Debate Transcripts

LB 1059 (1990)

General File

March 6, 1990

SPEAKER BARRETT: Thank you. The Chair is pleased to note that Senator McFarland would like us to recognize the doctor of the day, Dr. Rick Gustafson, of the Lincoln Family Practice Program, who is serving today through the courtesy of the Academy of Family Physicians. Please welcome Dr. Gustafson under the north balcony. Doctor. Also in our south balcony Senator Coordsen is pleased to recognize 20 ninth graders from Friend, Nebraska, with their teacher. In the south balcony, would you folks please stand and be recognized. Thank you. We are glad to have you. Proceeding to item 7, Mr. Clerk, special order, LB 1059.

CLERK: Mr. President, 1059 was a bill introduced by Senator Withem and a number of members. (Read title.) The bill was introduced on January 9 of this year, Mr. President. At that time, it was referred jointly to the Education and Revenue Committees for public hearing. The bill was advanced to General File. I do have committee amendments pending to the bill. (See AM2309 on page 579 of the Legislative Journal.)

SPEAKER BARRETT: Thank you. Senator Withem, will you be handling the committee amendments?

SENATOR WITHEM: Yes, I will, Mr. Speaker, and members of the body. I think what I am going to do with my time here on the committee amendments is say a few things. Hopefully, it will set the stage for the debate because this is, as you know, the bill that probably has received more attention, public attention, than anything else that is being proposed this session. I don't think that has anything necessarily to do with the people whose names are on the bill. It has to do with the fact that forces in the State of Nebraska are compelling the Legislature to deal with this whole question of how we fund education, and how we tax property. So this will be a major bill. It is a major debate, and it is important, I think, that we discuss the bill in its proper perspective. I am hopeful that we will have a good debate. I am hopeful that your questions will be raised. I am hopeful that they will be answered. I am hopeful that, as we conclude the debate on General File, that people leave that debate with a comfort level feeling that they understand the bill well enough to make a conscious decision. If they support the bill, great, I would

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appreciate that. If they don't support the bill, I hope -they leave with the feeling of comfort of what a no vote on LB 1059 means because we have talked an awful lot about what it means to support this legislation. I hope you ask questions of what it means if this bill or a bill like this does not pass this session. This is a lengthy process. This is a process that developed, obviously we have been dealing with it since the first state aid measure passed in Nebraska, when Senator Warner through many repeated tries, finally back in 1968 did pass a state aid to education measure. That original proposition has been modified by our successors in this body numerous times since then. What we now have I think is a very convoluted process of funding education in our state. The Legislature committed itself to following this process of resolving school funding about three years ago when we decided rather than fight out the LB 444 debate on school district reorganization, we'd ask some people around the state to sit down around a table and attempt to resolve some of the long-standing issues in education. We did that. One of the things that was created by the LB 940 process was the School Finance Review Commission. it was appointed by the Governor; 16 members from around the state, not all professional educators, not all politicians, a lot of just very good solid citizens of the State of Nebraska served on that commission. They worked for 18 months coming up with a... I think it has just been about two years ago now when the first meeting of that commission took place. They have held hearings all over the state. They have analyzed a mass of data, and what you see before you in 1059 is their recommendation. Before we get into the recommendation, though, there is a legislative cliche that we have here in Nebraska. It is a cliche that if it is not broken, don't fix it. I would like to have a quarter for every time I have heard a witness come before a legislative committee with that admonition to us when something is considered. In the area of school finance and in the area of the reliance on property tax, I am here to tell you today the system is broken. It is irreparably broken unless you do a massive change like the change we have before you. We have in Nebraska huge variances in the amount of dollars that are behind each student, and you can explain some of those away but you can't explain it away in the aggregate. We have students in this state that are having less than $3,000 a year spent on their education. We have students in this state that have over $6,000 a year spent on their education. It is an unfair system. The current system is unfair. We have in this state property taxes supporting education that are as low as half of 1 percent

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of the total value of property, 50 cents per $100 of assessed valuation. We have property taxes in this state that are $3.50 to support education. The system is broken. We are facing a legal challenge. There are some farmers from right around the Lincoln area that are taking a case into our court challenging our education system. These types of things have been very successful in states like Kentucky, like Texas, like Montana, other places. We have, if we don't do anything this session or pass something with an emergency clause next session, we don't have a school finance system. We, as a Legislature, conscious of what we were doing, committed ourselves last year to a change. We passed Senator Scott Moore's personal priority bill, LB 611, committing ourselves to a change in the way we finance education, because if we leave here this session doing nothing, the gun is really at our head. We have to come in next year and pass with the emergency clause a measure or we don't have a state system for funding education. What we need to do today is we need to question this proposal. We need to dissect it. We need to be comfortable with it. We need to debate it. We need to understand it. We need, still, I will admit, we need to modify it. We need to continue to mold it. We need to create a bill that we are comfortable with, but we, as a Legislature, do not have the luxury of doing nothing. This bill is the result of a lot of compromise already. It doesn't solve all of the problems in education. It doesn't purport to. It doesn't solve all of the problems with our property tax system. It doesn't purport to, but it takes a major swath down the middle of those problems that are out there. As the debate goes on, if you have questions about the bill, Larry Scherer is here. I believe we have the people from the Department of Education out in the rotunda, Tim Kemper, Polly Feis, other individuals from the Department of Education. Ask your questions. We want a full debate on this bill. Committee amendments are in and of themselves relatively innocuous. Most of them are clarification amendments. An explanation has been handed out. They have been printed in the Journal. The major change, the major policy change that is connected in the committee amendments involves a hold harmless provision. A number of school districts that receive less state aid as a result of this bill than they do currently said that their concerns needed to be answered. At the committee hearing and at the statewide teleconference we had, there was a plea that we not have as a result of this bill, at least in the first year, any school district receiving less state aid. What the committee is doing is suggesting a phased out, hold harmless amendment, 100 percent less aid the first

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year... excuse me, no district receives any fewer dollars the first year. They can't receive less than 80 percent of their state aid the second year, and then a 60 percent level the third year, and then it would phase out altogether. My guess is by the time the receipts and such have grown as a result of the increase of our tax base that there will be very few districts at the end of that year receiving less state aid than they currently do. But that is the major policy change that we have made in the committee amendments. Most of the rest of them are clarification types of things. There are corrections of misdrafting, the bill originally had a 1990 effective date on income tax increase. It really should be based on the 1991 date, those types of things. If you have any questions about the committee amendments, I would attempt to answer them.

SPEAKER BARRETT: Thank you, Chairman Withem. For discussion of the committee amendments, the Chair recognizes Senator Baack, followed by Senator Schmit.

SENATOR BAACK: Yes, Mr. Speaker, and colleagues, I think that Senator Withem has done an excellent job of setting the stage for this bill. I think we all need to acknowledge the amount of work that Senator Withem has done in the last couple of years on this issue, and he has put in countless hours in trying to deal with this issue, and to deal with it in a very straightforward manner, and I think that they have come up with something in 1059 that we all need to be looking -at very, very carefully. I think that my support for this bill is based on the philosophy that the system that we have now is not fair and it is not correct, and I am willing to change that system, and I want that system to be changed so that we go away from such a heavy reliance on the property tax to begin to rely on other sources of income for the financing of schools, and I think that 1059 does that. I come from a district that has a number of school districts, probably over half of my school districts are losing school districts under 1059. They are not going to be gaining monies through 1059. I am still going to support the bill. I think it is important to make this first step change in the way that we finance schools. I was the proposer of the hold harmless amendment. I think we need to do that for the schools that do lose. It will allow them some time to make the adjustments in their budgets, to be ready for the time when they will have the full loss that they can anticipate under LB 1059. But I think that in the people that I visit with, my constituents, those people want to see a change from the

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property tax system and want to see us going to other financing mechanisms for schools. I think they see this as an avenue for that, even what we are going to see is some districts that lose dollars, and some taxpayers, it is going to cost them a few more dollars under this system. That is absolutely true. It is going to do that, but I think it says that we are willing in this state to do something positive towards the financing of education, something very positive towards getting away from the reliance on the property tax. This may need some adjustment down the road. We may find in a few years that we have to make some adjustments in 1059 to make it work even more smoothly and to make it work more fairly. But I think right now we have a good proposal in front of us and I would certainly urge everyone to look at it very carefully, ask the questions that you need to ask. We do need to dissect this bill, as Senator Withem has said. It is a very, very important decision that we are making here. We are making a decision here that is going to affect the future of education for all of the kids in this state, and it is a very important decision. We need to have a long discussion about this. We need to look at all the different aspects of the bill, ask the questions that you need to ask. If you don't get the right answers, keep asking the questions because I think the answers are out there for you. With that,- I would urge the adoption of the committee amendments. Thank you, Mr. Speaker.

SPEAKER BARRETT: Thank you, sir. Chairman Schmit, followed by Senators Dierks, Elmer and Nelson. Senator Schmit.

SENATOR SCHMIT: Well, Mr. President, and members, I also want to commend Senator Withem, Senator Scott Moore, and the rest of those who have worked long hours on this bill. I understand, perhaps better than most, how difficult is the problem which they have attempted to address, and my concern is that, of course,, prior to the time that we make any major adjustments, that we understand the impact of what those adjustments will be and what direction we are going. My concern about this bill is, first of all, I believe that there is a basic faulty premise based upon how do you describe a wealthy district and how you describe a poor district, if you still use those districts, in regard to how much state aid comes out of those districts. I just want to take, for example, my own school district in Butler County, District 56. Fifty-two percent of the valuation in that district is rural or farm valuation; 35 percent of it is urban valuation; and 13 percent of it is automobile, railroad, and other kinds of valuation. Sixty-six of the children in that

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school are rural and 296 are urban. I think that tells you a little bit of the reason why I have a concern. The number of children from the rural areas are very minimal, but the basic support for the school system is rural. A far greater percentage of the taxes are derived from the rural area than from the urban. I want to say this. Automobiles don't pay taxes. Cattle don't pay taxes. Farms don't pay taxes. Washing machines don't pay taxes. People pay taxes. People pay taxes. Farmers, businessmen, professional persons, laboring people all pay taxes. There is so much material here that has been provided to us that I have not had a chance to digest most of it, but I want to call your attention to that which Senator Lamb has called to my attention to earlier on. On page 3 of the material we have here, rather voluminous material, it says further analysis is required and currently being performed to measure the effects of LB 361. I would suggest, of course, that the passage of this bill at this time without taking into consequence, into consideration the consequences of the impact of LB 361 is premature. Reference was made to the no-win situation in which we find ourselves because of the passage of Senator Moore's bill last session. Well, I remind you, I did not vote for that bill either. I want to call your attention now to one of the fallacies, and I am going to have to ask some questions here, of the various material you have seen. A special focus issue of the World-Herald on LB 1059, it talks about an average. It mentions a farmer living in the Osceola, Nebraska, school district, 400 acres of land assessed at $750 per acre, having an adjusted gross income of $30,000, and owning vehicles assessed for $200,000 would realize a total tax reduction of $505. I don't know who wants to volunteer to answer these questions. Senator Moore, do you want to answer? We just as well share this microphone ... share it with me, fine.

SPEAKER BARRETT: One minute, Senator Schmit.

SENATOR SCHMIT: Would you tell me, Senator Moore, the $30,000 of adjusted gross income, does that refer to net, or gross, or what does it refer to?

SENATOR MOORE: Adjusted gross income.

SENATOR SCHMIT: Gross income, so a $300,000 farm has produced a gross income of $30,000, $7.50 per acre. He owns $200,000 of motor vehicles. I would suggest the $200,000 worth of vehicles on a $300,000 farm for a man who has a gross income of $30,000

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is more extravagant than even Mr. King was able to do with a $14,000 salary.

SENATOR MOORE: That $200,000 is incorrect.

SENATOR SCHMIT: Well, that is the first mistake.

SENATOR MOORE: It is 20,000.

SENATOR SCHMIT: Twenty thousand, well, that is not bad, just one zero.

SENATOR MOORE: Of taxable equity.

SENATOR SCHMIT: A zero doesn't mean much.

SENATOR MOORE: Neither you or I write the World-Herald, as we wish we did sometimes.

SENATOR SCHMIT: Is there any way that we can get the accurate figures here, Senator, because, first of all, there ...

SPEAKER BARRETT: Time.

SENATOR SCHMIT: ... isn't any way in the world that $30,000 gross income on a farm could support even the taxes on that farm, let alone any amount of motor vehicles. I don't know, if that 200,000 is an error, are there other errors in this article or not, or have you read it?

SPEAKER BARRETT: Time has expired. Senator Moore, would you like to answer the question.

SENATOR MOORE: Well, there are some other errors in assumptions in that article, too, we could talk about, but the $200,000 is acknowledged as incorrect as one extra zero is on there.

SENATOR SCHMIT: Thank you very much.

SPEAKER BARRETT: Senator Dierks, further discussion.

SENATOR DIERKS: Yes, Mr. Speaker, and members of the body, only very briefly, I just wanted to second Senator Baack's accolades. I think that Senator Withem has done yeoman work on this piece of legislation. I know that there were times when frustration

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ran high in that committee and there were times when he had to kind of bolster everybody up and bring them back together and go at it again. I am also in support of the legislation. I think that we have talked for as long as I can recall about property tax relief, and it looks to me like this is an excellent opportunity to provide that. I don't think there is anybody in this state that will not be affected by this piece of legislation, so I do know we have to go carefully, but I still think that there is an opportunity here for us to provide some equity in the levying of property taxes. I will be offering an amendment later on to the committee or to the bill, and we will talk about that later, but for the time being, I am just very supportive of what the committee has done and I am supporting the legislation. Thank you.

SPEAKER BARRETT: Thank you. Senator Elmer, please.

SENATOR ELMER: Thank you very much. I will not talk about the bill at this point. I did want to ask one question of Senator Withem relative to the committee amendments.

SPEAKER BARRETT: Senator Withem, would you respond, please?

SENATOR WITHEM: I certainly will.

SENATOR ELMER: Looking at the explanation of committee amendments that were handed out, I. am looking at number six, I wonder if you might tell us what the difference is in the income tax revenues returned based in liability rather than the receipts?

SENATOR WITHEM: Well I, I will give you a more complete explanation later on after I have talked with Larry. I notice that that is one of the technical things that we change one way in the committee amendments, and then we change it back the other way with amendments that are coming up here shortly. if we could, when we get to this other set of technical amendments, I will have a more complete explanation of that particular and we will discuss that at that time if that is okay with you. I mean I want to give you a good answer and not just something that comes off the top of my head.

SENATOR ELMER: Thank you. And one other thing, I might mention, Senator Moore and Senator Schmit were visiting about gross income. Of course, an adjusted gross income is after all

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taxes are paid and all relative expenses to the operation of a particular business are paid, and this is what is left over. So he doesn't have to pay all of those obligations out of that $30,000. Obviously, that would not be able to be done. Thank you.

SPEAKER BARRETT: Thank you. An amendment on the desk, Mr. Clerk.

ASSISTANT CLERK: Mr. President, Senator Lamb would move to amend the committee amendments.

SPEAKER BARRETT: The Chair recognizes Senator Lamb.

SENATOR LAMB: Mr. President, members, I serve as a member of the School Finance Review Commission and I, too, appreciate the work that the commission, and especially Senator Withem, did on this problem. I did not sign the bill, LB 1059, partly because I wanted to keep my options open and take what I would like to think is an objective view of the bill and the work of the commission. As a member of the commission, I was intimately involved with the discussion, attended most of the meetings, and had some input. And part of the bill, you know I don't know how I am going to vote on this bill but I do have some questions and I do have some problems. Part of the bill I like, part of the bill I like. The part of the bill I like is the income tax rebate. For the first time, for the-first time we have income taken into consideration when we consider state aid. As someone mentioned earlier, the property, in my opinion, is not a good valuation of wealth. It is not a good gauge by which to value wealth, and always before that has been the only criteria for the distribution of state aid on an equalization basis. So that part of the bill I like. Then from there, some other things I have problems with. I bring you this amendment which is a simple amendment and it has to do with the hold harmless clause that Senator Baack has primarily been responsible for, and it seems to me that when we have a hold harmless clause, we admit, we admit that there is a problem. We admit that there is something here that is not working quite right, and so for a few years we are going to mitigate that somewhat by a hold harmless clause. This amendment just makes the hold harmless permanent at 100 percent. Under the hold harmless in the committee amendment, it is 100 percent the first year, 80 percent the second year, and 60 percent the third year. This -amendment would just make the hold harmless at 100 percent forever so that

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no school would lose state aid that they are getting now. I have also distributed another sheet which is this larger sheet which has a lot of numbers on it, and the left side there is taken from the Fiscal Office, Legislative Fiscal Office information which has previously been distributed, and the right side of it is from the printout as to how the state aid works in various districts. I picked out a few worst case scenarios there where these people are paying high property taxes now on a couple of different criteria, but not helped, in fact harmed by the bill. And the worst case example I believe is Hayes County, in which if you'd care to look at this chart I passed out, you will see that taxes as a percent of income, Hayes County ranks fifth in the state. In other words, they are very high, and the per capita taxes, they rank number one at $1,499. The average levy is low in Hayes County because there is a lot of valuation per whatever, per student. So 73rd, you read that column, it says average levy, that's 73rd in the state, that is down toward the bottom of the 93 counties. But they are paying a lot of property taxes as a percent of income or as a percent... or as per capita, on a per capita basis. So I have labeled that, These counties have some of the highest property taxes but, and then you go over to the right, most of these are not helped by LB 1059. So you have Hayes County, which now by these two criteria which I think are valid, taxes as a percent of personal income, and per capita property taxes, are paying a lot of money for property tax, way above the state average. What does this bill do for them? Well, it reduces-state aid by 64 percent; reduces state aid by 64 percent to these people who are already paying some of the highest property taxes in the state. Well, I don't know exactly why it happened that way but it does. Now some of these other, now Gosper, the second one, you know they have a property tax problem, but the Elwood Public Schools there ,has helped. It's helped. So that is a situation where they have high property taxes, they are helped by this bill. All the other ones are negatively impacted. Only one of those is in my district, that is Blaine County, down there, Sandhills Public Schools. They are second in taxes as a percent of income in the state, second county as percent of personal income goes for property taxes. What happens to them? They get a 14 percent reduction in state aid. Does that help them with their property tax problem which is already greater than almost every other county in the state? And that is...see, some of, you have to be careful and look at these numbers because these are countywide averages, where we are not talking about school districts. it happens that Blaine County and Hayes County the school district

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practically matches the county so we are talking about school district in that situation. Sandhills is a K-12 school. it covers Blaine County and has a property tax problem, not helped, in fact, they are harmed by this bill. So I am asking some of these questions, what are we going to do about this. What are we going to do about it? Well, this amendment would hold it harmless forever so they don't get less state aid. I am not sure that is a long-term viable solution to the whole problem, but it at least shows my concern. To go to a couple of other related areas, Senator Schmit brought up the fact that this booklet, as put out by the Department of Revenue, along with input from the Department of Education and some legislative staff people, ignores LB 361. That's that bill, you know, we passed which increased farmland agricultural valuations by a considerable amount and especially pastureland, sandhill pastureland and all the other pastureland. They went up huge percentages. Well, to say that this digest which says agriculture gains by $47 million, I can't believe that. I can't believe that at all if LB 361 isn't taken in there. And Senator Robak voted against that bill and she is one of the few, and Senator Schmit would have voted against it had he been here. I voted for it. I don't know whether that was a good thing to do but I did it. But now, see, it's ignored in this and so, in my opinion, they said the Revenue Department, the Department of Education says, we don't know what the impact of LB 361 is on this proposal. You know, I can't see how it could be anything but negative for agriculture because when you increase valuations that means you get less state aid, even under this formula, even though there is some income tax money in there. So I have to say that it's going to be negative and to a large degree. The other thing I would call your attention to on this little booklet is on page 10, page 10 in this little booklet that's passed out. What will happen now and with LB 1059 in the state?

SPEAKER BARRETT: One minute.

SENATOR LAMB: Okay. We're going to ... in the 14 states in this area of the United States, currently Nebraska is number 11 in sales tax rate. Okay, under LB 1059 we're going to go up to 4th, 4th of these 14 states, on page 10. Now on income tax, Nebraska is also currently number 11, but we're going to go up to 5th in these 14 states. When we get over here to the last column, property tax, Nebraska is now 4th, which is high, but we're only going to go down to 5th. So, you know, how much of a

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property tax decrease do we have in exchange for these large increases in sales and income tax? Another possibly oversimplified method that I. use is that with this bill we probably ... we won't have LB 84 which provided 8.5 percent reduction in property taxes last year.

SPEAKER BARRETT: Time.

SENATOR LAMB: So that means that automatically property taxes go up 8.5 percent. Okay, the goal of the commission has been a 15 percent reduction in property taxes. So with my Class I, Senator Schmit, arithmetic, I subtract 8.5 percent from 15, I get 6.5 percent net reduction in property taxes for an exchange for a 25 percent increase in sales tax...

SPEAKER BARRETT: Time has expired.

SENATOR LAMB: ... and 17.5 percent increase in income tax. And my question again is, is it worth it?

SPEAKER BARRETT: The Chair is pleased to note that Senator Byars has eight students from Adams High School in our south balcony, with their sponsor. Would you folks please stand and be recognized. Thank you. We welcome you. Also, Senator Beck announces some guests in our south balcony, 13 nine to fourteen-year-olds from Madonna School for Exceptional Children in Omaha and their teacher. Would you folks please stand and be welcomed. Thank you. We're pleased to have you with us. Turning to discussion of the Lamb amendment to the committee amendments. I would recommend that discussion be limited to the Lamb amendment if at all possible. I have a number of lights on. If you don't want to speak to the Lamb amendment, waive off, I will not remove your light. Senator Nelson, would you care to discuss the Lamb amendment?

SENATOR NELSON: Mr. Speaker and members of the body, yes, I will. I almost hesitated. I, too, have the same concern as the impact of LB 361. Senator Lamb is entirely correct in saying that we don't know what actually it will be and I have questioned the Education Department a number of times about this. They say they can't tell. -They don't think it has much of an effect. I will also tell you that the problem that I have ... and I may be accused of speaking to the bill now, I will be supporting the bill, I think, in the long run. I serve on Education, and so on. Equal opportunities for education is my

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main reason. But in regards to some of these formulas where I think it came out $60 million shift from rural to urban, I would almost have to say absolutely not true, and for this reason. And the reason being is that in these formulas and discussion and so on it was not taken in consideration the increased sales tax that farmers would pay and business people would pay on their equipment purchases. It... then the figures almost become mute because I don't care whether you're educating your child out of one way or the other way, the figures were based on so much adjusted gross income and the normal living expenses, taking into consideration, and I see this both ways, that in agriculture that is part of doing business, in business that is part of doing business. That, I agree. I have some figures available and I did discount the Social Security out, put together by a very knowledgeable farmer, I would say near Grand Island, on his computer using actual figures and so on, the increase on a $50,000 adjusted gross income in the rural property. And, as I say, I could... even I thought he put the sales tax too high. I cut that down. It becomes 50 percent at a 4 percent sales tax, 51 percent at a 6 percent sales tax, and a nonfarm person percentage of tax as to income is 39 percent and 40 percent. So I, too, like Senator Lamb, do have a problem. Personally, I would gain on this bill so I'm not standing up here for that purpose because I happen to be one that... a little less expenses and a little bit more property at the time. Let me give you exactly examples to further confirm Senator Lamb's contention. On... these are 1988 actual figures in Hall County, in fact, they actually happen to be in my own. One irrigated property valued at 120,000 went up to 152,500; 25 ... an 80 acres of other ground, partially irrigated, from 25,000 to 42,960 and another one from 169 to 199 thousand dollars. So, with that variation, I don't see how you can say that these figures really mean very much. So I am certainly paying a lot of attention to Senator Lamb. And, with that, I will sit down and make it as brief as I can.

SPEAKER BARRETT: Further discussion on the Lamb amendment. Senator Pirsch, would you care to discuss the Lamb amendment? Thank you. Senator Withem, on the Lamb amendment.

SENATOR WITHEM: First of all, let me say the question of a perpetual hold harmless is a legitimate policy question to bring to the Legislature. Senator Lamb is well within his responsibilities as a legislator bringing this to us for consideration. I'm not going to support the perpetual hold

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harmless, at least at this point. What I would prefer to see happen is that, well, I would really prefer to see a discussion on it, a withdrawal, allow us an opportunity to see what it does to the bill, see how much it will cost, whether it will be an ongoing drain on the bill or whether it will not be a particularly long ongoing drain on the bill. At this point, we just don't know. We don't know what a perpetual hold harmless will do on the bill. I ... it's one of the things that's been running around in my mind as something that maybe needs to be considered policywise. Hold harmlesses, in general, are recommended against the consultant on school finance measures who has been a consultant to a number of these court cases around the country on both the plaintiff and on the defendant's side... thank you, defendant, that's the word, thank you, Senator Kristensen, on both the plaintiff and the defendant's side, have indicated they recommended very strongly against hold harmless provisions. Because if you're going to build your education finance system on a theory of equity and you don't want to be challenged on equity, you need to stick consistent with that equity. And if our philosophy is that programs need to be funded based on needs of students and the state ought to make up for dollars that aren't available on the local level, anything you do for a hold harmless shifts dollars away from that. Now as a political statement and as a statement of moving into a new system and cushioning the shock, moving from an unfair system to a fair system, the committees, the Revenue Committee and the Education Committee, thought a phased out hold harmless would make this system work better over the long run. It would make the citizens of the state more accepting of it, make it easier on those taxpayers who are going to see an increase in their tax burden. For that reason, we supported it. In the back of mind is the feeling that probably a perpetual hold harmless won't have a tremendous impact, but I don't know that at this point and I don't think anybody else does either as to how' much this will continue to cost us, how much ... how many dollars this will drain out of the system four years' from now that won't be drained out of it. I might ask Senator Lamb. Do you have statistical analysis of how much this will cost us four or five years down the road as compared to what it will cost us with the bill?

SENATOR LAMB: Senator Withem, it was my understanding that you had indicated originally that the hold harmless, the first year at 100 percent was like $3 million.

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SENATOR WITHEM: That is my understanding for the first year I don't know what it will be as the system progresses down into its full implementation. Thank you.

SENATOR LAMB: I guess my ... my point is if it's... if it's good...

SENATOR WITHEM: Well, it's my time, Senator Lamb. You can make your point, I guess. I was asking if we knew the dollar figure.

SENATOR LAMB: Well, no, but just based on that $3 million...

SENATOR WITHEM: 'Okay, fine, I appreciate that.

SENATOR LAMB: ... that figure.

SENATOR WITHEM: That's fine. That's fine. I just wanted to know if we knew what the impact is going to be. I don't... I'm not going to support it at this time. I may end up supporting it later on if I can get the statistics that will show that it's a good idea. That's the only point I was making with it. Thank you.

SPEAKER BARRETT: Discussion on the amendment to the amendment. Senator Schellpeper, would you care to discuss it?

SENATOR SCHELLPEPER: Yes. Mr. Speaker and members, I rise to support the Lamb amendment. I think it's a very fair amendment. Whether we do it now or whether we do it later, I have no problem with that. But I think one thing that we need to remember that if we pass the Lamb amendment, we are not penalizing the low tax districts because, at the present time, with 1059 you are penalizing those low tax districts to help the high tax districts. I think it's a very fair amendment. In rural Nebraska, we have several districts that will be penalized and I think we should not be penalizing somebody that has been running a good school. So I think it's a very fair amendment and I really support it. Thank you.

SPEAKER BARRETT: Thank you. Senator Schmit, on the amendment, followed by Senator Moore.

SENATOR SCHMIT: Mr. President and members, I support the Lamb amendment out of desperation. I don't think that I can find very much that I can support in the bill, but I just want to

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point out, as has been pointed out here before, that we have a tendency to use averages, that averages do not reflect the individual... the individual's ability to pay. The Lamb amendment says that at least for a period of time or forever, perhaps, we're going to hold at a certain level. Now if history repeats itself, and it usually does, there will be increased state aid over the years and that probably, as Senator Withem has said, will not be that much of a factor. When I do think it will be a factor is when LB 361 kicks in. I think the first year that LB 361 kicks in you're going to find a tremendous number of rural taxpayers who are going to find that they have very little state aid coming to them. Of course, I suppose that as soon as LR 2 is passed and the urban members of this body then roll back my taxes by 30 or 40 percent and increase their valuations by that amount, then the shift-will return to rural Nebraska. Now if you believe that, if you believe that, you will believe almost anything else that has been heard on this floor today and Mr. Welsch will have his own description of how to handle that. The point I want to make is this; that we are using a false premise to determine wealth of a district. You talk about using income taxes to support the schools. Ladies and gentlemen, you are only going to support District 56 schools with the income tax out of District 56. If the farm income is down, there is -not much income there either. So there is very... I don't know how you're going to get the support for that school system under those conditions. Conversely, the sales tax that is collected from all over the-state, and rural persons are large payers of sales taxes, all go into the General Fund and then they're administered back out. And, as has been pointed out, the urban districts benefit substantially from that situation. What we have done here, we have decided... I'm going to ask, for example, what does constitute the wealth of a district? Senator Withem, land constitutes wealth, right?

SENATOR WITHEM: (Microphone not activated).

SENATOR SCHMIT: Yes, I'm going to ask you, land constitutes wealth. Is that right?

SENATOR WITHEM: I believe that's the philosophy of the property tax is that property constitutes... the value of property constitutes the base for taxation.

SENATOR SCHMIT: Okay. And that means land, homes ... how about personal property? How about tractors? Do we count tractors

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anymore?

SENATOR WITHEM: No, we don't.

SENATOR SCHMIT: Okay, but we count the desk in my office as personal property. That's counted, right?

SENATOR WITHEM: Not your state property; your desk at your office would be, yes, is my understanding.

SENATOR SCHMIT: Okay, that counts. How about livestock?

SENATOR WITHEM: Yeah, before you said cattle paying taxes, I don't think cattle pay taxes anymore now.

SENATOR SCHMIT: That's right, cattle don't pay taxes anymore. So we don't count the livestock. How about CD in the bank? if I have $100,000 in a CD, does that count?

SENATOR WITHEM: No, it doesn't.

SENATOR SCHMIT: Hundred thousand dollars in stock, does that count?

SENATOR WITHEM: No.

SENATOR SCHMIT: Does a million dollars in stock count?

SENATOR WITHEM: No.

SENATOR SCHMIT: I see. Let me just point out, ladies and gentlemen, house counts, farm counts, my-desk counts, my tractor doesn't count, a $100,000 cash in a CD doesn't count, a $100,000 invested in Berkshire Hathaway doesn't count, so what does really constitute wealth? If you were to count everything across the board, ladies and gentlemen, everything, throw it all in the pot, cattle, hogs, horses...

SPEAKER BARRETT: One minute.

SENATOR SCHMIT: ... mules, jackasses, all, I would comment, I would accept that. But when you do not count the billions of dollars of wealth in CDs, stocks and bonds, and et cetera, you have a false premise to determine the wealth of a district.

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SPEAKER BARRETT: Senator Moore, please.

SENATOR MOORE: Yes, Mr. Speaker and members, it was sincerely my hope that maybe we could debate the concept of the bill before we get into amendments, but, obviously, Senator Lamb, the length of time he has been around here he knows that it's a good ... the best defense is a good offense. And I think the first question I need to ask Senator Lamb is a question we often ask colleagues that introduce amendments. Senator Lamb, are your motives pure? Will you support the bill if this is on there?

SENATOR LAMB: My motives are always pure.

SENATOR MOORE: Well, then the second half of the question, will you support the bill if this amendment is on there?

SENATOR LAMB: There's a lot more to that than this bill, than this amendment.

SENATOR MOORE: That's a fair answer, Senator Lamb. And, for that reason, is why probably at this stage, this juncture in the game, at least, I have to simply rise to oppose the amendment. I don't think it's, you know, if Senator Lamb's motives are pure and this would bring his support to the bill, I would be more than happy to do it, because the fact of the matter is that on this particular issue we get ... we walk away from the policy issue and we step into the issue of politics and what it is is good politics for us individually to do, and that's what this business is all about, so that's fair. But it's my concern that this amendment, at this juncture in time, would bring ... do more harm than good for support of the bill and so I would urge Senator Lamb to work with Senator Withem and myself to possibly work out something on the hold harmless that is fair. I think Senator Landis will give us a dissertation later on what his problem is with the hold harmless into infinity. And instead of Senator Lamb trying to tear this issue down, I urge him to work with us. It's something that can work and something that will at least ease the pain for those 44 odd high school districts and other Class I districts that are relatively losers under this bill. So I would urge the body to defeat Senator Lamb's amendment at this time, but my vote against that is not a no vote into infinity on the hold harmless clause. So, with that, I urge the defeat of the amendment.

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SPEAKER BARRETT: Thank you. Senator Langford is pleased to announce that she has a guest under our north balcony, John Brawand of Kearney. Mr. Brawand, would you please stand and be recognized. Thank you. Let the record record that he has been here. Thank you. Senator Bernard-Stevens, would you are to discuss the amendment to the committee amendments?

SENATOR BERNARD-STEVENS: Thank you, Mr. Speaker. I will talk about the amendment in maybe a little bit different light to try to put a little bit different perspective on it. I remember my first year down here. I was working along with Senator Scofield and numerous others on LB 1091 which was a bill that would reimburse and hold harmless, if you will, the cities and counties and school districts that were hit very, very hard by the 4-R Act and the railroad lawsuit at the time. I was sitting here thinking of the...of the difficulty that we had in the discussions on the floor and with the Department of Revenue and others about how much money we want to do in a one-time cost and it was emphasized by this body particularly that it needed to be a one-time cost, not a cost that would be a burden to the state forever and ever. And that was one of the ways that it passed. We kind of set a policy that when people are hurt on tax policy we may want to hold harmless per se but we want to give them time to adjust and we certainly want to give them adequate opportunity to do what's best for their districts and schools and cities but we don't want to have a bail out for the whole... for infinity. The same issue can...is going to be with us again this year on the pipeline case and once again the Legislature will make the policy that, yes, we want to help those that are hurt right now but we're certainly not going to put in this budget forever, as Senator Byars well knows. We're not going to do that. And I remember Senator Lamb's position on the railroad lawsuit and others on how much we should give and how far we should hold harmless. And I think the Legislature has made a good policy statement in the past and we need to continue. There are a lot of things out there that are inequitable. There are a lot of things out there through no doings of people or entities that they may be hurt and the Legislature needs to help them at the time and the Legislature needs to phase that help out so they can once again stand on their own. But we can't fix everyone's problem forever. We couldn't afford to do that. And I think this is the situation on the Lamb amendment. Senator Lamb is trying to say there are some people that are going to be hurt and we need to fix it forever. And it does a couple things. Number one, there are

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inequities out there now and I have not heard anyone since I have been down here that would say, you know, on our property tax inequalities that we have, we would like to hold harmless those taxpayers who are paying an overburdened share. We would like to hold harmless that group and do it forever. I haven't heard that. I have heard a lot of proposals of trying to fix property tax but not anything that would help hold harmless. And I think the point I'm trying to make is that the amendment that the committees, the joint committee of Revenue and Education agreed to, and that's the committee amendments before you, is a compassionate one from the committee saying, we understand that there are some out there that will be hurt. Now some of those-people, by the way, have benefited for years and years and years. But there are some who have not necessarily benefited and they have paid their fare share that may be hurt and we want to do everything we can to phase this in. But to put something for the long term would, in essence, say the inequalities that were out there, we are, in fact, going to maintain those inequalities permanently. And it goes against...

SPEAKER BARRETT: One minute.

SENATOR BERNARD-STEVENS: ... what we in the body have, in fact, set as good policy in the past and I would urge that the body, at least at this time, not go with Senator Lamb's amendment to the amendment but give Senator Withem and others a chance to work with and see if there is a middle ground. I don't suspect there really is on this particular issue. Mr. Speaker, how much time do I have remaining?

SPEAKER BARRETT: Forty-five seconds.

SENATOR BERNARD-STEVENS: I will not give the rest of that time then to Senator Withem. Thank you, Mr. Speaker.

SPEAKER BARRETT: Thank you. Senator Landis, would you care to discuss the amendment to the committee amendments?

SENATOR LANDIS: Mr. Speaker and members of the Legislature, I'm a co-sponsor of 1059 and I support the measure. And I support the measure even after having looked through the report prepared by the Nebraska Department of Revenue on the tax burden shift among the economic sectors from individual taxpayers. I represent an area of Nebraska that doesn't have a single farm or a single agricultural taxpayer in it. I look at this book and

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it makes a great effort to show me that the agricultural sector of this state receives assistance at the expense of residential sections of the state. And even though I represent one of those districts that has strictly residential people, I am prepared to do that. It seems odd, however, that I am supporting a bill that seems to hold a gun to Senator Schmit's and Senator Lamb's head and forces money into their pocket, all the time they're resisting and saying, oh, please don't, please don't give me this much money. No, please don't help my farmers this much; $48 million, gosh, no, don't help me that much. It's an irony that I have yet to understand. On the other hand, with respect to the hold harmless, I will tell you there is, in football, you know, there is' something called piling on. It's after you've been tackled and you're knocked down and just somebody comes on for one extra hit afterwards, you know. And, frankly, after I look through the Governor's book and I see that the residential districts move 48 million bucks out to the agricultural sector and I gulp and I say, well, that's probably better for a tax system in this state. It really is a fairer system of doing education, we ought to do it and, frankly, I know that means more taxes for my people, but if you've got a statewide obligation, let's make these schools better and the system fair for everyone, we can shoulder up and do that task. But, frankly, this is a late hit. This is a... this is a "piling on" amendment here, because, as Howard Lamb says, you know, hold harmless amendments mean that something is wrong. That was his word. I think his implication was that something was wrong with the way we were about to do something rather than of whether we were doing something wrong in the past. I would argue that hold harmless clauses do indicate that there is probably something wrong but that it's just as likely that the wrong was done in the past, which is what I think has happened here. Historically, we have given foundation aid to districts that were wealthy, districts that had ability to pay, but we gave our state aid without regard to need. We gave them the form of foundation. Now when you have a hold harmless system that's based on an aid formula that's not based on need and you move to need, you're right, there are going to be some dislocations and the better of the two systems is where the money is set out on need rather than an indifference to need, which is the old system. Yes, there is some change between what we're going to do and what we have done and it's for the better. It's for the better because the old system was flawed and we need not hold harmless for those old, irrational, unfair parts of the system which we are now seeing and remedying in 1059. Even having said

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that, I will say I have supported the committee amendments. I even voted for a partial hold harmless system, 100 percent for one year, 80 for another, and 60 for another. But we must be willing to be weaned away from the unfairnesses of the past. We must be willing to take our licks for where in the past we have had systems that were unfair and to make over time an adjustment to a system that's based on need, rather than the privileges of old political deals and fights on the floor and the buyings off that happened in previous generations.

SPEAKER BARRETT: One minute.

SENATOR LANDIS: My closing remark is this, I will oppose the Lamb amendment but I'm a supporter of this bill. I can tell you this, that there is not an endless amount of patience among the urban taxpayers that will wind up funding this shift. It is not a bottomless pit. It is not a well with no end to it and, frankly, you've got to be able to bite the bullet and stop the piling on. You've got to make sure that we go with what was largely the committee's work and the commission's work and the task force's work and not add the nickel and dime and the buyings off and the old way of doing business that said we have to live by the computer printout so that nobody loses anything, regardless of whether there was sense in the way the money was originally sent out to various school districts. There is not an endless will to support 1059 from myself or I suppose from others of my colleagues who face the same kind of choices, and this moves ...

SPEAKER BARRETT: Time.

SENATOR LANDIS: ... us to the breaking point. Thank you.

SPEAKER BARRETT: Thank you. Senator Elmer, would you care to discuss the Lamb amendment?

SENATOR ELMER: Thank you, Mr. Speaker. Senator Landis said it very well. He said many of the things that I wished to say. The amendment that Senator Lamb is proposing, I would like to bring your attention to one of the horrible examples that he made of Hayes County. Hayes County is a fairly large county, has one town in it, approximately two to three hundred people. Very little, very little commercial enterprises in Hayes County. Ninety-five percent or more of the valuation is agricultural. It shows that there is a large amount of valuation per student.

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And I see this amendment that Senator Lamb is bringing as merely a continuation of tax inequities between school districts, a continuation. I'm a co-sponsor of this bill and I will talk more about the bill at a later time, but I don't believe we should adopt the Lamb amendment. Thank you.

SPEAKER BARRETT: Senator Schmit.

SENATOR SCHMIT: Mr. President and members, it's good that we have this discussion. I just want to warn my friends from the rural areas, we all know why reorganization is such a desirable goal for schools. It is because of the added valuation that goes into those school districts and the minimal amount of educational responsibility that goes along with it. Senator Landis says that it is very unlikely that the urban areas will want to continue to pour tax dollars into rural areas. Well, Senator Landis, I appreciate your generosity. I appreciate your sincerity, but I would challenge even the smaller farmers on this floor here today to contrast their tax burden per individual taxpayer with that of the wealthiest member on this floor who is not a farmer. We all know what the difference is. I know farmer, after farmer, after farmer in my district today who did not pay any income tax last year, will probably not pay any next year, who had to pay thousands of dollars of rural property taxes towards the support of schools, not hundreds, as you indicate here, that's a pimple on the nose of a bull, thousands, ladies and gentlemen, thousands. We are fast approaching a position where rural Nebraska will find taxes confiscatory and will find farmers losing their land because of these inequities. We have a tendency to talk in terms of hold harmless for this year. I believe this body would vote itself out of existence if we had a delayed enactment date on the bill of four or five years. Anything you can do down the road far enough, go ahead and vote for it. If you want to have a one-year hold harmless, two years, three years, fine, the facts are these; that we know on this floor that the passage of 1059 totally ignores real wealth. It ignores liquid wealth. it ignores the wealth in the CDs and the stocks and the bonds that reside principally in our urban districts and it counts as the wealth those farms out there in the rural areas. My farms, the land I have is all or are all included in Class II and III districts. I don't even like to think of how many dollars I have paid to support those schools as opposed to what I would have done had I remained in a Class I school district. The rural people have, for years, not resisted the consolidation of

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schools because they didn't want quality education. They .resisted it because they knew that the urban taxpayer was eyeing, yes, a little lustfully, the valuation of the farmland. We have, for a variety of reasons, even further damaged ourselves by the passage of a series of bills in the last few years that's going to further increase that disparity. I am going to tell you, ladies and gentlemen, those of you and the rural people on this floor are outnumbered. We don't have the votes. But I find it impossible to understand how a legislator who represents any rural taxpayer can support this bill because it does nothing, it does absolutely nothing insofar as reducing the tax burden on that farm. If you would... if you would take all of the income tax from all over the state and throw it into the pot and then send it back it out, that might mitigate it just a little. But given the present special emphasis upon local income taxes being used for...

SPEAKER BARRETT: One minute.

SENATOR SCHMIT: ... local schools, it does absolutely hardly anything for those local schools. I support the Lamb amendment. It's a small, small help but it's something. And we can talk all we want to about the... about the hold harmless for one year deal. I voted against the property, the railroad hold harmless. I'm going to vote against the pipeline hold harmless. And I think that in this instance what you have done here is say, well, we'll just give one little aspirin for a year or two or three, then we'll, proceed. Gentlemen, you have done a lot of work on this bill but the rural taxpayer, the farmer, is going to pay and pay and pay tens of thousands of dollars as opposed to a few thousand dollars from his urban counterpart. It's not equitable.

SPEAKER BARRETT: Time. Senator Lindsay. The question has been called. Do I see five hands? I do. The question before the body is, shall debate cease? Those in favor vote aye,' opposed nay. Record, Mr. Clerk.

CLERK: 26 ayes, 0 nays to cease debate, Mr. President.

SPEAKER BARRETT: Debate ceases. Senator Lamb, would you like to close on the adoption of your amendment?

SENATOR LAMB: Yes, Mr. President. I'm pleased to see that Senator Landis came back in because I asked him to come back in

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because I wanted to ask him some questions and he was headed out for nobody knows where.

SPEAKER BARRETT: Senator Landis, would you respond?

SENATOR LANDIS: I'm on my feet.

SENATOR LAMB: Senator Landis, is ... wait a minute, I haven't asked the question yet.

SENATOR LANDIS: Oh. I guess I'll leave.

SENATOR LAMB: Senator Landis is a very knowledgeable person and he serves on the Revenue Committee so I would just like to ask him what his perception is of the results when LB 361 is factored into this whole equation.

SENATOR LANDIS: Senator Withem actually says he has some numbers available and you might directly ask him on that point.

SENATOR LAMB: Senator Withem, do you want to share those with us? I couldn't get them out of the Revenue Committee. I couldn't get them out of...

SPEAKER BARRETT: Senator Withem.

SENATOR LAMB: ... any other place.

SENATOR WITHEM: Yeah, I would be happy to. It's my understanding, from talking to Mr. Kemper back there, that they just completed it last night and the number $9 million, based on the total amount of increase because of all of the valuation increases, comes out $9 million. Some of that is increase in valuation in urban areas so it's less than $9 million, would be the number.

SENATOR LAMB: That came from the Department of Education?

SENATOR WITHEM: That's my source, yes.

SENATOR LAMB: Is that correct? Yeah, well, I ... you know, I guess I chatted with them yesterday and they didn't know and I chatted with the Department of Revenue this morning and they didn't know, so I guess I'm amazed that you could get those numbers and I couldn't. But, nevertheless, it certainly is

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true, as Senator Schmit points out, and others, that those numbers, as far as the shift, really are not valid because LB 361 is in effect and will have a significant impact. The $9 million may or may not be the correct number, but you have a $47 million shift in your little booklet, I think already we know that is not an accurate number. The other ... couple other things. Senator Moore said that... something about hold harmless are being... are political things, and that's true. So that's part of my point here is that the hold harmless that's put in the bill is put in there, in my opinion, just to get rid of some of the opposition, get rid of some of the opposition. They say, well, this year we're going to get a 100 percent, next year 80 percent, a year after that we'll get 60 percent. Well, you know, that helps us a little bit. We don't like the bill but it's a political reason for voting for the bill and to remove some of the opposition. You know, I don't think that's a proper reason for changing your position on the bill. But be that as it may, it seems to me that if a hold harmless is worthwhile, it should be one that goes on down the road. And Senator Withem brought up the point of how much is it going to cost? You know, I don't know how much it's going to cost but I thought that was a pretty reasonable method on which to base a guess, is that they're saying that the hold harmless for the first year is something like $3 million. Not a lot of money when you're talking about $210 million. Percentagewise it's very small. And why that would change very much in the future, as Senator Withem seems to think it would, I don't know. But...

SPEAKER BARRETT: One minute.

SENATOR LAMB: ... those are the reasons that I think that if you're going to have a hold harmless, you should have one that works forever. So I would ask that you adopt the amendment.

SPEAKER BARRETT: Thank you. The question is the adoption of the Lamb amendment to the committee amendments to LB 1059. Those in favor of that motion please vote aye, opposed nay. Have you all voted? Have you all voted? Record vote has been requested. Please record.

CLERK: (Record vote read. See pages 1174-75 of the Legislative Journal.) 14 ayes, 25 nays, Mr. President.

SPEAKER BARRETT: The motion fails. To the continued discussion of the committee amendments. Senator Pirsch, would you care to

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discuss the committee amendments?

SENATOR PIRSCH: Yes, thank you, Mr. Speaker. I am a co-sponsor of LB 1059 but I also have some questions and, since we're speaking to the committee amendments, I would like to ask Senator Withem probably some questions on the committee amendments.

SPEAKER BARRETT: Senator Withem, would you respond?

SENATOR PIRSCH: Senator Withem, on number three, what ... what exactly special grants to school districts would be outside the budget limitations?

SENATOR WITHEM: Things that are given to school districts like PTAs, Kiewitt Foundation, those types of things that don't flow within the normal budgetary reporting requirements of school districts.

SENATOR PIRSCH: In other words, these would be gifts or contributions ...

SENATOR WITHEM: Right.

SENATOR PIRSCH: ... from outside of taxpayers and...

SENATOR WITHEM: Right. That's exactly right.

SENATOR PIRSCH: ... and the school. Okay, thank you. Another one, and this also was asked by Senator Owen Elmer and that was the definition of income tax receipts and then we also call them income tax revenues and now you say the committee amendments will return them based in liability and not receipts. Could you explain that, please?

SENATOR WITHEM: Yeah, I think I can a little better now than I could before. The receipts are the actual dollars that flow back into the State of Nebraska. That's the money they get under the receipts. The liabilities are the number... the dollars that are owed by individual taxpayers to determine how many dollars go back to an individual taxpayer. The ... we will look at what was owed by the citizens that lived in a district to calculate what they get back, is the way this is written now.

SENATOR PIRSCH: In other words, perhaps that could be what the

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income tax would... or what the general income tax would denote what should be paid on that and then that depends on whether that's paid or whether that's factored out in the expenses?

SENATOR WITHEM: I don't think it is that complicated. I think it's just simply a matter of the liability would be... they're accounting sorts of distinctions that are made over in the department and I think it's just based on the amount of state income tax dollars after they do all of their conclusions that were owed by people in that given district, is a more accurate method of distribution, at least according to the theory of this amendment, than using the dollars that did come in. It's a more accurate way...

SENATOR PIRSCH: This is ...

SENATOR WITHEM: ... of defining how much they get.

SENATOR PIRSCH: Yes. The way they would even know what an income tax liability would be, would be after that income tax form had been...

SENATOR WITHEM: Correct.

SENATOR PIRSCH: ... had been entered to the state Department of Revenue, not necessarily if it had been paid or... I mean, I would think there would only be one...one way you could judge that...

SENATOR WITHEM: Yeah.

SENATOR PIRSCH: ...is what actually is on a form returned by someone who lives in that district.

SENATOR WITHEM: Right.

SENATOR PIRSCH: Okay. Also, I do see that it clarifies that the unused budget authority may be carried over and added to current budget authority and, actually, I do think that's good. We do have a budget limitation, but we should reward the school district and not penalize them when they don't go to the top of that budget limitation...

SPEAKER BARRETT: One minute.

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SENATOR PIRSCH: ... as so often lids do. They just encourage budgets to reach the ... reach the top and your limitation becomes a floor and not the top. I guess the way I am looking at 1059 is not how my school district comes out because actually my school district comes out very well. But my focus in what I am trying to ascertain is what impact it will have on the taxpayer if, indeed, this truly is going to be a shift and not just a tax increase on my constituents. I will try my light again because there are some summaries of what this shift will mean for the total taxation of Nebraska...

SPEAKER BARRETT: Time.

SENATOR PIRSCH: ... and I have some questions on that. Thank you.

SPEAKER BARRETT: Senator Ashford, on the committee amendments. Senator Withem. Thank you. Senator Smith, on the committee amendments. Senator Schmit, on the committee amendments.

SENATOR SCHMIT: Mr. President and members, I guess I should have learned a long time ago if you want to pass a bill, don't come in here for a $100,000 or $25,000, come in for 220 million. There are no amendments, no questions, no one wants to speak on these amendments. I guess I would like to ask a question of someone, of I suppose Senator Withem. Just starting at the top of the committee amendments, it -says except for purposes of determination of local effort rate yield, et cetera, et cetera. Are you saying in that section of the amendments, Senator Withem, that, for example, if a court determines that certain property is nontaxable, such as railroad property, then you remove that from the determination process? Is that what you're saying.

SENATOR WITHEM: I don't see where you're ... you started to read from the amendments. I don't know where you were...

SENATOR SCHMIT: On page 4, line 6, after "the" insert "aggregate". Top of the committee amendments.

SENATOR WITHEM: Yeah. Property values that are held to be exempt or nontaxable would not count against the school district in the calculation of its local effort rate yield. In other words, if they can't tax it then it doesn't count against them in terms of determining their property wealth in the district.

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SENATOR SCHMIT: Then would you explain for me again how local effort is determined? Because I guess, as I look at my own tax bill, it appears to me that my local effort is substantially greater than is the local effort of my neighbor who lives on. an acreage, whose total tax bill is $800 and probably contributes $600 to the support of the school. How do you adjust for the variation in the local effort? If, for example, using the example that was in the paper this morning of a $300,000 farm taxed at 1.5 percent, that would be $4,500 of local effort on behalf of that person, a $30,000 house would be $450. Would you tell me how you adjust or how you assume that the local effort is equal on that basis?

SENATOR WITHEM: You want a definition of what the term "local effort" means in this particular case?

SENATOR SCHMIT: Well, I ought to have something that I will be able to talk...

SENATOR WITHEM: The term "local effort" refers to the calculation that is in the formula. It's in your briefing books here where needs minus resources equals equalization. The local effort is a levy figure that is multiplied times the valuation of a local district and it is a mathe... it's the bal ... mathematical balancer in this whole formula. If we give out more equalization aid, more than the three hundred or so million dollars that's here in the bill, then it will be a lower effort rate that will be needed. If it is less sum of money, then there will be a higher levy. It's really just a mathematical factor in here for the balancing of the equation.

SENATOR SCHMIT: Well, thank you. I come back again to what I spoke about earlier, ladies and gentlemen. I don't want to pick on Nebraska's most successful businessman. I understand he' lives in a very modest home. He lives very modestly. I don't know what the value of his home is, 100,000, perhaps more or less, but by the latest calculation he had stock in Berkshire Hathaway of 4.2 billions. That is not considered a part of the wealth of the Omaha school district, is it? Is that right, Senator?

SENATOR WITHEM: Under this proposal, his resources will be counted against the wealth of the Omaha school district, yes.

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SENATOR SCHMIT: Well, would...you mean his stock in Berkshire Hathaway is counted as part of the wealth of the Omaha school district?

SENATOR WITHEM: No, his income.

SENATOR SCHMIT: His income, oh, yes, fine. His income is counted, that's right. But the value of the stock is not counted. Is that right?

SENATOR WITHEM: Well, yeah, I'm kind of repeating myself from an earlier series of questions. If you don't remember, the answer to that is no.

SENATOR SCHMIT: I remember. I just want some of my colleagues to listen to it again.

SPEAKER BARRETT: One minute.

SENATOR SCHMIT: Okay, let's just... I will explain it as I understand it. The $300,000 farm is taxed and that is counted as a part of the local effort. The $30,000 which is referred to as gross adjusted income, and if you understand what they mean by that, you have a better education than I do, that's all counted as local income from the farmers' standpoint. But if you happen to live in a $100,000 home, that's counted a part of the local effort. If there is income on the stock, that's counted as part of the local effort, but the $4.2 billion worth of stock is not counted as a part of the wealth of the district. Ladies and gentlemen, you have a basically faulty premise. Stocks are wealth as far as I'm concerned; CDs are wealth as far as I'm concerned. Money in the bank is wealth insofar as I am concerned. This bill totally ignores all of those investments and relies only upon basically real property, to a lesser extent some classes of personal property, 15 percent of the total...

SPEAKER BARRETT: Time.

SENATOR SCHMIT: ... and a few other entities. You have a false foundation, ladies and gentlemen, and you cannot build a basically fair bill when you have a basically faulty foundation.

SPEAKER BARRETT: Senator Peterson, on the committee amendments.

SENATOR PETERSON: Mr. Speaker and members, Senator Withem,

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would you yield to a couple of questions, I hope....

SENATOR WITHEM: Certainly.

SPEAKER BARRETT: Senator Withem.

SENATOR PETERSON: ... in regards to the amendments? The income tax rate goes into effect in January 1st of 1991, right?

SENATOR WITHEM: Yeah, I believe so.

SENATOR PETERSON: And when does the sales tax go into effect?

SENATOR WITHEM: July lst of this year.

SENATOR PETERSON: July lst of this year. A question in regards to the income tax, 17.5 percent income tax rate. What I guess I ... what will happen to those people working out there when that goes into *effect? Will... you know, only about... I don't know what percent, but a good percent and maybe 90 percent of the people when they don't realize anything until it's passed and they have to... it goes into effect and I imagine that will happen in regards to this income tax, but what ... will they have less money to spend and will that affect the economy if they do? It looks to me like the workers out there when they get hit with that 17.5 percent income tax that ... do you think they will have less money? And, if so, will it affect the economy?

SENATOR WITHEM: Many of them will have less money. They will pay more income tax but they will have more money when they get through paying their property taxes. So, no, I don't think it will affect the economy.

SENATOR PETERSON: But what will happen to those that don't have property, that are renting? And there's many, many more of those than own property that are renting.

SENATOR WITHEM: People who...

SENATOR PETERSON: What about those people?

SENATOR WITHEM: They will have less money. Most of those people are fairly low income individuals that don't pay a very high rate in income tax anyway.

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SENATOR PETERSON: Okay, when that is taken out, what repercussions or do you see any repercussions when the people find out when this happens? Will there be any repercussions or

are people going to accept it, do you think?

SENATOR WITHEM: Every year my withholding changes January 1, based on a federal change, a state change, some other sort of changes. People, I think, expect their withholding to change along about the first of the year and this is not going to be a major withholding difference, I don't believe. And so, no, I don't think there will be any major repercussions.

SENATOR PETERSON: Okay. Have you talked to very many CPAs or any people that...IRS people in regards to. this bill and their opinions on this?

SENATOR WITHEM: No, I have not.

SENATOR PETERSON: Well, I have tried to get a perspective on this bill and I have talked to I a lot of people and I have talked to some CPAs and I just talked recently to an IRS man in Norfolk. A constituent called me and he said, you should call him. The people that figure income taxes are telling me they're going to get very little tax relief but a heck of a lot more taxes. Do you agree with that statement?

SENATOR WITHEM: Absolutely 100 percent no, not at all._

SENATOR PETERSON; You don't? So you disagree with that and yet these experts that are doing the taxes and that say the opposite, I guess.

SENATOR WITHEM: The experts, the Nebraska Tax Research Council that's looked at this says that there will be a net decline of about one-half of 1 percent in overall taxes collected in Nebraska if this passes, because of the lid. You talk to your experts and I'll talk to mine.

SENATOR PETERSON: Okay.

SENATOR WITHEM: The people I talk to say that there will be a fair degree of tax relief for lots of individuals in the state.

SENATOR PETERSON: Well, they're not disputing that there is going to be some tax relief but they tell me that what little

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tax relief, it's going to be so little compared to a lot more taxes they're going to pay. And so I ... I will not be supporting the bill because I agree with this, I think there is very little tax relief going to come and people are going to pay a lot more taxes. Thank you.

SPEAKER BARRETT: Senator Pirsch, on the committee amendments. Thank you. Senator Lamb, please.

SENATOR LAMB: Mr. President, I would just like to ask Senator Withem a question, if I may.

SPEAKER BARRETT:- Senator Withem, please.

SENATOR WITHEM: Yes.

SPEAKER LAMB: Now just a... I don't know whether you agree with the information I passed out, if you have that sheet handy, but let's just assume that it's true and we have a situation there where Hayes County now ranks very high as far as taxes, property taxes as a percent of income. Would you agree that that is not a proper situation, that's not a fair situation?

SENATOR WITHEM: I wouldn't, no, I don't think you and I share the same premise, Senator Lamb, that that, in and of itself, indicates an unfair situation.

SENATOR LAMB: Well, thank you. I'm amazed at that.

SENATOR WITHEM: Do you want me to go... an explanation, or is that... I don't want to use your time.

SENATOR LAMB: Go ahead. Let's see what you have to say.

SENATOR WITHEM: Well, property tax, the theory of a property tax is a tax on the value of property. It's not a tax on an individual's income. An income tax is a tax on income; a property tax is a tax on property. So to use an income standard to apply to the property, I think is an improper mixing of metaphors, if you would have it. The way to deal with this sort of situation is to get an overall lower reliance on property tax and that's what this bill does. So, no, I don't agree with your basic premise.

SENATOR LAMB: I guess I can't understand your reasoning because

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we have a situation here where property tax for the support of schools in this situation is high in relation to their income and yet the goal of the School Finance Review Commission was to find methods of reducing that. But here we have a situation where this bill doesn't do that. This bill does not do that. There is... this county has a high reliance on property taxes for schools and for every other governmental service, locally, and yet it doesn't... it doesn't... it isn't helped by this bill. In fact, it's harmed by the bill, that county is. And so it's amazing to me that we could say, well, that's all right, that's all right. We're... in this bill we are admittedly doing away with some inequities but there are some very striking inequities left in there and that's all right, maybe some day somebody will fix that up in the future. I guess that's. sort of reasoning escapes me as being logical and I just wish someone would have a better reason as to why that should be allowed to happen. We have had a lot of discussion about property taxes, about whether or not property is a good measure of wealth. And I think Senator Schmit has asked some very interesting and very pertinent questions about property tax. And, as I mentioned before, the part of the bill I like is the reliance on income tax for part of the funding of schools. I guess my real problem is it doesn't go far enough. It doesn't do it. It doesn't do it. There is still, there is still too much reliance on property taxes in many cases and that poses a problem for me. This bill has a big head of steam and we have had...

SPEAKER BARRETT: One minute.

SENATOR LAMB: ... we have had a lot of discussion in the papers. We had a two-day seminar of the Legislature over at one of the state parks. And so the emphasis has been on the positive aspects of the bill. I guess I am calling on the press, the news media, to look at the other side a little bit, look at the other side. I don't think the media has looked at the negative side of this bill. I think practically every article you see has the first two-thirds of the article extolling the bill. Then right down at the bottom there will be maybe a sentence about the possible negative effects of the bill, the shortcomings, but has certainly not been emphasized. Thank you.

SPEAKER BARRETT: Thank you. Senator Moore.

SENATOR MOORE: Question.

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SPEAKER BARRETT: The question has been called. Do I see five hands? I do. Shall debate now cease? Those in favor vote aye, opposed nay. Shall debate cease? Please record.

CLERK: 25 ayes, 6 nays to cease debate, Mr. President.

SPEAKER BARRETT: Debate ceases. Senator Withem, to close on the adoption of the committee amendments.

SENATOR WITHEM: Yes, I'm not going to... there have been good arguments, good discussion on the bill this morning which is natural when a complicated important matter like this comes up. I think it's good that a lot of these arguments did come out. I would ask you at this time to refocus back what we're doing now though is we are adopting the committee amendments. Most of them are clarification in nature. There are some substantive changes. The phase out hold harmless is in here. Remember, if it's not... if the committee amendments aren't adopted, there's no phase out. Correct listing of what year the income tax would go into effect. Not counting the exemptible nontaxable property of a school district when you calculate the local effort rate yield, all of those other things that need to be in here to make the bill workable. I would urge you to adopt the committee amendments.

SPEAKER BARRETT: Thank you, sir. The question is the adoption of the committee amendments to LB 1059. All in favor vote aye, opposed nay. Have you all voted? Record, Mr. Clerk.

CLERK: 33 ayes, 1 nay, Mr. President, on adoption of the committee amendments.

SPEAKER BARRETT: The committee amendments are adopted. Anything for the record, Mr. Clerk?

CLERK: Mr. President, one item. Senator Withem has ... I'm sorry, Senator Lindsay has amendments to LB 688 to be printed. That's all that I have. (See page 1175 of the Legislative Journal.)

SPEAKER BARRETT: Thank you. The Chair recognizes Senator Moore.

SENATOR MOORE: Mr. Speaker, I move we recess until 1:30 p.m. sharp.

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SPEAKER BARRETT: You have heard the motion to recess until one-thirty. Those in favor say aye. Opposed no. Ayes have it. Motion carried. We are recessed. (Gavel.)

RECESS

SPEAKER BARRETT PRESIDING

CLERK: I have a quorum present, Mr. President.

SPEAKER BARRETT: Thank you. Anything for the record?

CLERK: Mr. President, nothing at this time.

SPEAKER BARRETT: Thank you. Turning our attention then to LB 1059 once again. Mr. Clerk.

CLERK: Mr. President, the Legislature considered and adopted the committee amendments this morning. I have a series of amendments pending.

SPEAKER BARRETT: Senator Moore, it occurs to the Chair that we have not had an opening on the bill. Would you care to introduce the bill before we go to the amendments?

SENATOR MOORE: Yes, Mr. Speaker and members, it is my pleasure to introduce the bill. Obviously, Senator Withem is the actual first name on the list but it's my priority bill and so I have the pleasure of introducing it for now. But as we all know when we debated LB 1059 at some length this morning and it is my hope that there are those out there in the body that still have questions, we'll have the opportunity to answer them as time unfolds this afternoon. But I think it's important as we begin the debate this afternoon, we couch the debate in terms of what it is is our goals and does 1059 accomplish those goals? I guess to begin with we probably need to go back to the Finance Commission which Senator Withem was Chairman, Senator Lamb and I were members and there was 13 other members across the State of Nebraska. I think their report on LB 1059 basically had two goals in mind. First goal was to try and shift the burden of taxes in this state from property to sales and income, do away with the overreliance on property taxes. Now to some that is

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property tax relief, to some that is a sales and income tax increase, to others it is a tax shift. All three of those things are true but the goal was to reshuffle the deck. The second goal was simply this, is to equalize some of the disparities in the funding we have of school districts in the State of Nebraska, particularly because of lawsuits around the country and lawsuits in this state and this county, there is a reason that it would be prudent for this body to be out in front of that and do something about it. Does LB 1059 accomplish those two- goals? Well, the first one, as far as tax equalization and reshuffling of the deck and property tax relief, if that is what you want to call it, we've passed out this morning some information, to begin with, let us define the problem on property taxes. The fact of the matter is, we have some of the highest property taxes in the nation. According to this particular national ranking we rank 14 in the nation of property taxes. We rank 38th in the nation on sales taxes and last year, or at least '88-89, we rank 30th in individual income tax, high property, low sales and income. Overall we rank 27th. Now you can see the national ranking after LB 1059. We go up to 22nd in sales tax. We go up to 24th in the nation in income tax. We go down to 22nd in property tax. Do we accomplish that goal of equalizing that tax burden? Yes, I think we do while at the same time we stay right at the same, 27th nationally in the total state and local burden. So the first goal, is it accomplished? I think it is. Second goal, equalizing some of the disparities among the funding of. school districts in the State of Nebraska. You know, if you want to flip on the other side of that, there is that shotgun chart that we' passed out before to you that looks like, you know, we have a new method of explaining things to our colleagues, have a dot-to-dot scheme, that's not what it is. What those things tell you, if you want to look at that, the actual General Fund levies has a variance of the average spending for school districts. If you looked on the left-hand column you see a dot there, up from the .75 levy, they are spending 10 percent above average. They have a low levy, they spend above average. On the other hand, you look way out on the chart above $3.25, you have a school district that is spending four times, has four times the levy of the he other district, they are spending 30 percent less. Is that fair? Is that a problem? I guess you can only answer if that is fair. I happen to think it's not. Is that a problem? Yes, it is, because of lawsuits in Kentucky, Montana and Texas where Supreme Courts have came in and ruled school finance methods unconstitutional and inequitable. Now, if you go through all

10514

the analysis that has been done on this bill, and there has been more than average on this particular bill, I think it will prove to you that we solve that problem to some degree. I think if LB 1059 is passed, we'll take us a long step towards keeping us out of court. So are the two goals, are they accomplished in this bill? I think you can't argue that they are not. Now some will say that it doesn't do enough for property tax relief. Well, if you want us to put more money into the bill, we can do more. I don't think... I think it does what is realistic for property taxes. Now, Senator Schmit went on and on this morning basically on a tirade indicting our present tax system in the State of Nebraska. Does this bill fix all those problems? No, it doesn't. But I think Senator Schmit in many ways gives some of the best arguments for the bill. He is saying we rely too much on property. That poor old farmer out there has to burden more than his share. Well, the fact of the matter is, all the problems Senator Schmit talked about are in our present tax system, and the fact of the matter is, LB 1059 takes us a step towards solving some of them. Does it solve his problems? No. But I submit to him we're a lot better off with the bill as far as taxing intangibles and things like that because you tax income and sales as opposed to just property. You know, it's not the whole bottle of bourbon, but it's a good, stiff shot to the tune of about $230 million and I think the whole bottle of bourbon of about $500 million, we'd all choke on that. And so as I sit there and listen to Senator Schmit's arguments, I'm saying that he makes some of the-best arguments as to why we need to have this bill. Well, the fact of the matter is that we've talked for months and months and months about the policy of this bill. Is it good policy? Is it a sound equalization system? I think it is. But the problem that we've came into, primarily in the last couple of months, is that -we've gotten away from the soundness of the concept and gotten to the down and right mentality where you go down the page, over to the right, if you win, you like the bill; if you lose, you don't. Now granted, that's a good way to make a political decision. Is that the right way to make a sound policy decision in this body, and I don't think it is. And the fact of the matter is, it's one of those things that is so big, it's so big you can find a lot of little problems with it. The question that all of us have to ask ourselves as we vote on this today is, will the state... is it fair for the state, is it good for the state as a whole, is it good for the education in the State of Nebraska? And as I said, in accomplishing. the two goals that the commission set out with, and I think the introducer of this bill

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set out with, I think as we discuss it further this afternoon, you will once again be reinforced, those goals are accomplished and, yes, the better good for the entire state is accomplished, and for that reason I urge the adoption and advancement of the bill.

SPEAKER BARRETT: Thank you, Senator Moore. Mr. Clerk, an amendment on the desk.

CLERK: Mr. President, the first amendment I have is offered by Senator Labedz. Senator Labedz's amendment is on page 605 of the Journal.

SPEAKER BARRETT: The Chair recognizes Senator Labedz.

SENATOR LABEDZ: Thank you, Mr. President. The amendment that I introduced has been in the Journal. I think most of you know what it is. It's LB 346, the tuition tax credit that was introduced. The major sponsor was Senator Tim Hall and myself and others as co-sponsors. I feel very strongly about tuition tax credit and have been for several years. I noticed that through the mail today I received several sheets from the National Association of School Boards where they are giving the senators a scoreboard, or scorecard, and one of the bills listed on one of the sheets was LB 346 which is the tuition tax credit and the NASB is requesting that we vote no and we got a scorecard on LB 259 and also on LB 1-059. Let me read you some figures that I think are very important. The average per pupil cost for Nebraska public school grades K-6, school year 1987-88, is $3,038. There are 21,427 students enrolled in K-6 which is a savings of... to the state, of $65 million. Now the average per pupil cost for Nebraska public school grades 7-12, school year '87-88, is $4,248. Now that is the per pupil cost. There are 13,258 pupils enrolled in private schools which is a savings of $56,319,984. That is a total cost savings for 34,000 students that are enrolled in private schools of $121,415,210. That certainly is a considerable amount of savings to the state when in Nebraska more than 34,000 students are enrolled in approved nonpublic schools. These students and their parents fulfill every educational requirement of the state. They also make great financial sacrifices so that it's possible for them to choose an education for their children in conformity with their religious faith. LB 346 would have helped alleviate the double burden borne by parents of nonpublic school children. Now we're asking those same parents to pay an increase in the sales tax

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and an increase in the income tax and sales tax in order to get a small reduction in property tax which, and I'm sure in some cases, there will not be any reduction according to the figures that we received in the last couple days. LB 346 is a very important bill to the parents of 34,000 students and I will not support LB 1059 in any case unless LB 346 is attached to it and I will allow some of my time now to Senator Schmit.

SPEAKER BARRETT: Senator Schmit.

SENATOR SCHMIT: Mr. President and members, Senator Labedz brings to the discussion another very valid point of view. Most of my children' attended public schools. Several of them attended private schools. I've always supported both public and private schools. I shall continue to do so. As Senator Labedz points out that there are many persons who support both and do so at a substantial sacrifice. Senator Scotty Moore spoke about how my arguments were in support of LB 1059. I would just like to say this, that so long as you have a system which is based upon property, and that is what this is, then at least you ought to make it honest enough to base it upon all property, not just selective parts of property. There are those individuals who will argue that this is the only way it can be done. Let me tell you, I can clear this floor off very rapidly if I were to call the roll of those individuals on this floor and ask each in turn what their financial support of the school system would be. I can guarantee you that without exception, without exception you will find the average cost for rural taxpayer greater than the urban taxpayer. I'll find also, I think, that in this instance we have a particular problem. The City of Omaha has a high percentage of private schools and those individuals who live in that city pay a substantial amount of contribution toward that school, for the private school systems, yet they continue to support the public school system through their tax dollars, through the tax system based upon principally upon property, and I would have to add that most of those persons who do that do not have a substantial investment in stocks and bonds and CDs. Their investments are in the family, their investments are in the home, possibly a small business. But by the support of those private schools they substantially reduce the burden of the public school system. I believe the town of Bellwood does real well, the Class I district in Bellwood does real well according to 1059, partially because a high percentage of students from Bellwood go to the private school and if those students were in attendance at the public school it would be

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interesting to see how the numbers would come out relative to the Class I school at Bellwood, Nebraska. I don't have any idea, but I know there are about 40 youngsters that ride out of Bellwood every morning that attend the private school and if you were to add that amount of money multiplied by the average per pupil cost into the public school system, you can see what it would do to the taxes in that school district if it's a rather small district. Senator Labedz has been a foremost proponent of this idea for a long time. If we're going to talk about fairness in education, fairness in the entire system, and we talked about fairness to the State of Nebraska, forget what is fair to the State of Nebraska, ladies and gentlemen. You ought to be fair to the taxpayer, the individual taxpayer. People pay taxes. The state doesn't pay any taxes, the state consumes taxes. We talk about the benefit to the districts. The districts consume taxes. I have a number of districts in my district who, I guess you'd say, benefit from this, but the question I ask you is this. Where does the money come from? It doesn't fall like manna from heaven. No, it comes from the pockets of individual taxpayers. Now we have promised pie in the sky time, after time, after time on this floor. Ladies and gentlemen, we are substantially increasing the total tax burden, the total tax burden. I visited with some folks over lunch hour. They said, we know we ought to try to work together. I'm glad to speak to anyone who can enlighten me, but I can tell you very frankly, I do not need a 5, or 6, or 8 percent reduction in my property taxes. This is of no consequence to me, it is of no consequence to me even though it might be more than some people pay in total support from schools. Look at the tax burden of the average individual farmer in the State of Nebraska and you will see why they're not interested in a hundred dollar tax saving, or $200 tax saving because they deal in terms of thousands, they deal in terms of thousands. Ladies and gentlemen, there is another factor you want to consider. You know the Supreme Court just said, nuts, we're not going to hear the personal property tax situation that was tossed our way by the people of the State ... by the State of Nebraska, we're not going to hear it. So what happens? As soon as someone files a lawsuit, what is going to happen? The cows and the plows and everything else back on the tax rolls, back on the tax rolls. I brought to the Revenue Committee a bill which said would have taken all the tax off personal property. The Revenue Committee chose not to send the bill to the floor.

SPEAKER BARRETT: One minute.

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SENATOR SCHMIT: I'm going to yield the rest of my time back to Senator Labedz.

SPEAKER BARRETT: Thank you. Senator Labedz.

SENATOR LABEDZ: Thank you, Mr. President. I have one more minute but I do want to say that I am very disappointed in the Association of School Boards for appearing in front of the Revenue Committee opposing LB 346 and also in the material that I received today in the mail saying that they should vote against LB 346. As I said, I cannot vote for LB 1059 without the tuition tax credit amendment on there, but I'm going to respectfully ask the Clerk to withdraw this amendment too, but to immediately put it in as an amendment on Select File if LB 1059 advances. Mr. Clerk, I respectfully ask you to withdraw the amendment and then put it in on the Select File, if this bill advances. Thank you.

SPEAKER BARRETT: Thank you, it is withdrawn.

CLERK: Mr. President, the next amendment I have to the bill is offered by Senator Hefner. Senator Hefner's amendment is on page 649 of the Journal, Mr. President.

SPEAKER BARRETT: The Chair recognizes Senator Hefner.

SENATOR HEFNER: Mr. President and members of the body, this amendment, like the Clerk said, is on page 649, and what it would do is say that we would have this lid that is on the bill for three years. As I interpret this section the way it is written now, the lid of 4 percent is only for one year and I really don't believe that when you put a lid in a bill for one year it's really a lid. I was told that there was a lid in the bill and it was more than a one-year, but by my interpretation I believe it's only for one year. This is a 4 percent lid which would be allowed to go up to 6.5 percent depending on your increase in enrollment, and then you could go up one more percent if it was approved by three-fourths of the governing board. Also, if it created a hardship and you had an emergency, you could go beyond that with a majority vote of the voters in that district. But I really don't think it's a lid when it's only for one year, and this is why I'm offering this amendment. Why do we need a lid? Well, I believe we need a lid because we want to be certain, we want to be sure, we want to be

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100 percent sure that this will replace property taxes. I've been down here 14 years now and as we've increased state aid to education we find that many times it does not replace property taxes and so we want to be sure that it does. Why do we need a lid? Another reason is because the pressure is great out there. The school board members are under a lot of pressure and so I feel that this will help. They can say, well, I'd certainly support that but now we have a lid and I certainly don't have anything against the school board members in our state. They are fine people. I know a lot of them, I used to serve on the school board. But the pressure is there and so if we adopt a three-year lid I think it will be more realistic than a one-year lid. Talk about lids, the counties have it now. The counties have lived with it for a long time. Sure, once in a while a county does get into trouble but eventually they work it out, and we know that the public or the majority of the public supports a lid. There has been a petition drive to put a 2 percent lid on the ballot. I don't know whether it is going to be successful. It looks like it could be. I don't know what the people will do this fall. They could vote it in, but I think that we need this lid on this bill to make sure that it will relieve property taxes, also that it will replace property taxes. The School Board Association has told me that they do not have a problem with this, that they could support it, and then if we need further adjustments, well, we're meeting down here every year, we could go ahead and change this. If we feel it's too high or too low, well, we could come back and fine tune it next year or the following year. But getting back to this bill, I want to commend Senator Withem and Moore and Lamb and the others, Senator Warner I believe was on it too, on the school finance committee and all those others that served on it. I know that they worked long and hard to try to find a reasonable solution so that we could replace some of the high property taxes we have in Nebraska. I believe this is the best proposal that I have seen in the 14 years that I've been down here and we've been wrestling with this for a long time, but there again, I want to be sure that we have at least a minimum of three years. I also want to talk about that scoreboard that Senator Labedz talked about it that was sent out by the Nebraska School Boards Association and one of the columns was, did you support or did you cosign LB 1059? Well, colleagues, I did not sign that and I do not wish to be criticized for not signing it. It was brought to me the morning that it was introduced and I had about two or three hours to decide whether I wanted to sign it or not and here was a 50-page bill. And so I want to kind of

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condemn the School Boards Association for putting this information out. I think it was a little bit unfair to us that felt that maybe we could support the bill with some minor adjustments but didn't want to co-sponsor it. And so I would hope, be hopeful that they would in their next newsletter at least address this problem that I had. I supported Senator Lamb's amendment this morning. I think it's only right if we say we want to replace property tax with sales and income tax, well, let's do it. Let's don't just do it for some districts, let's do it for everybody if that's the reason behind this bill. But again, getting back to my amendment that is on page 649, I just want to make it perfectly clear that this is a three-year lid instead of just a one-year lid and if you have any questions I'd be real happy to try and answer them for you.

SPEAKER BARRETT: Thank you. To a discussion of the Hefner amendment, Senator Schmit, on the amendment.

SENATOR SCHMIT: Mr. President and members, I can give you a dozen reasons why I don't like lids and if you recall a number of years ago when we were under some pressure because we thought Mr. Jaksha was going to put a lid in the Constitution, I recall the almost terror that was on this floor as we attempted to circumvent Mr. Jaksha and install a statutory lid as opposed to a constitutional lid, the argument being that we can get rid of the statutory lid and thereby we can go back to realistic financing for schools when the time-comes. Well, the facts are that the lid turned out to be a guaranteed annual increase, I believe it was 7 percent. Virtually every single entity of government took their maximum increase each year. The few who didn't, when they found out that they were in some kind of financial difficulty because of a local circumstance, found themselves jeopardized for not doing so and so all of a sudden they were up against the wall and those who had gone ahead and taken the full statutory increase were the ones who were wallowing in the extra funds, We find then that as time goes by, we look at these, we review these numbers here and we talk about in terms of need, terms of need based upon spending. Is the spending really actual need or is it based upon the wants, the wants of a district, the wants of a school system? Ladies and gentlemen, I guess I could support Senator...if we're going to talk about a lid, then it ought to be somewhat of a realistic lid, but I have a hunch that maybe we're going to get a lid anyway. I have a hunch that Mr. Jaksha might actually come in with his 2 percent lid, that it might actually be successful. I

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am concerned about what happens today when I go back home every night and I stop in Dwight or Valparaiso or someplace else. I get all sorts of advice relative to how to run the job down here. Most of it has to do with property taxes, most of it has to do with property taxes. Senator Moore just said we probably need a 9 percent sales tax if we're to rely upon sales and income tax to support schools. You know what, I'd prefer that, I really would, and we as farmers spend a substantial amount of money wound through the sales tax system. One of the things I like about what Senator Hefner has done, he says, wait a minute, maybe there ought to be some kind of restraint. We haven't talked about that much, have we? We talked about the needs. We talk about what has to be done to provide quality education. Ladies and gentlemen, I think I know a little bit about education. I've watched a lot of my children go through the system, through a variety of systems and I am critical of the education they did receive. Some received a better education than others. I doubt today, I doubt-today if my grandchildren are receiving as good an education as my children received. We are spending a lot more money, we're providing more opportunities, broader curriculum, but I'm not so sure the basic education is as good as it was 20 years ago. Now I know there are going to be those who are going to criticize me for that. Ladies and gentlemen, I'm not the authority on that. You know where to go to get the numbers on that, but I will say this. I will say that I do not believe that we're headed in the right direction insofar as the system. is concerned, but someone, somewhere, whether it is through Senator Hefner's mechanism or someone else, I believe we've got to exercise some sort of restraint. A business can go broke. A farmer can go broke. A professional person can go broke...

SPEAKER BARRETT: One minute.

SENATOR SCHMIT: ... but governments don't go broke, we just add on the burden and collect more money. Those of us on this floor who point with pride to our Republican heritage are going to be having our feet held to the fire when some Democrat candidate for Governor starts reading the numbers back to us next summer, and it is going to be a little embarrassing. I believe it was every year that we were here under Governor Kerrey, we came back in when we ran out of money and cut state spending. We had increased state spending, I think, roughly 50 percent in the last several years, a substantial amount. Well, we met some needs, that's right, but, ladies and gentlemen, I don't think

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very often have we applied the brakes in any kind of an entity, on an entity of government. We said, we need the money, let's go. Local subdivisions, counties have had to do it, cities have had to do it, schools, very frankly, have not had to do it.

SPEAKER BARRETT: Time.

SENATOR SCHMIT: And each time that we have increased the amount of state support, the budgets have gone up locally. I don't like to do it, but, Senator Hefner, I may give you a vote on your lid.

SPEAKER BARRETT: Senator Smith, would you care to discuss the Hefner amendment? Thank you. Senator Hall, on the Hefner amendment.

SENATOR HALL: Thank you, Mr. President and members, I rise to support Senator Hefner's amendment to the bill and strange as it may seem, I even agree a little bit with what Senator Schmit had to say. The issue before us is one that the Revenue Committee dealt with in a number of bills that came before it. There were a number of bills that we looked at that were brought to the body that dealt with the issue of whether or not there should be some form of a lid that was put in place to limit local subdivisions. In this case, the Hefner amendment would limit local subdivisions only those being the school boards, school districts, in terms of their spending. Other measures that we had addressed the overall issue of spending at the local level. Many of them dealt with the issue as it was laid out through the property tax relief bill that was passed last year and the fact that not much of it was felt to be relief because of the spending that took place at the local level. Much of it exceeded the 4 percent that the Hefner amendment or the bill, 1059, would have as a ceiling. I'm looking at drafting an amendment that would make the proposal that Senator Hefner has offered one that would stay in statute unless there' was an affirmative act by the Legislature to change that lid, that percentage, and we'll probably take a look at that should the Hefner amendment be adopted. I am not one who is fond of lids either, Senator Schmit, but I do think that the area that we're dealing with here in terms of the funding of education at the local level had no choice but to rely on property taxes. What we do in 1059 is simply this. We redistribute the money so that it is fairly applied across the state so that each child has the same opportunity for educational costs and then the state begins

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to pay a more fair share for the cost of that education. That's really what 1059 does. It doesn't do a whole lot else. It says that it isn't a property tax relief bonanza, it is not some kind of a save all proposal in terms of the tax system in Nebraska, as Senator Moore pointed out, but what it does is it says the State of Nebraska has recognized that we have lacked woefully behind in our support of education at the elementary and secondary level and that we intend, through the passage of LB 1059, to address that and we're going to put our money, basically, where our children's education is and that's all it does. Does it raise taxes for some people? Yes. Does it lower taxes for some people? Yes. Does it affect to any great extent the overall tax burden across the state? The answer to that is no, very little, very little. And Senator Moore pointed that out and I also handed out to you a sheet that was a part of the package that was not included in the material from the Revenue Department, that shows just exactly what the shift of burden is. So I think the overall concern here with whether or not a lid is an appropriate measure and to what length it should retain part of the ... remain part of the bill is one that Senator Hefner rightly brings to us and I, for one, look at it as probably one of the redeeming pieces of LB 1059. I think it ranks right up there with the redistribution and it ranks right up there with the state throwing in more money into the pot for education which we have not done.

SPEAKER BARRETT: One minute.

SENATOR HALL: We have shirked that responsibility over the years and we've helped a little bit, but then we have not kept up to any great extent. All 1059 does is I think bring us up to where we should have been a few years ago, in fact, and with the Hefner amendment we guarantee that the local governments do have some kind of control over themselves, but yet I also look at the State of Nebraska and I don't see 1059 as a place where we should stop. I see increased funding coming from the state coffers as a must far into the future so that we guarantee that not just the lid, but more money injected into the systems at the local level allow the state to continue to support and move in the right direction with regard to funding of education. I would urge you to adopt Senator Hefner's amendment. Thank you, Mr. President.

SPEAKER BARRETT: Thank you. Senator Schellpeper, on the amendment.

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SENATOR SCHELLPEPER: Thank you, Mr. Speaker and members, I do not like lids. I just ... my opinion is that lids do not work. I think you have locally elected officials and that's where you should... they're the ones I guess that should be making that decision. But I think if we don't do anything with this bill with a lid, we are going to have the 2 percent Jaksha lid. I just am convinced that he has the signatures and that they will be adopted. I think by adopting a lid here and extending it to three years, that may stop the other lid, but lids do not work. I just think that local officials, elected officials are the ones that should be doing it, but I don't think we have that right right now because I think we have this other lid that is going to be looking us in the eye and if we don't do something, we will have that, so I guess we have to go this route so I will support the Hefner amendment at this time. Senator Withem will have the rest of my time.

SPEAKER BARRETT: Senator Withem'.

SENATOR WITHEM: Yes, thank you, Senator Schellpeper, for your courtesy here. I did want to get my two cents worth in on this. I have maybe a little different perspective on the concept of budget limitations and on Senator Hefner's amendment. The one thing that I don't think is clear in everybody's mind is if we move to this formula that's in the bill, budget limitations are a necessity not just in the short term, not just because of another lid proposal out there that we may like less, but because with this proposal if we are underwriting, guaranteeing the support of education at the 45 percent level, not just for a year, not just for a one-time shift, but ideally in perpetuity, we have to have a say over how much is spent. The analogy that I've used and I think is a good one is if you are asked to sign as one of two parties on a two-party check, you're darned sure going to want to have some input on what the numbers will be for the check, and that is what we're doing with this bill. We're committing ourselves to funding on an ongoing basis at a 45 percent level. We need to have some say in what that 45 percent level should be, whether it needs to be 4 percent forever, you know, I don't know, and I think Senator Hefner is indicating he doesn't know either whether it should stay there. The intent of this bill, the intent of the report from the commission was that there would be an ongoing budget limitation and it would be revisited every time we make an appropriation, we determine whether it is too tight or it is too loose, whether

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there is some things that are exempted that ought to now to be included, whether there ought to be other exemptions, all of those kind of things and I think Senator Hefner, what he has found here is probably an error in drafting, that we didn't draft the bill to make it perfectly clear that this is an ongoing budget limitation. I'm going to support his amendment because I think it makes it clear and I think there may be some things, Senator Hall and I visited and, Senator Hefner, I think maybe you and I and Senator Hall and some others could get together between now and Select File on this legislation to maybe talk about other ways of doing this, but you have now I think the best proposal before us in making sure everybody understands that this is an ongoing budget limitation, so I'm going to support it and I'd hope the other colleagues would also.

SPEAKER BARRETT: Thank you. Senator Hartnett, would you care to speak to the amendment, followed by Senators Withem, Moore and Elmer.

SENATOR HARTNETT: Just very briefly, Mr. Speaker and members of the body, I think that the commission that Senator Withem headed on education the last couple of years was based mainly on* the Kansas plan and the Kansas plan had a lid in it and it was an ongoing lid and what, I think Senator Withem said, it's a lid simply was set each year by the Legislature and I think maybe Senator Hefner has a good amendment.- I plan to support his amendment. He has taken us ... we're kind of saying to the public, we're going to do this for a three-year period and then we can look at the lid and see if that is realistic, so I rise to support that, but I think that was my intention as signing as one of the cosigners of this bill, is that there would be a lid. It would be ongoing and we would look at school financing of elementary and secondary schools each year and then set the lid, but I think what Senator Hefner is proposing with this amendment is to kind of ... we will look at it down the road three years, and so with that I will support this amendment.

SPEAKER BARRETT: Thank you. Senator Moore, on the amendment.

SENATOR MOORE: I support Senator Hefner's amendment.

SPEAKER BARRETT: Thank you. Senator Elmer, on the amendment.

SENATOR ELMER: Call the question.

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SPEAKER BARRETT: The question has been called. Do I see five hands? I do. Shall debate now close? Those in favor vote aye, opposed nay. Record, Mr. Clerk.

CLERK: 26 ayes, 0 nays to cease debate, Mr. President.

SPEAKER BARRETT: Debate ceases . Senator Hefner, would you care to close?

SENATOR HEFNER: Mr. President and members of the body, I want to say first here, I don't know if a three-year lid is the right length or not, but I didn't think that one year was correct because I don't believe that a one-year lid is really a lid, and so I thought a three-year lid would be more realistic and this is why I introduced this amendment. And maybe we should have a permanent lid like the counties have, but if this is adopted, well then, I would like to visit with some of the other co-sponsors of the bill and maybe we can work out something else. Senator Schmit said education in our state is not so good. Well, on some of the things I will agree with him because we hire a lot of high school kids, and you know, some of them can't even write or write so that you can read it. Others can't figure. They carry a little calculator in their hand and maybe that's a sign of the times. I hope not. But I think there is ... we need to look at a lot of things in our education system. Senator Schmit, I guess Senator Schmit is too busy, but I think we need to look at the tenure system that we have in our schools. All of our teachers are not good, perfect teachers, but yet we can't get rid of them, same way, reduction in force. I know I have some schools in my district that had to take a reduction in force case all the way to the State Supreme Court and it cost them a lot of dollars and so I think we need to look at this. But I would just encourage you, if you feel like you can support this three-year lid. I realize that it only reduces the property taxes about 15 percent overall and yet we "increase the sales tax 25 percent and the state income tax 17 percent. So we want to be darned sure that it replaces that property tax. I would now like to give the rest of my time to Senator Owen Elmer, Mr. President.

SPEAKER BARRETT: Senator Elmer.

SENATOR ELMER: Thank you, Mr. President. We all know that lids haven't worked very well in the past. We all know that when we

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sent a lot of money back to the public in the form of LB 84 last year that it was eaten up by increases in levies at the local level. If we're going to have credibility that this is actually going to begin to address the property tax problem, we have to also face the political reality that the people out there will expect that we impose some restriction, some credibility to that particular answer. Perhaps we should extend the lid beyond the three years. I think during the next couple of sessions when we see how things are going, if we have not already been imposed with a 2 percent lid, then we could address that and perhaps put it on even longer. I'd urge this amendment to be adopted. Thank you.

SPEAKER BARRETT: Thank you. The question is the adoption of the Hefner amendment to LB 1059. Those in favor please vote aye, opposed nay. Have you all voted? Please record.

CLERK: 38 ayes, 1 nay, Mr. President, on adoption of Senator Hefner's amendment.

SPEAKER BARRETT: The amendment is adopted.

CLERK: Mr. President, Senator Haberman would move to amend the bill. The amendment is on page 717 of the Journal.

SPEAKER BARRETT: Senator Haberman, please.

SENATOR HABERMAN: Pat, is this 2615? 2615?

CLERK: No, I have 2454 in front of me, 2615 is the next one.

SENATOR HABERMAN: Yes, okay. Mr. President, members of the body, we're raising the sales tax 1 percent to support schools. Unfortunately, when you raise the sales tax, the sales tax on motor vehicles are also raised and the tax from the increase on the motor vehicles goes into the Highway Trust Fund. Now I can stand up here and support an increase in the sales tax to support the schools, but I really can't understand why we should also take a 1 percent sales tax increase and put it in the Highway Trust Fund. That has nothing to do with schools. So the amendment says, except the rate of sales tax on motor vehicles, trailers, and semi-trailers shall be 4 percent. The amendment leaves the sales tax on motor vehicles at 4 percent instead of raising it to 5 percent. We're telling the citizens we're going to unload on you a sales tax increase, an income tax

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increase to support the schools. Yet on the other side of the coin we're raising the sales tax that they're going to pay on motor vehicles to go in the Highway Trust Fund. I don't think that is fair, I don't think it's right. So the amendment said that the sales tax on motor vehicles remains at 4 percent. The citizens do not have to pay the additional I percent on motor vehicles and I ask you to adopt the amendment. Thank you, Mr. President.

SPEAKER BARRETT: Thank you. Senator Haberman, I believe you had two amendments and I believe we're on the second one of the two. Did you ... what were your wishes on the first one?

SENATOR HABERMAN: Withdraw, sir.

SPEAKER BARRETT: Thank you. The first one is withdrawn. Is there now discussion on the second Haberman amendment which has just been described by Senator Haberman? Senator Labedz, your light is on. Would you care to discuss the Haberman amendment? Thank you. Senator Beck, on the Haberman amendment.

SENATOR BECK: Thank you, Mr. President and members. To a degree this is on the Haberman amendment, but I think so many people want to speak that we have to get in whenever and wherever we can, at least that seems to be the pattern. I think that Senator Haberman's amendment probably makes the entire' situation that we look at more -palatable and as one of the people who thought about this, the philosophy of the bill before we had all the figures, and we still don't really have all of them I don't think, with the knowledge that we need to restructure, this amendment probably will again make the bill more palatable because it will save on some areas. And for that I guess I would have to say that I approve of Senator Haberman's amendment, but my concern is, there used to be an old song and it's called...I can't remember what the word was, but it ends as, where have all that... and I'm just ending it in my own way, where have all the taxpayers gone? That's my concern. The more figures I get, the more accountants I talk to, the more renters I speak with, they are having a real problem with 1059 and I realize that we're probably at a crossroads here. Obviously, our sunset, our equalization aid and so forth will be sunset. We're looking at lawsuits. We have some need to restructure, but I am very, very concerned about many of the people in my own district and that concern is coming home and not to be a problem here, but I don't remember anyone speaking about the taxpayers

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and patrons in the district with the exception of Senator Pirsch and I would hate to see us roll into something that we might need, but, oh, that we could go a bit slower and, oh, that we could go a bit lower because I have a lot of renters in my district. I have lots and lots of apartment houses and as I look at the figures that are available to me at this time, my support must have to be softening, not to the concept of 1059, but for what it is actually going to do to some of the people in the urban districts. And you know, I can't go home to them and say, well, I just did this to you, so I want to bring that before the body. I thank Senator Haberman for his amendment. I think Senator Hefner's amendment may make it more palatable for some, and less palatable for others, but definitely I am very, very concerned about a lot of the people. The average income in my district is much lower than a lot of other districts represented here. I have a tremendous number of working people, single families. I have so many renters, and they are very, very concerned about what this income tax increase will do to them and so I guess I would just finish by saying, I thank Senator Haberman for what help he is giving folks. But I guess the problem ultimately will be. What we have to decide is what is actually best for the taxpayer who also, will also be a school district patron and I know that this bill as it is would certainly benefit Omaha and we certainly have probably the most problems of all districts. We have 1,400 foster care children in Douglas County. We have a lot of children coming from dysfunctional homes. That takes more in the school to handle those kinds of things. Our teachers are really on the front lines there. But-again and again, I just have to go back as I look at the figures I have in front of me, unless you can provide others, and as I talk to accountants, I'm very, very concerned about my taxpayers and I do think we have to keep that in consideration although certainly I have been supportive of our public school system and will remain so. But I think it's a very real concern and I hate to see this body just rolling on like a snowball in July, not thinking about those people back home, and so I just bring that to your attention.

SPEAKER BARRETT: One minute.

SENATOR BECK: Thank you.

SPEAKER BARRETT: Mr. Clerk, an amendment on the desk.

CLERK: Mr. President, Senator Morrissey would move to amend

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Senator Haberman's amendment. (Morrissey amendment appears on page 1177 of the Legislative Journal.)

SPEAKER BARRETT: The Chair recognizes Senator Morrissey.

SENATOR MORRISSEY: Thank you, Mr. Speaker and members, I'd ask the Clerk if he could read that amendment quickly.

CLERK: Mr. President, Senator Morrissey would move to amend, on line 2 of the Haberman amendment, after the word "on", insert "agricultural machinery and equipment".

SENATOR MORRISSEY: Thank you. Folks, it's another exemption. We've got a big problem in our district of losing sales of farm equipment across the border. It's a big problem and we can't seem to get that problem solved. We're having a heck of a time getting enforcement down there and we're losing big time tax dollars all across the state with this border bleeding problem, and we can't seem to get this problem resolved. Increased sales tax will hurt these people, it will hurt these sales, and I'm sure you all might have similar concerns on sales tax increases hurting certain people. So I think we should all start nickel and diming this bill, make our little list and line up with our exemptions up here and let's get going so we can get it all straightened out so it is palatable to everyone. But those lists, I believe, if I remember my history correctly, are what got us in trouble in the first place- It will hurt people in my district, it definitely will, and it can hurt them bad, they have been hurt bad already. But I think the overriding concern, the overriding concern here is fair and equitable education.

SPEAKER BARRETT: Senator Morrissey, excuse me, please.

(Gavel.)

SENATOR MORRISSEY: Thank you, sir. I believe the concept of 1059 is good. A lot of questions have been brought up all morning long and all afternoon long that we don't take into account the CDs and the stocks. I agree that is a problem, but without 1059 we'll never be able to address those things. With 1059 we have a start on shifting the burden from property tax to other taxes. If we can get ... gosh, I wish I could introduce a perfect bill and everyone here is pretty well aware that I can't, maybe others can, but this isn't perfect. It's not going to please everyone everywhere and if someone can come up with that type of bill, bring it right on over, I'll sign on gladly.

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So there is going to be people all over the state that aren't happy with some aspect or other of this bill and that is what I call a pretty good compromise. How long has this been debated? How long has this been debated in this state, this issue? Let's shift, start to shift away from property taxes, start supporting more with sales and income. Some people will win, some will lose, but the winners will be the students, the students all across the state, the students in the far corners of the state that deserve just as good an income, or education as the students in the rich districts. I strongly support 1059. it's pretty easy in my district to really because most of my school districts come out good. But sometimes we have to put away our concerns because there are people that won't be happy with it in my district and we have to look at the overriding question, and that is the fair and equitable education of our students in this state and I think 1059, although not perfect by any means, is an excellent start down the path of shifting the tax burden on education. And with that, Mr. Speaker, I would withdraw that amendment. Thank you.

SPEAKER BARRETT: Thank you. It is withdrawn. Mr. Clerk. Returning to a discussion on the Haberman amendment, Senator Labedz, would you care to discuss the Haberman amendment? Thank you. Senator Pirsch, would you care to discuss the Haberman amendment?

SENATOR PIRSCH: Thank you, Mr. Chairman, I'll just say a brief word. I had chatted with Senator Haberman, I was going to ask him some questions and I may do it anyway. Senator Haberman, what you are saying is that this extra one-cent sales tax is not going to be diverted to education and it's not going to be put into the General Fund because the tax on motor vehicles does not go to the General Fund. Is that correct?

SENATOR HABERMAN: Correct. The tax will not even be collected, the 1 percent.

SENATOR PIRSCH: So you just simply say that we will not charge that extra penny on motor vehicles.

SENATOR HABERMAN: That is correct.

SENATOR PIRSCH: I guess I wish your amendment said that it would go into the pot to replace that education funding, but now that I understand, I don't know...I don't know whether to

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support your amendment or not. It truly is an increase of $15 million that you said that will go to the Highway Fund, no?

SENATOR HABERMAN: If you adopt the amendment it won't be charged.

SENATOR PIRSCH: It won't be charged, but at present though if 1059 passes, that 15 million per year will be diverted to the Highway Fund and not to education and not to our General Fund to replace that property tax, but simply an extra 15 million to go into the coffers of the highway department, is that correct, per year?

SENATOR HABERMAN: That is correct.

SENATOR PIRSCH: Thank you. Well, I understand Senator Haberman's amendment much better now and maybe we all do, and I think maybe I will support it. I hear taxpayers all the time talking about Nebraska being the highest in property tax, highest in gasoline taxes and the highest in car taxes and that's a complaint I hear time after time and I can't tell them why we are at the top, so I think I will support Senator Haberman's amendment

SPEAKER BARRETT: Senator Hall.

SENATOR HALL: Thank you, Mr. President and members, I rise in opposition to Senator Haberman's amendment. That is something new and different for me. Senator Warner is home in a sick bed and I just want to say to you, Senator Warner, Jerry, this one's for you. Senator Warner, traditionally since the time that this body raised the sales tax one-half percent and chose to delete those funds from the Highway Trust Fund, has brought in each year a bill to the Revenue Committee that says that if there should be an increase in the sales tax for whatever reason, that increase in the sales tax from the sale of automobiles should go into the Highway Trust Fund. I have, at different times, tried to attack the Highway Trust Fund to basically not steal monies away, but try to get the Highway Trust Fund to pay for what I consider cost of engaging police, basically the state patrol on the highways. I, at different times, offered amendments to the state patrol to be paid for out of the trust fund. Senator Warner then proceeded to take and lump all three programs into one and got it passed and thumbed his nose at me and said, well, you can still dig it

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out of there if you are able to, which I thought was a marvelous move and I have since I think been convinced that there is probably very little point in fighting the lobby that would come on to an amendment such as the one that Senator Haberman has .before US. But more than that, because I'm not afraid of the lobby and I think the issue that Senator Haberman raises is a good one and I agree somewhat with what Senator Pirsch has said, because there is probably one tax that I dislike more than any other and that is the tax I pay when I go buy an automobile and it is expensive to plate an automobile when the costs of automobiles go up and the sales tax rate goes up, but I also look at the roads that we have here in Nebraska and I get around every once in a while because I can't afford to fly, so I'll drive to Missouri or to Colorado to visit relatives and things like that, and I am impressed, very much so, by the level of roads that we have in this state. They are very well maintained, they ought to be, we've spent a lot of money on them, but I would hate to see that... an amendment, such as Senator Haberman's, set a precedent to say that we no longer need to have that in place for this state. I have become convinced when I vote especially in the Omaha area, and I'm being very parochial now, I look at all the work that is being done on the interstate system and, granted, much of that comes from federal dollars, but a lot of it still has to be paid for out of the state funds, and I see that that work, especially in my district, because the one place that 1-80 in the entire United States comes down to one lane-happens to be in the middle of District 7 and that project alone is going to be somewhere in the neighborhood of five to ten years to restructure that interchange because it has served its purpose after only 20 years. It is handling three times the amount of traffic that the engineers felt would be placed on it at the time that it was built. We have to do that. We have to continue to provide for those monies to flow to the Highway Trust Fund so that the roads in this state, because my district is very, very small in comparison to-some of those districts across the state, Senator Schmit's Senator Lamb's, Senator Scofield's who rely on those roads. They don't have as many people in a...

SPEAKER BARRETT: One minute.

SENATOR HALL: ... small area as I do, but they rely on those roads to get from place to place. I think the Haberman amendment, although it allows for good discussion, it is one that I cannot support because I feel the monies that do go into

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the Highway Trust Fund are well used. I have criticized them because I do think that they don't have the same scrutiny as we do-the rest of our budget items. I think that that trust fund sits out there and, outside of the Appropriations Committee, very few of us have the opportunity to look into those, or the time. The opportunity, I guess, is always there. But at this point in time I would urge you to reject Senator Haberman's amendment, basically so we don't pull Senator Warner out of his sick bed. With that, Mr. President, thank you.

SPEAKER BARRETT: Thank you. Senator Schmit, would you care to discuss the Haberman amendment,. Senator Nelson on deck.

SENATOR SCHMIT: I would oppose the Haberman amendment and I think the reasons that Senator Hall just gave are more than adequate and accurate. I think you have to remember that sometimes we pay whether we pay or not. I know that is true inthis case of education, but it is particularly true as described by Senator Hall. The people in that Omaha area who are going to be involved in having to find a new way to get to work for the next three or four or five years are going to pay many, many times more perhaps than the actual cost of the construction, and so I think that if we're going to raise this, we at least ought to be willing to put the money into the road fund. After all, if you're going to have all this extra money for schools, we ought to remember that we have to have some money for roads, Senator Haberman, out in the counties and the cities to get those school buses around because a great portion of that money is going to be spent hauling children around the countryside, not all to literary activities, of course, much of it is going to be athletic, but they're going to be on the road. In fact, they're probably on the road far too high a percentage of the time. I think that as I listen to the debate here I cannot help but wonder, we want to save 11 million bucks Senator Haberman said, or 15, depending on the point of view. I recall the debate on LB 773 in 1987. I was standing here and I turned to Senator Rex, Senator Vard Johnson and I said, Senator Johnson, will this be revenue neutral? And he said, no, it's going to raise your taxes by 5 to 7 million dollars a year. I said, what about five to ten times that much? He said, Senator Schmit, as usual you exaggerate. The facts were that I minimized it. I was hitting about 15 percent. All of a sudden 773 became law and revenue came in from all over, several hundred millions, I don't know, depends upon who you listen to, 200 million, 300 million. We were in hog heaven. We spent it all, as any

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good politician would do, we spent it all and so all of a sudden the next year we came back and we said, you know, in the words of a good Catholic, bless me, Father, for I have sinned. I didn't intend to have a tax increase, no, never intended it. Had I known it, I wouldn't have voted for it. Vard told them all on the floor in response to my question, you're going to have a tax increase and they did. Next year, we said, oh, no, so we wheeled it back down a fraction of a percent, a fraction of a percent. Ladies and gentlemen, I don't know if this is going to be the biggest tax increase or the second largest tax increase, depends upon how you read the numbers. 773 was a pretty substantial one. I predict this will be almost as large a tax increase as was 773 and when the chickens come home to roost I can see 49 of us, 48, I'm not going to be doing it, going out and saying, we never intended it to be a tax increase. We thought it was going to be a shift. Ladies and gentlemen, don't be so foolish, don't be so foolish, it's a tax increase. It is the second largest if not the largest tax increase we've had in four years and, ladies and gentlemen, it's going to be almost, when you add that along with 773, it's going to be almost as much money as we were spending in the last, at least in the first few years of the Kerrey Administration. It's going to be kind of hard to swallow. I would predict one more thing. When the income tax increase hits the average wage earner, the fun is going to start. Someone said something about what is going to happen? I'll tell you what, if you really wanted to reduce spending, I said it before, all taxes ought to be collected by written check once every two years about one week before election. You know what? We would have the most economical government in the United States, in the whole world because not one of us would have the courage to require the taxpayer to write a check for all the sales tax, all the income tax, all the property tax...

SPEAKER BARRETT: One minute.

SENATOR SCHMIT: ... a week before election. If we did, we'd be all retired, wouldn't one of us get back in office, maybe justifiably so. We used to talk about quality education. No one even talks about a quality education here, talk about equity. Ladies and gentlemen, I defy you to show equity between taxpayers. Broad general groups, maybe, but not individual taxpayers. So pretty soon you're going to have to start talking about quality and the when that time comes I'll have some more to say. I oppose the Haberman amendment.

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SPEAKER BARRETT: Senator Nelson, on the Haberman amendment.

SENATOR NELSON: Mr. Speaker, first, I turned my light on for a clarification and one second from you, Senator Haberman. I know what you meant, but I don't read it the same as the statute has. Maybe my terminology of vehicles is different or that I don't understand or that I don't know, so I'm just asking for the records, sales tax on motor vehicles. I guess somehow or another, I think that's pickups, vans and cars. Trailers, I think of that as farm trailers or gasoline trailers or milk trailers, so on, semi-trailers, again, the same thing as defined in Section 60-301 and I don't have that in front of me. My question is, over the road tractors. I really don't call that a semi-trailer. I call it a semi-tractor or an over road, and I think that you meant to include that. Would you answer that, please?

SPEAKER BARRETT: Senator Haberman, please.

SENATOR HABERMAN: What I meant to include, Senator, is exactly what is in the statute and is written on the paper.

SENATOR NELSON: That wasn't my question that I asked you. Did you intend to include semi over the road tractors, the things that pull the trailers?

SENATOR HABERMAN: If they are a semitrailer, yes, the I percent would not be collected. However, I do believe that at the present time they are exempted from sales tax.

SENATOR NELSON: Not if a farmer buys them. It is if a corporation or a truck firm...

SENATOR HABERMAN: I didn't know we were talking about farmers. I thought we were talking about highway semitrailers.

SENATOR NELSON: Well, farmers have a lot of highway trailers now and tractors, over the road tractors, many of them use tractors. They pay the tax on them like everyone else. I'd just like to have a clarification, please.

SENATOR HABERMAN: What would you like to have me answer, please?

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SENATOR NELSON: For the record, semi-tractors are also included in this list, so that we have that clarified on the record.

SENATOR HABERMAN: It says here, motor vehicles, trailers and semitrailers as defined in Section 60-301 shall be 4 percent.

SENATOR NELSON: I give up. I don't have that in front of me right now. I also agree with Senator Hall. I sometimes think that today, the day that Senator Warner is gone and the guard and the keeper of the Highway Trust Fund, I also have tried to rob that or thinking that at least we should pay for the highway patrol and after yesterday's bill I know good and well that we should somehow or another get some way to fund that, but, again, I probably won't be supporting it because I-know that we're just as short on road funds and matching road money as we probably are, in essence, on education. Incidentally, Senator Hall mentioned too that the price of the car, and I know that tax adds up considerably, but that is in one way about the only big sales tax item that a lot of people do use. When you think it's tough on a car, go in and buy a planter, let alone a combine or a tractor, and you will realize what sales tax really are. Give the rest of my time to Senator Hefner.

SPEAKER BARRETT: Senator Hefner.

SENATOR HEFNER: Mr. President and members of the body, I rise to oppose this amendment and, hopefully, Senator Haberman will withdraw this amendment before we have to vote on it, but we need more money for our roads. Senator Hall talked about how they were rebuilding roads in Omaha and this is true, and in northeast Nebraska we've had a lot of road building going on there too. But just the other night in that snowstorm, Senator Conway was traveling a road in northeast Nebraska and he got a little too far off and flipped his car and totaled it, practically a brand new car, but if we would have been able to have hard surface shoulders on that road, well, that wouldn't have happened and this is why.

SPEAKER BARRETT: One minute.

SENATOR HEFNER: ... we need a little more money. I am co-sponsor of a constitutional amendment that would say that we would have to use all the funds generated by the gasoline and special fuels taxes, sales tax on vehicle and registration fees for highway construction. It would have to go into the Highway

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Trust Fund because the need for money is so great there. But anyway, Senator Haberman, I really don't see why you're doing this just to motor vehicles.. I think if we're going to raise the sales tax, we should raise it for everyone, raise the sales tax on every commodity that there is a sales tax on and it would only be fair to have the 5 percent on the motor vehicles too. And I realize when you buy a red Cadillac, the sales tax on that is quite a little. That's right. And so I can see why you've introduced this amendment, but I certainly wish you would withdraw this amendment like you did your first amendment. Thank you.

SPEAKER BARRETT: Further discussion on the amendment, Senator Haberman, you're up next.

SENATOR HABERMAN: Senator Hefner, you said why is Senator Haberman doing this? I'll tell you why, Senator Hefner. I don't want to be greedy. I'm not going to be greedy. My district and the districts in western Nebraska need roads more than any place in eastern Nebraska, but the goal is to raise the sales tax to finance schools and we're going to tell the public out there, we're raising the sales tax to finance schools, so raising the sales tax on motor vehicles, you tell me what that's got to do with schools? Nothing. Let's be fair once with the taxpayers. Just once, Senator Hefner, let's be fair. Highways don't have anything to do with financing schools. So the only thing I'm saying, let's say to the public, we're going to raise the sales tax 5 percent, but not on motor vehicles. A motor vehicle changes hands two or three or four times. They pay the sales tax every time. So the only thing I'm trying to do is say, I'm not going to be greedy, I'll live with the millions and millions of dollars that the highway department now has, I'll live with that, my turn will come, but I don't want to sock the taxpayer another 1 percent to buy an automobile. I ask you' to support the amendment.

SPEAKER BARRETT: Senator Chambers, would you care to discuss the amendment?

SENATOR CHAMBERS: Yes, Mr. Chairman and members of the Legislature, Senator Schmit made reference to LB 773 which was enacted in 1987. I was one of the strongest voices saying it was going to be a tax increase and that's what made me make this little decal that says to those who said it was not a tax increase, "Liar, liar, pants on fire." That's exactly what it

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was and this thing that we're talking about in 1059 not only is a tax increase, but it's a dishonest one. I looked at the beginning of this bill and it says, this should be called the Tax Equity and Educational Opportunities Act. Equity, that means fairness. Renters are not treated fairly by this bill. The poor definitely are the hardest hit by a sales tax which is regressive. The items that are taxed pursuant to a sales tax consume a greater percentage of the income of the poor. They pay the same flat rate of tax on those items as the wealthiest. They have a smaller percentage of usable income left after that if they have anything. They barely make it now and to increase this tax, this sales tax by the amount envisioned by LB 1059 is unconscionable. In the old days those on the sea called buccaneers, also known as pirates, would fly a flag that would not tip the merchants ship as to what kind of ship was approaching them. Then, when the quarry was within range and could not escape, they ran down the false flag and they ran up the Jolly Roger., which was a skull and crossbones, to show what they really were...

SPEAKER BARRETT: Senator...

SENATOR CHAMBERS: ... so that by the time...

SPEAKER BARRETT: Excuse me. (Gavel.)

SENATOR CHAMBERS: That's all right, the buccaneers are not listening and it doesn't matter because you're not going to change a buccaneer into an honest sea person through persuasion or an appeal to that which is right. This bill is politics par excellence and it is going to grind the poor into the dust and those pushing for it don't really care. There will be other issues when we talk about doing things for the family, for the children, but then when it comes to the income that is necessary to provide the basics of life, we take from them that little that they have and pretend this is such a noble bill. This is not even an aid to education bill, it's an aid to schools and if Senator Haberman's amendment is not taken, it will be even more dishonest than it is on its face. We all know, oh, Senator Beck asked, where have all the taxpayers gone? The next line says, gone to the graveyards, every one. Well, you know how death and taxes go together so taxpayers and graveyards go together. This is one of those situations which I hope for the sake of those who are supporting the bill, it does not come down to a close vote. I hope 'you're not in a situation where you need every

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vote that you can scramble up because I certainly would not-vote for a bill like 1059. I cannot understand for the life of me why we're going to talk about building roads on a bill that is supposed to be designed to bring tax equity and create educational opportunity. Schools, aid to schools means aid to structures, not to improve the quality of education provided for the students. Very rarely does this Legislature do anything that would go directly to that issue. And as a result, if this bill is passed...

SPEAKER BARRETT: One minute.

SENATOR CHAMBERS: ... children are not going to be able to handle mathematics better, they are not going to be able to read better, they won't write with more proficiency, they won't do well in physics, chemistry or any of the things that they say this country needs to compete in a global economy. This is a bill that is going to raise taxes an unconscionable amount and by raising the sales tax as is envisioned makes it one of those things that I cannot support, and I don't think that is a surprise to many. But if they've got 39 co-sponsors, then my one little vote is not going to matter, but I'm going to cast my little vote in behalf of what I think is right and just and equitable which means it will be against 1059, but I support Senator Haberman's amendment because it will come one step closer to making the bill live up to some extent to that title,. Tax Equity and Educational Opportunity, rather than aid to roads and highways.

SPEAKER BARRETT: Senator Hartnett, would you care to speak to the amendment?

SENATOR HARTNETT: I'll call the question.

SPEAKER BARRETT: The question has been called. Do I see five hands? I do. Shall debate now cease? Those in favor vote aye, opposed nay. Please record; Mr. Clerk.

CLERK: 27 ayes, 3 nays to cease debate, Mr. President.

SPEAKER BARRETT: Debate ceases. Senator Haberman, would you care to close. (Gavel.)

SENATOR HABERMAN: Mr. President and members of the body, I would like to ask this body to be fair, up front, honest and

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sincere with the citizens of the State of Nebraska. I would like to see this body say, yes, 1059 raises the sales tax for schools; yes, 1059 would raise the sales tax on motor vehicles and the money would go to- highways, but, fellow citizens, highways don't have anything to do with 1059. That is a school bill, so I'll tell you what they're going to do, citizens of the State of Nebraska, the Legislature is going to-look you straight in the eye and they're going to say, folks, it isn't fair, it's not fair to gouge you another 1 percent on your vehicle to go to highways when we're talking about schools, so, therefore, we're not going to raise the sales tax on motor vehicles to 5 percent, we're going to leave it at 1 percent. That's what the amendment does. Now, don't forget, some people and most cars are sold two and three times and every time they are sold that sales tax is collected, doesn't go to the schools, it goes to the highways. So in closing, Mr. President, I'd say to the members of this body, let's be fair, let's be upright, adopt the amendment which leaves the sales tax on motor vehicles at 4 percent instead of raising it to 5 percent. Thank you.

SPEAKER BARRETT: Thank you. And the question before the body is the adoption of the Haberman amendment to LB 1059. Those in favor of that motion please vote aye, opposed nay. Have you all voted? A record vote has been requested. Have you all voted? Record, Mr. Clerk.

CLERK: (Read record vote. See page 1177 of the Legislative Journal.) 13 ayes, 26 nays, Mr. President.

SPEAKER BARRETT: Motion failed. Items for the record, Mr. Clerk.

CLERK: Mr. President, yes, a few, if I may. Appropriations Committee reports LB 1126 to General File with committee amendments attached. That is signed by Senator Warner as Chair of the committee. (See page 1178 of the Legislative Journal.) New resolutions. (Read brief descriptions of LR 267 and LR 268 for the first time. See 'pages 1178-79 of the Legislative Journal.) Amendments to be printed by Senator Hall, Mr. President. (Re: LB 1059. See pages 1179-80 of the Legislative Journal.) And, finally, your Committee on Enrollment and Review

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respectfully reports they have carefully examined and engrossed LB, 520 and find the same correctly engrossed, LB 520A, LB 662 and LB 662A, all of those reported correctly engrossed. (see page 1180 of the Legislative Journal.) That is all that I have, Mr. President.

SPEAKER BARRETT: Thank you. To the next amendment, Mr. Clerk.

CLERK: Mr. President, Senator Hall would move to amend the bill. Senator, I have your AM2794. I believe copies have been distributed to the membership, Senator. (Hall amendment appears on pages 1181-82 of the Legislative Journal.)

SPEAKER BARRETT: Senator Hall, please.

SENATOR HALL: Thank you, Mr. President, members, this is an amendment that I would consider a technical amendment. it deals, if you... the amendment... I got in too late to have it printed so we did get it passed out to everyone, you have it sitting on your desk. It's three pages. If you would turn to the second page and if you would just take a look under item E, line 6 through 9, it takes and it just changes the way the income tax will be adjusted. When we passed LB 773 in 1987 the bill was originally introduced and passed with the percentages being rounded to the nearest tenth and what happened is, is that those percentages were rounded up so that if I was in the, say, for example, four one hundredths instead of eight one hundredths, that would be rounded up to the next tenth. No matter...it didn't make any difference if it was four or eight-hundredths, it would get rounded up. Folks at that time said that it didn't make that much of a difference. I tend to think that what it does is it doesn't allow us to accurately determine, through methods that we have available to us, the reflective income tax that is due and owed. So, with this amendment, all we do is require that it be rounded to hundredths of one percent. We have the ability to do it. It would reflect the most accurate assessment of what the tax would be, and you would have taxpayers that would be paying exactly what they owed. I think that under the current system it's very likely, even though we're not talking about any one taxpayer having to pay any great difference, but it isn't the most fair way to determine that we have it available to us. And my amendment simply uses the ability within the Department of Revenue to calculate, to the next hundredth of one percent, taxes that are due and owed. I would urge the adoption of the amendment.

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Thank you, Mr. President.

SPEAKER BARRETT: Thank you. To a discussion of the Hall amendment to 1059. Senator Bernard-Stevens. Senator Landis, would you care to discuss the amendment? Senator Lamb, would you care to discuss the amendment? Senator Scofield. Senator Moore, on the amendment? Senator McFarland, excuse me, Senator Schmit, on the Hall amendment. Senator McFarland, would you care to discuss it? Thank you. Senator Nelson, would you care to discuss the Hall amendment?

SENATOR NELSON: Mr. Speaker, just one question, Tim. What does this do? I understand the Revenue Department and they have machines and equipment and so on that can figure down to the hundredths or thousandths and so on, but my experience is the general public, that when we get past the first hundredths or point or two in income tax, this would become more... far more confusing in the tables that we have than what we have right now. If I went to the public and said that I got to pay 3.4196 on my tax, it would completely blow their brain, and I don't know as it's worth it for five, six dollars. Answer me, quick, Tim.

SENATOR HALL: Well, to answer very quickly, it's real easy. I think...I know you just put it on the calculator and you'd figure it out for them, Senator.

SENATOR NELSON: Well, some of us can still figure without the calculator. (Laughter.)

SENATOR HALL: And I'm one of those. I never grew up... believe... even though I look like I'm not one of those, I do know how to add, subtract, multiply and divide. And I wouldn't have any problem with it. What it does is in 1059, Senator Nelson, I don't mean...I'll give you my time, if I go too long. LB 1059 increases income tax 17.5 percent. If we're going to do that, we ought to have the method in the formula that brings that increase as close to that 17.5 percent as we have the ability to do without being, I think, too punitive in terms of the calculations. And this is a very simple thing that anybody can figure. It's going to make it as accurate as possible without going to the extreme of something like the thousandths that you recognized.

SENATOR NELSON: okay, I accept that, only 1, you know, I know

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it's 17.5 percent now, but we may be talking 18 or 19 or 16, see. And I duly respect you on that. It was just a question, and I probably won't be supporting it. But then thank you.

SPEAKER BARRETT: Senator Elmer, would you care to discuss the Hall amendment? Thank you. Anyone else care to discuss the Hall amendment? If not, Senator Hall.

SENATOR HALL: Thank you, Mr. President. Very quickly, the amendment, I think, without adopting it you ... what Senator Nelson says would be true, that you would have some people that would be closer to 16, some that would be closer to 18, 18.5. This amendment takes it from tenths to hundredths so that it is an accurate an increase and accurate a determination of the tax that is due and owed that we could do without very much trouble at all, and the systems are there. It's not difficult at all to determine the tax. I would urge the adoption of the amendment.

SPEAKER BARRETT: Thank you. The question is the adoption of the Hall amendment to 1059. Those in favor vote aye, opposed nay. Record, Mr. Clerk.

CLERK: 30 ayes, 0 nays, Mr. President, on adoption of Senator Hall's amendment.

SPEAKER BARRETT: The amendment is adopted.

CLERK: Mr. President, Senator Withem would move to amend the bill. (Withem amendment appears on page 1163 of the Legislative Journal.)

SPEAKER BARRETT: The Chair recognizes Senator Withem.

SENATOR WITHEM: Yeah, Mr. President, members of the body, I am somewhat fumbling here. I thought that I was going to be following Senator Dierks' amendment. This amendment is a continuation of some clarification, frankly, of some of the things that the committee amendment should have caught that didn't. In number one, this is a continuation of the questions that both Senator Elmer and Senator Pirsch had earlier about the difference between receipts and liabilities. It was suggested to us by the Department of Revenue, it is a technical amendment brought to us by them. Other places in the bill where they think that the term... the term "income tax receipts" should be changed to "liability" and vice versa is point number one in the

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amendment. Clarify that the state income tax dedicated in Section 4 of the bill are for funding the new distribution formula in the bill, not for funding existing programs. Again, it clarifies that this new income tax that we have is for funding this particular bill. Number three, this was suggested to us by a small school district down south of Lincoln that is concerned about their inability to regenerate cash reserves, again this is a technical portion of the bill where we're trying to give school districts an opportunity, some that don't have reserves, an ability to increase their reserves, we say each year they can increase their reserves by 2 percent. The bill doesn't say 2 percent of what. This is not an exception from the lid, but it's an ability for them to put money into a reserve without it counting against their opening balance the next year. It should be 2 percent, not of what's in their reserve, but 2 percent of what their budget is. And, finally, number four, there is in the bill a follow-up school finance committee, there is legislative representation on it. Currently, the bill calls for that representation to be appointed by the Governor. This says that the Legislature should choose it's own representation, it should be chosen by the Executive Board of the Legislature. Again, technical sorts of amendments, they, I think, rival Senator Hall's for being technical sorts of amendments. If you have questions, Id respond to them, otherwise I would urge you to support AM2820.

SPEAKER BARRETT: Thank you. Discussion of the amendment offered by Senator Withem. Senator Bernard-Stevens. Senator Landis. Senator Scofield.

SENATOR SCOFIELD: Mr. President and members, I rise generally to support this amendment. But I haven't had a chance to visit with Senator Withem, but I did speak to a gentleman, over lunch, that was still raising some concerns about the reserve limit. He's down in Senator Beyer's district. And we may have to address this again on Select File, the cash reserve limit. It's a circumstance that I don't know that any of my schools face. I have known this fellow far quite a while, and I just call that to your attention, that we may need to come back to that one to address the problems he's experiencing in his unique situation. There may be, he tells me, five or six other school districts. So I just call that to your attention. Thank you. You may have the rest of my time, if you want to talk about that.

SPEAKER BARRETT: Senator Withem.

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SENATOR WITHEM: Yeah, I'd just respond by saying I considered the matter called to my attention. Thank you, Senator Scofield. This question of the reserves is one of the technicalities of the bill that we may need to revisit. If we do, that's fine. I'm hoping that this clarifies. It may not clarify enough, we may have to revisit it.

SPEAKER BARRETT: Thank you. Senator Landis, did you care to discuss the amendment? Thank you. Senator Moore. Senator Schmit, on the Withem amendment? Senator McFarland. Senator Elmer. Senator Pirsch.

SENATOR PIRSCH: Thank you. And I hate to belabor this, Senator Withem, but would you explain again the difference between income tax liability and receipts? We're going back to liability now.

SPEAKER BARRETT: Senator Withem.

SENATOR WITHEM: The difference between liabilities and receipts, liability is what is owned, and that is what the Department of Revenue has told us they need in order to designate the dollars that are coming in from a given district, in order to credit those back. Receipts are when they get all lumped together down here in Lincoln. We made some changes of that term at their request with the-committee amendments. They looked at the committee amendments and they said, my gosh, you changed... you changed from receipts to liability in a couple of spots in the bill that you shouldn't have, those need to be changed back. It's for their purposes. And, frankly, those terms are ones I don't deal with a great deal, and I can't give you an explanation of why each one of them should be what they should be. I would suggest maybe that we get somebody from the Department of Revenue to brief both of us so we're a little better informed on this particular provision of the bill.

SENATOR PIRSCH: So, anyway, we're going back to income tax liability now?

SENATOR WITHEM: In some spots in the bill that were ... when we corrected the ... made some changes with the committee amendments, they told us, when they saw those, you made too many changes, some of those need to be changed back to receipts.

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SENATOR PIRSCH: Okay, we're back to receipts then.

SENATOR WITHEM: In some places. We aren't changing them all back.

SENATOR PIRSCH: Okay, I'm confused, but thank you.

SPEAKER BARRETT: Would anyone else care to speak to the Withem amendment? Any other discussion? Seeing none, Senator Withem, would you like to close on the adoption of your amendment?

SENATOR WITHEM: Yeah, I would like to close. I know that there is some confusion that's been brought, up today with this difference between income tax receipts and liabilities. I am offering this amendment, basically, on trust from the Department of Revenue, people who deal with the statutes in enforcement. I apologize to you that it's a portion of the bill that I'm not as up to speed on as in others. We will .... I'm taking them still on trust that this needs to be done, it needs to be changed. We will get the full explanation for everybody, of what the difference is and the reason, need for this amendment is when we drafted the committee amendments, again, based on their input that they needed the language "liability" put into the statutes, they said, well you changed it in places that you shouldn't have. And so we're technically changing it back. But I'm with you, Senator Smith and Senator Pirsch, that we probably all need a better explanation of this, and we will get that for you so we can deal with it. This is, I hate to say this on a bill this complicated, a "trust me" ... a "trust them" amendment. You aren't even trusting me, you're trusting them on this portion of the amendment. I would urge you to support the amendment.

SPEAKER BARRETT: Thank you. The question is the adoption of the Withem amendment to LB 1059. Those in favor of its adoption please vote aye, opposed nay. Have you all voted? Please record.

CLERK: 29 ayes, 0 nays, Mr. President, on adoption of Senator Withem's amendment to the bill.

SPEAKER BARRETT: The amendment is adopted.

CLERK: Mr. President, Senator Dierks would move to amend the bill. (Dierks amendment appears on page 1182 of the Legislative Journal.)

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SPEAKER BARRETT: The Chair recognizes Senator Dierks.

SENATOR DIERKS: Thank you, Mr. Speaker and members of the body. The amendment that I have is a relatively simple amendment. It's AM2837, and I believe the Page is distributing it right now. The amendment is one that will exempt money received from the administration of Low-Level Radioactive Waste Disposal Policy Act from the district formula resources. In other words, we want to keep the $2 million that will be coming to Boyd County, if that is the site that is selected, or whichever county receives this site, from being included in the accountable receipts-of the district. It's just that simple. We have a ... you know we have a situation there where virtually all forms of revenue in the district, according to 1059, is going to be included here. So there might be some reluctance to accept this exemption, but I think this is a very unique case, because you know we have people in Boyd County that support this facility in the face of great opposition, and ... because of incentives such as the cash fund. There are also those who would like to see it removed from the Waste Disposal Policy Act, and I can see their reasoning, too. But my point is that it makes absolutely, no sense to hand this funding to Boyd County through one act and take it away through another. So, I think perhaps we should rethink the distribution of the money within the-waste facility, but we shouldn't do it through this bill. So I would just ask your approval of this amendment. Thank you.

SPEAKER BARRETT: Thank you. Discussion? Senator Smith.

SENATOR SMITH: Thank you, Mr. Chairperson. I've been sitting here all day, waiting to talk, my light has been on and off,' on and off, and I have to be really honest and tell you that you can turn me off, if you think I'm out of order, because I really don't have any opinion on the Dierks amendment right now. (Laughter.) But I want an opportunity to say a few words. You know I wanted to join other people on the floor that are talking about the magnificent job that I think the people that have worked on LB 1059 have done. This has to have been a monumental task. But the other thing. that I do want to say, though, is that it has raised some questions for me today on the floor, and I think that we should be willing to listen to the concerns that are expressed here and take the time to work out the best bill we possibly can, because I don't think that something this ... making these kinds of sweeping changes can be something

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that you can just simply pass across the floor without being willing to hear other input and looking at concerns that are being expressed. I think that we need to address, a little more than we have, Senator Schmit's concern and a few other people that have talked about the wealth determination as a factor. I would be very supportive of, and I hope that other members may reconsider the idea of the hold-harmless provision on a permanent basis. And there is one other thing that I would like to talk about just briefly, and that is something that none of us have talked about at any time on this issue. We have been talking about what we call equity and the opportunity for young children in equal educational opportunities. But there is something else, and that is that we have to look at here, if we make these kinds of changes, and we're talking here about everyone should be bearing more an equal share of the cost of education so that every child has an equal opportunity. We also have to be open enough to also say that we have... that there are some things that we can't change, based on the geography of the State of Nebraska, based on the physical plants that are out there where the children go to school, some limitations that smaller schools have placed on them by the distance, the facility itself and so on, that those kids are not ever going to have. So the truth of the matter is I'm not sure we can ever achieve true equity in education, just because of those kinds of things. And I hope that the people that are the main supporters and the ones that built this whole thing keep that in mind so that it, indeed, does address a fairness issue when we're talking about what we're asking a lot of people to do. You know I have a lot of material I that's been provided to me on both sides ... I mean I shouldn't say on both sides, from the Department of Revenue and again from the folks that have worked so hard on 1059. It's really difficult to be able to put some of this stuff together. I don't think.... I know that I and my staff working on this have not been able to, or anyone that I've talked with, can give us a specific answer to any one that I talk with, how is this going to impact on me, directly, at this point in time, because we're using, I guess, hypothetical kinds of information here. We're saying someone has an income category of this amount, they have a car that is valued, for some reason or other, at, what was it, $2,143 or something like that. I don't know how many people have cars that are exactly valued at that amount of money, or their home is exactly a $20,000 home, or $30,000 home. They fall within a category, but there are so many other factors for every one that you take into consideration, there is no way I can tell right now how this is

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going to impact totally on people. And it's really hard for us to go back, I think, and sell the idea of what we call equity in educational opportunities to someone who is going to see nothing but a tax increase overall. You know I guess that I have a difference of opinion with a few people that talk about their biggest concern being the renter. Well, if the renter is not paying property taxes right now, the renter, I know they can say indirectly they are through the cost of their rent, but I don't think to the same tune that a property taxpayer pays right now, because we too heavily support the burden of education with property taxes. That's why I signed on this bill originally, because I think that it is time for the state to get involved. But I hope that we move.... I know that we've taken all day on this. I'm not going to feel badly if we take another two or three days, Ron, and I know you might not want to see that happen. But I think we need to have time to move slowly, to work things out, to be willing and open-minded enough...

SPEAKER BARRETT: One minute.

SENATOR SMITH: ... to look at the whole picture before we make some decisions. And I'll tell you right now that I remain supportive of the concept, but with reservations. And I hope that the rest of you in here, even though you may have signed on the bill, are looking at it openly, also. I was going to give the remainder of my time to Senator Lamb. He's not here, and I think I'm out of time anyway. So, with that, I guess I'll just sit down again, having said my few cents worth here. Thank you.

SPEAKER BARRETT: On the Dierks amendment, Senator Labedz, would you care to speak to the Dierks amendment? Thank you. Senator Bernard-Stevens, on the amendment. Senator Landis. Senator Moore. Senator Schmit. Senator McFarland. Senator Elmer. Senator Pirscb. Senator Withem.

SENATOR WITHEM: Bingo, you got one. (Laughter.) Yeah, I would like to speak on this. Frankly, I'm very careful on this whole concept of what shall be counted under the lid and what shouldn't be counted under the lid, because you start a run on this lid thing, and start making exceptions to it, the whole thing could begin to unravel, and I don't want to do that. On the other hand, this morning, if you remember, we put an amendment on the bill that said cash gifts, foundation grants, those kinds of things shouldn't be considered under the lid or in the fund for any reason whatsoever because they are monies

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that come from the outside. After Senator... okay, yeah, thank you, Larry. An accountable receipt sort of issue is opposed to a lid sort of issue. Fine. I'd say my remarks are still valid here, I think, as we go through those. That money that comes in, essentially as a gift, ought not be counted against the district. I just grabbed ahold of the statute books to read the section of statute that Senator Dierks is referring to, the Community Improvement Cash Fund that is created as part of the Low-Level Radioactive Waste Disposal Act. As I read this, Senator Dierks, correct me if I'm wrong, this is basically money that comes from the folks that are using this low-level radioactive waste disposal site to compensate the county, to provide some community improvements in that county, basically paying rent back to the county. And it's designed for things that will improve the local quality of life out there in the district, to compensate for some of the quality of life detriment that might be there for it. And I think it's very similar, in this case, to the other things that we exempted this morning, the grants and the Kiewit Foundation and from the other places. So, I think we're consistent in exempting this from the ... as an accountable receipt. it doesn't necessarily open the flood gates for excluding other things from accountable receipts, and so, for that reason, I'm going to be supporting Senator Dierks' amendment, unless he convinces me otherwise in his closing.

SPEAKER BARRETT: Senator Morrissey-would you care to discuss the amendment?

SENATOR MORRISSEY: Thank you, Mr. Speaker and members. I would support Senator Dierks in this amendment. He's absolutely right, and Senator Withem, I believe, is right. This is something above and beyond any of the other exemptions we might consider. This is money to these, whoever ends up with the site, to the county for handling the waste facility. The people in the county that end up hosting the facility will be bearing the burden of the facility for people in five states, and it's definitely an exemption above and beyond, in my consideration, anything else that we can come up with. And I would simply support Senator Dierks in this amendment.

SPEAKER BARRETT: Thank you. Senator Nelson, would you care to discuss the amendment? Thank you. Would anyone else care to speak to the Dierks amendment? Senator Dierks, would you like to close?

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SENATOR DIERKS: Yes, I would, Mr. Speaker and members of the body. I especially want to thank Senator Smith for her support of my amendment. (Laughter.) And I would just urge the body to advance my amendment, please. Thank you.

SPEAKER BARRETT: Thank you. The question before the house is the adoption of the amendment offered by Senator Dierks. Those in favor of that motion please vote aye, opposed nay. Record, Mr. Clerk.

ASSISTANT CLERK: 32 ayes, 0 nays on Senator Dierks' amendment, Mr. President.

SPEAKER BARRETT: The Dierks amendment is adopted. Anything further on the bill, Mr. Clerk?

ASSISTANT CLERK: Nothing further, Mr. President.

SPEAKER BARRETT: Thank you. We then are proceeding to a discussion on the advancement of the bill. Senator Labedz, you're recognized for a discussion on the advancement of the bill.

SENATOR LABEDZ: Thank you, Mr. President. I waited a long time. I know you passed me up several times. But when I stood before you before on the amendment that I had at the beginning I failed to ask Senator Withem a question. I would ask him now, if he'd yield to one.

SPEAKER BARRETT: Senator Withem, would you respond.

SENATOR WITHEM: Certainly.

SENATOR LABEDZ: Senator Withem, I ... at the beginning I mentioned the fact that the Nebraska Association of School Boards sent out information and a score card asking us, and showing our vote on LB 346, and asking us to vote no on LB 346. Unfortunately, it only got 23 votes, because there was some senators absent. But for the record, would you tell me why the Nebraska Association of School Boards would be opposing LB 346 and at the same time asking us to increase the sales tax and the income tax of everyone in the State of Nebraska. Just that question, thank you.

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SENATOR WITHEM: Very hard for me to give their rationale.. I support 346, 1 voted in favor of it, plan to continue to. I think their rationale is one of the traditional separation of church and state arguments. It's, frankly, one that doesn't carry a lot of weight with me anymore, because I think we need to be supporting children that go to schools and supporting parents that send kids to schools. That's why I supported 346. I can't give a good justification for their rationale.

SENATOR LABEDZ: Thank you, Senator Withem. I wanted that question answered just for the record. But I still say that we have 34,000 students in our private schools, and I, myself, and several others on this floor, at least 23 others, feel that the parents of those 34,000 students that attend the private schools should also be included in LB 1059, or else the advancement and support from the members of this body on LB 346. But I will have that amendment on LB 1059 on Select File. Thank you.

SPEAKER BARRETT: Thank you. Senator Bernard-Stevens, on the advancement of the bill.

SENATOR BERNARD-STEVENS: Thank you, Mr. Speaker, members of the body. We've had a very good discussion today. There are still a lot of things I think that...a lot of questions that might still be there that need to be asked. I would encourage the body to ask whatever questions they need to, try to find the answers that they need so that we can continue this discussion on Select File. I also would hope that we would also keep the focus on where ... what the bill is trying to do, because obviously we're talking about a school refinance, we're not talking about an overall property tax solution, that has to come at another time. But there is something that we have to do in this state because of the tremendous inequalities that are out there in the way we finance schools, and that is we have to do something on the refinancing of those schools, and 1059 is the product of a long, long time... efforts of work, 18 months of work by a lot of good, dedicated people. I think they've given us a good alternative today.. I think they've given us something that we can live with in the State of Nebraska, and it also gives us something that will provide equity and fairness in the way that all children in our state can have an equal opportunity to have the type of education that they deserve. And, with that, I urge the body to support 1059 on its way to Select File. Thank you.

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SPEAKER BARRETT: Thank you. Senator Landis.

SENATOR LANDIS: Mr. Speaker, members of the Legislature, Becky Veak works in my office. She's the Committee Clerk for the Banking, Commerce and Insurance Committee. And about 1:15 today got a phone call *in- my office, and they asked if I was a supporter of 1059, and she said, yes, that I was a sponsor of the measure. And the anonymous caller indicated that with that act I had lost, forever, the support of this particular constituent and the phone slammed down and that was the end of the conversation. I suppose there is an obligation to explain why I would vote for a bill that I know will raise taxes in my home district and probably in greater measure than the property tax relief that those constituents will receive. I first do it because they will receive a certain amount of property tax relief, and for that I'm grateful. For the extra costs which they bear, and which they will not receive in the form of property tax reductions, I would give as my rationale this language from Article VII of the Nebraska Constitution. Section 1 of Article VII says, "The Legislature shall provide for the free instruction in the common schools of this state of all persons between the ages of 5 and 21 years." That's a simple sentence, and I'd like to read it again. "The Legislature shall provide for the free instruction in the common schools of this state of all persons between the ages of 5 and 21 years." It doesn't say the local school board, it doesn't say a particular group of people, it says basically that we are all in the joint venture of providing the kids of this state a good public education, and that that obligation rests squarely and first with this body. You cannot go through the checkered history of Nebraska school finance without coming to the conclusion that there a re kids in this state who did not receive education of the first quality because of the areas that they come from. It's not because it's not wished for, or hoped for, but because the wealth of the district is such that they are just not capable of providing it. And I know that first and foremost we should look to those parents for that kind of support, and we always have traditionally, because we have that local control outlook. But, if you check the State Constitution, that's not where the obligation begins nor ends. It begins here. It begins with that constitutional principle that says, this is our obligation. In fact, it is exactly the failure of states to make a living, breathing reality of those kinds of promises that have brought states before the bar to justify and explain their school financing system, and which, on

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repeated occasions, have been found wanting by federal courts that say children have become prejudiced by the checkerboard financing effect in various. states, Texas being among them, Tennessee being another. That in fact promises like that are not empty words, but are binding on Legislatures, and to the extent that Legislatures turn a deaf ear to the needs of students and to allow the variations of wealth to produce inferior educations for children, those Legislatures are not performing their constitutional obligations.

SPEAKER BARRETT: One minute.

SENATOR LANDIS: We owe kids in this state a good public education, no matter where they come from, no matter how wealthy their parents are, no matter how wealthy their district is, that's our constitutional obligation. And 1059 seeks to replace a system which falls short, in my estimation, of that constitutional obligation. It says, first, that we should expand our notions of what wealth is, beyond just property and you and I know how skewed that system is. It says we add to that analysis local income, and we ask for the contributions of those whose wealth is in the form of income rather than property, and that's just. Beyond that point, 1059 says, listen, if you look at both property and income and your district is not well enough off, you're going to turn our backs on the old system of foundation aid that had no relationship to need, and we're going to take the state's portion of money and use it to equalize between the wealthy districts and the poor districts ...

SPEAKER BARRETT: Time.

SENATOR LANDIS: ... to meet that constitutional obligation. And that is my rationale to explain to unhappy and I'm sure dissatisfied constituents who will not be pleased to know that their total tax burden will go up probably beyond the measure of their property tax relief under this measure. But, for me, that's a sufficient justification, and I intend to vote for this bill.

SPEAKER BARRETT: While the Legislature is in session and capable of transacting business, I propose to sign and I do sign LR 265, LR 264, LR 263, and LR 262. Senator Schmit, would you care to discuss the advancement of the bill, followed by, Senators McFarland, Elmer, Nelson and Hartnett.

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SENATOR SCHMIT: Mr. President and members, Senator Landis gave some good explanations as to why he's going to support the bill, and I agree with him as far as he went. I believe we should expand the base for the support of schools. It's my proposal that the expansion should be broad enough to include the intangibles, cash, CD's, et cetera. We're not going to do that. We actually only include about 15 percent of all the personal property taxes in the state. And so we exempt 85 percent of that property. The manner in which we use income tax to support schools is totally different from that which we use the sales tax. What difference does it make to me, if at the present time I pay $100 to support the schools, 80 percent of it comes from property and 20 percent from other sources, as opposed to, under 1059, 70 percent comes from property and 30 percent comes from other sources, so long as I still pay the $100? It's not going to make any difference at all. The basic premise is faulty, and I insist that it is faulty because it is more property based today than ever. It is more property based today than it was in the past, because you have attempted to bring in the income tax, but the ability to pay income tax is usually tied to the amount of property operate, own, et cetera. The people, I can tell you very bluntly, who work for the minimum wages in my district are not going to pay much income tax, nor should they. They absolutely can't afford it. So that's not going to be a factor. As you'll thumb through the explanation of those individuals and the various income classifications, there are 51 persons in Butler County who earn more than $75,000, a very substantial tax base. We're going to hear a lot of talk about what we need to do for kids. But what are we doing for kids? I want to emphasize several points with this bill. First of all, the bill guarantees, I believe, the single largest sales and income tax increase in the history of this state, guarantees that. Secondly, there may or may not be property tax relief, depending upon local spending. And I just want to remind you that every time in the past we have tried to reduce property taxes we have, in fact, increased overall spending and the overall costs of government. And I give as an example the passage of LB 84, last session, which was supposed to reduce my taxes by 8.5 percent, but in the final analysis I had a tax increase between 20 and 21 percent, as did many persons in my district. I believe Senator Bernard-Stevens said that this isn't going to really address the real property tax problem. Well, ladies and gentlemen, if you don't do it here, then where will we? Because the bulk of our property taxes go to the support of schools.

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Check your levy. I've got mine here. The rest of it doesn't amount to very much, very small portion. About 65 percent of the tax, in most of my entities, goes to schools. So, if we do not get a substantial reduction in property taxes, as a result of 1059, by the passage of 1059, then you have an exercise in futility. Emphasize again, point number three....

SPEAKER BARRETT: One minute.

SENATOR SCHMIT: ... that you have a property based method of financing education, but only using selected types of property or classes of property. Real property, 15 percent of the personal property, we totally ignore the substantial income earning wealth of stocks, bonds, CD's, cash in the bank, we totally ignore that. That is the kind of discretionary income which I believe ought to be included and which we are ignoring. And Senator Richard Maresh, former Senator Maresh, sent me a note and said, why not take those returns and include our stocks and bonds. We can determine what they are, we can calculate them, if we wanted to. Fourth, and most important perhaps, has nothing to do with the quality of education, nothing to do at all with the children, as has been pointed out by Senator Chambers, this is money for schools.

SPEAKER BARRETT: Time.

SENATOR SCHMIT: I'm going to have a few amendments for this bill on Select File, ladies and gentlemen. And I assume it's going to advance. But, ladies and gentlemen, I would hope that you would take another close look at it because it is filled with inequities.

SPEAKER BARRETT: Senator McFarland, on the advancement of the bill.

SENATOR McFARLAND: Thank you, Mr. Speaker. The debate has been interesting. I had listened to a little bit of it up in the ... my office when I was-responding to some letters, and then I'd come down here and have been listening to it on the floor. And I appreciate the comments of Senator Schmit and some of the other colleagues who raised questions about the bill. There are a lot of assumptions that are being made in the bill, I'm not sure all of them are validated. I think one assumption that is being made is that, if you try to equalize spending within the district, that somehow you equalize education. I'm not sure

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that is true. But I would like to focus more on a philosophical concept that has troubled me the entire time I have been here, particularly the last three years, now this being the fourth year. And that has been the whole issue of the tax policy of the state. As you well know, I've raised considerable question about it and where are we going with it. This bill, as has been pointed out, has been disguised, to a degree, as an education bill, and certainly that is one of its components and one of its primary parts. But also the major significance of it is the tax changes that are being made. And the tax changes that troubled me, I have indicated in hearings before on this bill when it was in our Education Committee and so on, it's troublesome when you have a major tax increase in the sales tax, and the income tax and then try to disguise it and to a degree make it palatable by saying you're improving education. That's very troublesome to me because the fact of the matter is that our tax system, in the past four years, has been ... become increasingly unfair for middle income working people. We have implemented, in 773, and plus 775 and the Governor's tax policies, in my view, a tax system that benefits the corporate executives, that benefits the wealthy and the affluent, and that really causes considerable disadvantage to many middle income families. This bill will only increase that inequity and that unfairness to middle income people. What has been done in the past four years to benefit working people, young men and young woman who are trying to raise a family on a modest income? What tax policy have we implemented in the past year that helps those people, who may not be represented as a special interest group, but who certainly a numerous segment of our society? Were they helped by 773? 1 don't think so. Were they helped by 775? 1 don't think so either. Were they helped by any of the other policies, the worker's comp benefits, or the unemployment insurance benefits, or any of the other policies that are coming through? I don't think they've been helped significantly at all. And now this particular bill will increase that inequity, particularly for the working people who happen to not have enough income at the present time to be purchasing their own house. If you have a young family with young. children, and they're renting at the present time and they're trying to save money to set aside, to buy a house, for a down-payment on a house, to finance a house, to fulfill the...somewhat the American dream of owning your own house, having your own family and a stable situation,_

SPEAKER BARRETT: one minute.

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SENATOR McFARLAND: ... where are they going to benefit from this tax bill? And it really is, a major portion of it, is a tax bill. They are not going to see any property tax relief whatsoever, and yet they are going to see, on the average, an increase of 17.5 percent in their state income tax, and they're going to see an increase of 25 percent in their sales tax when it goes from 4 cents to 5 cents. They do not benefit. And they are not an insignificant number of people, 32 percent of the people in our state rent property. And I don't think anyone is going to try and deceive us and say that their rental rates are going to go down, if this bill passes, because really they are not. They may go down, as I could see it, maybe years in advance. But for the first few years they're not going to see any rental reduction.

SPEAKER BARRETT: Time.

SENATOR McFARLAND: It is not going to help those people and it is not going to help several others, and for that reason I plan to oppose the bill. Thank you.

SPEAKER BARRETT: Thank you. Senator Elmer, on the advancement of the bill.

SENATOR ELMER: Thank you, Mr. Speaker. Senator Schmit has brought up some questions of fairness of tax base, and I couldn't agree with him more on the disparity of land, as a measure of values, and the measure of stocks and bonds and intangibles as a measure of value. But, given the political reality we live in, business competition in the cities and between states has made the tax system in our state what it is. And I would say, and I feel very justified in saying so, that if you could take your land and assets that you have on a farm and put them in a briefcase, like you do your stocks and bonds, and take them to another state, that that farmland would not be taxed today. LB 1059 is not a tax decrease. The measure is the beginning of a tax shift from the unjust overdependence on property tax. Our tax burden per capita in Nebraska, as a whole, will not change very much. The inequity we now have is the tremendous disparity in tax base available per student between districts. Over a period of time the passage of 1059 and LB 259 will go a long way toward providing equal financial foundation for each student, no matter where in Nebraska she or he lives or in which school district he or she resides. I'm a firm believer in as much tax equity and fairness as we can

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manage. I have yet to hear any argument about how LB 1059 does not start to address this. My question to anyone who cares to answer is, what will happen to property tax levies and the current inequity in tax base between school districts, if we do not pass this bill? I would ask you to advance this bill to Select File.

SPEAKER BARRETT: Thank you. Senator Nelson, on the advancement of the bill, followed by Senators Hartnett, Conway, Kristensen, Hall, Lynch, Peterson, Hefner and Coordsen.

SENATOR NELSON: Mr. Speaker, I'll try to make this as fast as I can, because I do see a long list there. One of the things that concerns me, and I still plan to support the bill, except try to make it the best bill that I think we can and the fairest bill possible, is the... in LB 775, and I'm probably opening up or mentioning a real can of worms here, but maybe this is the time that we should address it, as you know sales tax was forgiven to the recipients of LE 775. In essence, what we're doing is we're simply just passing those on to someone else, and particularly now in this bill we're increasing the sales tax to the average person and therefore making a different... a larger inequity between the two. I have in front of me last Sunday's Journal, in Lincoln. They estimate they lost $800,000 in sales tax because of LB 775. In turn, this makes a 4 percent property tax increase for the balance or for most residents of Lincoln, Nebraska. I also see this happening in Senator Barrett's district, Lexington. The figures that I was reading the other day, too, to a packing plant similar to IBP that was opened up in Kansas, that the average tax benefit given for each-and every worker is $10,700. Senator Barrett's district will never get anything back like that in returns. Eighty-four percent turnover in labor in one year, 46 percent turnover in the first 60 days. It's up to the Lexington community then to educate and help with the homeless, and help with the unemployed, and help with those that cannot read in Lexington, Nebraska:. I wonder if this is the time to maybe address the sales tax in LB 775 so that we do make it more equitable. Also, in last Sunday's Omaha paper, Sioux City, Iowa, the tremendous problem with social problems with the people that are unable... the Hispanics, nearly half of them employed there at a very low wage rate. And the same problem up there. I also respect Senator Schmit. And I, too, may be thinking of this to bring it in on Select File, and that is the discretionary income. I cannot see where it's anymore fair not to tax bonds and stocks. As you know, you can

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have a lot of tax-free bonds and still even qualify for the homestead exemption, which comes back to personal property. I do have a question on that.. So these are two areas that I maybe being addressed on-Select File. I don't expect, particularly, the 775 to go. But I think maybe this is the time to start addressing that one feature of the bill, when we're passing this all onto other people to... someone has to pay. And, with that, I'll still be working to get the best bill possible for everyone. Thank you.

SPEAKER BARRETT: Thank you. Senator Hartnett, please.

SENATOR HARTNETT: Mr. Speaker, members of the body, I rise to support LB 1059. 1 have some questions.' One of the things is that in the charts that were in the World-Herald, and also the Department of Revenue, I think they left out some districts that Senator Korshoj represents and also myself, and I think, Senator Withem, that we need to look at that, would like to work with you and some of the principle sponsors of this on Select File on how the impact aid works in with, you know, with the state aid. I think that's one, you know, one of my concerns that I had, is how that all puts together. Another thing is because we get, my district that I represent, mainly I represent part of Omaha district and part of District 46 in Sarpy County, is that the money is put in from the impact aid. They send the bill to the federal government, but they don't get it right away, so there is a time line, the same way with money with the 2 percent lid. So I think we need... from my... I support the concept, but I do have some concerns in those two areas. I'd like to have you respond. And I think after you respond, I think Senator Kristensen would like to have some time.

SPEAKER BARRETT: Senator Withem.

SENATOR WITHEM: No, I don't think that we can do anything with that, Senator Hartnett, I'm sorry. (Laughter.) Seriously, seriously, the whole question of impact aid is one that the commission spent a great deal of time wrestling with. The conclusion of the members of the commission are that impact aid receipts ought to be counted as accountable receipts against the district's budget to the extent allowable by the federal government. Now the fed .... we don't know what that will be. After the -bill passes, we'll have to go to the federal government and say, here it is. It will not be 100 percent, and particularly for the folks up in Senator Korshoj's district, I

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know, that have been sending letters, it certainly won-It be 100 percent of their receipts. Some of them are things like gifts, like the money that Senator Dierks was talking about, that are designed for enhancements outside of the budget. Those shouldn't be counted. Parts of them are designed to be operational receipts to fund the budget of the local school district. Those, frankly, should be counted as accountable receipts. We do need to talk about exactly how we're going to count those. We do need to sit down and visit about where they will be coming from, and I'll just be anxious to meet and talk about how we deal with impact aid, because it is still one of those unanswered questions. I don't know if we're going to be able to answer it 100 percent in the bill, It is the intent of the commission that we should count those funds that are used to supplant local property tax dollars and state funds and those kinds of things. Those, frankly, should be counted as accountable receipts. My district gets some of them, and I'm willing to go by that standard. On the other hand, some of them are outside 'of those sorts of levels, and those shouldn't, and we need to figure out what those are. So, yes, thank you for calling the body's attention to the impact aid question. I know it's... four school districts in the state do receive large portions of their money through impact aid, and we need to find the correct balance in the bill.

SPEAKER BARRETT: Senator Conway. Senator Kristensen. Sorry.

SENATOR KRISTENSEN: Thank you. Thank you, Senator Hartnett, for giving me part of your time. Senator Moore, I really have some questions for you. And, if I run out of time, perhaps you can answer them later, but I want to kind of preference my discussion about some needs that I think we have all...we all got our own little areas that have some good winners, they have some mediocre winners, and we have some losers to a variety of degrees. One of the problems that I have in my particular district is that years ago we did do school reorganization, did a good job of combining many schools, thus putting together an efficient school districtwith a lot of value behind the per pupil cost.

SPEAKER BARRETT: One minute.

SENATOR KRISTENSEN: One of the problems that came about through all that was increased expenditures for transportation. And what I would propose to do, and I have an amendment drafted, I

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did not file it today because I think the bill is important that it be voted on today for first round and not bogged down with more amendments, but I'd like you to look at, is taking out transportation, all transportation expenditures from the General Fund operating expenditures provision in there. In other words, there are some General Fund expenditures minus, I think, the categorical aid, the tuition payments, the adult education and so on. In a way what they've done is they're being punished for being efficient, and this would be one way for us to address that. I'd like you to give me some of your thoughts and something that we can work on between now and Select File.

SPEAKER BARRETT: Senator Moore, time is nearly expired, but if you would go ahead and answer the question, please.

SENATOR MOORE: Well, yes, Senator Kristensen, I think you said it... you answered your question with your first statement, saying that we all have little things in there we'd like to have included. And the fact of the matter is, and I'm answering on the commission's behalf and Senator Withem can agree with me or disagree. But the fact of the matter is, that transportation is your issue that you think needs to be in there. The OPS issue is minority students, Omaha Westside has gifted programs. The thing about it is it's kind of an all or nothing type thing. And we, to date, have tried to say that, you know, your size has something to do with how much you spend, and that's what we're going to stick with. And our. concern is, if you add transportation in, then you take away the argument to put special ... minority students in, gifted students, things like that. So it's one of those things everybody wants their own exemption and their own thing cut out of the bill. And we've simply tried to keep it simple and keep it fair by throwing...treating everybody the same and keeping everybody in. And that's the answer why, and Senator Withem can expound on that probably.

SPEAKER BARRETT: Thank you. Senator Conway.

SENATOR CONWAY: Thank you, Mr. Speaker. I'd like to call the question, please.

SPEAKER BARRETT: Senator Conway moves the previous question. Do I see five hands? I do. Shall debate now close? Those in favor vote aye, opposed nay. Record, Mr. Clerk.

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CLERK: 25 ayes, 0 nays to cease debate, Mr. President.

SPEAKER BARRETT: Debate ceases. Senator Withem, would you care to close?

SENATOR WITHEM: Yes. Let me begin the closing and then I'll pass it on to Senator Moore. It's been a good debate today, good discussion. This, by no means, ends the discussion. I would urge people between now and Select File to bring your issues that have come up on the floor down to us and we'll continue to wrestle through with them. Please don't wait until Select File. If you have amendments you want to offer, I'd urge you to print them in the Journal, let us all take a look at them, because this is a complicated matter and it is a controversial matter. But the time is here to do something in the area of funding schools. This bill does two things, basically. It shifts from overreliance on property tax to other methods of funding education, using the sales and income tax. Secondly, it provides for a different distribution formula to provide greater equity of funding for students. It does those two things. Simplistically, that's what the bill does. To do it right it gets into a whole list of complexities, but that is basically what it does. Let me tell you what the bill does not do. The bill does not right a property tax system that has been crumbling for the last 20 years. It does not address what should be on the property tax rolls and what should not be. We need to address that, this bill is not strong enough to carry that burden, does not purport to, and should not be expected to, nor does it right the wrongs of the sales tax system, or right the wrongs of the income tax system, nor should it. What it does is it goes to the traditional methods of funding state government, the sales tax and the income tax. If you see inequities in the way that's done, that's not the fault of this bill, that's the fault of our sales tax system, that's the fault of our income tax system. Again, this bill should not be expected to right those. What this bill should be expected to do is provide a fairer basis of educating children in our state by providing a fairer distribution of funds, and it should get away from our overreliance on property tax to fund education. I think the bill does those two things admirably. Appreciate the discussion and the debate today. If Senator Moore does not do so, I'm going to ask for... that we do a call of the house and a roll call vote in regular order prior to taking the vote on this bill. With that, I give the remainder of the closing time to Senator Moore.

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SPEAKER BARRETT: Senator Moore.

SENATOR MOORE: Yes, and for those of you that are within earshot of me and not in the Chamber, I urge you to come back, because I will close with a call of the house so we can all get on record. The time has finally come, this is only the General File vote, but it's the first of three votes the whole body will take on this bill. And I would guess that there are a few members of the body that are more than a little bit nervous, and you probably have good reason to be, because, as Senator Schmit says, yes, you're talking about the largest tax increase probably in 25 years. Senator Schmit tends to forget that you're also talking about the largest tax decrease in 25 years, and he tends to forget that you're talking about the most massive shift we've had in this state for a long time. And should you be nervous? We all should be nervous, simple fact of the matter is people, for a variety of reasons, don't trust us down here. Senator Chambers makes a good point that we're trying to mislead people. And, if we're misleading people, I apologize for that, because we've been trying to be very up front. You know Senator Warner, the "Dean of the Legislature", sometimes he mumbles in committee and I often listen to him. One statement that he made that I'm reminded of on this bill, it's one of those things that politicians get elected to this body by making promises and they get re-elected by breaking them, because if you would keep all. the promises you kept you'd make so many people mad at you, you could never get re-elected again. This is one of those things where people like myself, I'm keeping one of the promises I made. Another thing Senator Warner said, told the story about he raised the gas taxes young in his career and went out to his constituents and said, well in an election year I wouldn't propose a tax increase unless I really meant it.

SPEAKER BARRETT: One minute.

SENATOR MOORE: Well, the fact of the matter is I'm just as nervous as all of you. I have to go out tonight to the school district in my district that loses big and try and tell them why it's a good idea. And what I'm going to tell this is simply this; this bill makes some sense out of our tax distribution among the various types of taxpayers. This bill brings us a long way towards counting income and the wealth of the school district, and this bill takes away some of those disparities in

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how we fund school districts in the State of Nebraska. And in the end, for me obviously, as Senator Landis so articulately stated, the state is better off with this bill than without it. For that reason, I urge the body to advance it to General File and to continue to work with us on your problems so we can answer your questions you have on this bill. I ask for a call of the house and a roll call vote.

SPEAKER BARRETT: Thank you, sir. The question is, shall the house go under call? All in favor vote aye, opposed nay. Record.

CLERK: 38 ayes, 1 nay to go under call, Mr. President.

SPEAKER BARRETT: The house is under call. Members, please return to your desks and record your presence. Senator Langford, would you please record your presence. Senator Scofield, Senator Lindsay, the house is under call. Senator Labedz, if you're so disposed, would you record your presence. Senator Scofield, the house is under call. We've had a request for reverse order, Senator Moore. Senator Withem, my apologies, I did not hear your request, your oral request for a regular order. My apologies. All present and accounted for. Members, return to your seats for a roll call vote in regular order. The question before the body is the advancement of LB 1059 to E & R Initial. Mr. Clerk, will you call the roll.

CLERK: (Roll call vote taken. See page 1183 of the Legislative Journal.) 34 ayes, 12 nays, Mr. President, on the advancement.

SPEAKER BARRETT: Motion prevails, the bill is advanced. There is an A bill which does not appear on the agenda today. Mr. Clerk, I'd like to address the A bill at this point. The call is not raised.

CLERK: Mr. President, the A bill (LB 1059A) was a bill originally introduced by Senators Withem and Moore. (Read title.)

SPEAKER BARRETT: The Chair recognizes Senator Withem.

SENATOR WITHEM: Yes, this is the A bill that accompanies the bill. It will appropriate the state aid dollars that are raised by the tax that is imposed in LB 1059. 1 would urge you to support it.

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have something for the record, please?

CLERK: Mr. President, I. do. Amendments to be printed to LB 1146 by Senator Lynch; Senator Warner to LB 1059; Senator Lindsay to LB 799; Senator Wesely and Senator Lamb to LB 678; and Senator Smith to LB 1031. (See pages 1185-95 of the Legislative Journal.) A new resolution, Mr. President. (Read brief summary of LR 269. See page 1184 of the Legislative Journal.)

New A bill, 1063A, by Senator Crosby. (Read LB 1063A by title for the first time. See page 1184 of the Legislative Journal.) That's all that I have, Mr. President.

SPEAKER BARRETT: Thank you. Proceeding then to General File, LB 226.

CLERK: LB 226, Mr. President, was a bill introduced by Senator McFarland. (Read title.) The bill was introduced on January 9, Mr. President, referred to the Education Committee. The bill was advanced to General File. I do have Education Committee amendments pending: (Standing Committee amendments appear on page 950 of the Journal for the Thirty-Eighth Day, First Session, 1989.)

SPEAKER BARRETT: Senator Withem, please, for the committee amendments.

SENATOR WITHEM: Let me get this straight, we are still in session, is that correct? Is that what's going on here. Excuse me, I was tied up with the other bill, and let me do a little quick scattering. Yes, Senator Bernard-Stevens said I should just say they're technical in nature, please go ahead and support them. okay, here we go, here we go. LB 226 is a bill brought to us by Senator McFarland dealing with a Unicameral Scholars Academy. Its purpose of it is to promote gifted students, give gifted students in our state a greater degree of enriched experience during the summer months. The committee amendments will require that teachers serve on the advisory committee, be certified in teaching the gifted, require the parent on the advisory committee to be the parent of a gifted student, changes the date for reappointment of advisory committee members from July 1 to October 1, deletes the provision that selection of students shall be based on

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