainly idealistic, especially from a pragmatic realist that everyone knew him to be, but they were fitting remarks and they worked.  The Legislature would continue the discussion for another hour, but the result was certain and relatively decisive.  LB 1114 passed on a 36-12 vote.¹³⁶

Table 52.  Record Vote:  Final Reading, LB 1114 (1996)

Voting in the affirmative, 36:
Abboud	Dierks	Janssen	Matzke	Stuhr
Avery	Elmer	Jensen	McKenzie	Vrtiska
Bohlke	Engel	Jones	Pedersen	Warner
Brashear	Fisher	Kristensen	Pirsch	Wehrbein
Bromm	Hartnett	Landis	Preister	Wickersham
Brown	Hilgert	Lindsay	Robak	Witek
Coordsen	Hillman	Lynch	Robinson	Withem
Crosby
Voting in the negative, 12:
Bernard-	Chambers	Klein	Schimek	Schrock
Stevens	Cudaback	Maurstad	Schmitt	Wesely
Beutler	Hudkins	Schellpeper
Excused and not voting, 1:
Will

Source:  Neb. Legis. Journal, 11 April 1996, 2031-32.

 

Table 53.  Summary of LB 1114 (1996)
as Passed and Signed into Law

1. Levy limitations:  For FY1998-99 through FY2000-01, school districts and multiple-district school systems are limited to a maximum $1.10 general and special combined levy authority.  For FY2001-02 and all future fiscal years, the school levy limit is $1.00.  ESUs are reduced to a 1.5¢ levy authority effective FY1998-99 and beyond.
   
   
2. Exceeding Levy Limits:  A school board may exceed its levy limit by an amount approved by a majority of registered voters voting in a primary, general or special election.  A measure to exceed the levy limit may be initiated via:  (i) the adoption of a resolution by a 2/3s vote of the school board; or (ii) the receipt by the county clerk/election commissioner of a petition signed by 5% of the registered voters in the district.  The duration of the excess levy may not exceed five years.
   
   
3. Council on Public Improvements and Services:  A council may be created in each county for the purpose of reviewing budgets and property tax requests for each political subdivision within the county.  The council may discuss issues of efficiency and coordination of services and programs.
   
   
4. Operative Date:  LB 1114 becomes operative on July 1, 1998.

Source:  Legislative Bill 1114, in Laws of Nebraska, Ninety-Fourth Legislature, Second Session, 1996,
Session Laws, comp. Patrick J. O'Donnell, Clerk of the Legislature (Lincoln, Nebr.: by authority of
Scott Moore, Secretary of State), §§ 1-75, pp. 1-30 (1245-74).

Table 54.  Summary of LB 299 (1996)
as Passed and Signed into Law

1. Basic Allowable Growth Rate for General Fund Expenditures:
   
   Exceeding the Lids:  A school board may exceed the budget lid by 1% through a 3/4s vote of the board after a hearing is held on the issue.
   1. FY1996-97:  2%* plus the growth in students (ADM) - see exclusions.
      
      
   2. FY1997-98:  0%* plus the growth in students (ADM) - see exclusions.
      
      * For the two years LB 299 is in effect, the 0% budget lid contained in LB 1059 is not in effect.  School districts are automatically allowed a 2% budget lid maximum for FY1996-97 and 0% budget lid maximum for FY1997-98 (excluding the additional 1% which does require a hearing as noted below).
      
      
      
   3. 2...Calculation of Growth in Students:  The growth in students is the percentage increase in the number of students calculated by dividing the fall membership count from the school year immediately preceding the school year for which the budget is being determined multiplied by the average ratio of average daily membership to fall membership for the most recent available data year and the two school years prior to that year by the average daily membership in the school district from the second school year preceding the year for which the budget is being determined and then subtracting one from the ratio.  If the calculated growth in students is negative, the growth in students is zero.
      
      
   4. Exclusions to Budget Lids:
      
      Allowable Reserve:  The statutory provisions on the allowable reserve are still in effect for FY1996-97 and FY1997-98 (the General Fund Cash Reserve, the Depreciation Fund Total Requirements, the Employee Benefit Fund Cash Reserve, and the Contingency Fund Total Requirements are used to determine the Allowable Reserve Percentage).
      1. Expenditures for special education;
         
         
      2. Budgeted expenditures for capital improvements financed by the proceeds from a bond issue, appropriations from a sinking fund, or any other means;
         
         
      3. Expenditures to all retire bonded indebtedness;
         
         
      4. Expenditures in support of a service which becomes the subject of an interlocal cooperation agreement or a modification of an existing agreement whether operated by one of the parties to the agreement or an independent joint entity for two fiscal years beginning with the first budget adopted after the agreement or modification is signed;
         
         
      5. Expenditures to pay for repairs to infrastructure damaged by a natural disaster which is declared a disaster emergency under the Emergency Management Act;
         
         
      6. Expenditures to pay for judgments, except orders from the CIR, obtained against a school district which require or obligate a school district to pay such judgment, to the extent such judgment is not paid by district liability insurance; and
         
         
      7. Expenditures to pay for sums agreed to be paid by a school district to certificated employees in exchange for a voluntary termination of employment.
         
         Note:  The Department of Education has indicated that "special grant funds" are also excluded from the budget lids contained in LB 299.
         
         
   5. 
      
      
   6. Future Budget Reductions:  Provides for the intent of the Legislature that any reductions in a school district budget, made to comply with the budget limitation in the Tax Equity and Educational Opportunities Support Act, affect classroom expenses as a last resort.
      
      
   7. Task Force on Unfunded Mandates:
      
      
      1. Composition:  (a) chairperson of the Legislature's Executive Board; (b) seven additional members of the Legislature to be selected by the Legislature's Executive Board; and (c) five representatives of political subdivisions, including one representative of municipalities, one representative of counties, and three representatives of the education community.
         
         
      2. Task Force Chairperson:  The chairperson of the Legislature's Executive Board shall serve as chairperson of the task force.
         
         
      3. Purpose of Task Force:  (a) the task force shall identify and review all programs and services enacted by the Legislature which resulted or may result in an increase in expenditures of funds by the political subdivisions assigned to perform or provide the programs and services; (b) consider the findings of relevant interim studies on unfunded mandates; and (c) seek recommendations and proposals from groups and individuals on the issue of unfunded mandates.
         
         
      4. Report:  The task force shall provide a written report to the members of the Legislature by December 1, 1996, which may include recommendations for any changes to state law which may either modify or repeal all identified programs and services with the intent of reducing the fiscal impact of the programs and services on the political subdivision or eliminating the programs and services entirely.
         
         
      5. Interim Studies:
         
         
         1. Requited interim studies in 1996 to identify unfunded mandates and to recommend, if desirable, the modification or repeal of unfunded mandates impacting the subject matter jurisdiction of the committee.
            
            
         2. Each standing committee that undertakes such a study shall report its findings to the Task Force on Unfunded Mandates on or before November 1, 1996, and the task force shall consider the findings in making its recommendations.
      6. Termination:  The task force terminates on December 31, 1996.

Source:  Legislative Bill 299, in Laws of Nebraska, Ninety-Fourth Legislature, Second Session, 1996,
Session Laws, comp. Patrick J. O'Donnell, Clerk of the Legislature (Lincoln, Nebr.: by authority of
Scott Moore, Secretary of State), §§ 1-36, pp. 1-13 (84-96).

Table 55.  Summary of Modifications to TEEOSA
as per LB 299 (1996)

[Note:  LB 1114 (1996) did not amend TEEOSA]

Click to view file

Source:  Legislative Bill 299, in Laws of Nebraska, Ninety-Fourth Legislature, Second Session, 1996, Session Laws, comp. Patrick J. O'Donnell, Clerk of the Legislature (Lincoln, Nebr.: by authority of Scott Moore, Secretary of State), §§ 27-31, pp. 9-11 (92-94).

LB 1050 - TEEOSA Modifications

Legislative Bill 1050 (1996) would become the most comprehensive and substantively important pieces of legislation concerning the school finance formula since the implementation of the TEEOSA in 1990.  It would mark some major policy changes in relation to the original formula, and would become a precursor to more significant changes a year later.  It would cause divisions among rural and urban interests, and heavily equalized schools versus non-equalized schools.  It would also represent one of the more contested legislative battles of the 1996 Session.

The genesis of LB 1050 was not unlike other major legislative proposals:  an interim study.  On May 16, 1995, the Education Committee, lead by Senator Bohlke, filed a legislative resolution to conduct a general examination of the school finance formula.¹³⁷  Legislative Resolution (LR) 160 carried a simple purpose, which was:

To examine how elementary and secondary education should be financed, including possible modifications to the Tax Equity and Educational Opportunities Support Act, and how those modifications may effectively address student and taxpayer equity.¹³⁸

The purpose of the interim study embodied two of the same concerns addressed by the interim study that lead to the formation of the existing school finance formula:  Equity of educational opportunities for students and equity of taxpayer burden to finance public education.¹³⁹

Under Senator Bohlke's tenure as chair of the Education Committee, interim studies usually involved visitations to school districts across the state along with a series of public hearings that focused on the topic of the study.  Most members of the committee were usually in attendance during the "tours," which often took the legislators from one end of the state to another.  Members of the public education lobby also participated in these interim study tours in order to witness the hearings and discuss the issues with members of the committee.  It was, therefore, no surprise to the education lobby, and the organizations they represented, that Senator Bohlke intended to formulate legislation based upon the findings of the LR 160 study in time for the 1996 Session.

"LB 1050 is the result of the LR 160 interim study on school finance," Bohlke recorded in her Statement of Intent.¹⁴⁰ To be certain, some of the ideas contained in LB 1050 were suggestions made by school officials during the interim study tour.  Other components of the bill represented solutions to long-standing issues, and still other provisions represented the political agenda of the Education Committee chairwoman herself.  However, if one had to reduce the legislation to an overall theme, it would likely fall within the realm of awarding a greater share of the available state aid funds to equalization-qualified districts, to recapture some of the original intent of LB 1059 toward an equalization-oriented formula.  On the whole, the bill would mark the most comprehensive set of changes to the school finance formula since its inception in 1990.

As introduced, LB 1050 contained five major components.  Perhaps one of the more controversial components related to the capping of the income tax rebate.  Under this provision, the rebate would be capped at the 1990-91 level of appropriation ($83,307,600)¹⁴¹ and the distribution of rebate funds to districts would be based upon a statewide allocation percentage applied to the income tax liability of each district.¹⁴²  Without LB 1050, the total rebate funds available for 1996-97 would have been $131,181,793.¹⁴³  Under the original bill, the difference between the capped amount and the amount otherwise distributed would then be shifted to equalization aid.  This would mean the infusion of $47,874,193 in new funds for equalization districts.¹⁴⁴

Another controversial component of the bill would change provisions related to payments to school districts for option enrollment students.  The bill proposed to provide option payments only for the net number of option students and also replace the existing per student payment amount with an average amount of equalization aid per student received by equalized districts.¹⁴⁵  This would have the effect of shifting about $6.4 million of aid received by some districts for option payments to other districts.¹⁴⁶

The other three components the bill were perhaps not as controversial but no less important.  First, the bill would recognize transportation costs of districts outside the computation of tiered costs.¹⁴⁷  This would shift aid between school districts and would increase aid for equalization districts with high transportation costs relative to other districts in the same tier.¹⁴⁸  Second, the bill would reduce the effect of the minimum effort provisions on districts with large areas of tax-exempt Indian lands.¹⁴⁹  This provision would allow a few school districts to retain state aid calculated under the formula that would otherwise have to be forfeited since these districts did not meet the minimum effort provisions.¹⁵⁰  Third, the bill changed the definition of "formula students" in order to more accurately reflect average daily membership.¹⁵¹ The effect of any adjustments in student membership would have the potential of shifting aid between districts due to changes in formula need for individual schools.

To her credit, Senator Bohlke would manage to achieve all five original purposes of the bill, although perhaps not in the exact condition as originally introduced.  The bill also would be expanded to incorporate other school finance-related provisions as well as provisions related to school organization.  The bill did not represent a unanimous policy modification by any means, among both policymakers and school officials, and the first indication of unrest would arise at the public hearing for LB 1050 on January 30, 1996.

The hearing for LB 1050 would not be remembered for the sheer number of testifiers, as with other major legislative proposals.  Only ten individuals, representing themselves or various organizations, would testify on the bill.¹⁵²  Generally speaking, the heavily-equalization dependent schools, such as Lincoln, Omaha, and Bellevue appeared at the hearing to support the measure, while representatives for schools less reliant upon equalization aid would either oppose or cast a neutral position on the bill.  The lack of testimony was not due to disinterest among school officials, but rather due to the fact that LB 1050 was heard simultaneously with two other school finance bills.  The first, LB 1138 (1996), introduced by the Appropriations Committee and referred to the Education Committee, would provide for leasing of certain telecommunications facilities.¹⁵³  The second, LB 1145 (1996), introduced by Senator Ron Withem, would funnel nearly every dollar appropriated for aid to education as funding for equalization-qualified districts, both regular education and special education funding.¹⁵⁴

Whether by design or not, the idea to hear testimony on all three bills at one time, particularly LB 1050 and LB 1145, would have a favorable impact on the prospects of LB 1050.  Withem's LB 1145, in particular, was viewed by some opponents as an attempt to force consolidation of smaller, rural schools.  Errol Wells, representing Elba Public Schools, called the bill "most vile and unfair" and spoke of Withem's "campaign to destroy rural Nebraska."¹⁵⁵  To be fair, Senator Withem's bill was actually designed to fully implement the intent of LB 1059 as passed some six years earlier by establishing a pure equalization formula.  On the other hand, Withem's Statement of Intent did in fact include language to reduce "the degree to which non-viable school districts can generate disproportionate state aid and/or protect their tax from helping to meet the needs of students in other school districts."¹⁵⁶ In any event, Withem no doubt knew his bill would generate fear and concern among non-equalization schools, as it ultimately did.  His bill would never make it out of committee, but his point was well taken by those familiar with the history of the existing formula, and, at the very least, Withem's bill brought all concerned back to the table once again.  His bill also made Senator Bohlke's LB 1050 appear as the more reasonable approach to modifying the formula.

During the hearing, Dennis Pool of the Department of Education was asked to provide explanatory testimony on both LB 1050 and LB 1145.  Pool perhaps best captured the essence of the matter in his opening remarks when he briefly reviewed the concept of the existing formula while noting the range of opinions on how a finite amount of funding should be distributed.  "We have a policy question that would say, how are these funds, that are limited, to be distributed to school districts?" he asked rhetorically.¹⁵⁷  Pool continued:

On one hand, we can move towards more equalized concepts.  Equalized concepts, again, you have to answer the questions.  Well, how do we measure need?  How do you measure resources?  And many of the people that will testify will debate those issues.  On the other hand, we can move toward categorical type of funding where we have a situation where everybody gets an equal amount of that limited funds; but when you have that question before us, it's how do you measure what things you're going to count for categorization and how much you're going to count those?  So there's no easy answers to the many questions that are in front of you.¹⁵⁸

Indeed, there were no easy answers given the limited amount of funding.  It became a philosophical policy issue on how best to distribute the available funds and which school districts were most in need of the state financial assistance.

Superintendent Steve Joel of Beatrice Public Schools appeared at the hearing representing 13 school districts belonging to the Greater Nebraska Schools Athletic Conference, which he said incorporated 27% of all public education students.  Joel testified in favor of both "proequalization bills," referring to LB 1050 and LB 1145, but also recognized the "real concerns in some of the rural areas and the smaller schools" with regard to LB 1145 in particular.¹⁵⁹  "[O]ur intent is not to drive any kind of a wedge between those of us that may be looked upon as larger versus those that are smaller," Joel said.¹⁶⁰  At the same time, he said, the "vast inequities inherent" in the existing formula had to be addressed by the Legislature.¹⁶¹

Most of the other proponents of LB 1050 concurred with Joel's comments, including Harlan Metschke, Superintendent at Papillion-LaVista Public Schools.  Metschke said the district he represented was a good example of the positive effects of LB 1059 (1990) and the move toward an equalization-based formula.  Said Metschke:

Prior to LB 1059 being passed in 90-91, our district had a very high tax rate, one of the highest in the state, and a very low per pupil expenditure rate, one of the lower in the state; and 1059 brought our tax levy down to the neighboring school districts.¹⁶²

He encouraged the Education Committee to increase the distribution of funds through the equalization component of the formula in order to avoid an erosion of the beneficial impact of LB 1059.  The erosion, he said, was due in part to the spending limitations imposed on school districts, which created a greater need for state financial assistance.

Those who stood to lose by a pronounced move toward equalization funding were largely in a defensive posture at the hearing concerning LB 1145, which left LB 1050 as the lesser of two troublesome bills in their minds.  "We have no problems with 1050, at this point," said Diane Heiser, President of the School Board for Lynch Public School.¹⁶³  On the other hand, she said, "Legislative Bill 1145 is just another way of saying that many rural districts are too small and, therefore, have no right to exist."¹⁶⁴ Heiser and other rural school representatives spoke of the many advantages of smaller schools for students, including low absenteeism, high graduation percentages, preferable teacher to student ratios, and good learning environments.

Perhaps unique among the testimony delivered at the hearing was that of Ken Bird, Superintendent at Westside Community Schools in Omaha.  With regard to the school finance formula, Westside was considered an anomaly in that it received no equalization aid while all other Omaha-area school districts were heavily dependent upon equalization aid.  This was due to the high property valuation of the Westside district in comparison to the surrounding districts.  Westside, however, did receive state aid in the form of income tax rebate and option hold harmless payments.  It also received cost reimbursement for special education services.

Therefore, to Bird and his school district, both LB 1050 and LB 1145 represented major threats for continued state financial assistance.  Bird emphasized his district's support for the concept of equalization, but not to the extent outlined in the two bills.  Perhaps realizing the remote chances of LB 1145, Bird chose to focus on what he likely regarded as the legitimate threat to his district.  "I want to address, specifically, LB 1050," he said, while narrowing the focus to two provisions of the bill in particular, the income tax rebate and option payment provisions.¹⁶⁵  "Regarding the income tax rebate issue, with the passage of LB 1059, there was a commitment, or more correctly stated, a contract made with communities throughout Nebraska to return to them 20 percent of their state income tax receipts to support their public schools," Bird said.¹⁶⁶  There was an understanding by virtue of LB 1059, he said, that the rebate amount would fluctuate with the growth or decline in a community's taxable income, but the 20% rebate provision was meant to remain a part of the formula.  The act of denying school districts the benefit of these funds, Bird believed, would be "a violation of a previous commitment that was made" to taxpayers and to school districts.¹⁶⁷

With regard to option enrollment issue, Bird told the Education Committee that state payments for such students were a matter of reimbursement, not a matter of equalization.  "This is not an equalization issue," he emphasized, "This is a reimbursement issue for services provided by schools."¹⁶⁸  To lose sight of the original intent of the enrollment option program and turn it into an equalization issue, Bird said, would be "a misuse of the authority of this body."¹⁶⁹  He reminded everyone present that the enrollment option law was meant to give parents more choices with regard to their children's education, while, simultaneously placing schools "into a competitive market driven environment."¹⁷⁰ Westside was somewhat unique in that the district was well known for accepting a high number of option students.  Naturally, the proposed change in the option hold harmless provision would not be to the liking of Westside since it would lose state aid.

Advancement from Committee

The Education Committee met in executive session on two consecutive days, February 5th and 6th, to consider action on LB 1050.  And this would be no ordinary disposition of a bill.  In an extraordinary two-day event, nineteen separate motions to amend the bill were considered with most failing to garner a majority vote of the eight-member committee.¹⁷¹ Only seven motions would ultimately pass with the seventh and last being the motion to advance.  Executive sessions are closed to the public, except for members of the media, and there are no official transcripts of the proceedings in order to ascertain the views of each member of committee.  Nevertheless, in reviewing the executive session report, which contains motions and vote tallies, it appears there were members who were interested in a pure equalization-oriented formula, those who favored a more moderate pro-equalization approach, and those who concerned themselves with the protection of rural schools or schools not receiving a great amount of equalization aid.

This is not to say that the sole item of discussion during the executive sessions and later floor debate concerned only provisions related to the school finance formula.  LB 1050 would ultimately become a sort of high level technical and substantive cleanup bill and would contain a variety of non-school finance provisions in addition to some major school finance related provisions.  Included among these substantive/technical provisions would be proposed changes to laws related to alternative education for expelled students, and an extension of the deadline to resolve the federal impact aid issue originally addressed in LB 542 (1995).  Later amendments to the bill would encompass procedural changes to the option enrollment program and clarification of the jurisdiction of school districts with regard to offenses warranting disciplinary action.

Without question, however, the major focus of the closed sessions involved philosophical, policy discussions on the direction or re-direction of the school finance formula.  As evidenced by the records of their proceedings, members of the committee seemed to have been drawn back several times to the separate issues of the income tax rebate and the option payments.  With regard to the income tax rebate, all attempts to change the original version of the bill failed.  The rebate would be capped at the 1990-91 level ($83,307,600) and the distribution of rebate funds to districts would be based upon a statewide allocation percentage applied to the income tax liability of each district.  Senator Wickersham, in particular, offered several motions to change the provision so that rural schools would not be as hard hit by the rebate cap.

Other major changes made during executive session included Senator Wickersham's successful attempt to merge the contents of two separate bills into LB 1050 concerning school reorganization.  First, LB 600, introduced by Senator Bohlke, authorized incentive payments for school district reorganizations that move students into lower cost tiers.  This provision would allow qualified districts to receive incentive payments for boundary changes, occurring between May 31, 1996 and August 2, 2001, resulting in a reduction in the number of school districts.  Incentive payments would be made for three years and would derive from equalization aid not to exceed 1% of the TEEOSA appropriation.¹⁷²  One percent of the total amount of equalization aid would produce approximately $3 - 3.5 million for such incentive payments.¹⁷³

The second bill to be merged into LB 1050 was LB 676 (1996), which was introduced by Senator Wickersham, and established the Retirement Incentive Plan and Staff Development Assistance Program for certificated employees in districts involved in school reorganizations.  Under this scheme, if a reorganization involves a reduction-in-force (RIF), all certificated employees involved would have the option to:  (i) retire under the Retirement Incentive Plan, (ii) terminate employment and receive Staff Development Assistance, or (iii) remain employed subject to the personnel policies and staffing requirements of the reorganized district.¹⁷⁴ The provision established procedures for both the districts and school employees in order to guarantee certain rights and permit employees to take advantage of the available programs.

To qualify for the Retirement Incentive Plan, employees must be over 55 years of age and have completed five years of creditable service.  The payments would equal $700 for each year of service and will be made in one or two lump sum payments.¹⁷⁵  The Staff Development Assistance Program would be available for one year to employees who terminate their employment voluntarily within a specified period of time.  The assistance would come in the form of two semesters of tuition and a stipend equal to 25% of annual salary or 50% if enrolled and attending a Nebraska state college or university.  The cost for these plans was to be allocated among the reorganized school districts based upon the proportion of property valuation each district received.  The costs were considered to be general fund operating expenses for purposes of state aid and schools could exceed their allowable growth rates to cover the cost of the benefits.¹⁷⁶

The provision would also permit the distribution of matching funds, under the control of the State Board of Education, to contiguous districts for reimbursement of costs associated with reorganization studies.  School districts would receive 25% of the cost of the study, up to a maximum of $2,500.  The districts may receive a similar amount once again if voters approved the reorganization plan.¹⁷⁷

The inclusion of LB 600 and LB 676 within the committee amendments to LB 1050 may have been a concession to Senator Wickersham in order to gain his support for the bill on the whole.  It was Wickersham who made several unsuccessful attempts during executive session to change the income tax rebate provisions to make them less daunting to rural schools.  In truth, the inclusion of the two reorganization measures may have neutralized his immediate opposition, but his concerns, and ultimate opposition, would reappear during floor debate.  On February 6th, the committee voted to advance LB 1050, as proposed under the committee amendments, by a 6-0-2 vote.¹⁷⁸  No member of the committee opposed advancement, but both Senators Wickersham and Stuhr were recorded as present, not voting.¹⁷⁹

Floor Debate of LB 1050

The floor debate on LB 1050 was roughly similar in duration and contentiousness to that of LB 1059 in 1990.  Many of the same rural/urban philosophical and policy splits among the Legislature in 1990 were present in the 1996 debate.  The difference, perhaps, was that LB 1050 was meant, in part, to be a completion piece to the original goals already established under LB 1059, established both by the Legislature and by virtue of the electorate's retention under Initiative 406 (1990).  Whereas, in 1990, the proponents of LB 1059 had little more than theoretical evidence that the new school finance system would in fact work, the proponents of LB 1050 had some fairly powerful evidence that the system was doing what it was expected to do.  In 1996, it could be argued, a furtherance of the goals established by LB 1059 would produce additional success to the objectives of tax equity and educational equity.

The problem, of course, was that not everyone agreed with the overall success of LB 1059 over the past six years, or, for that matter, with the wisdom of the additional components proposed in LB 1050.  Accordingly, over the course of the floor debate, which consisted of eight session days, the original meaning, intent, and spirit of LB 1059 would be hashed and rehashed as legislators grappled with the changes contained in LB 1050.  In this regard, those members of the Legislature who were present at the 1990 debate had an advantage over those who were not present at the time.  This, however, did not prevent some from issuing their opinions about what was intended when the existing formula was first enacted.

General File debate began late in the afternoon on February 13, 1996.  Senator Bohlke barely had a chance to provide opening remarks on the bill before the body voted to adjourn for the day.  Her opening comments, however, did properly set the stage for subsequent debate, at least the stage from which proponents of the bill wanted the bill to be viewed.  Said Bohlke:

[I]t is very important that we talk about bringing equity into the formula.  When 1059 was passed many people spent a great deal of time talking about if we realized property tax relief or not.  But at the time really the real reason for establishing 1059 as a school aid formula was trying to bring equity into the formula.  We have accomplished a great deal, but there are still great inequities within the formula.¹⁸⁰

Bohlke said that even with the great strides made by LB 1059 six years earlier, there were still examples of wide disparities in property valuation per student.  "That is not equitable," she emphasized.¹⁸¹

Bohlke presented her colleagues a bullet list of the major components of LB 1050 as per the committee amendments and said the recommendations were meant to increase equity in the formula.  The bill, she said, would essentially seek to provide more state funding for purposes of equalization aid in order to "bring more equity into the formula."¹⁸² She admitted upfront that some of the provisions for discussion would be considered controversial, but she urged her colleagues to look at the changes from a long-range policy perspective rather than the short term.

Following Bohlke's opening remarks, and before the Legislature adjourned on that first day of debate, Senator Wickersham suggested a division of the committee amendments for purposes of consideration.¹⁸³  In this way, the body may take up one major component at a time in an orderly fashion.  Senator Bohlke was amenable to the suggested division, which would partition the committee amendments into four segments.  The first division pertained to option enrollment payments.  The second division pertained to the income tax rebate portion of the committee amendments.  The third division would involve those elements of the bill related to transportation.  And the fourth division would include all other provisions in the committee amendments to LB 1050.¹⁸⁴

The first division, relating to option payments, was briefly discussed on February 13th prior to adjournment.  Bohlke outlined the intent of the original bill, which was to prevent a non-equalized district from receiving option payments, to the compromise in the committee amendments, which provided for net option funding for all school districts.¹⁸⁵ The net funding concept would be applied to all districts having a net gain in the number of students educated in the district as a result of the option program (i.e., the number of students optioning in minus the number of students optioning out).  Under the committee amendments, the option payments were to be paid from the TEEOSA Fund (equalization aid) and were counted as formula resources for the calculation of equalization aid.  The amount of the payments would be calculated as the average equalization aid per formula student for all districts generating equalization aid.  Again, the net option funding would apply to both equalized and non-equalized districts alike.

It should be noted that prior to 1996, payments to the option district amounted to approximately $4,400 per option student.¹⁸⁶  For districts like Westside Community Schools, with a high number of option students, this resulted in sizable amounts of state aid each year.  As proposed by the committee amendments, however, this amount would be lowered to approximately $1,100 per option student.¹⁸⁷ For a district like Westside, this change would produce a substantial reduction in state aid.  Therefore, sometime between the advancement of the bill from committee on February 6th and the outset of floor debate on February 13th, Senator Bohlke reached another compromise with interested parties on the issue of option payments.  In fact, the compromise would represent yet another major policy decision on both the issues of option payments and income tax rebate funds.

Under the Bohlke amendment to the committee amendments, the concept of net option funding would remain in place for both equalized and non-equalized districts.  The option payments would equal the lesser of the statewide average tiered cost per student or the option school district's tiered cost.¹⁸⁸ This would generally have the effect of keeping the option payments at about the same level per student as the formula previously provided.  The major change under the Bohlke amendment concerned the derivation of the option funding.  Under the existing formula, option payments derived from equalization aid (i.e., the main pot of state aid funding).  However, under the Bohlke amendment, the option payments would be paid, for lack of a better phrase, off the top of the pool of income tax rebate funds.  In other words, the first distribution of income tax rebate funds (a capped amount of about $83 million as proposed under LB 1050) would be used for option payments.  The remaining amount of income tax rebate funds would be distributed to individual districts according to the income tax liability of each district.

Senator Bohlke attempted to avoid naming the school district that brought about the compromise amendment.  Senator Withem was less inclined to keep the concerned party a secret.  In fact, as Withem noted during debate on February 14th, Westside Community Schools had launched a full-fledged lobbying campaign to change the option provisions of LB 1050 and re-establish what it considered as a fair share of state aid.  Withem mentioned that Omaha-area senators had received numerous phone calls over the previous weekend from concerned parents in the Westside district about the option funding.¹⁸⁹  Some of the phone calls may have been prompted by concerns raised by Westside school officials through correspondence or other communication.  Whatever the case may have been, the result was most certainly to the liking of Westside since the Bohlke amendment was adopted on a 27-0 vote, the first official vote during the long debate of LB 1050.¹⁹⁰  Immediately following the adoption of the Bohlke amendment, the body returned to general discussion of the first division of the committee amendments concerning option payments, which was ultimately adopted by a 25-0 vote.¹⁹¹

The second division, concerning income tax rebate, would not proceed as smoothly or quickly as the first division.  The debate on the second division began on February 14th but would be interrupted by a priority motion by Senator Robak to bracket the bill until February 14, 1997.¹⁹²  Senator Robak believed it would make better sense to wait on school finance matters until after the Legislature addressed the property tax issues facing the state.  At this point in the session, the Revenue Committee had not yet advanced LB 1114 and LB 299, which would in fact address the property tax issue.  Senator Bohlke spoke very briefly on the bracket motion and said simply that it would be "unconscionable" to the children and to the taxpayers to wait until the following year to discuss the school finance issues presented in LB 1050.¹⁹³  The bracket motion failed on a 4-27 vote, which was followed by a successful motion for adjournment for the day.¹⁹⁴

On the following day, February 15th, debate resumed on the second division, which called for a cap on the income tax rebate at the level generated in 1990-91 (about $83 million).  The item of discussion this day was an amendment to the committee amendments originally offered the day before by Senator Wickersham.  The amendment was similar to several proposals offered by Wickersham during executive session, proposing an alternative method to capping the amount of the total rebate.¹⁹⁵

Under the Wickersham amendment, the rebate would be capped at a percentage (26.7%) of the total state aid appropriated by the Legislature each year.¹⁹⁶  Wickersham invoked the intent of LB 1059 by arguing that the income tax rebate was meant to be an accessible resource for school districts.  The Legislature had dedicated 20% of the total income tax revenue to schools by virtue of LB 1059, which was ratified, in a sense, through the retention of the law at the 1990 General Election.  Wickersham said LB 1050 would cap the rebate at an "arbitrary number," perhaps forgiving the fact that his amendment also capped the amount at a seemingly arbitrary number.¹⁹⁷  "The advantage of the amendment that I'm offering is, of course, that it allows greater access to the resource than does the proposed committee amendment, and in addition, over time, will allow growth in the access to that resource," said Wickersham.¹⁹⁸ This, he said, would be consistent with the original intent of LB 1059.

The best argument in favor of the Wickersham proposal was most likely the flexibility that it offered rather than the arbitrary nature of the proposal offered under LB 1050.  Senator Wickersham would make a valiant effort to convince his colleagues of the wisdom for his proposal over that suggested in the bill.  Several other senators representing rural-area schools agreed with Wickersham's idea.  "Since LB 1059 passed, I believe in 1990, and this formula has taken place, I think our school districts were promised they'd get their income tax back," said Senator Ed Schrock.¹⁹⁹  "I think that's something we should honor," he said in support of the Wickersham amendment.²⁰⁰  Senator Elaine Stuhr also supported the Wickersham amendment, and said:

We've been talking about equity, equity for children, for all children.  As a mother, as a grandmother, as a former teacher I truly believe in equity for all children.  But I have a great concern of what we're doing to the formula, so to speak, particularly concerned for those children in outstate Nebraska shall we say, those children that live in two-thirds part of the state.  How do we define equity in education?²⁰¹

Stuhr said many small, rural schools were not able to offer the number and types of programs that larger, more urban school districts were able to offer.

There was no disputing the fact that LB 1050 proposed a dramatic departure from that originally passed under LB 1059.  But even Senator Withem, the chief sponsor of LB 1059, saw no problem with deviating from the original intent of his own l990 legislation.  "My preference was, quite frankly, to come forward and indicate the rebate was something that we put into the formula and it just isn't working," Withem said during debate on February 14th.²⁰²  "I would have liked to see us get rid of the rebate," he added, perhaps referring to his proposal in LB 1145 to merge all rebate funds into the total pot of equalization aid.²⁰³  In fact, the pro-equalization advocates of the body considered the proposal contained in LB 1050 as a compromise in which non-equalization schools would continue to receive state aid in the form of income tax rebate, just not as much as before.  The pro-equalization camp believed just about every dollar of state appropriations to public education should be used for equalization aid.  As stated by Senator Bohlke, "This debate is to keep our eyes on what is your philosophy on bringing more equity into the formula."²⁰⁴

The vote on the Wickersham amendment to the committee amendments was perhaps one of the more significant events of the entire debate on LB 1050.  It was as much a philosophical policy decision as it was on the actual content of the amendment.  Generally speaking, a vote against the amendment symbolized a strong pro-equalization stance.  A vote in favor of the amendment did not necessarily symbolize an anti-equalization stance, but it did demonstrate a more moderate approach to the concept of equalization in the formula.  Prior to the debate, Senator Chris Beutler summarized it best when he said to his colleagues:

I just want to emphasize to you that this is the heart of the matter, this is probably the most important amendment you'll be asked to vote on, and your most important vote on this bill, other than the vote to advance or not to advance altogether.  It involves a very significant chunk of money.²⁰⁵

According to Senator Bohlke, the "significant chunk of money" mentioned by Beutler may mean more rebate funds to distribute to individual districts, but it would also, she said, amount to $28 million less in equalization aid.²⁰⁶

After a lengthy debate on the amendment, the question was called and a roll call vote requested by Senator Wickersham.  The amendment failed on a 17-22 vote.²⁰⁷

Table 56.  Record Vote:  Wickersham FA441 to Committee
AM3077 (Second division, FA438)

Voting in the affirmative, 17:
Abboud	Elmer	Kristensen	Schellpeper	Wehrbein
Bromm	Jensen	Matzke	Schmitt	Wickersham
Coordsen	Jones	Robak	Stuhr	Witek
Dierks	Klein
Voting in the negative, 22:
Avery	Brashear	Hilgert	Maurstad	Schimek
Bernard-	Crosby	Hillman	Pedersen	Warner
Stevens	Engel	Janssen	Pirsch	Wesely
Beutler	Fisher	Landis	Preister	Withem
Bohlke	Hartnett	Lynch
Present and not voting, 8:
Brown	Cudaback	Lindsay	Schrock	Vrtiska
Chambers	Hudkins	Robinson
Excused and not voting, 2:
McKenzie	Will

Source:  Neb. Legis. Journal, 15 February 1996, 813-14.

While Senator Wickersham failed at his first attempt to amend the income tax rebate portion of the committee amendments, he would immediately try again, and this time the spirit of compromise would avail itself on the debate of LB 1050 in a significant way.  In his second attempt, Wickersham proposed to change the target fiscal year of the cap from 1990-91 to 1992-93.²⁰⁸ This would have the effect of increasing the total pool of available rebate funds each year from $83 million, as proposed by LB 1050, to approximately $102 million, as proposed by the Wickersham amendment.  Wickersham's rationale for the proposal certainly had validity.  He reminded his colleagues that the first full tax year for implementation of the income tax increase contained in LB 1059 was 1991.  Since the rebate was calculated on income tax receipts that were one year in arrears from the year the funds were distributed, the more appropriate historical fiscal year to cap the income tax rebate would be 1992-93.

This time, Senator Wickersham would find unanimous support for his effort.  The second Wickersham amendment was adopted by a 36-0 vote and was widely praised as an appropriate correction to LB 1050 if, in fact, the will of the body was to cap the income tax rebate.²⁰⁹ That is to say, the adoption of the Wickersham amendment would serve to clarify in some legislators' minds the appropriate historical fiscal year to set the cap, but this would not necessarily translate into instant acceptance of the bill on the whole.  Senator Wickersham, himself, would be among those who would work very hard to make the legislation as palatable to his way of thinking as possible, only to vote against the measure in the final analysis.  But at this early stage of the legislative process, Wickersham had won a significant battle.

Prior to adoption of the Wickersham amendment, several senators asked for reassurance from Senator Bohlke that a new district-by-district printout would become available prior to second-round debate.  By virtue of the Wickersham amendment, there would likely be some shifting of funds owed to districts due to the change in the income tax rebate provision.  Bohlke assured her colleagues that a new printout would be forthcoming in time for Select File debate.  In fact, throughout the legislative history of LB 1050, it became increasingly apparent that some legislators were basing their votes on the printouts, or "models" as the staff of the Nebraska Department of Education (NDE) might prefer to call them.  Of course, the models submitted by NDE were just that, models.  Some legislators may not have realized that the models represented best guesses by the department given the data available at that particular moment in time.  In any event, some legislators would use the models to determine a quick ratio of winners versus losers within their own legislative districts.

The debate on the second division of the committee amendments would continue a short time after the adoption of the Wickersham amendment.  Most of the conversation among legislators at this point was of a positive nature, no doubt due in large part to the efforts of Senator Wickersham to gain some conciliation from the staunch pro-equalization camp.  Senator Bohlke would wisely attempt to capture the moment by emphasizing in her closing comments that a fair compromise had been reached on the income tax rebate.  Said Bohlke:

Now you have always two pots of money.  You have an equalization pot and you have an income tax rebate pot.  What we have done is we have not given as much money over into the equalization pot, we have left more there in the income tax rebate.  It's a compromise, I believe, that a number of us have struck on the floor and a good, a good compromise.²¹⁰

The compromise would produce a cap on the income tax rebate at the 1992-93 appropriation level, and would determine the allocation of rebate funds to individual districts based on a statewide allocation percentage applied to the income tax liability of each district.  The rebate would be capped at $102,289,817 in 1996-97 and each year thereafter.²¹¹  Without a cap, the rebate in 1996-97 would have been $131,181,793.²¹² Therefore, as per the intent of LB 1050, the difference of $28,891,976 would be shifted to equalization aid.

For a slim majority of the body, the compromise was sufficient reason to adopt the second division of the committee amendments by a 25-8 vote.²¹³  Fifteen members of the Legislature chose not to vote on the second division, and it was likely not for a lack of opinion on the matter.²¹⁴ Some felt the compromise did not shift enough to equalization aid and others may have felt the compromise did not go far enough to help rural schools.  In any event, Senator Bohlke had successfully navigated half, the major half, of the committee amendments through the first stage of legislative consideration.

The third division of the committee amendments, relating to transportation, did not stir the kind of controversy surrounding the first two divisions.  It did, however, serve to inform members of the body about how transportation costs were computed, the problems associated with the existing process, and how LB 1050 would attempt to correct those problems.  The description and explanation provided by Senator Bohlke perhaps clarified for some lawmakers how transportation costs were factored into the formula.  Nevertheless, for at least one legislator, the explanation of the existing process along with the proposed change in LB 1050 did little more than highlight the rural-urban split on the school finance legislation.

The discussion began with Senator Bohlke's explanation that transportation costs were included in the tiered cost per student, and the tier structure applied only to equalization-qualified districts.  The problem, Bohlke said, was that the process of determining tiered cost per student involved averaging all districts within a given tier.  As a result, a school district with high transportation costs could be penalized through the averaging process while a district with low transportation costs could benefit from the process.  The answer, under LB 1050, was to remove transportation costs prior to calculation of tiered cost per student, then re-add the transportation costs after the calculation.  In doing so, however, the issue became a matter of cost containment and accountability.  As Senator Bohlke asked rhetorically, "[W]hat would be the incentive to have them keep those costs under control?"²¹⁵

The answer, as contained in LB 1050, was to place a restriction on transportation costs for purposes of calculating equalization aid.  The "transportation allowance" would be the lesser of the district's regular pupil transportation expenditures or the regular pupil transportation mileage multiplied by 400% of the state reimbursement rate.²¹⁶  The multiplying factor, 400%, was set by design since it was known that the actual multiplying factor, at least at the time, would have been about 475%.²¹⁷  The idea was to deliberately reduce the multiplying factor below what was known to be the actual figure in order to enforce some measure of cost containment.  "And so that's the reason for the 400 percent," Bohlke said.²¹⁸

The rural-urban split, with regard to the transportation component of the committee amendments, was inflamed when Senator Chris Beutler of Lincoln rose to grudgingly support the concept, but noted that some equalization districts would still be harmed by the proposal.  Said Beutler:

[I]t gives no weight to the increase of costs, particularly labor costs that are associated with bus routes where there are stop and start, stop and start, stop and start and small distances, it takes more time.  And as you all know, stop and start type of operations are much more difficult on vehicles than are long mileage kinds of situations where most of the miles are highway miles and don't wear down your brakes and your transmission and all those parts of the vehicle that wear down much faster when you're in a high density bus route situation.²¹⁹

Beutler's comments were no doubt accurate with regard to urban circumstances.  But his reference to rural roads and rural driving was not lost on Senator Kristensen of Minden, then chair of the Transportation Committee.  "Most of our buses wind up going down gravel roads and mud and snow and it's extremely hard on those buses," Kristensen retorted, "And I would rather have your nice smooth streets and roads as compared to the gravel roads that ours have to travel upon."²²⁰

Kristensen also clarified through a floor discussion with Senator Bohlke that neither the existing formula nor the proposal under LB 1050 would apply to districts that do not receive equalization aid.  Kristensen then asked Bohlke to explain the rationale for this provision, to which Bohlke replied:

That because they are a school district that looks like they have more resources than they have needs, that yes, they may have a higher cost.  But if we take money out of the equalization we're taking it from schools that are needier to help pay for a program to schools who have higher resources than needs.  And it goes against equalization.²²¹

Bohlke's response was likely not a surprise to Kristensen, who may have asked the question more to support his own argument than to gain new knowledge about the formula.  Essentially, his argument was that some consolidated school districts would be considered property rich and may therefore not receive equalization aid even though the districts would likely have high transportation costs.  This, to Kristensen, amounted to penalizing certain districts for attempting to be efficient.  "And the bottom line to this discussion, at least in transportation area, is that the 1059 formula is more geared towards addressing needs of school districts rather than rewarding efficiencies," he said.²²²

On this particular issue, however, Kristensen stood mostly alone.  Senator Wickersham, who skillfully crafted the compromise on the income tax rebate, rose to support the transportation element of the committee amendments.  Said Wickersham:

I'm going to support this portion of the committee amendments because it does address what I think is an inequity and a problem in the current formula, and that is the way costs are calculated in the tiers and that you do have, in effect, people I who obtain an advantage because of other people's high transportation costs.²²³

Senators Jan McKenzie and Jim Cudaback, who represent rural-area schools, also rose to support the transportation component.  Therefore, with the exception of the comments by Beutler and Kristensen, this part of the legislation simply did not generate the level of controversy as the first two parts.  The third division was adopted by a 28-0 vote.²²⁴

At this point in time, the Legislature had arrived at the fourth and final division of the committee amendments, which included all other provisions of the legislative package.  However, before debate could begin, Speaker Withem asked for a further division of the fourth component in order to separate the provisions relating to reorganization, which included the monetary incentives to reorganize along with two programs for school employees affected by reorganization (the Retirement Incentive Plan and the Staff Development Assistance Program).²²⁵  With the further division, there may have been some trepidation that yet another battle over issues related to reorganization would ensue.  But this was not the case.  Speaker Withem said he initially had "serious reservations" about the financial incentives for reorganization because it would draw funds away from equalization aid.²²⁶  In fact, approximately $3 million would be used for the reorganization incentives that would otherwise be used for equalization aid.²²⁷  However, with the move under LB 1050 to shift more funds toward equalization, Withem was amenable to the idea of reorganization incentives.  "Now that we are in the process of correcting some of those ... problems with equalization, I don't have nearly those concerns about it," he said.²²⁸

The incentive payments under LB 1050 were meant to encourage districts to pursue reorganization.  "I think it sends a very positive message to those school districts who are struggling with the decision if this is the direction they would like to move," said Senator Bohlke.²²⁹  Applications for incentive payments would be approved or rejected by the State Committee for the Reorganization of School Districts, which would then issue a preliminary approval or disapproval for incentive payments.  In order to take advantage of the incentive payments, districts involved in a reorganization would need to apply between May 31, 1996 and August 2, 2001.  The payments would be based upon a per pupil formula contained in the bill and the incentive funds would be paid to the reorganized district for a period of three years.  The payments were not considered accountable receipts for purposes of calculating state aid.  The total amount for incentive funds could not exceed 1% of the total amount designated for equalization aid (approximately $3 to $3.5 million per year).²³⁰

The first part of the fourth division would also establish the Retirement Incentive Plan and Staff Development Assistance Plan for certificated employees in districts involved in school district reorganizations.  Under this structure, within 15 days after receiving notification of a reduction-in-force due to the reorganization of school districts, employees may opt to retire under the Retirement Incentive Plan or resign and receive Staff Development Assistance.  The plan benefits would be as follows:

Plan	Benefits
Retirement Incentive Plan	Lump sum - $700 for each year of service with the district.
Staff Development Assistance	One year - a) 50% of annual salary to enroll and attend a Nebraska college or university; b) 25% of annual salary if not enrolled or attending a Nebraska state college or university.231

The costs for these plans were to be allocated among the reorganized school districts based upon the proportion of valuation each district receives.  The costs were to be considered general fund operating expenses for purposes of state aid and schools could exceed their allowable growth rates to cover the cost of the benefits.²³²

After a short discussion, mostly explanation of the provisions, the first part of the fourth division, relating to incentive payments and benefits for employees involved in a reorganization, was adopted on a 28-0 vote.²³³  The second part of the fourth division of the committee amendments would be considered on February 20th and would contain all other provisions of LB 1050.  Included within this component were provisions to:

• Distribute insurance premium tax funds as equalization aid rather than based on school census.²³⁴  This would increase equalization aid by an estimated $12 to $13 million in 1996-97 and would shift aid to equalization districts from non-equalization districts.²³⁵  Beginning in school year 1996-97, insurance premium tax funds would no longer be considered an accountable receipt for purposes of computing formula resources.²³⁶
  
  
• Use the adjusted valuation from the prior year rather than the current school year for purposes of the state aid calculation.²³⁷  A change in the valuation basis would shift aid between school districts eligible for equalization aid.²³⁸
  
  
• Delay the requirement for schools to provide alternative education for expelled students from January 1, 1997 to July 1, 1997.²³⁹
  
  
• Delay a deadline date by one year for federal legislation to be passed relating to a settlement on federal impact aid.  The date change would allow certain school districts that received less state aid in 1990-91 due to the inclusion of impact aid as a resource to qualify for additional aid.  The deadline date was first set under LB 542 (1995), but federal legislation had not passed in time to meet the initial deadline.²⁴⁰

Perhaps the most significant aspect of these provisions, at least as far as long-range policy, was the inclusion of insurance premium tax funds within the amount of equalization aid.  This provision furthered one of the main goals of LB 1050 to increase the equalization component of the state aid formula.  The second part of the fourth division was adopted without debate or discussion on a 25-2 vote.²⁴¹

With the adoption of all divisions of the committee amendments, the debate then turned to advancement of the bill itself.  A number of senators rose to speak on the bill or one component or another.  But the comments of three senators, in particular, helped to bring the meaning of LB 1050 into focus for the entire Legislature.  First, Senator Wickersham rose to announce his opposition to the bill on the whole even though he had won a significant battle with regard to the income tax rebate.  Said Wickersham:

I also will rise, at this time, to explain my vote on what is now LB 1050.  Even though I believe that there are things that are entirely desirable and appropriate, even almost necessary, in the committee amendments to 1050, that is now the bill, I will not vote for it.  I will not vote for 1050 because of the changes we are making in the income tax rebate, specifically.  And even though I was the one that offered the amendment that puts it in the form that it's in now, I will not support that change in the policy of this state.²⁴²

True to his word, Senator Wickersham would consistently vote against advancement and ultimately passage of the bill.  Perhaps Wickersham also knew that any hope of further concessions from the proponents of the bill would require someone to appear as the dragging anchor to its passage.  But there was no question of his genuine dislike for some components of LB 1050.

On the other side of the political spectrum was Speaker Withem, who supported the bill, but believed it failed to go far enough.  Said Withem:

It is, quite frankly, not what I would have liked to have seen in a bill.  What I would liked to have seen in a bill would have been LB 1145 out here on the floor.  I didn't get what I wanted totally, but that's part of our process.  This bill, I support it because of one very simple reason.  It enhances the sum of money that is distributed on the basis of our equalization formula.²⁴³

Speaker Withem referred to his own bill, LB 1145, which represented a pure equalization approach to the state aid formula.  While there was no doubt about Withem's sincerity about his beliefs on school finance, there may have been another strategy behind his remarks.  As a skillful politician, Withem knew that a potentially powerful tactic would be to continue making LB 1050 appear as a compromise between those who favor a stronger equalization-oriented formula and those who do not.  By keeping a bill like LB 1145 within the mix of discussion and debate, Withem effectively made LB 1050 look like the lesser of two unfavorable bills in the minds of some legislators.

In the middle of the political spectrum, but leaning toward the Withem camp, was Senator Ardyce Bohlke, Chair of the Education Committee.  In her closing remarks prior to a vote on advancement, Bohlke reminded her colleagues of the success stories of the existing formula since passage of LB 1059 in 1990.  She cited examples in which the existing formula had stabilized property tax levies among school districts and brought about more tax equity.  She also reminded senators of the concept behind equalization aid.  "[W]e need to realize that equalized school districts are school districts with more children and less property to get that funding," she said.²⁴⁴  Bohlke added:

How we determine if a school is nonequalized or equalized is you add up the resources and you add up the needs, and then if you are needier, if you have more needs than resources, you are an equalized school district.  Forty-eight percent of those in our state are equalized and they go from the very western border, all the way to the very eastern, north to south.²⁴⁵

Equalization aid, she said, was not an urban-rural issue, but rather an issue of equity.  It was not, she asserted, just the large schools like Lincoln and Omaha that received equalization aid.  She named rural schools such as Crawford, Ponca, North Bend, Nickerson, Burwell, Tecumseh, and others that also received equalization aid.  "[W]e are talking about school districts across the state," she said.²⁴⁶

In the end, her plea for advancement of LB 1050 as a "reasonable response"²⁴⁷ to the issue of increasing equalization aid proved fruitful as the bill advanced on February 20th by a 29-2 vote.²⁴⁸  Eleven senators were present, not voting, and seven senators were absent at the time.²⁴⁹ Both the number of proponents and opponents would increase by the time of advancement on Select File, as opinions would become more pronounced.

With the changes made to LB 1050, particularly the income tax rebate, most lawmakers were anxiously awaiting the printout from NDE concerning projected state aid by individual district.  On March 4th Senator Bohlke took a moment of personal privilege on the floor to announce the completion of the new state aid model and a special briefing scheduled the next day to review and respond to questions.  The briefing was held on the morning of March 5th and attended by various senators, legislative aides, department staff, and lobbyists.  As anticipated, the model demonstrated some shifting of funds from district to district.  There were losers and there were winners.  Some districts lost more state aid due to the changes on General File while others gained somewhat.

Second-round debate began on March 7, 1996 and would continue through three separate legislative days (concluding on March 22nd).  Members of the Legislature had a few days to digest the new state aid model and the debate would now be narrowed to specific concerns and issues based upon the revised version of the bill.  Select File debate would be less complicated to the extent that each amendment stood on its own merits rather than as a related topic to a specific division of a larger amendment, as occurred on General File.  Some of the amendments addressed on Select File were rehashed issues from the first stage of debate.  Other amendments were new and fresh ideas on how to improve the state aid formula.

The first major Select File amendment addressed the enrollment option program, specifically the sibling rule under the program.  The amendment was offered by Senator David Bernard-Stevens and would eliminate the policy that enrollment of siblings of option students receive automatic acceptance by the option district.²⁵⁰ Bernard-Stevens argued that the existing law did not take into consideration whether the option district had sufficient classroom space to accept the sibling of the option student.

Some, like Senator Dave Maurstad of Beatrice and Senator Carol Pirsch of Omaha, argued against the amendment on the basis that students should be given access to any public school they wish to attend under the option program.  Parents should be afforded the right to enroll their students where they wish to enroll them.  "I'm concerned about choice for the people," said Pirsch.²⁵¹  But Senator Bohlke supported the amendment and argued that just because a district admits one family member it "does not necessarily mean that the school should be obligated to every other student that would be coming from that family."²⁵²  The Bernard-Stevens amendment was adopted after a fairly lengthy debate on a 25-11 vote.²⁵³ This issue would resurface in future sessions.

The second major amendment addressed on Select File directly concerned the school finance formula.  The amendment was filed by Senator Wickersham and provided that the bulk of the HELP funds reallocated under LB 700 (1996) would count toward the 45% aggregate funding goal for the school finance formula.²⁵⁴  LB 700, which was awaiting a vote on Final Reading, was set to transfer $6.9 million on an annual basis from the old HELP Fund to the three state define benefit retirement plans and the Omaha Public Schools (OPS) Retirement Plan.²⁵⁵  One of the define benefit plans included the School Employees Retirement Plan, which, coupled with the OPS Plan, would consume the bulk of the HELP fund transfer ($6.6 million).²⁵⁶  It would be this figure that Senator Wickersham proposed to count toward the 45% state support goal.  The Wickersham amendment did not stir any debate or controversy and was adopted by a 27-0 vote.²⁵⁷

The third major amendment adopted during Select File debate may not have stirred too much controversy during floor discussion, but the concept embodied within the amendment would come back during debate on subsequent school finance legislation.  The issue concerned the unique circumstances faced by students within school districts located in sparsely populated areas of the state.  Filed by Speaker Withem of Papillion and Senator Jim Jones of Eddyville, the amendment derived from an unlikely duo on any subject related to school finance given their geographic differences.

The Withem-Jones amendment imposed legislative findings that the existing school finance formula "does not currently recognize the unique costs associated with funding a quality education program for students living in the sparsely populated areas of the state."²⁵⁸  The amendment required the School Finance Review Committee, which monitored the school finance formula, to:

1. conduct a study of the unique costs associated with providing a quality education program for students living in sparsely populated areas in the state; and
   
   
2. prepare a recommendation to the Legislature indicating how a "sparsity factor" should be structured for incorporation into the school finance formula.²⁵⁹

The amendment required the School Finance Review Committee to present its recommendation to the Education Committee by December 15, 1996.²⁶⁰

Speaker Withem admitted the nature of the amendment was a "rather significant departure" on his part.²⁶¹  His interests on matters related to school finance were typically associated with larger school district concerns.  However, as he explained to his colleagues, the issue of sparsity had real consequences to certain schools:

[T]he state aid formula does not recognize legitimate extra costs for people that live in ... parts of our state that are sparsely populated.  It's tougher to have a school district in an area where you have few people per square mile than it is in parts of the state where there are lots of people per square mile.  So we need to recognize that.²⁶²

Withem stopped short of advocating large shifts of state aid to these school districts, but he did advocate something be done about the issue.  And his colleagues agreed by adopting the amendment on a 29-0 vote.²⁶³  The Legislature then advanced LB 1050 to Final Reading by a 33-11 vote.²⁶⁴

Final-round consideration of the legislation took place on April 3, 1996.  Senator Chris Abboud of Omaha would try unsuccessfully to bring the legislation back to Select File in order to amend the cap on available income tax rebate funds.²⁶⁵  Senator Abboud said the amendment was an attempt to address the concerns promoted by tax activist Ed Jaksha, who sought a constitutional amendment to limit government spending and growth in tax rates.  Abboud advocated raising the amount of income tax funds available to schools in an effort to reduce local property tax burdens.  The Abboud motion to return failed by a 19-25 vote.²⁶⁶

Senator Bohlke planned wisely in advance of Final Reading consideration.  A day prior to the final vote she had filed a motion, which if passed, would suspend the rules and end all further debate and consideration of other amendments and motions.²⁶⁷  The motion was available to her on the day of Final Reading, if needed.  Shortly after Senator Abboud's failed attempt to return the bill for specific amendment, Bohlke's motion was taken up for consideration.  "We have certainly spent a great deal of time on this issue already and I think it's time that we move on and get on with Final Reading," Bohlke said.²⁶⁸  The motion passed on a 32-12 vote.²⁶⁹  The body then proceeded immediately to take a final vote.  LB 1050 passed with the emergency clause attached by a 36-11 vote.²⁷⁰

Table 57.  Record Vote:  LB 1050 (1996), Final Reading

Voting in the affirmative, 36:
Avery	Cudaback	Janssen	McKenzie	Stuhr
Bernard-	Elmer	Klein	Pedersen	Vrtiska
Stevens	Engel	Landis	Pirsch	Warner
Beutler	Fisher	Lindsay	Preister	Wehrbein
Bohlke	Hartnett	Lynch	Robinson	Wesely
Brashear	Hilgert	Matzke	Schellpeper	Witek
Chambers	Hillman	Maurstad	Schimek	Withem
Crosby	Hudkins
Voting in the negative, 11:
Abboud	Coordsen	Jones	Robak	Schrock
Bromm	Jensen	Kristensen	Schmitt	Wickersham
Brown
Excused and not voting, 2:
Dierks	Will

Source:  Neb. Legis. Journal, 3 April 1996, 1841.

Table 58.  Summary of Modifications to TEEOSA
as per LB 1050 (1996)

Click to view file

Source:  Legislative Bill 1050, in Laws of Nebraska, Ninety-Fourth Legislature, Second Session, 1996, Session Laws, comp. Patrick J. O'Donnell, Clerk of the Legislature (Lincoln, Nebr.: by authority of Scott Moore, Secretary of State), §§ 10-32, 40, pp. 7-26, 28-29 (1121-40, 1142-43).

 

Other Legislation Amending TEEOSA in 1996

LB 700 (1996) - Retirement Legislation

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Legislative Bill 700 (1996) implemented several benefit enhancements for the three define benefit public employee retirement systems, but also marked a turning point in the long-standing issue of state sponsored supplemental pay for public school teachers.  Originally introduced in the 1995 Session, the bill was sponsored by Senator Bob Wickersham, who, at the time, served as chair of the Legislature's Nebraska Retirement Systems Committee.  The public hearing was held on February 2, 1995 and the bill was advanced to General File, but floor debate would not commence until the 1996 Session pending completion of an actuarial study on the measure.

The focus of the 1995 version of the bill was a 50% purchasing power cost-of-living-adjustment (COLA) for the three define benefit public employees retirement systems.²⁷¹  The state define benefit plans include the School Employees Retirement System, the State Patrol Retirement System, and the Judges Retirement System.  The idea was that the COLA would be activated automatically when the value of each member's retirement benefit dropped below 50% (as measured by the Consumer Price Index).²⁷²  The bill would also contain a one-time, ad hoc, COLA for existing retirees under the School Employees Retirement System.²⁷³

To offset the funding requirements for the benefit enhancements, LB 700 proposed to dissolve the Help Education Lead to Prosperity (HELP) Act²⁷⁴ and divert the appropriations to the three define benefit plans.²⁷⁵ Part of the appropriation would also be awarded to the Omaha Public Schools (OPS) Retirement System to be used as deemed necessary by the OPS Retirement System Board of Trustees.

The proposal to eliminate the HELP Act came at the request, or at least acquiescence, of the Nebraska State Education Association (NSEA), which originally promoted the creation and maintenance of the Act since the passage of LB 89 (1989).  The concept behind the HELP Act was to provide state sponsored supplemental pay to Nebraska's teachers with a total annual appropriation of $20 million.  This amount was gradually reduced due to fiscal concerns until, by 1995, the appropriation was no more than $6.9 million.²⁷⁶  By this time, the average annual payout to an individual teacher was $174 before taxes.²⁷⁷  This was hardly a major increase in compensation.  However, by using the HELP funds within the retirement plan, the NSEA hoped to reap a greater overall benefit for its members.  "This allows us to get a good benefit from those moneys and maintains the state's commitment to teacher compensation in a somewhat different way," said NSEA President Craig Christiansen.²⁷⁸

The idea to repeal the HELP Act in exchange for retirement benefit enhancements was supported by 85% of teachers according to an internal NSEA survey.²⁷⁹ Of course, under the provisions of LB 700, the HELP funds would benefit not just teachers but all school employees, as well as members of the Judges' and State Patrol Retirement Plans.  It was a generous offer on the part of NSEA, especially if the Legislature was willing to continue the annual appropriations even when the original goal of the HELP Act had been repealed.  This would be an item of contention not only during the debate on LB 700, but also in subsequent years, particularly in tough budget situations.

As LB 700 evolved through private negotiations, and based upon the completed actuarial study, the concept of a 50% purchasing power COLA would fall away in favor of a fixed annual COLA.  In addition, several other benefit enhancements would be proposed for incorporation into the bill.  By the time the bill was debated on General File, on January 9, 1996, Senator Wickersham would successfully propose a comprehensive amendment to replace the original version of the bill with a different set of provisions.²⁸⁰

Under the Wickersham amendment, the bill would be comprised of five major components with most of the provisions pertaining to the School Employees Plan.  First, the bill would provide a cost-of-living-adjustment (COLA) for plan members who retire after the effective date of the bill (for all three define benefit retirement plans).²⁸¹  The COLA would begin for each retiree in the sixth year of his or her retirement at a rate of .3% per year.  Second, the bill would increase the monthly formula annuity factor in the School Employees Retirement System from 1.73% of final average salary to 1.8%.²⁸²  The factor increase would be applicable to those employees with at least a half-year service after July 1, 1995 and who were employed on the effective date of the act.  Third, the bill would provide a one-time, ad hoc, 3% COLA for existing retirees under the School Employees Retirement System once sufficient funds were accumulated under the system to effectuate the ad hoc COLA.²⁸³

The fourth part of the bill established a "floor" employee contribution rate under the School Employees Retirement System at 7.35% of compensation for FY1996-97 with the idea that the rate could be increased but not decreased in future years.²⁸⁴  In this way, the School Employees Plan would steadily accumulate an actuarial reserve that would provide stability to the plan and would also be available to finance future benefit enhancement legislation.  The employer contribution rate would remain affixed in statute at 101% of the employee contribution rate (i.e., 7.35% x 101% = 7.42%).²⁸⁵  At the time LB 700 was introduced, the employee contribution rate was set at 7.15% (7.22% employer rate).²⁸⁶ This particular provision was one of the more controversial aspects of the Wickersham amendment, at least among some school officials, since it would mean both less take-home pay for school employees (as a result of an increased employee contribution rate) and a higher cost to school districts due to the increased employer contribution rate.  The fiscal nature of the controversy was sufficient to cause the issue to be revisited prior to final passage of the bill.

The fifth major component of the bill was the aforementioned repeal of the HELP Act coupled with the redirection of the HELP funds to finance the COLA for future retirees.²⁸⁷  LB 700A (1996), the appropriation bill to LB 700, divided the $6.9 million appropriation among the three define benefit plans and the OPS plan according to total membership and retirement ratios.  The School Employees Plan would receive the bulk of the appropriation at $5,639,235 per year (assuming the appropriation was renewed from year to year).  The Judges' Plan would receive $72,244 per year and the State Patrol Plan would receive $210,220 per year.  The OPS Plan would receive $973,301 from the former HELP funds, but these funds could be used for any purpose deemed appropriate by its Board of Trustees.²⁸⁸

The Wickersham amendment was adopted by a 28-2 vote after a relatively short General File debate.²⁸⁹  The only outspoken critic of the proposal was Senator Kate Witek of Omaha, a member of the Retirement Committee, who represented the sole vote against advancement of the bill in committee.²⁹⁰  Witek argued that it was inappropriate to eliminate the HELP fund and then simply "roll it over" into a different use under the retirement system.²⁹¹  She also expressed concern for making a political and financial commitment to teachers in the amount of $6.9 million per year for purposes of retirement benefits.  If the HELP Act was repealed, Witek argued, then the corresponding funding should also cease to exist.  However, her concerns were not shared by many of her colleagues, and the bill was advanced to second-round debate on a 27-2 vote.²⁹²

A final component to the bill, not actually a part of the Wickersham amendment, had nothing to do with retirement benefits, but certainly had an impact on the school finance formula.  The genesis of this provision derived from testimony offered by the Nebraska Association of School Boards (NASB) during the public hearing in 1995.  NASB lobbyist, Martha Fricke, noted that the original bill repealed the HELP Act but continued to hold school districts accountable for funds received under the HELP Act.  This, she asserted, seemed somewhat out of place since the intent and purpose of the HELP Act would be eliminated, but the funding for the act would continue to exist.  How would or should this impact the state aid formula?  The answer was to remove HELP receipts from the list of district resources.  Since the Wickersham amendment failed to include this important provision, it was incorporated into the Enrollment and Review (E&R) amendments, which were adopted prior to advancement on Select File.²⁹³

LB 700 would advance on Select File without amendment or debate by a voice vote on January 25th, but would then be shelved until later in the 1996 Session.²⁹⁴ This is not a particularly unusual maneuver especially for a bill that would carry a significant fiscal impact such as LB 700.  The Legislature typically holds off final votes on bills that carry a General Fund appropriation until the body is sure how the budget picture will look toward the end of a session.

On the 49th day of the 60-day session, March 25, 1996, LB 700 appeared on the Final Reading agenda.  However, rather than seeking a final vote, Senator Wickersham sought instead a motion to return the bill to Select File for a specific amendment.  The amendment represented perhaps the last major item of controversy surrounding LB 700:  the proposed "floor" employee contribution rate.

As noted earlier, the concept behind the floor contribution rate was to help build an adequate reserve for purposes of plan stability and use for future benefit enhancements.  The only rate that appears in statute is the employee contribution rate.  The employer rate is calculated, as per statute, at 101% of the employee rate.  Under LB 700, as per the Wickersham amendment adopted on General File, the employee rate was set at 7.35%, thereby creating an employer rate of 7.42%.  However, after further review and consultation with interested parties, Senator Wickersham elected to reduce the employee rate to 7.25%.²⁹⁵  As explained by Wickersham:

[W]ith the consent of all the parties concerned...we are recommending to you that the floor rate of contributions be set in LB 700 at 7.25 percent.  And I would again call your attention to the fact that this is a floor rate, that I do not know if the rate in the next fiscal year will be higher, but this is a floor rate that we're placing in the System, with the expectation that over time we will be able to smooth out contributions to the system.  And there also does, quite frankly, exist the potential for building some excess in reserves in the system over time, even at the 7.25 percentage contribution rate for employees.²⁹⁶

Wickersham said the lower rate was supported by an actuarial study, in which the state actuary suggested at least a 7.23% employee rate to provide adequate funding for the benefit enhancements contained in LB 700.²⁹⁷  Reducing the proposed rate from 7.35% to 7.25%, Wickersham said, would save both school employees and employers approximately $1.5 million per year.²⁹⁸  After a short discussion, the Wickersham motion to return was passed and the amendment was adopted, both by unanimous votes.²⁹⁹

On April 3rd, LB 700 once again appeared on the Final Reading agenda.  The bill would be passed with the emergency clause attached by a decisive 42-1 vote with Senator Witek casting the lone dissenting vote.³⁰⁰  The "A" bill to LB 700 passed on a 41-1 vote.³⁰¹  Governor Nelson would sign the bill into law on April 9, 1996.³⁰²

Table 59.  Summary of Modifications to TEEOSA
as per LB 700 (1996)

Click to view file

Source:  Legislative Bill 700, in Laws of Nebraska, Ninety-Fourth Legislature, Second Session, 1996, Session Laws, comp. Patrick J. O'Donnell, Clerk of the Legislature (Lincoln, Nebr.: by authority of Scott Moore, Secretary of State), § 12, pp. 8-9 (265-66).

LB 900 - Recodification of Chapter 79

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Legislative Bill 900 (1996) represented, at the time, a long over due reorganization, or recodification, of the laws pertaining to public education in Nebraska.  The bulk of all laws relevant to public schools are found in Chapter 79 of the Nebraska Revised Statutes, the code that houses all laws passed and approved via the legislative process.  Over the years, from legislative session to legislative session, Chapter 79 became increasingly fragmented as successive revisions and new laws were codified within an outdated framework of articles and sections.

Schools administrators and school attorneys, in particular, were well aware of the disarray that had befallen the education statutes.  In fact, the Nebraska Council of School Administrators (NCSA) was one of the first organizations to approach Senator Ardyce Bohlke, then chair of the Education Committee, to seek a recodification effort.  Bohlke, also aware of the situation, sought approval from the Legislature's Executive Board in 1995 to contract with an individual or firm for this very purpose.  With approval granted, Larry Scherer, a former legal counsel to the Education Committee, was awarded the contract to formulate a proposal for reorganization of the education statutes without making substantive changes to the law itself.

The contract commenced February 1, 1995, and, with the assistance of Mary Fischer, from the Office of Revisor of Statutes, and Tammy Barry, legal counsel for the Education Committee, the work was completed in time for the 1996 Session.  The body of work was incorporated into LB 900, which was introduced by Senator Bohlke and prioritized by the Education Committee.³⁰³ And, due to the immense effort involved in publishing such a work, the bill was placed on the unofficial legislative fast track with the help of Speaker Ron Withem, himself a former chair of the Education Committee.

According to Scherer, the "theme of the restructuring" effort was to identify various sections of education law that had a "common subject" and generally place them in a logical sequential order.³⁰⁴  Some sections were divided and some were joined together.  The order of clauses and sentences within various sections were rearranged for purposes of clarity.  In some cases, new language was added to certain sections to clarify meaning and intent.  But there was not, Scherer cautioned, a heavy emphasis on combining or unifying individual sections of law.  This, he said, would have the effect, or potential effect, of creating substantive changes to the meaning of the existing law, and this was not within the scope of the recodification effort.  Mary Fischer of the Revisor's Office performed much of the bill drafting for LB 900 and said the effort included an update of "archaic grammar, punctuation, and usage to bring it up to the type of drafting that the Bill Drafter's Office uses now."³⁰⁵ The major interest of the work, she said, was to avoid making substantive changes in the meaning of the law.

The final result was the consolidation of forty articles into just seventeen.  The Tax Equity and Educational Opportunities Support Act (TEEOSA) was moved from Article 38 to Article 10, where it resides today.  In fact, all finance and school budget-oriented provisions were moved to Article 10 and then further divided into sub-articles for easy reference.  The sub-articles included:  (a) TEEOSA, (b) school funds, (c) school taxation, (d) school budgets and accounting, and (e) school facilities.

LB 900 was advanced from committee by a unanimous vote on the same day as the public hearing on January 16, 1996.³⁰⁶  Speaker Withem then placed the bill on a special order list of bills for General File debate two days later to expedite the process.  The act of special ordering LB 900 did not sit well with Senator David Bernard-Stevens, a member of the Education Committee, who felt the bill was not important enough to receive such attention.  "[T]his bill is not a crisis bill, yet it has been special ordered today," Bernard-Stevens said, "When you special order something, you assume that it is going to have a major importance to the state that we have to do it."³⁰⁷

The attack was perhaps less directed at LB 900, which he supported, and more directed at Speaker Withem's decision to hold this bill above others in setting the special order agenda.  Withem responded by noting the committee priority designation given to LB 900 and also the fact that the bill was very similar in nature to revisor bills, which are bills offered by the Revisor of Statutes each year to make technical corrections in existing law.  But it was Senator Bohlke who said it best during the short discussion by noting that it took Bernard-Stevens longer to complain about the agenda than the bill would have taken to advance.  "[C]ertainly in the five minutes that Senator Bernard-Stevens took explaining his objection, we probably could have gotten this done and passed," she said.³⁰⁸

Senator Bernard-Stevens alluded in his complaint that Withem had perhaps over-exercised his power to set the daily agenda.  "The Speaker has the power now to take any bill he wants and special order it, whether it's important or not," he said.³⁰⁹ In truth, however, Withem, like Bohlke, was attempting to expedite the bill for issues of practicality and respect for those whose work would just begin by the passage of LB 900.  In particular, the Office of the Revisor of Statutes would need time to assimilate what amounted to an entirely new chapter of law into the Nebraska Revised Statutes.

After the initial excitement on General File, LB 900 breezed through the legislative process and passed on February 27, 1996 by a 39-0 vote.³¹⁰  The bill was signed into law two days later.³¹¹

Table 60.  Tax Equity and Educational Opportunities Support Act as Re-codified
by LB 900 (1996); with New Sections Added by LB 1050 (1996)

Click to view file

Sources:  Legislative Bill 900, in Laws of Nebraska, Ninety-Fourth Legislature, Second Session, 1996, Session Laws, comp. Patrick J. O'Donnell, Clerk of the Legislature (Lincoln, Nebr.: by authority of Scott Moore, Secretary of State), §§ 652-79; Legislative Bill 1050, in Laws of Nebraska, Ninety-Fourth Legislature, Second Session, 1996, Session Laws, comp. Patrick J. O'Donnell, Clerk of the Legislature (Lincoln, Nebr.: by authority of Scott Moore, Secretary of State), §§ 14, 16, 18-19, 22.

LB 934 (1996) - Agricultural Land Valuation Advisory Board

Legislative Bill 934 (1996) represented exactly what its chief sponsor claimed it was, "a very simple bill."³¹²  The bill was introduced by Senator Bob Wickersham of Harrison and was referred to the Revenue Committee for disposition, a committee on which Wickersham served as a member.  The purpose of the bill was to eliminate the Agricultural Land Valuation Advisory Board, originally created by LB 271 in 1985.³¹³

The eight-member panel was appointed by the Governor and had a variety of functions, including to: (1) review the agricultural land valuation manual developed by the Department of Revenue; (2) review the data sources used by the Department of Revenue; (3) review the values for agricultural land and horticultural land developed by the Department of Revenue for implementation in the agricultural land valuation manual; (4) make written recommendations to the Tax Commissioner as to improvements or refinements in the data used in developing and updating the agricultural land valuation manual; and (5) submit various reports to the Tax Commissioner and make recommendations to the Legislature concerning improvements in the method of valuing agricultural land and horticultural land.³¹⁴

The problem, according to Phil Richmond of the Department of Revenue, was that "the approach to valuing ag land in the state has changed over the years since the creation of this board."³¹⁵  Richmond said the past practice of using the income capacity approach to valuing agricultural land had faded away since the creation of the board, which left the board with very little responsibility.  Mona Moje, then a member of the board, agreed with Richmond and also the objective to eliminate the board.  Moje said that legislation passed in 1994 (LB 902) essentially made the board obsolete.  The 1994 legislation created eight regional panels, called Agricultural and Horticultural Land Valuation Boards, for the purpose of overseeing county assessments and reporting to the State Board of Equalization.  Moje testified that these regional boards "will be more effective" than the state board on which she served.³¹⁶  "As it is right now, the Ag Land Advisory Board is not serving any purpose at this time," Moje said, "The Ag Land Board met in February of 1995 and we were unable to have a quorum to take any action at that time."³¹⁷  Moje said the board had met on December 20, 1995 to approve a resolution for dissolution of the board and to seek legislation to accomplish that mission.³¹⁸

The board was mentioned, through statutory reference, in one section of the Tax Equity and Educational Opportunities Support Act.  The section at issue related to the process of using adjusted valuation for purposes of calculating state aid, including agricultural land at 80% of market value.  If the board was to be eliminated as per LB 934, the language in the affected state aid law had to reflect the change in statutory citation.  But such a change would not have any substantive impact on the process outlined in the state aid formula.

LB 934 was advanced by unanimous votes throughout the legislative process and passed by a 42-0 vote on March 11, 1996.³¹⁹

Table 61.  Summary of Modifications to TEEOSA
as per LB 934 (1996)

Click to view file

Source:  Legislative Bill 934, in Laws of Nebraska, Ninety-Fourth Legislature, Second Session, 1996, Session Laws, comp. Patrick J. O'Donnell, Clerk of the Legislature (Lincoln, Nebr.: by authority of Scott Moore, Secretary of State), § 5, pp. 2-3 (633-34).