Nebraska lawmakers can deliver stronger transparency and greater tax relief by consolidating and tightening Nebraska’s property tax caps. Nebraska has both a Truth-In-Taxation (TNT) transparency law and property tax caps for K-12 school districts and then separate caps for all other local governments.
By comparison, several less-fiscally-responsible states impose more strict property tax caps. Nebraska can create the best property tax controls in the country by taking a two-tier approach:
- Truth in Taxation requirements for the first dollar increase in the local tax levy
- Tighter tax caps imposed uniformly across all property taxing jurisdictions.
Truth-In-Taxation
Platte Institute has previously covered reforms necessary to improve Nebraska’s Truth-In-Taxation (TNT) law. In short, TNT serves as the first line of defense against property tax increases by providing notice and hearing on property tax increases. Taxpayers are notified of increases above a formula amount, and they receive individualized property tax increase estimates. Public hearings are held for the tax increases to be justified and debated.
Nebraska’s TNT law needs two primary improvements:
- Impose the TNT process for the first dollar of property tax increase. Currently, the TNT process is only required if increases exceed a formula amount. Utah, the first state to enact a TNT law, requires the transparency process for the first dollar of increase.
- Perform TNT before the budget process. Once again, Utah’s example is instructive. In Nebraska, the TNT process occurs in September, which is often after local budget decisions have been made. In Utah, local governments are required to undergo TNT before enacting a budget.
LB 575, introduced by Senator Robert Hallstrom, would fix both problems.
Property Tax Caps
Nebraska imposes two sets of property tax caps, one for schools and one for the rest of local governments. Both caps are too convoluted and permissive. They should be consolidated and tightened.
School districts make up $3.2 billion of Nebraska’s $5.3 billion property tax burden. So-called “soft caps” of 3%-7% tax increase are imposed upon school districts, with the ability of the school board to override the cap by a 70% board vote. This provides minimal taxpayer protection and largely leaves the issue to the school boards.
The remainder of local governments are limited by tax caps enacted in LB 34 in 2024, which also imposes rather lenient caps. Taxation is allowed to increase based upon new construction along with a percentage increase based upon an index of state and local government spending. In effect, this cap is higher than the average of state and local spending growth across the U.S. Furthermore, public safety and emergency costs are exempted from the cap. Omaha, for example, spent 60% of its general fund on police and fire that would be exempt from the caps altogether.
In short, Nebraska’s property tax caps are loose with numerous workarounds. Even states like Illinois, New York, and California have created tighter caps. For example, Illinois’ property tax extension limitation law (PTELL) limits the growth of property tax revenues for many jurisdictions to the lesser of 5% or consumer price inflation. New York limits property tax revenue growth to the lesser of 2% or inflation for most jurisdictions outside New York City. California caps the total property tax burden at 1% of home value, though California’s property tax controls include several unfavorable trade-offs.
Nebraska should consolidate its property tax caps across jurisdictions, and provide a lower, tighter cap for taxpayer control. Illinois’ example of the lesser of 5% or inflation is a good model, with an allowance to exceed that property tax revenue increase in the case of approval of a voter referendum. Consolidating tax caps and tightening revenue limits will serve Nebraskan taxpayers well, while maintaining a voter referendum process for voters to approve higher tax increases when they find the spending plan worthy of the increased taxation.
