Paul Hammel
LINCOLN — A panel of state lawmakers passed over one idea for reducing property taxes but expressed dismay Friday that a state agency isn’t generating more investment income for Nebraska schoolchildren.
The idea of selling some of the 1.25 million acres of land owned and rented by the Nebraska Board of Educational Lands and Funds and using the proceeds to lower property taxes emerged during debate this year on reducing the state’s traditionally high taxes on land.
An interim study hearing, called by State Sen. Dave Murman of Glenvil, called for exploring the “viability” of doing that.
But testimony and discussion Friday before the Legislature’s Education Committee veered from that idea and instead focused on why the independent agency wasn’t generating more investment income from its more than $1 billion in financial assets.
Relic from settlement days
Nebraska’s Board of Educational Lands and Funds is a relic from settlement days.
At that time, two square-mile sections of land per township were set aside in trust for schools.
Originally, that added up to 2.8 million acres of land across Nebraska. But around 1900, about half of the land was sold, mostly in eastern Nebraska.
From time to time, state lawmakers have looked at the agency, without much success, to help with issues such as property tax relief and revenue shortfalls because of its vast holdings of land and money.
Rents land to farmers
Some background: The board currently provides about $60 million a year to the state’s pre-K-12 schools — or about $161 per student — from money it earns by renting its land to farmers and ranchers and from cash investment income.
But state senators on the Education Committee raised questions after the agency’s CEO/executive secretary, Kelly Sudbeck, told them it was getting a return of about 2.86% on its cash investments, made by a state investment council.
“This seems like not a very good return on our investment,” said Elkhorn Sen. Lou Ann Linehan, who noted that recent investments in stock did much better than 2.86%.
“If someone gave me a million dollars, I’d do the best I could to make the most from it,” said Linehan, who chairs the Legislature’s Revenue Committee, which guides tax policy.
Sudbeck, however, said that as a “trust,” the agency is bound by rules that require conservative investments that don’t risk losses.
“We have a fiduciary duty to do what is in the best interest of the school land trust,” he said, noting that the return on its property has been 3.63%, higher than its return on its cash investments.
North Platte Sen. Mike Jacobson, who is a banker, told the committee it appears that the Board of Educational Lands and Funds is “locked into fixed income investments” that don’t yield the kind of income that the stock market has in recent years.
But, Jacobson added, state lawmakers might look at whether the agency could be allowed to make investments with higher yield.
“Is that something statutory that we can change? That’s worth looking at,” Jacobson said.
Representatives of four school groups testified against a “fire sale” of the agency’s lands, arguing that the money it sends to local schools is a reliable and stable source of funding that shouldn’t be traded for a “short-term” benefit. The agency’s funds, they noted, already help reduce property taxes.
Land generates more revenue
Sudbeck said the agency has an ongoing plan to sell off a few of its “poorest performing” properties. Currently, 158,000 acres of its land is for sale, he said, and between 1,000 and 2,000 acres have been sold in each of the last three years.
Sudbeck added that the board has consistently decided that land is generating higher revenues than its cash investments so selling it off “wholesale” doesn’t make sense.
In addition, he said, many of its renters can’t afford to purchase their rental tract, and renting allows smaller and younger farmers a more affordable way to obtain land for their farming and ranching operations.
Interim hearings, such as the one conducted Friday by the Education Committee, are designed to explore legislative topics. Often, such studies will result in drafting legislation, but it appeared after the hearing Friday that no proposal would be introduced to sell off large tracts of land to benefit property tax relief.