Bill Summary, LB 1059 (1990)

 

One of the most significant bills discussed during the 1990 session was LB 1059, which proposed a major shift in the source of funding for Nebraska’s elementary and secondary schools.  The bill received substantial support from legislators during the three stages of legislative debate, but was subject to strong opposition and an eventual veto from the Governor.  The bill’s support held through an override vote, which succeeded 32-16.

 

As in other cases where the Legislature has sought to enact major changes in school finance, LB 1059 will be the subject of a petition drive to place the issue on the ballot.  Signatures are being gathered on a petition seeking the repeal of the school finance legislation, as well as other recently-enacted school laws, including a bill on school district organization (LB 259).  If the petition drive is successful, the question of repealing the bills will be put to the voters at the November, 1990, general election.

 

The intent of LB 1059 is to increase state financial support for less-wealthy school districts by shifting a substantial portion of the funding for K-12 education from property taxes to sales and income taxes and revising the method of state aid distribution (see pages 17-22 on Tax Policy).

 

Proponents of the bill pointed to Nebraska’s status as one of the nation’s highest-ranking states in terms of property tax support for education.  Nearly three-fourths of the funds for Nebraska schools come from property taxes.

 

The increased support from sales and income taxes and the lid on local government expenditures contained in LB 1059, proponents argued, should serve to make the system of school finance in Nebraska more equitable.  Without the bill, supporters said, property taxes are likely to increase by over 16% next year.

 

Supporters of LB 1059 also used a pending lawsuit seeking invalidation of the current school finance system as a rationale for passage of the bill.  Courts in several states have thrown out existing school finance provisions, and proponents foresee a similar situation for Nebraska in the absence of substantial changes in the current system.

 

Opponents of LB 1059, including the Governor, argued that the bill contained no guarantee of reduced reliance on property taxes, in spite of the bill’s lid language.  They also argued that LB 1059 amounted to a tax increase on certain portions of the state’s population, such as those who rent housing and farm land.

 

The provisions of LB 1059 include:

 

    The addition of nearly $180 million in state funds for aid to education, on top of the current $134 million in state aid.  Each school district would receive a 20% rebate of state income taxes paid by residents of the district, and additional aid would be provided based on a formula designed to direct additional state funding to students in poorer districts;

 

    Financing of the additional state aid through increases in the sales tax (one cent effective July 1, 1990) and individual income tax (8.75% effective July 1, 1990 and another 8.75% effective January 1, 1991);

 

    A lid on annual budget increases for school districts and other units of local government.  The school district lid, which has no expiration date, limits budget increases to between 4% and 6.5%, with an additional 1% authorized upon approval by a three-fourths vote of the school board.  The lid on other units of local government, which expires on July 1, 1992, is 4% with a similar 1% additional increase authorized by a three-fourths vote of the governing body.  In both cases, increases beyond the lid (with the exception of the additional 1% authorization) must be approved by the voters.

 

The legislation was developed during 1988 and 1989 by the School Finance Review Commission, a sixteen-member body established by the 1988 Legislature through LB 940 and appointed by the Governor.  Commission members included legislators, representatives of the Governor, and representation from several school districts of varying sizes as well as other interested organizations.