Gov. Pillen is asking Nebraska lawmakers to overhaul the school aid formula by 2025

On November 10, 2024By Pranco

LINCOLN, b. (Nebraska Examiner– Gov. Jim Pillen is officially calling on Nebraska lawmakers to address “inconsistencies” in the state’s main school aid formula during the 2025 legislative session.

Pills pointed out in a press release on Friday new report from its policy research firm that collected property tax data for new senators. The governor noted that newly elected senators — with 16 new faces set to join the body in January — may not have a full understanding of the state’s funding formula, or the impact of recent legislation.

The report includes data from Nebraska’s 244 school districts in the previous school year and shows how the decline in state aid led to an increase in property taxes.

“This document helps illustrate the impact of these changes and will hopefully inform discussions as we begin the next legislative session and resume efforts to provide additional property tax relief to Nebraskans,” Pillen said in a statement.

TEEOSA malfunction

The conversation revolves around the Act to Support Fiscal Equity and Educational Opportunitybetter known as TEEOSA, which has been continuously updated since its adoption in 1990.

TEEOSA, also known as the ‘equalization aid’ formula, determines funding support based on the difference of approximately 18 “needs” minus six “resources” for each public school district. If the “resources” outweigh the “needs,” the district will not receive the assistance and will be classified as “unmatched.”

“Needs” include student enrollment growth, poverty and English as a second language. “Sources” include net option enrollment, allocated income tax funds, and base aid per student.

Another “source” is based on potential property tax collections, which assumes a hypothetical tax rate of $1 for each school district. This is the amount the state assumes a district could collect if it had such a high tax rate, based on annual assessments.

This means that when valuations rise, a district’s equalization aid automatically drops, possibly to the point where they are “unmatched” and lose the additional funding.

Finding stability

Lincoln Public Schools, the state’s second-largest district, will likely have no peer in the coming years. LPS lost $31.85 million in state aid this year, a drop of 30.4%, and in response raised property taxes by $31.57 million, a 9.6% increase.

Three other school districts — Millard Public Schools, Papillion-La Vista Public Schools and Gretna Public Schools — also saw a “dramatic decline in state aid.” Combined with LPS, the four districts lost $56.27 million in state aid and increased property taxes by $62.25 million. That accounts for 82% of the total statewide property tax increase for that period.

Kenny Zoeller, director of the governor’s policy research office, said state aid has declined for 111 school districts for the 2024-2025 school year.

“We need to find a way to better help districts budget for the aid they receive, creating predictability and, hopefully, further reducing Nebraskans’ property tax revenue year after year,” Zoeller said in a statement .

Pillen and Zoeller do not explain how more stability can be achieved. However, they say initial research shows new soft “caps” have been put in place on how much school districts can increase their property taxes, slowing the overall increase to 2.5%, or about $75.82 million.

That is the smallest annual increase since 2018 and the smallest percentage increase this century.

‘They are on pins and needles’

Several state lawmakers suggested addressing TEEOSA during the Pillen-led special session on property taxes this summer, including Secretary of State Lou Ann Linehan of Elkhorn and Jana Hughes of Seward.

Linehan, the outgoing chairman of the tax committee, called for this eliminating the “resources” side of the financing formulato better calculate the needs of each district. Later she suggested using TEEOSA distribute more sales and ‘sin’ tax revenues to property tax reduction districts. Linehan is term-limited and will not return next year.

Hughes, a former Seward school board member, worked with a bipartisan group of lawmakers on one proposal to reform TEEOSA over a period of ten yearsor earlier if possible. Her proposal would have gradually lowered maximum property tax rates for schools over 10 years.

Pillen had proposed getting the state assume almost all local operating property taxesrepresenting an average of 60% of Nebraskans’ property tax bills. However, when Linehan introduced Pillen’s core proposal, it did did not contain that part.

Hughes said she agrees that TEEOSA should be front and center, but thinks it will take time and in-depth research, like what happened when TEEOSA was first established, with the Revenue and Education Committees working on the proposal and relying on years of research and design.

“I get this feeling now from schools: Every year, are they aware of what’s going to change or what is the legislative body going to do?” said Hughes.

‘The formula is inconsistent’

In 2023, the Legislature helped increase aid to schools by doubling special education reimbursements from 40% of expenditures to 80% and establishing a baseline for “fundamental aid,” approximately $1,500 per student in each public school district .

Hughes said some school districts are “pulling back” and asking residents to invest through property taxes to avoid budget cuts or respond to uncertainty about whether money will be available in the future.

“It’s just a little vicious cycle as valuations go up,” Hughes said.

Sen. Brad von Gillern of Elkhorn, vice chairman of the Legislature’s Revenue Committee, said he had not yet digested the report but agreed with its key findings. He said he is aware of people encouraging a reconsideration of TEEOSA and “supports a thoughtful and patient process involving all stakeholders to improve the state funding calculation.”

Hughes said she and a team of lawmakers will return with a 2025 proposal that will be smaller but still “take a small bite” out of TEEOSA reform.

Pillen has urged lawmakers to consider similar legislation.

“The formula is inconsistent and hits taxpayers hard,” the policy research firm’s report said. “It’s not fair to them and the schools. By providing certainty to school districts, Nebraska will be able to achieve sustainable property tax reductions for the first time in history.”

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