Lawmakers propose 2025 legislation to fix ‘missing year’ of property tax relief

State Sen. Steve Erdman of Bayard, center. To his right, State Sen. Mike McDonnell of Omaha reaches out to State Sen. Tom Brewer of north-central Nebraska. July 30, 2024. (Zach Wendling/Nebraska Examiner)

LINCOLN — A group of state lawmakers is rallying support for potential 2025 legislation aimed at plugging a 'hole' left in this tax year by a last-minute compromise during a summer special session focused on property tax relief.

State Sen. Steve Erdman of Bayard is among the coalition's leading voices. Though term-limited, he drafted legislation to address the "error" he first shared with the Nebraska Examiner and called out after the special session : a " missing year " of tax relief, because there will be no income tax credits next year for the property taxes paid in 2024.

Erdman, along with fellow term-limited State Sens. Justin Wayne of Omaha and Steve Halloran of Hastings, were the only three lawmakers to oppose Legislative Bill 34 in this summer's special session. All three sought more substantive policies. Erdman called the proposal he and five other lawmakers unveiled Thursday proposal "a starting point."

"This is our opportunity to share with others that this is a serious problem, and this is one step to try and fix it," Erdman said Thursday, passing the legislation on to the five other lawmakers.

"If there's another method to fix it other than this one, I don't give a rip, as long as they restore the credit," he continued. "I don't care how they do it. This is my attempt at trying to figure out how to do it."

'Rightfully owed' tax credits

State Sen. Brian Hardin of Gering, who along with Erdman represents the westernmost Nebraska counties, is poised to be the lead sponsor of the legislation in Erdman's place.

"I think in the process of, shall we say, patching the dam, we might have inadvertently created another hole," Hardin said.

State Sens. Tom Brandt of Plymouth, Danielle Conrad of Lincoln, Jen Day of Omaha and Loren Lippincott of Central City have already signaled support for Erdman's draft legislation.

Together, the six lawmakers encouraged Nebraskans to ask their senator to support the legislation and recover the "lost" tax credits "rightfully owed to Nebraska taxpayers."

"We believe the good citizens of Nebraska should not have to shoulder a financial burden created by the Legislature," the lawmakers said in the release.

At the special session's end in August, called at Gov. Jim Pillen's request, lawmakers voted to modify a three-year relief process first created in 2020 under Legislative Bill 1107. That system created refundable income tax credits redeemable the year after property taxes are paid.

Taxes are annually assessed each December and taxpayers who acted quickly and paid all or part of their 2023 statement by Dec. 31 of that year were eligible to receive a credit on their 2024 state income tax return. Brandt said about 15-20% of taxpayers pay early.

Starting this December, credits will appear automatically on taxpayers' statements, and the relief will be deducted when Nebraskans pay their property taxes instead of requiring taxpayers to request relief one year later.

State Sens. Lou Ann Linehan and Brad von Gillern, both of Elkhorn, the chair and vice chair of the Legislature's tax-focused Revenue Committee, have said moving the credit forward is better for taxpayers, who are still getting relief year over year. Many taxpayers weren't requesting the income tax credit and didn't receive that relief over the past four years.

Linehan, who is term-limited, and von Gillern have said the Legislature lacked the funds to automatically apply the credits beginning this December. Laura Strimple, a spokesperson for the governor, cautioned that the Erdman-led proposal would cost an additional $560 million in state funding.

"​​We appreciate this proposal, and others, brought with the goal of providing additional property tax relief to Nebraskans," Strimple said in a statement to the Examiner. "That remains a top pursuit of the governor heading into the upcoming legislative session."

Von Gillern said Thursday he was aware of the Erdman-led proposal but had no immediate comment other than to say it will get a hearing and a fiscal note like any other bill.

"I imagine it's going to be a large fiscal note, and I don't know what funds will be available this next session to respond to that, but it'll go through the regular process like any other bill," von Gillern said.

'We owe it to the taxpayers'

Brandt said he disagreed that the change would cost an additional $560 million, because nearly all of the funding at issue is "foregone revenue," or funds the state wouldn't receive anyway. The cost to the state would be any tax relief refunded to taxpayers beyond their total tax obligations.

Brandt said taxpayers, particularly those in rural Nebraska, are angry the credit is no longer available.

"They feel like we changed the rules in the middle of the game," Brandt said. "We owe it to the taxpayers of the state to fix this."

Lippincott said in a text that the lawmakers want to get in front of the situation and "vigorously study" the law and make sure the impact Erdman and others have warned about would happen. If senators find there is no problem, they won't introduce the bill.

"Our goal is to ease the concerns of Nebraska taxpayers that we are doing what we can to help them," Lippincott said. "The concerns of the Nebraska taxpayer always come first to us."

Erdman said the error will lead to an average 20-22% retroactive property tax-related increase for some taxpayers, some of whom might have budgeted for the credit. Wayne has also raised concerns for taxpayers with mortgages or who pay their property taxes in installments.

Erdman also cautioned Pillen that past governors who were believed to have raised taxes, including Govs. Norbert Tiemann and Kay Orr, did not win reelection.

"Whether it was legitimate or perceived, it didn't make any difference," Erdman said. "The general public believed that they raised taxes, and they served one term."

'Let's take a breath'

Erdman said the goal is to have the legislation be introduced the first week of the January session, get a hearing scheduled quickly and debate and pass it as quickly as possible before taxpayers file returns.

Getting the legislation into law in time would require 33 votes under the Nebraska Constitution .

Hardin said that's part of why lawmakers are unveiling the proposal now, months before the 90-day session begins, to keep the discussion alive and build consensus.

"We're saying, 'Let's make sure that we're not cheating people out of hundreds of millions of what they're owed across the state,'" Hardin said. "Let's take a breath. Let's take a pause. It's my belief that those monies are owed and that those folks lost out on what they were due, and so we do need to take care of it quickly."