Legislative Testimony for LB303: Change the amount of relief under the Property Tax Credit Act

Good afternoon Revenue Committee.  I am here today to testify in opposition of this bill.

 

This bill directs the new revenues towards the property tax credit relief fund. While that choice will subsidize local property tax bills at their current levels, we are concerned that LB303 does not have an appropriate mechanism to assure that local property taxing entities will meaningfully reduce property taxes in response to receiving these new revenues.
 

The Property Tax Credit Relief Fund was created in 2007 initially at a cost of $105 million and has grown to $221 million.  This fund’s amount has more than doubled since it was created, and yet property taxes are now higher than they have been in decades.
 

What history has shown us is that while property taxes are locally levied, there is significant state involvement with the amount of tax local political subdivisions can levy, how property assessments are conducted, and what services local taxing subdivisions must provide for their residents.

Many of the changes the state has made in the past to lower the local property tax required a shift in financial responsibility from the local governments to the state. This comes at a cost to state taxpayers, because the result is a shift to income and sales taxes for temporary property tax relief.

 

This proposal concerns us because even though the relief fund was supposed to receive $224 million last year, it was only funded at $221 million because other areas of the budget needed the funds in order for the state to meet its balanced budget requirement.[i]  During the 2018 legislative session there was a projected shortfall that was eliminated with transfers from the cash reserve fund, transfers out of the cash funds from agencies to the General Fund, and a net $18.6 million in cuts through appropriations.[ii]  If LB303 passes and the Legislature faces yet another shortfall, the agency cash funds will not be available and the state will be required to put more money into the credit relief fund, putting other government programs at risk of being cut or forcing the Legislature to raise state taxes.

 

While well intended, the Property Tax Credit Relief Fund policy is not working to lower property taxes and does not create lasting reform, only temporary relief.  It is also likely to put more pressure on the state and poses a significant risk of forcing either additional spending reductions or tax increases.  For these reasons, we do not believe that adding additional revenues to the fund is a wise policy decision.


We appreciate the intent of this legislation, and would suggest structural property tax reform through levy rate or valuation reductions be considered as an alternative.

 

I encourage the committee to vote in opposition to LB303. Thank you and I would be happy to take any questions from the committee.

 

[i] State of Nebraska FY2017-18 and FY2018-19 Biennial Budget as revised in the 2018 legislative session, “General Fund Transfers-Out”, May 2018, page 26.

“General Fund transfers-out accounts for funds that are transferred from the General Fund to another fund within the state treasury.  These items have the same effect as an appropriation but are not expended from the General Fund as such and therefore are shown under the revenue category as transfers-out from the General fund and subsequently expended from the receiving fund.” (See chart below from booklet)

 

Excludes CRF Transfers

Actual

FY2016-17

Current Biennial Budget

FY2017-18               FY2018-19

Following Biennium

FY2019-20           FY2020-21

Property Tax Credit Fund

(202,000,000)

(221,000,000)

(221,000,000)

(221,000,000)

(221,000,000)

Water Resources Cash Fund

(3,300,000)

(3,300,000)

(3,300,000)

0

0

Cultural Preservation Endowment Fund

(750,000)

0

0

(500,000)

(500,000)

Water Sustainability Fund

(11,000,000)

(10,670,000)

(10,670,000)

(11,000,000)

(11,000,000)

Victim’s Compensation Fund

(50,000)

0

0

0

0

General Fund Transfers-Out (2017 Session)

(217,000,000)

(234,970,000)

(233,770,000)

(232,500,000)

(232,500,000)

2018 Water Sustainability Fund Transfer

0

1,500,000

3,470,000

0

0

Total-General Fund Transfers-Out

(217,100,000)

(233,470,000)

(230,300,000)

(232,500,000)

(232,500,000)

 

[ii] State of Nebraska FY2017-18 and FY2018-19 Biennial Budget as revised in the 2018 legislative session, May 2018, page 8.

“The projected shortfall was eliminated with a net $50 million gain from the February 2018 revised forecasts, $100 million transfer from the Cash Reserve Fund, an additional $15.2 million of transfers from cash funds to the General Fund and a net $18.6 million reduction in appropriations.”

 

 

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