- Associated Press - Tuesday, January 13, 2015

LINCOLN, Neb. (AP) - Nebraska landowners could see their property tax bills lowered but might have to pay more in income taxes under a school-funding bill unveiled Tuesday by a state lawmaker.

The measure by Sen. Al Davis of Hyannis would create a local income tax while reducing the percentage of agricultural land value that school districts can tax from 75 percent to 65 percent.

The local income tax would amount to 19.4 percent of a person’s income tax bill, but districts would have the option to increase it to 30 percent with a super-majority vote or by putting the question on the ballot.

A Lincoln-based think tank that endorsed the proposal said most Nebraskans would see their overall tax burden decrease, with property tax reductions offsetting the higher income tax. High-income residents would likely pay more.

Davis said his proposal, which he’ll formally introduce Wednesday, would guarantee $500 per-pupil in state aid for every school regardless of whether they receive so-called equalization aid.

State equalization money seeks to fill the gap between what schools need and what they can generate locally. More than half of the state’s districts no longer qualify for that form of aid because of soaring land values, and Nebraska has seen double-digit annual increases in property valuations for the past seven years.

Davis said his proposal addresses the widespread concerns raised by Nebraskans that property taxes are too high.

“But any plan to lower property taxes must also account for the revenue needed to maintain our state’s great schools and other key services,” he said. “This proposal does that.”

Reducing ag-land values would trigger an automatic increase in direct state aid to schools which rely heavily on property taxes under Nebraska’s school-funding formula. Many small districts that don’t receive equalization money would qualify.

Renee Fry, executive director of the OpenSky Policy Institute, said the bill would move local governments away from their reliance on property taxes while preserving state aid for schools. Statewide, property taxes accounts for more than 48 percent of school revenue, while the state contribution makes up nearly 32 percent. About 10 percent comes from the federal government, and the rest comes from other local sources.

Fry said the legislation represents a tax shift rather than a cut, but said it would ease pressure on farmers and ranchers while maintaining aid for schools.

The bill would reduce property taxes by about $407 million statewide. Local income taxes would increase by $368 million, and state equalization aid for schools would increase by about $40 million. The maximum property tax rate would drop from $1.05 to 80 cents per $100 of value over four years.

Fry said the state’s school funding formula, enacted in 1990, has created the imbalance over time.

“It’s really important to have this discussion,” Fry said. “We just need to acknowledge that it’s been 25 years, and it’s time to step back and evaluate how we look at K-12 education funding.”

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