Nebraska’s $1.85 Billion Math Problem

Nebraska Gov. Jim Pillen is calling legislators back into session this week, assigning them the impossible task of finding $1.85 billion to redirect toward local property tax cuts. Policymakers can run the numbers as many times as they want, but the problem remains that the state will either face deep budget cuts or must raise taxes elsewhere to fund Pillen’s latest plan — or both.

Last year, Nebraska used the cover of temporary budget surpluses to pass sweeping income tax cuts that primarily benefitted wealthy people and out-of-state corporations. These cuts will cost more than $900 million each year once fully phased in. That leaves legislators bent on cutting local property taxes with three options: abandon the income tax cuts, embrace massive spending cuts, or expand regressive fees and sales taxes on everything from vet services to car repairs to home maintenance.

Nebraska families with the lowest incomes — those making about $50,000 a year or less — would bear the brunt of a sales tax expansion. They already pay five times more in sales taxes as a share of income than families with the top 1 percent of incomes, and relying more heavily on the sales tax would only make things worse.

A sweeping property tax cut would also jeopardize hundreds of millions of dollars in funding for the state’s K-12 education system, which has been weakened by a new private school voucher program that siphons money away from public schools. Property taxes are the primary revenue stream for public education in Nebraska and nationally, accounting for more than one in three dollars spent by schools. They pay for classroom books, vocational and technical programs, mental health counseling, and teachers’ salaries, among many other things.

Research suggests that property tax cuts result in disproportionately less funding for districts that serve large numbers of students of color and low-income students. In Nebraska, districts serving the most students of color receive roughly $3,500 less in funding per student than districts serving the fewest students of color. The governor’s proposal could worsen this divide. 

Collectively, these changes are a recipe for weaker schools, greater inequality, and higher taxes for working people. Creating a fairer tax system — one that generates enough revenue to fund public education and many services Nebraska families rely on — requires a balanced approach, not a wholesale shift to the state’s most regressive tax.

If policymakers really want to help Nebraskans stay in their homes, they should explore “circuit breaker” policies, which guarantee that people’s property tax bills don’t exceed their ability to pay. And longer term, the state should grapple with how to adequately fund K-12 education, lessening local school districts’ reliance on property taxes to keep the lights on and increasing the amount of funding going to schools overall. But a special session is not the right mechanism for such a massive undertaking, which must balance the needs of students and all Nebraskans.