Property tax relief looks promising

Will the Legislative session end with Nebraska state senators sharing a triple dip ice cream cone with smiles all around? Or, will senators be unable to keep the towering cone of goodness from toppling over onto the hot sidewalk during the last three dog days of the session?

On Aug. 5 senators came to near perfect harmony and gave LB1107 a solid 43-2 first-round approval. It contains a comprehensive package that encompasses the top three final priorities; a proposal to create a new tax credit based on the amount of property taxes paid to a taxpayer’s school district, establish a new business tax incentive program and commits funds to a potential project at the University of Nebraska Medical Center. I guess this is what compromise looks like!

Finally, a measure of property tax relief for all Nebraskans. The existing Property Tax Credit Act will be funded at the current level of $275 million per year and a new Property Tax Refundable Income Tax Credit will be created.

If the petition to allow casino gambling at horse-racing tracks passes on the Nov. 3rd ballot, 70 percent of the tax revenues would be directed into the same Act. This creates a new distinctive tax revenue stream to fund the Act in future years.

LB1107 creates a new Nebraska Property Tax Incentive Act. The proposal would add a refundable income tax credit applied against a taxpayer’s school property taxes beginning with a $125 million commitment of state funding in the Fiscal Year 2020-21. Estimates suggest a 6 percent tax reduction is likely in the first year, climbing to perhaps 18 percent in subsequent years.

The credit fund is scheduled to rise to $375 million over the next three years and no later than year five. Additional monies will be placed in the fund if year over year state net receipts exceed the forecast by 3.5 percent and the cash reserve is restored to a fully funded level of $500 million. A sort of fiscal “guardrail” is included to ensure that the proposed property tax relief is funded through growth in state tax receipts. After the fund reaches $375 million, it will increase annually by the percentage of overall statewide increase in property valuations.

The credit will be available to resident and non-resident property taxpayers and will be claimed on an individual or corporate state tax return. To me, it is the most important of the three scoops.

Accompanying the property tax portion in LB1107 is a proposal to create a new business tax incentive program, the ImagiNE Nebraska Act. The application period for the state’s current program, the Nebraska Advantage Act, ends this year. Although I’m still not a fan of tax incentives, I will support the package with some changes that have been put in place since the original proposal.

Qualifying businesses would receive a varying combination of incentives based on their level of capital investment and the number of Nebraska employees they hire at a minimum qualifying wage.

The base spending authority would be $25 million in calendar years 2021 and 2022, $100 million for 2023 and 2024 and $150 million for 2025.

Beginning in 2026, the director of the state Department of Revenue would adjust the base authority every three years to an amount equal to three percent of the state’s general fund net receipts for the most recent fiscal year. Unused base authority would carry forward to the following year, base authority is capped at a total of 400 million over the first five years.

LB1107 also pledges $300 million in future state funding support for NExT, a breakthrough $2.6 billion project at the University of Nebraska Medical Center. The UNMC proposal is dependent upon federal designation of a new national disaster response center at the campus in Omaha, $2 billion in federal funding, and $300 million in private fundraising.

In no case would matching funds be transferred before fiscal year 2025-26 or before the total amount of credits granted annually under the Nebraska Property Tax Incentive Act reaches $375 million.

The project could create 32,000 construction jobs and 8,700 permanent jobs once completed. It is estimated that there would be a whopping $1.3 billion annual return to the state’s economy once the project is fully operational. It is the third and final scoop to our wonderful confection.

As a member of the Legislature’s Revenue Committee, LB1107 saw the light of day after months of negotiation and last minute wrangling. The compromise has overwhelming support and a little bit of sweetness for all Nebraskans.

If you have any legislative concerns you would like to discuss, please feel free to contact me or my legislative staff.