1998-1999: Review

At the beginning of the 1998 Session, Governor Ben Nelson was on a personal mission to ensure the property tax relief promised under the levy limitations of LB 1114 (1996).  The Governor asked Senator Coordsen to serve as chief sponsor of what became LB 989, the spending limit bill of the 1998 Session.  Demonstrating the seriousness of the proposal, the Governor asked the remaining seven members of the Revenue Committee to cosponsor the bill, giving it an all but guaranteed pass from committee to floor debate.

As introduced, LB 989 proposed to limit budget growth for all political subdivisions, including school districts and educational service units.  The bill provided for an annual revenue lid of 2.5% for all political subdivisions other than school districts since schools are the only class of local government that operate under an expenditure lid.  For school districts, the bill set a 2.5% base growth rate on general fund expenditures other than expenditures on special education and permitted a lid range of 2% (2.5% to 4.5%).

As passed by the Legislature, LB 989 implemented a growth rate of 2.5% to 4.5% for general fund expenditures (other than special education) effective July 1, 1998.  The bill reinstated the student growth allowance and unused budget authority provided under law prior to the implementation of LB 299 (1996).  It allowed a school board to exceed the basic allowable growth rate by up to an additional 1% with the affirmative vote of at least three-fourths of the board.  Finally, the bill reinstated most of the spending lid exceptions in existence prior to 1996, including lid exceptions for (i) interlocal agreements, (ii) repairs to infrastructure damaged by a natural disaster, (iii) judgments (except CIR orders) to the extent not paid by liability insurance, (iv) early retirement programs, and (v) certain lease purchase agreements.

Another important lid bill from the 1998 Session involved the levy limitations that would soon become operative for the 1998-99 school year.  As originally introduced in 1997, LB 306 proposed to create an efficiency commission to approve or deny capital construction projects of local governments.  By the start of the 1998 Session, a new and more pressing issue arose concerning the levy limitations.  The issue involved the ability of local governments, including school districts, to place a levy override question on an election ballot in time for the first year of implementation of the maximum levies.  LB 1114 (1996) stated that the maximum levy provisions would become operative for fiscal years beginning "after July 1, 1998."  Given this operative date, some attorneys representing school districts questioned whether a levy override election could be held prior to the July 1st date.  And a few school districts, particularly hard hit by the levy limits, had a need to pursue a levy override immediately in order to sustain operations.

As passed by the Legislature, LB 306 made a number of modifications to revenue-related statutes.  For school districts, however, the central focus of the bill was the levy override provisions.  The provided a more specific election procedure and ballot language for elections to exceed the levy limits.  It provided a process for a local governing body to rescind or modify a previously approved levy override ballot issue, something not considered at the time LB 1114 (1996) was passed.  The bill specified that a local governing body could only pursue one levy override attempt per calendar year, but the patrons of the district may bring forward any number of petition efforts to override the levy limit as they wish during a calendar year.  The idea was to avoid placing limits on the will of the people.  Finally, the bill changed the operative date of the existing law concerning the ability to override the levy limitations from July 1, 1998 to the date of December 1, 1997.  The retroactive date would permit school districts and other political subdivisions to exceed the levy limits in time for the first year of implementation (1998-99).

The idea of "fully funding" the state aid formula has long been an objective of public schools.  The issue dates back to Senator Warner's attempts in 1967 to fully fund the Foundation and Equalization Act, the predecessor to TEEOSA.  The proponents of LB 1059 (1990) and LB 806 (1997) also fought to ensure sufficient funding to permit the state aid formula to function as intended.  In 1998, the issue reappeared in, of all things, an amendment to a technical cleanup bill (LB 1175).  An amendment to LB 1175, offered by Senator Bob Wickersham, sought to establish the local effort rate in the state aid formula at 90.97% times the maximum levy allowed schools under the property tax lid.  The Legislature would then be required to provide sufficient annual appropriations to fully fund the amount of state aid certified by NDE based on the local effort rate established under the bill.  In essence, there would be a guarantee, of sorts, by the Legislature to ensure complete funding from year to year.  The formula would function with minimal political influences.

The Wickersham amendment would be adopted without initial fanfare, but that would not last for long.  Once the Governor's office understood the gravity of the amendment, the fate of LB 1175 was sealed.  Governor Nelson would veto the bill, and subsequently call a special session of the Legislature to pass all provisions of the bill except the provisions contained within the Wickersham amendment.

In 1999 the issue would once again appear on the legislative agenda.  This time the issue would involve the full attention of the Legislature and also the new executive administration under Governor Mike Johanns.  The measure was LB 149, which was introduced due to an unexpected shortfall in state aid of approximately $19.4 million.

Before 1999, the calculation of state aid to schools used both estimates and actual data.  The state aid calculation was first based on an estimate using a three-year average growth trend.  When actual data became available, the new data replaced the estimate, and any increases or decreases in state aid resulting from the use of actual data were subsequently reflected in the amount of state aid paid out to school systems the following year.  In 1999, the disparity between the estimate and the actual data resulted in the $19.4 million shortfall and the introduction of LB 149.

LB 149 proposed to declare the state aid amount certified by NDE for the 1998-99 school year null and void and required a recertification in order to correct the shortfall.  The bill also changed the annual state aid certification date from December 1st of each year to February 1st.  The change allowed state aid to be based on actual data rather than estimates.

The need to recertify state aid brought about a larger discussion concerning the state aid calculation process itself.  Reasonable questions were asked about whether this would be an annual occurrence and whether anything could be done to bring about more stability in the funding process.  The response by the Education Committee was the incorporation of provisions in the bill to provide that total aid would be the amount necessary to meet school needs after subtracting the revenue raised from local property taxes.  The bill set the local effort rate (LER) at 10¢ below the maximum property tax levy (e.g., $1.00 under a $1.10 levy).  Use of a fixed LER to calculate the level of appropriation meant the amount of state aid to be appropriated would not be determined until the required data elements were available.  But the goal to achieve more accurate state aid appropriations would be met.

The Legislature passed LB 149 by a resounding vote, which was promptly followed by a veto.  Undaunted, the Legislature took action to override Governor Johanns' veto by a 39-7 vote.  The final passage of LB 149 was considered a major victory for public education, but the funding issue would return in subsequent sessions.