Zach Wendling
LINCOLN — A Nebraska lawmaker told members of a legislative committee Thursday that they don’t need to wait until January to address problems in state-aided funding to local schools.
State Sen. Lou Ann Linehan of Elkhorn, the Revenue Committee chair, presented Legislative Bill 45 before the Education Committee on Thursday. It would remove the “resources” part of the state’s “equalization aid” formula — referred to as a school district’s “needs” minus its “resources.”
That formula, the Tax Equity and Educational Opportunities Support Act, or TEEOSA, was put in place in 1990 as a way for the state to more equitably allocate state funds to school districts. It has been perennially updated since its adoption.
For the 2024-25 school year, TEEOSA is calculated between 18 “needs” and six “resources.”
“The ‘needs’ side, though it might need some adjustments, is better than saying, ‘We’ll figure it out later,’” Linehan said. “I do think what frustrates most everyone, now more than ever, is the ‘resources’ side.”
‘Not going to wait and see’
In part, that’s because of the state’s 244 school districts, 184 of them, or about 75%, wouldn’t receive any equalization aid next year because their resources will outweigh their needs. Linehan said that’s partially due to inflation and increasing property valuations.
Some larger school districts, such as Lincoln Public Schools or Millard Public Schools, are also expected to come off of “equalization” soon. A total of $501 million in equalization aid is expected for this fiscal year.
Linehan told the committee, of which she is a member, that part of the reason she introduced LB 45 is to have a conversation that can be part of the broader special session to address property taxes. TEEOSA is one part of broader state funding, including foundation aid for every student.
Total state aid to the school districts is estimated to be $1.16 billion for the 2024-25 school year.
Linehan introduced LB 1 this special session on behalf of Gov. Jim Pillen, whose final approach to property tax relief for school districts was to provide more than $2 billion in annual tax credits to cover the districts’ taxes and let future Legislatures sort out revisions to or a rewrite of TEEOSA.
“It’s a little different than the Pillen plan because Pillen says we’re going to wait and see,” Linehan told the Nebraska Examiner. “We’re not going to wait and see,” she said of the Legislature.
Under LB 45, the Legislature would need to come up with a new manner of defining resources next year. Linehan said Thursday’s hearing gave lawmakers a starting point to begin the debate this summer.
Alternative bill would end TEEOSA
State Sen. Steve Halloran of Hastings introduced a similar measure, LB 81, which would end TEEOSA entirely. The bill states the funding formula would end by July 1, 2027, but Halloran told the committee he wants to amend the bill so TEEOSA sunsets by July 1, 2026.
He described it as the “Git R Done Bill,” in the words of Nebraska native Larry the Cable Guy, and said he wants to give lawmakers “ample time” to find a legislative mechanism to address school funding.
“My point here is that there’s a need, I believe, to set a deadline for y’all in the next session, and I have complete confidence in the senators that I’m leaving in charge that’s going to be here, to be able to go through this formula and modernize it and bring it up to speed,” Halloran said.
Halloran and Linehan are among 13 term-limited lawmakers who won’t return to the Legislature next year. Two others didn’t run for another term.
‘No silver bullet’
Connie Knoche, education policy director for OpenSky Policy Institute, a progressive think tank, testified against both bills, with the same basic concerns. She stated that changing TEEOSA without a clear alternative, and without comprehensive review, could lead to funding instability.
Knoche said any real change needs to be transparent, and she cast doubt on any “radical change,” such as having the state assume funding for 80% of most local K-12 property tax revenue.
“There’s no silver bullet to updating our school funding system and any real change will require significant expertise brought to bear from an open and transparent process,” Knoche said.
State Sen. Dave Murman of Glenvil, the committee chair, asked what OpenSky suggested for funding instead of being overly reliant on property taxes. Knoche responded that schools see property taxes as more stable revenue and that change is needed.
“We need to provide more state funding, but just not 100% of the funding,” she said.
State Sen. Fred Meyer of St. Paul, a former State Board of Education member, said some look at TEEOSA as the “holy grail to running education,” but given its constant fluctuations, it’s not sustainable, particularly on the “resources” side.
Resources include a district’s possible property tax collection up to $1 per $100 of property valuations, net option enrollment funding, allocated income tax funds and foundation aid.
Linehan pointed to a May 2023 blog post from OpenSky where the institute writes it “has long held that the best way to provide property tax relief in Nebraska is to increase state funding for schools.”
Halloran said the root of the words equalization and equity is “equal,” but TEEOSA isn’t meeting that bill.
“Nobody thinks it’s equitable, and we’re leaving too many kids with no [equalization aid],” Linehan said.
Local control
Ben Welsch of the Nebraska State Education Association testified against LB 45 but highlighted the essential need of state funding. He expressed concern that it would leave the state to take local control away from school boards that are better suited to address local challenges or opportunities.
State Sen. Danielle Conrad of Lincoln asked Welsch about a promise from Pillen to increase teacher salaries, which wasn’t contained in LB 1 or any of the other special session tax proposals.
Welsch said he feared the path to increasing salaries would come with “handcuffing” districts into cutting positions in order to do so.
The day before the special session began, Pillen traveled to Kearney to rally superintendents behind his tax plan. On the second day of the session, Linehan took a different approach by attending an Omaha Public Schools board meeting.
At that July 26 meeting, members voted to oppose LB 1 and contingently oppose an alternative plan from State Sen. Jana Hughes of Seward, LB 9, unless there are amendments. OPS opposition was generally against any reliance on state aid instead of property taxes.
Over 10 years, LB 9 would reduce maximum school tax rates from $1.05 per $100 of property valuations to 25 cents per $100. It is seen as an alternative, or compromise, to Pillen’s LB 1.
Linehan told reporters that if the state wanted to take over schools or take away local control, it would have done so already as it is paying more than 60% of the bill for some districts. The alternative is the state could back off and allow schools to raise taxes as much as they want.
“If you want full local control, that’s what you’re asking,” Linehan said.
‘You’re saying no’
“What they’re doing now is saying we want you to pay 60% of the bill but we don’t want to cooperate in helping lower property taxes. You can’t have it both ways,” she continued. “You want to lower property taxes, then you need to support something. Maybe it’s not Pillen, but Jana Hughes?”
Thirteen lawmakers signed onto Halloran’s LB 81, including three Education Committee members: State Sens. Joni Albrecht of Thurston, Justin Wayne of Omaha and Murman.
Two other committee members helped create LB 9 with Hughes: Conrad and State Sen. Lynne Walz of Fremont. Linehan asked them if 25-cent levies were “the magic number” for local control. She confirmed later that if schools wanted to use property taxes, they could ask voters for that authority should the state take on more, or all, operational funding.
“You can’t say we need to stand up and do our job,” Linehan said after the July 26 OPS meeting, “and when we’re standing up to do our job, in a special session, you’re saying no.”
The committee took no immediate action on either bill from Linehan or Halloran.