The 2001 Legislative Session

LB 313 - Reorganization Incentives

There may have been more than a few rural state legislators who favored enhanced incentive programs to encourage reorganization of schools, but only one really had the political influence to pull it off.  In 2001, the venerable senior member of the Legislature, Senator George Coordsen, was serving his fifteenth year as a state lawmaker.  It would be the second to last year of service for the farmer from Hebron, Nebraska.

Since 1996 he had served as chairman of the Executive Board, one of the most prestigious positions within the leadership structure of the Legislature.  He also was a long-time member of both the Revenue and Education Committees.  In fact, public education had always been one of his major interests and he was often involved in the resolution of differences between parties on various education-related policy matters.  Often when floor debates had reached a breaking point, it was Senator Coordsen who used his life experience, intellect, and down-to-earth yet articulate way of expression to make sense of the matter at hand.

Senator Coordsen was present during the long and tedious debate of LB 1059 in 1990.  He was an active proponent of the new school finance system and voted in favor both of final passage and overriding Governor Orr's veto.  He did not, however, support LB 806 (1997) and voted against passage of the comprehensive school finance modification bill.  He joined many of his rural colleagues in opposing the 1997 legislation because, in part, he perceived it to be too harsh on small, rural schools.  He devoted much of the remainder of his legislative career in pursuit of legislative initiatives designed to assist those schools he sought to protect.

In 2001 Senator Coordsen sponsored what he called one of his "biennial" bills in reference to previous, failed legislative attempts on the same policy issue.¹  The bill (LB 313) proposed to extend the life of an existing reorganization incentive program and also to increase the funds available for such purpose.  He had proposed a similar measure in the 2000 Session (LB 896), but the measure was indefinitely postponed in committee several weeks after the public hearing.²

The genesis of the incentive program that Senator Coordsen wanted to amend was an idea originally proposed under LB 600 in 1995 by Senator Bohlke.³  A modified version of LB 600 would eventually be absorbed into LB 1050, a comprehensive school finance modification bill passed in 1996.⁴  The program created under LB 1050 provided incentive payments to school districts that reorganize.  The payments were to be made from funds appropriated to schools as equalization aid based upon a per pupil formula contained in the legislation.  Payments were made for three years beginning in the year of reorganization.  LB 1050 limited the funds available for incentive payments to 1% of the total amount appropriated for equalization aid, which translated to about $3.3 million for FY1996-97.  The program applied only to those consolidations occurring between May 31, 1996 and August 2, 2001.  The incentive payments were not to be included as "accountable" receipts, so the payments would not be held against the reorganized districts for purposes of calculating state aid.⁵

Naturally, the incentive program was not without detractors.  The program essentially took funds away from those districts entitled to equalization aid under the state aid formula.  Some argued it amounted to the classic proverb, "rob Peter to pay Paul."  But in 1996 it also represented one of the many tradeoffs that pro-equalization advocates were willing to make.  After all, one of the major focuses of LB 1050 was to realign existing state resources to enhance the equalization component of the state aid formula.  In essence, equalized districts gained in the overall scheme of the legislation, even with the 1% reduction of aid to fund the incentive program.  Nevertheless, one of the commandments in the politics of school funding is to avoid losing ground.  Therefore, another tradeoff contained in LB 1050 was an automatic sunset clause to the incentive program.  In this regard, the loss of equalization funds to finance the incentive program would be temporary.

The incentive program would be modified several times over the years since 1996.  Most noticeably, in 1998 the Legislature passed LB 1219 to create another option for reorganization.  Under LB 1219 two or more K-12 districts could form a unified system with a "super board" overseeing various functions while each participating district retained much of its own identity and local school board.⁶  Also in 1998, the Legislature passed LB 1134, which set aside $2 million per year specifically for base year incentive payments.⁷ The funding for second and third year incentive payments would derive from the 1% allocation from the state aid appropriation.  However, the deadline for districts to take advantage of the program, August 2, 2001, remained unchanged, a fact that Senator Coordsen was keenly aware.

LB 313 was introduced early in the 2001 Session, which helped to put it into position for an early public hearing date.  As introduced, LB 313 extended the termination date for applications to the incentive aid program to August 2, 2004.⁸  This meant that incentive aid payments would extend through 2006-07 since payments continue for three years after approval.  The bill also proposed to increase the amount allocated for base year incentive aid from $2 million to $5 million in 2001-02.  The $5 million level for base year incentive aid would be continued in 2002-03, 2003-04 and 2004-05.⁹ The idea was simply to make more funds available to ensure that at least the base year, the first year of the incentive aid program would be met in full.

The final component of LB 313 was to repeal the Hardship Fund created in 1999.  The Hardship Fund represents an example of an idea with good intentions but not much practical use for school districts.  The Fund was created under LB 314 (1999), a bill sponsored by Senator Bohlke.  LB 314 was designed to help districts that encounter unexpected special education costs by applying to the Commissioner of Education for money if one or more unexpected occurrences cause the district financial distress.  The occurrences include:  (1) one or more new special education student or one or more new disabling conditions; (2) the opening of a group home causing expenditures to increase by at least 10%; (3) clerical errors by public officials; or (4) the final calculation of state aid caused a negative adjustment reducing the aid originally calculated for the district by 50% or more.¹⁰

Under LB 314, a district must repay the fund in full in a manner to be determined by the commissioner with interest calculated by the State Treasurer at 50% of the rate determined for the delinquent payment of taxes to the State of Nebraska.  Approximately $2.8 million in General Funds would be set aside each year for this purpose.¹¹ After the first year of existence, however, it became clear that no one intended to actually apply for money from the Hardship Fund.  It was a pot of money ripe for the picking, and Senator Coordsen had an idea on how the funds could be used.

Senator Coordsen expected some criticism concerning his legislation, specifically on the issue of increased costs to the state.  His solution was to make a provision in LB 313 to repeal the Hardship Fund and, impliedly, divert those funds to offset the additional cost for base year incentive aid.  The chief sponsor of the Hardship Fund, Senator Bohlke, had retired from the Legislature in 2000, so she was no longer around to defend her program.  But even if she had been around, she would have had difficulty defending a program never used.  In truth, the elimination of the Hardship Fund was a non-issue.  It was seldom brought up during the hearing and floor consideration of LB 313.

The issue that did arise time and again during the legislative life of LB 313 was the practicality and wisdom for increasing funding for mergers and unifications.  It fell on the shoulders of Senator Coordsen to defend this course of action, which he did with the help of some statistics provided by the Department of Education.  During the public hearing on January 22nd, Russ Inbody, representing the department, testified that the trend-line pointed upward for mergers and unifications.  Inbody said only three mergers and one unification occurred in 1997-98.  And one merger and two unifications occurred during the 1998-99 school year.  But in 1999-2000, no less than seven mergers and three unifications had been approved.  "And this current year we estimate that we're going to have a minimum of 20 either unifications or reorganizations," Inbody added.¹²

The underlying argument to Senator Coordsen's proposal was a need for time, more time to allow communities to work through the tedious political discussions about whether and how to merge or unify individual districts.  Just because the Legislature created an incentive aid program, he argued, does not mean people move any faster to put such reorganization schemes into play.  It takes time, and time, in addition to the increased funding for incentive payments, was what LB 313 intended to provide.

The Education Committee wasted little time in deliberation of LB 313.  The committee met in executive session following the public hearing on January 22nd and advanced the measure by a unanimous vote with amendments attached.  The amendments maintained the original provisions of the bill, but further enhanced the measure by allocating 2% rather than 1% of the funds appropriated to the state aid fund.  This would significantly increase the funds available for incentive aid payments.¹³

There are not many legislative proposals that actually witness an increase over and above what the chief sponsor requested.  Usually the art of compromise takes hold as early as the committee stage of consideration.  Of course, it did not hurt that Senator Coordsen also sat as a member of the committee having jurisdiction over his own proposal.  It certainly did not hurt that the chair of the committee, Senator Ron Raikes, also supported the measure.  In short, Senator Coordsen had every reason to be hopeful about the fate of his proposal, and, considering the political nature of the legislative process, every reason to worry.

First-round debate on LB 313 began on January 24, 2001, a few days after its advancement from committee.  It was still early enough in the session that the body did not have too many new legislative measures to debate.  Committees were still in the early stages of a long public hearing schedule, and only a few measures had been advanced to General File.  So LB 313 became one of the first substantive bills considered by the Legislature in 2001.

Senator Coordsen's proposal was initially met with a warm reception from his colleagues.  Senator Floyd Vrtiska of Table Rock, for instance, spoke of the "great many schools" that had discussed utilizing the incentive program for reorganization but had not reached a final consensus to act.¹⁴  It would be unfortunate, Vrtiska rationalized, to "jerk the rug out" from underneath these districts in reference to the looming deadline to make use of the program.¹⁵  Senator Bob Kremer of Aurora also spoke in favor of the measure and noted that one unification and three mergers had occurred within his legislative district in the past two years.  "And we have promised that we'll give them some incentive money if they would do that; and then only to find out that the funds were inadequate; it was kind of a blow," Kremer said.¹⁶  It was important, he said, for the Legislature to "hold true to our promise" to ensure adequate funds for incentive payments.¹⁷

It appeared as though Senator Coordsen was well on his way to easy victory if it had not been for the dissenting view of one lone voice.  Senator Chris Beutler of Lincoln hastened to assure his colleagues of his support for the measure in principle but questioned the wisdom of financially binding the state given uncertain economic times.  The nation, after all, was enduring a mild recession and the state's tax revenue was in decline.  Was this the appropriate time for such a spending measure?

The Lincoln senator understood the reasons for originally enacting the incentive program, but what about long term state policy?  If the state believed in such programs, why not offer financial incentive programs to other classifications of local government?  Said Beutler:

I think that we all would acknowledge that government by incentives generally is the most expensive form of government, because instead of saying to people do what this body has determined as representatives of the people is the good policy, just do it, we say to people we'll give you money if you'll do it and you do it if you want to.  Well, if you start using that form of government on a large scale, then your government becomes overburdened and you can't do all the things that you are supposed to do.¹⁸

He warned that other major state commitments anticipated increases in appropriations, but would likely see none.  In fact, Senator Roger Wehrbein, the chair of the Appropriations Committee, had cautioned the Legislature that very little funding would be available for new or expanded programs.

At first, Senator Beutler's comments were viewed as more an annoyance than anything else as far as the proponents of LB 313 were concerned.  If it had not been for Senator Beutler, the bill would have sailed through first-round consideration.  In fact, LB 313 would be advanced, but along with the advancement was the nagging feeling that Senator Beutler may have had a point.  As it turned out, he did.

LB 313 was advanced to second-round debate on January 25th by a 28-6 vote.¹⁹  The Legislature would take up Select File debate on February 9th and the bill would be advanced yet again.²⁰  Senator Beutler continued his dialogue on the uncertainty of economic times, but also added another line of rhetoric that perhaps came closer to his true sentiments.  "I think most of us feel that some kind of support in this area is certainly appropriate, but it's also expensive for something that affects a very small percentage of the school districts and an even smaller percentage of students," he said.²¹  In fact, the net fiscal impact of the legislation was anticipated to be a maximum of $10.31 million for 2002-03 and an unknown amount for succeeding years.²² But the underlying message from Senator Beutler, the affordability factor, was about to play out.

On February 23rd, the Nebraska Economic Forecasting Advisory Board convened at the State Capitol for their semi-annual meeting.  The Forecasting Board was created in 1984 ostensibly to assist the Governor in developing estimates of revenue and to assist the Legislature in setting the state sales and income tax rates.²³  The board consists of gubernatorial appointees who are knowledgeable about economic matters and are typically economists, academics, accountants and investment experts.  The principle objective of the board is to formulate a "consensus projection of economic activity in Nebraska," which essentially amounts to a projection of tax revenues in the coming months and following fiscal year.²⁴ Since its inception, the board had a fairly prominent role within the structure of state government, but its renown outside state government would grow considerably after the terrorist attacks on September 11, 2001.

The board has a purely advisory role in government, but the advice afforded by the board is supposed to be heeded by policymakers.  Otherwise, there would not be any reason for its existence.  And by the time the board adjourned its meeting on February 23, 2001, the advisory position was not particularly good news.  For the first time in five years, the board gave a downward projection on state tax revenues.  The actual reduction in tax projections was slight, $8 million subtracted from a $2.5 billon revenue projection, but it was enough to cast a shadow on the 2001 Legislative Session.  It was anticipated that the Legislature would have no more than $26 million in discretionary spending authority for 2001.²⁵

Naturally, the news from the Forecasting Board put LB 313 in a much different light.  The roof had fallen on Senator Coordsen's hopes to pass the bill as it currently stood on Final Reading.  He was forced to go along with a compromise to make the legislation affordable given the budgetary situation.  When the bill came up for final-round consideration on May 7, 2001, Senator Coordsen asked his colleagues to return the bill to Select File for specific amendment.  "I told the body that if, in fact, the Forecasting Board predicted that we were in for a rocky road ahead I would be back with a ... an amendment to LB 313 that would reduce the impact of the bill by a significant amount," he explained.²⁶  The amendment established a deadline of August 2, 2002 to apply for the reorganization program and reduced from 2% back to 1% the amount of TEEOSA funds set aside for incentive payments.²⁷  The motion was successful and the amendment was adopted by a 28-3 vote.²⁸ As amended, LB 313 would provide incentive aid for consolidations and unifications through 2004-05.  The bill would still increase the amount allocated for base year incentive aid from $2 million to $5 million in 2001-02.

Economic circumstances rather than politics had forced Senator Coordsen to advocate a compromise to his own measure.  He won the battle to increase base year incentive aid, which would theoretically encourage more school districts to seek application for the program.  He also successfully extended the deadline to apply for incentive payments by one year.  LB 313 would win final approval on May 21, 2001 by a 34-7 vote.²⁹  Governor Johanns signed the bill into law on May 25, 2001.³⁰

In the final analysis Senator Beutler was correct to caution the Legislature about the fiscal impact of LB 313.  In fact, the economic situation would become worse than anyone could have imagined.  The events on September 11, 2001 were instrumental in causing an economic downturn felt by all state governments to one degree or another.  The Nebraska Legislature would be forced to convene in special session in the months of October and November 2001 to make necessary budget cuts.  Among these reductions would be the entire effort contained in LB 313 to expand the incentive aid program.  The Legislature would reverse itself with regard to reorganization incentives in order to deal with more pressing budgetary considerations.

Table 126.  Summary of Modifications to TEEOSA
as per LB 313 (2001)

Click to view file

Source:  Legislative Bill 313, Slip Law, Nebraska Legislature, 97th Leg., 1st Sess., 2001, §§ 1-2, pp. 1-7.

LB 797 - Technical Cleanup

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At the outset of first-round debate on LB 797, Senator Ron Raikes described the bill this way:  "It's 94 pages of some of the finest reading you'll come across."³¹ His tongue in cheek remark was meant to bring some levity to an otherwise dry and tedious discussion on the omnibus technical cleanup bill of 2001.  In light of the budget restrictions faced by the Legislature in 2001, those measures with a chance to pass were those without a fiscal impact.  LB 797 was just such an example.

LB 797 was uncontested at its public hearing.  The measure advanced unanimously through all three stages of floor consideration.  The bill did what technical cleanup bills are supposed to do and that is to clarify existing language in statute, remove obsolete provisions, and harmonize the law.  As with all technical bills, there were a few provisions that border-lined on substantive change.  The bill passed on May 1, 2001 by a 41-0 vote.³²

The bulk of the bill modified sections of education law that did not relate to the school finance formula.  However, thirteen of the 56 sections comprising the bill did amend portions of TEEOSA.  Of these thirteen sections, the change of most significance related to the calculation of option payments.  LB 797 provided that net option funding would be the net number of option students in each grade range multiplied by the statewide average cost grouping cost per student multiplied by the weighting factor for the corresponding grade range.  Prior to LB 797, the formula provided that net option funding would be the net number of option students in each grade range multiplied by the lesser of (i) the statewide average cost grouping cost per student or (ii) the local system cost grouping cost per student, and then multiplied by the weighting factor for the corresponding grade range.³³

The change in computation of net option funding was expected to shift a minimal amount of state aid between districts.  In essence, it meant that schools in the standard cost grouping receiving net option funding would receive a higher amount of such funding since the aid would be based on the statewide average cost grouping cost rather than the local system cost grouping cost.  It also meant that the increase in net option aid would reduce the amount available through the formula as income tax rebate.³⁴ Net option funding derives from the amount set aside for income tax rebate to school districts.  If more funds are used for net option funding, then less is available for income tax rebate.

Other relatively important changes made to the school finance formula include the authorization of NDE staff to approve, deny, or modify projected increases in formula students.³⁵ Prior to LB 797, it was the State Board of Education that formally considered such requests.  However, it was determined that the more efficient method would be to authorize staff to take on this duty.  Since the number of students in a district is an integral part of the state aid formula, it made more sense to permit an expedited process to officially change the membership count.

Also included in LB 797 was a harmonizing provision stating that a representative of the Department of Property Assessment and Taxation serve as a member of the School Finance Review Committee.³⁶  Prior to LB 797, the law called for a representative of the Office of Property Tax Administrator, which had been a division of the Department of Revenue.  In 1999 the Legislature created a separate department for administration of property tax and assessment, hence the harmonizing provision found in LB 797.³⁷

As a matter of background, the original enactment of TEEOSA included a member of the Department of Revenue to serve on the committee, which was designed to monitor the formula and make recommendations for change as necessary.³⁸  In 1995 the Legislature passed legislation, LB 490, to create the Tax Equalization and Review Commission (TERC).  Among the many changes in LB 490 was a provision to remove the reference to the Department of Revenue and instead provide for a representative of the Office of Property Tax Administrator.³⁹ It was believed that such a representative would more closely match the necessary expertise for the committee's work and function.

The ironic aspect of the changes in LB 797 relevant to the review committee was that it would soon cease to exist.  The budget cuts that began in 2001 due to the economic downturn would continue for several more years.  In August 2002, during the second special session, the Legislature passed LB 41 to repeal the School Finance Review Committee.⁴⁰  The annual savings to the state by eliminating the committee was very minimal, about $4,700, but it demonstrated just how desperate the Legislature was to reduce costs.⁴¹  It was also believed by some that the committee had failed to have any appreciable affect on the school finance formula since its inception in 1990.

Table 127.  Summary of Modifications to TEEOSA
as per LB 797 (2001)

Click to view file

Source:  Legislative Bill 797, Slip Law, Nebraska Legislature, 97th Leg., 1st Sess., 2001, §§ 18-30, pp. 11-23.

LB 833 - Distance Education/Converted Contracts

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LB 833 represents the legislative history of two entirely separate issues.  The bill as originally introduced by Senator Curt Bromm pertained to funding for distance learning connectivity.  As amended during second-round debate, the bill would also incorporate the provisions of LB 621 (2001) pertaining to converted contracts and the affect on state aid calculations.  LB 833 was referred to the Education Committee for disposition and became Senator Bob Kremer's priority bill for the 2001 Session.⁴²

During the public hearing for LB 833 on March 13, 2001, Senator Bromm related to members of the Education Committee the reasons for his bill.  Several school superintendents, he said, had approached him about their failed efforts to obtain funding to establish distance-learning projects within their respective school districts.  "After some research on their part, it was discovered that basically there are about 50 Nebraska schools right now that do not have long-distance learning capabilities," Bromm testified.⁴³ The purpose of his bill, therefore, was to provide a funding mechanism for these remaining school districts that desire a two-way interactive video delivery system within their schools to connect to surrounding schools, colleges and the University.

As a matter of background, the Legislature passed LB 860 in 1995 to establish legislative intent that by June 30, 2000, all public school districts would have a direct connection to a statewide public computer network.⁴⁴  Grants from the Education Innovation Fund (state lottery), the telecomputing levy authorized for ESUs, which existed at the time, and a newly created School Technology Fund were designated for use to finance the connection.  LB 860 created the School Technology Fund consisting of the balance of funds existing in the School Weatherization Fund on July 1, 1996 (about $3.5 million) along with any transfers made by the Legislature from the General Fund.  The School Weatherization Program was facilitated by the State Energy Department and was designed to provide loans for school energy efficiency projects.  LB 860 eliminated this old fund effective June 30, 1996.⁴⁵

The State Board of Education was authorized to make disbursements from the School Technology Fund.  The first priority for the disbursement of the School Technology Fund was the direct connection of each K-12 public school district, affiliated school system, or Class VI school system to a statewide public computer information network.  Subsequent priorities for disbursement may include development of networking capabilities within a district or system, the purchase or installation of equipment, or other telecomputing needs as determined by the State Board of Education.⁴⁶

By the time of the 2001 Session, the central problem faced by some school districts was funding to establish connection within a distance learning system.  The costs associated with hardware alone were staggering.  In many areas of the state, distance learning consortiums had evolved to provide a network, but it still required substantial sums of money to link schools within the network.  There were ample examples of involvement by community and state colleges, but the issue still came down to funding.  And available funding was tight if not nonexistent.  The Legislature eventually eliminated the separate telecomputing levy authority for ESUs and the School Technology Fund could only absorb that many requests for funding.

Another problem addressed by LB 833 was the intended deadline established in 1995 to provide a direct connection to a statewide public computer network for all school districts by June 30, 2000.  The idea proposed in LB 833 was to delay the deadline by two years, but the members of the Education Committee had a better idea.  They proposed through committee amendments to LB 833 to simply do away with the deadline altogether.⁴⁷ This was the easy part of the problems posed by Senator Bromm.  The more difficult aspect was, of course, funding.

It must be remembered that the budgetary matters faced in the 2001 Session did not lend well to expensive new spending proposals, no matter how important the subject matter.  The Education Committee had no real choice except to partition some of the funding from the Education Innovation Fund for the purposes of LB 833.  The Education Innovation Fund is a beneficiary fund under the State Lottery Act.

In 2001 the annual proceeds to the Education Innovation Fund were dispersed among three different programs.  Up to 10% of the funds were designated for the mentor teacher program under the Quality Education Accountability Act.  Up to 70% of the funds were used for quality education incentive payments, also under the auspices of the Quality Education Accountability Act.  The remaining 20% of the fund was placed under the authority of the Governor to issue grants to encourage the development of strategic school improvement plans by individual school districts.⁴⁸

The committee amendments to LB 833 would rearrange this funding scheme to carve out some funding for technology.  Under the amendments, LB 833 would change the allocation of the Education Innovation Fund in 2001-02 and 2002-03 only.  The amendments would leave in tact the percentage of funding for the mentor teacher and quality education incentive payment programs.  Of the remaining 20% normally allocated to the Governor for grants, $1.5 million would be set aside for a distance education network completion grant.  The grant would fund engineering, equipment, and installation charges for two-way interactive distance education capacity for public high school buildings that do not already have such capacity.⁴⁹  This would leave about $100,000 left over for grants allocated by the Governor.⁵⁰

The Department of Education would supervise the technology grant program.  For a public high school to participate in the grant, the school district must apply to the department.  The application would require evidence that the school district has made a commitment to be part of a distance education consortium and that the distance education consortium has accepted the district's commitment.  The application also required the district to list the classes that it anticipates accessing from the consortium or a community college and any classes that the district anticipates offering to other districts in the consortium through distance education.⁵¹

LB 833 was advanced from committee on a unanimous vote (7-0).⁵² First-round debate occurred on April 17, 2001.  Both the committee amendments and the bill itself were adopted and advanced respectively, but there was discussion if not concern expressed by some senators about the latest raid on lottery funds.  Speaker Kristensen reminded his colleagues that several pieces of pending legislation also tabbed lottery proceeds as a funding source for various programs.  He reminded his colleagues that one of the major issues of the session, increasing teacher salaries, had yet to be addressed.

Some of the pending measures, including LB 708, proposed to use lottery proceeds.  LB 708 proposed the establishment of a Teacher Tuition Reimbursement Program to provide tuition reimbursement to teachers who agree to teach in a Nebraska public school for five years.⁵³  The bill proposed to change the distribution of lottery proceeds to include an allocation to the new fund.  LB 708 would not emerge from committee, but another teacher-related bill, LB 305, would emerge.  LB 305 represented a comprehensive package to assist teachers professionally and monetarily, and included a .25% sales tax increase to pay for salary supplements.⁵⁴ LB 305 would not pass, but the measure was a prominent point of discussion during the debate on LB 833.

As amended and advanced, LB 833 appeared on a clear path for final passage.  The merits of the legislation were debated in full during first-round consideration.  On Select File, however, the bill would take on a second and entirely new function.

The issue involved a very specific set of circumstances faced by only two school districts in the State of Nebraska:  Grand Island Public Schools, a Class III district, and Grand Island Northwest Public School, a Class VI (high school only) district.  The circumstances of the case were embodied in LB 621, introduced by Senator Vickie McDonald of Rockville.  The bill primarily concerned Grand Island Northwest, which was the only school district in the state at the time that had contracted "tuition exchange" students who would become option enrollment students once the contract period expired.  The two Grand Island area districts had a written agreement that provided that if Grand Island annexes land in the Northwest district, and children desire to remain at Northwest, then Grand Island would pay the tuition to Northwest for the students.  This agreement was set to expire after the 2003-04 school year.

In the absence of some form of legislative intervention, Northwest would have tuition received from Grand Island in 2002-03 demonstrating an accountable receipt, a resource for state aid purposes, but would, in reality, no longer actually receive the tuition payment.  This "accountable receipt" would offset the equalization aid that Northwest would receive by including those students in the membership count for purposes of the "needs" calculation.  In essence, this would dock Northwest High School for state aid it would otherwise receive (about $2.1 million in 2004-05).⁵⁵

The 'trick" to the situation involved a legislative solution that would allow Northwest to receive the state aid it was entitled while at the same time holding Grand Island harmless.  LB 621 was supported at the public hearing stage by both school districts.⁵⁶ But the solution contained in LB 621 required some perfection, which was embodied in the committee amendments to the bill as advanced from the Education Committee.  LB 621, a non-prioritized bill, was placed on General File where it would likely have languished through the 2001 Session.  LB 833, on the other hand, provided an opportunity to advance the Grand Island measure.

During second-round consideration of LB 833 on May 9th, Senator Ray Aguilar of Grand Island, a cosponsor of LB 621, asked his colleagues to suspend the rules and allow a non-germane amendment to be merged into LB 833.  The amendment, of course, was the contents of LB 621 in the form it was advanced from committee.  The motion to suspend the rules and the amendment itself were adopted by unanimous votes.⁵⁷

The Aguilar amendment addressed the Grand Island matter by making changes in the option enrollment provisions of the state aid formula and the computation of local formula resources.  Beginning with state aid distributed in 2004-05, the amendment provided that tuition receipts from districts where nonresident students have been converted from being contracted students to option students will not be included as a local formula resource.  The students attending Grand Island Northwest would become option students and the state aid for Grand Island Public would decrease by a matching amount.

Before the bill advanced on second-round consideration, Senator Bromm would attempt unsuccessfully to set aside even more lottery proceeds for distance learning at the expense of quality education incentive payments.⁵⁸  His amendment failed on a 13-20 vote.⁵⁹  LB 833 passed with the emergency clause attached on May 16, 2001 by a unanimous 46-0 vote.⁶⁰

Table 128.  Summary of Modifications to TEEOSA
as per LB 833 (2001)

Click to view file

Source:  Legislative Bill 833, Slip Law, Nebraska Legislature, 97th Leg., 1st Sess., 2001, §§ 3-7, pp. 4-8.

LB 170 - Property Taxation and TERC

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LB 170, introduced by the Revenue Committee, made various changes in Nebraska's property tax laws, such as allowing the use of "market areas" in the valuation of real property and allowing the Nebraska Tax Equalization and Review Commission (TERC) to adjust the value of real property in market areas.  The market area provisions represented a legislative response to decisions by the Nebraska Supreme Court in 2000 and the Nebraska Court of Appeals in 2001 that invalidated the use of market areas in the valuation and assessment of agricultural land for property tax purposes.⁶¹

In Schmidt v. Thayer County Board of Equalization, the Nebraska Court of Appeals held that the use of market areas by Thayer County in 1999 was invalid.⁶²  Agricultural land in the county had been divided into two market areas, one of which received a higher valuation due to its irrigation potential.  The Court said that the "market areas appear to be drawn arbitrarily" and that "the market areas were not based on soil classifications, but rather, on location of property within the county."⁶³  In Bartlett v. Dawes County Board of Equalization, the Nebraska Supreme Court had held that "a 'market area' is not a subclass of agricultural land recognized by our statutes" and cited existing state law for the proposition that "[s]ubclasses of agricultural property must be based on soil classification for purposes of taxation."⁶⁴

To address the issue, LB 170 created statutory authority allowing the use of market areas for property tax assessment purposes and allowed TERC to make adjustments to particular market areas for the purpose of performing its equalization function.  LB 170 did not specifically define the phrase "market area," but it did define the phrase "class or subclass of real property" to mean "a group of properties that share one or more characteristics typically common to all the properties in the class or subclass, but are not typically found in the properties outside the class or subclass."⁶⁵  The phrase "class or subclass" would include agricultural and horticultural land, which contains the special valuation provisions that govern the valuation of greenbelt land.  The definition of "class or subclass" also includes "parcel use, parcel type, location, geographic characteristics, zoning, city size, parcel size, and market characteristics."⁶⁶  Therefore, real property classes of agricultural property would no longer be restricted to soil classifications.  LB 170 provided authority for classifying agricultural real property based on common "characteristics" of property in a class or subclass of real property.⁶⁷

LB 170 also clarified that certain statutory references to agricultural land also include horticultural land.  These provisions were incorporated from LB 171 (2001), which was legislation requested by the Property Tax Administrator to improve the administration of the property tax laws.⁶⁸ The inclusion of these provisions affected the state aid formula by amending the provision relating to state aid value.

The computation of state aid value is part of the process to establish adjusted valuation for purposes of the state aid formula.  The TEEOSA requires county assessors to certify to the Property Tax Administrator the total taxable value by school district for the current assessment year.  The Property Tax Administrator then computes and certifies to the Department of Education the adjusted valuation for the current assessment year for each class of property in each school district and each local system.  The adjusted valuation of property for each school district and each local system must reflect as nearly as possible the appropriate "state aid value."  Prior to LB 170, the TEEOSA defined state aid value as 100% of market value for real property other than agricultural land, 80% of market value for agricultural land, 100% of special valuation for agricultural land that receives special valuation, and the net book value for personal property.  The definition of state aid value did not include references to horticultural land (i.e., it recognized agricultural land but not horticultural land).⁶⁹ So what difference did it make?

The short answer to the question is, "Not much."  The long answer is that the terms are used somewhat interchangeably, at least for taxation purposes.  Nebraska state law combines the terms agricultural land and horticultural land in the same definition:

[L]and which is primarily used for the production of agricultural or horticultural products, including wasteland lying in or adjacent to and in common ownership or management with land used for the production of agricultural or horticultural products.  Land retained or protected for future agricultural or horticultural uses under a conservation easement as provided in the Conservation and Preservation Easements Act shall be defined as agricultural land or horticultural land.  Land enrolled in a federal or state program in which payments are received for removing such land from agricultural or horticultural production shall be defined as agricultural land or horticultural land.  Land that is zoned predominantly for purposes other than agricultural or horticultural use shall not be assessed as agricultural land or horticultural land... .⁷⁰

There is, of course, a difference between agricultural land and horticultural land from an academic perspective.  The term "agriculture" refers to the process of producing food, feed, fiber and other products by the cultivation of certain plants and the raising of livestock.⁷¹  "Horticulture" means literally culture of garden plants.  The term is typically applied to the production of floral crops, landscape plants, fruits and vegetables.⁷²

The impact of the change in LB 170 on the state aid formula was likely nonexistent.  It was a simple mater of changing the word of the law to match actual practice.  Interestingly, the initial fiscal note on LB 171 included an agency estimate prepared by the Department of Education stating, "The change of the 'state aid value' definition involving horticultural land could have an impact on school aid distribution."⁷³  The final fiscal note on LB 170, just prior to its passage, stated that, "This bill does not appear to impact local expenditures or revenues."⁷⁴

Table 129.  Summary of Modifications to TEEOSA
as per LB 170 (2001)

Bill Sec.	Statute Sec.	Revised Catch Line	Description of Change
28	79-1016	Adjusted valuation; how established; objections; filing; appeal; notice; correction due to clerical error; injunction prohibited	Prior to LB 170, it was assumed that the definition of state aid value implied agricultural and horticultural land even though the word "horticultural" was not included within the definition. As it relates to the state aid formula, LB 170 merely adds the word "horticultural" to the definition of state aid value for purposes of calculating state aid.

Source:  Legislative Bill 170, Slip Law, Nebraska Legislature, 97th Leg., 1st Sess., 2001, § 28, pp. 11-12.