- Associated Press - Sunday, July 19, 2015

LINCOLN, Neb. (AP) - Nebraska lawmakers are once again looking to lower property taxes, but this time they’re turning to the single largest expense on landowners’ tax bills: school funding.

Senators will launch a review of the state’s school-aid formula next month to consider new funding options, including a possible boost in state aid or new revenue sources that would allow school districts to lower their levies.

The study is a joint effort of the Legislature’s Education and Revenue committees, which will convene in hopes of creating new proposals for next year’s session.

The effort includes both urban and rural senators, who have traditionally been at odds over school funding, and a “facilitator” with mediation experience who will help senators try to reach an agreement.

“All of us are going to have to come into this with different expectations,” said Sen. Kate Sullivan of Cedar Rapids, chairwoman of the Education Committee and a member of the Revenue Committee. “From my personal standpoint, I’m hopeful that we can end up with some legislation introduced. I think we have committee members that are committed to working on this.”

Nebraska’s school aid formula distributes money by calculating a school’s needs and subtracting what it can generate through local property taxes and a few other sources. The difference between a district’s needs and its local resources determines how much state “equalization” aid it receives.

The funding dispute revolves around larger districts with fast-growing student enrollment but slow-growing property values, and smaller districts with sluggish growth or shrinking numbers. The smaller districts often have an abundance of valuable land, but agriculture groups say farmers and ranchers are shouldering an unfairly large share of the costs. Smaller schools also face higher costs to transport students and recruit teachers, who are in demand in Omaha, Lincoln and bordering states.

Nebraska Farm Bureau President Steve Nelson said the state should consider incomes as well as property values when distributing school aid. Agricultural property values may have soared to record highs, he said, but farmers now face falling incomes because of lower commodity prices.

“Funding schools is very important, but we’re looking for a balance in who pays,” Nelson said. “Right now, that balance weighs heavily on property owners.”

Sen. Al Davis of Hyannis said he doesn’t see a way to lower rural property taxes without a new revenue source such as state aid or a local income tax similar to one he proposed earlier this year. The legislation went nowhere, though, and Davis said he expects another struggle to pass major reforms.

“I’d like to be optimistic, but I’m not particularly optimistic,” said Davis, a Revenue Committee member. “There are a lot of entrenched interests that are going to fight for their exemptions and tax breaks. In order to fix the problem, we need a united front that comes out of this study.”

Senators are also reviewing a 1990 law that promised to lower property taxes by increasing the state’s sales and income taxes and funneling the extra money into K-12 schools.

The law guaranteed that each district would receive back 20 percent of the income taxes its residents paid to the state, but said that revenue was gradually steered away from schools. It also faced heavy resistance from former Republican Gov. Kay Orr, who vetoed the tax increase, and opponents tried unsuccessfully to repeal the law through a statewide referendum.

Any major property tax reductions will likely require an increase in K-12 school funding, said Renee Fry, executive director of the OpenSky Policy Institute, a Lincoln-based tax policy think tank.

A 2014 report by the OpenSky Policy Institute found that Nebraska’s K-12 public schools rely more heavily on local taxes for funding than nearly every other state. Nebraska ranked 49th in the percentage of school funding provided by state government in fiscal 2012, the most recent year available.

“It’s something we’ve been grappling with for decades,” Fry said. “I think that now, with skyrocketing ag land values, there’s a heightened sense of urgency felt by the ag community.”

Fry said state spending on education has declined as a share of the total economy, which forced districts to rely more on property taxes. She said schools are also more likely to put money into their cash reserves instead of returning it to taxpayers because the amount of aid they receive each year is difficult to predict.

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