Rural communities and schools are too reliant on property taxes

The Center for Rural Affairs agrees that property taxes are too high and local schools and government entities are too reliant on property taxes. This reliance upon property taxes for education and local government demands even the most comprehensive property tax relief plan receive careful scrutiny as these institutions underpin these existence of rural communities. While we recognize farmers and ranchers often bear the greatest burden, our mission is to support policy that builds strong rural communities and provides opportunity for all rural people.

The Agricultural Valuation Fairness Act is a commendable attempt to provide relief to our farmers and ranchers. Yet it does not present the substantial and long-term property tax reform which is required.  Moreover, it leaves open the prospects of a shift toward increased levies for counties, schools and community colleges, negating the relief it seeks to provide.

A commendable attempt at property tax relief

An analysis from the  University of Nebraska-Lincoln found that the state average land value has increased by 70 percent in the last five years. Coupled with the sharp decline in commodity prices, property tax levels have become the most negative influencers in the decision to purchase land in the state.

Taxation on the basis of market value alone does not remain a viable option as commodity prices fall and profit margins dwindle to losses. Despite this measure’s attempt to close the gap between high land values and income potentials, any tax savings provides only limited relief to farmers and ranchers. It is estimated that its modest effects would provide a decrease in valuation from 0 to 4 percent.

To illustrate this, consider a 40-acre parcel of irrigated land in Saunders County. The 2016 greenbelt valuation for this parcel of land is $237,140. A 4 percent decrease in valuation would result in a tax savings of less than $150.

Even at the upper end of the decrease in land valuation, in part due the proximity to the Omaha metro, this nominal tax savings would likely go unnoticed by the farmer. However, collectively this property tax cut would result in further budget cuts for the community’s Class D school that is already struggling to avoid the threat of consolidation.

The community impact

There is not yet a divide between farmers and ranchers and the broader swath of rural residents in the desire to maintain and enhance local school systems and county and community services. Yet LB 338

would create a divide by shifting the property tax burden to local homeowners and businesses and nearly eliminating property tax savings for ag land with the added reliance upon levies.

According to the Open Sky Policy Institute, this proposed change in the valuation of agricultural land would create a $154 million shortfall. This includes a $105 million cut to public schools, $30 million to counties and $11 million to community colleges. To address these shortfalls, local entities are likely to raise levies in order to meet budget needs, thereby eliminating the savings gained by the decrease in property taxes.

Rural counties and residents, which the Agricultural Valuation Fairness Act, or LB 338, is designed to benefit, will likely see the greatest levy increases. While farmers and ranchers in these counties will see the least real tax savings, homeowners and businesses will be left with an 8.88 percent tax increase. This modest gain and redistribution does little to solve Nebraska’s property tax challenge.

Alternatives should be considered

There are better ways to lower property taxes. The state could restore some of the aid it has taken from schools, counties and other localities in recent years. Because of those aid cuts, Nebraska is 49th in the percentile of K to 12 funded by the state, and ranked 47th in state support for local governments. This is a logical and effective way to help lower property taxes for all segments of the rural population.

Alternatively, Nebraska could refocus the property tax relief fund by enacting a maximum reduction, or use it for a circuit breaker tax refund. We believe relief should be targeted to those who need it most. A circuit breaker offsets the regressivity of the property tax by providing relief to households having a higher burden of property tax on their household income.

We oppose LB 338

Nebraskans’ call for property tax reform has been heard. LB 338 attempts to provide property tax relief, yet it falls short of providing significant property tax reform while putting our schools and communities at risk.