LINCOLN, Nebraska (Nebraska Examiner) – Nebraska Gov. Jim Pillen on Monday abandoned his own property tax relief proposal, instead embracing a patchwork plan that emerged from a wide range of special session bills.

Pillen confirmed the change of course during a press conference with law enforcement and firefighter representatives and announced that the new plan would not cap local public safety spending.

The plan, developed by Senator Lou Ann Linehan of Omaha and the Finance Committee she chairs, is intended to offset about $1.8 billion in school-related property tax revenues. The committee plans to use Legislative Bill 9 to lay out the compromise elements, rather than the Pillen-backed bill LB 1. LB 9 was introduced by Senator Jana Hughes of Seward.

As in Pillen’s proposals, much of the plan would be funded by applying the state sales tax to goods and services that are not taxed today. More than 70 goods and services would be added to the state tax list, including personal services such as lawn care or pool maintenance.

The new plan would increase alcohol taxes and, like Pillen’s plan, would tax candy, gambling and soft drinks. However, the new plan would not increase the cost of these goods as much as the governor has proposed.

Changes to Pillen’s plan

One major departure from Pillen’s proposal: Which items and services would continue to be exempt from sales tax? Pillen would have taxed home and car repairs, for example, as well as legal and accounting services. The new proposal does not include this.

The new plan would repeal a proposed tax on advertising and cloud or data services.

However, a 2 percent sales tax would also be imposed on new agricultural or industrial machinery and equipment, rather than Pillen’s call to tax all machinery and equipment. The 2 percent sales tax would replace the personal property tax paid on all new versions of these items.

Similar to what lawmakers recently did with community colleges, the new plan calls for using state tax dollars to remove the state’s 23 natural resource districts from the property tax rolls.

The state would take over $181 million in funding for county jails. And it would protect the homestead exemption, which Linehan said would cost less than the homestead program currently does because of state education funding.

Asked if he would continue to push for a percentage cut in property taxes, Pillen did not answer directly. He said he wants structural relief and spending caps that create permanent relief. He also wants continued spending cuts.

“This is not the governor’s plan,” he said of the combination of ideas. “This will be a plan of the people and the unicameral Assembly working together to solve the problem.”

Response to resistance from law enforcement agencies

Another change Pillen made on Monday was based on feedback from police officers, firefighters, prosecutors, sheriffs, city councils, county governments and mayors that his previous proposal would have set too harsh a cap on essential local spending.

Pillen’s original LB 1 and the new version of LB 9 contain caps on the collection of property taxes by local governments, with a few exceptions. The original proposal aimed to free up funds for new public safety services and vacant positions.

Kearney Police Chief Bryan Waugh, Lancaster County District Attorney Pat Condon, Douglas County Sheriff Aaron Hanson and other fire and police union leaders supported the new plan, which would eliminate state caps on public safety personnel, equipment and training.

Waugh said he feared the original proposal would see the state backtrack on its recent efforts to increase funding for local law enforcement to recruit and retain talent. Hanson agreed.

“The original language was very well-intentioned,” Hanson said. “But it was narrower … in terms of the path to meeting or exceeding spending when needed.”

Pillen had no direct answer to the question of why city and county councils could be trusted to manage public safety spending, which accounts for at least half of many municipal budgets, but school boards and NRD boards would not be given the same latitude.

He said people understand that property taxes need to be reduced so they can stay in their homes, but they also need to feel safe.

Pillen’s political venture

The governor has staked his political reputation and future on getting the Legislature to address rising property taxes, and for months he held town hall meetings across the state to introduce his own proposal.

Pillen opened the debate in December by arguing that Nebraska might need to raise the sales tax and broaden the sales tax base – a major plan that was rejected by lawmakers.

He cited research by Creighton University economist Ernie Goss, who found that the fastest-growing states have higher sales tax rates and lower property tax burdens.

Pillen has faced opposition from both the left and the right, with Democrats worried about the needs of local government and schools, and Republicans worried about having to raise the sales tax to offset property taxes.

However, his willingness to change course again, shown on Monday, underlines that he was more concerned with rapid action by lawmakers to implement changes than with a targeted shift from property taxes to other sources of revenue.

The Committee’s next steps

Linehan introduced Bill LB 1 on Pillen’s behalf at the start of the special session. It will be one of several property tax relief bills that are expected to be consolidated into LB 9 on Tuesday afternoon.

The measure proposed by Hughes would gradually reduce the maximum amount a school district can tax for its operating expenses to 25 cents per $100 of property value over a ten-year period.

The current state cap on school levies is $1.05 per $100 of value added. Hughes’ original proposal and the revised version would have the state replace those local funds with state tax dollars.

The Revenue Committee’s new version of Bill LB 9 would reduce the tax cap much more quickly, in the second year rather than the tenth. And property taxpayers would feel the relief in the first year.

Linehan said the bill will include a property tax abatement proposal that would use state funds to reduce the actual cost to property taxpayers in the first year.

Pillen had previously proposed capping school districts’ tax rates at 15 cents in the first year and 7.5 cents in the second year, before the state would cover all of the schools’ operating costs in the third year.

Linehan said Hughes and others were right when they pointed out that schools would have to “have some contribution.” Linehan struggled to find an acceptable tax rate during several public hearings on various proposals.

Reached by text message Monday, Hughes said she was “glad the Finance Committee chose LB 9” as the way forward, calling it “the right way to direct state funds to our schools.”

A bipartisan group of senators helped her draft LB 9: state senators Tom Brandt of Plymouth, Danielle Conrad of Lincoln, Myron Dorn of Adams and Lynne Walz of Fremont.

Not all LB 9 co-authors satisfied

At least one of the authors of LB 9 is against the new plan.

Conrad wrote a statement criticizing “procedural maneuvers” by Pillen’s supporters to “hijack other bills and cobble together a Frankenstein version of the same reverse Robin Hood scheme.” She said Nebraskans “will not be fooled.”

Conrad said she looks forward to stopping “one of the largest tax increases in history” while fighting to expand other relief programs such as property tax exemptions.

She said she would also support the legalization and taxation of online gambling and recreational marijuana.

The tax on online sports betting, proposed in two constitutional amendments by Senators Justin Wayne of Omaha and Eliot Bostar of Lincoln, if approved by voters at the ballot box, is estimated to generate about $30 million in tax revenue annually. The tax on recreational marijuana, proposed in two bills by Wayne and Senator Terrell McKinney of Omaha, could, by contrast, raise more than $100 million annually.

Linehan said the committee’s new plan will not include expanding gambling to generate tax revenue or legalizing and taxing marijuana.

She said the committee amendment to LB 9 was based on feedback from dozens of Revenue Committee hearings on 67 bills or constitutional amendments that took place last week.

She said she would not call the overall plan a “tax shift.”

Unlike property tax, they believe consumers have control over their sales tax based on their purchasing decisions.

“We are taking a tax from people that they have to pay or they will lose their homes,” Linehan said Monday evening.

They will prove that the critics of the plan are wrong, she said.

“By Friday,” she said, “I’m pretty sure a large portion of Nebraska will think it’s a very good idea.”

Nebraska Examiner is part of States Newsroom, a nonprofit news network supported by grants and a coalition of donors as a 501c(3) nonprofit organization. Nebraska Examiner maintains its editorial independence. If you have any questions, contact Editor Cate Folsom: [email protected]Follow Nebraska Examiner on Facebook And X.

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