LINCOLN, Neb. (AP) — In his second state of the state address to Nebraska lawmakers, Gov. Jim Pillen on Thursday covered everything from praising the state’s response to recent winter storms to supporting a divisive bill that would restrict transgender student participation in high school sports and limit trans students’ access to bathrooms and locker rooms.
But it was the Republican’s plan to slash local government property taxes and possibly raise the state’s 5.5% sales tax that drew the most criticism across the political spectrum.
Pillen is proposing a 40% reduction in property taxes that would slash $2 billion from the high of $5 billion collected across the state in 2022.
“First and foremost, the most important economic issue we face is out-of-control property taxes,” Pillen said.
Complaints about property taxes are nothing new for home and business owners in Nebraska, which ranked seventh in the nation in 2021 for the highest property tax rate, according to U.S. Census Bureau data.
Historically, state officials have argued that the matter was not theirs to fix, pointing instead to county and city governments, which assess and allocate property taxes to fund everything from schools and libraries to police and fire departments.
But soaring housing prices in recent years have led to ballooning property tax bills for homeowners, as residential real estate in Nebraska is assessed at nearly 100% of market value. That has proven particularly challenging for residents on fixed incomes, such as the elderly, who may have already paid off their mortgage but can’t afford the ever-rising tax bill.
“Fixed-income Nebraskans who have lived, worked and raised families here now face the prospect of being forced out of their homes,” Pillen said.
How to reach that 40% reduction will be a challenge.
Pillen touted a series of budget adjustments, including a bill that would impose a hard spending cap on local governments that could only be increased by a vote of the people. He also backed proposals to close several tax loopholes for special interests, transfer $274 million from the accounts of some 500 state agency cash funds toward property tax relief, and raise a tax on cigarettes by as much as $2 a pack.
“It’s not the job of government to hoard cash,” Pillen said. “We must give it back to the people.”
What Pillen didn’t mention was his proposal to support lower property taxes by increasing the state sales tax. Earlier this month, the governor proposed boosting the sales tax by 2 percentage points, which would make it the nation’s highest at 7.5%.
In cities that charge a local sales tax, that could tack on nearly 10 cents for every dollar spent on clothes, appliances, cars and other goods and services outside of groceries, which aren’t taxed in Nebraska.
The governor found no one in Nebraska’s unique one-chamber legislature made up of 49 lawmakers to propose such a bill. Omaha Sen. Lou Ann Linehan has proposed up to a 1-cent increase as a way to balance the 40% reduction on property taxes, drawing protest from both liberals and conservatives.
The Nebraska Democratic Party said proposals to raise the state sales tax represent “a massive shift in taxes on the backs of working and middle-class families.”
Conversely, the conservative Tax Foundation said cigarette and sales tax increases would hurt Nebraska business by sending consumers to neighboring states with lower sales taxes.
“The state should focus on revenue limits to provide property tax relief,” said Manish Bhatt, an analyst with the Tax Foundation. “If lawmakers wish to broaden the sales tax base, they should do so without an increased rate.”
Asked after his speech whether a 40% reduction in property taxes could be reached without an increase in sales tax, Pillen said his plan would require “an extraordinary tax shift,’ but he stopped short of fully backing a sales tax hike.
“I’m supportive of any and all options that will get us to that 40%,” he said.
