New school finance commission approved with hopes for long-term Nebraska property tax reform

LINCOLN — Nebraska lawmakers greenlit a long-term commission Friday to review how the state funds its K-12 schools, a step that could lead to future property tax relief after the latest efforts fell short this year.

Legislative Bill 303, from State Sen. Jana Hughes of Seward and introduced at Gov. Jim Pillen’s request, passed 48-0. It would create an 18-member School Financing Review Commission to regularly review and suggest possible improvements to the state’s main state aid formula to divert sales and income tax dollars to public K-12 schools: the Tax Equity and Educational Opportunities Support Act.

“I hope to be a fly on the wall of those meetings anyway,” said Hughes, who plans to reintroduce legislation in 2026 for additional property tax relief. “When you hear ideas, then it might spark something else that gives you better ideas.”

LB 303 received widespread support, including from the Nebraska Farm Bureau, Nebraska Farmers Union, Nebraska State Educational Association, Nebraska Rural Community Schools Association, Nebraska Council of School Administrators, Nebraska Association of School Boards, Greater Nebraska Schools Association, Educational Service Unit Coordinating Council and the OpenSky Policy Institute.

TEEOSA basics

The “TEEOSA” formula, created in 1990 and perpetually adjusted since, in most basic terms, diverts “equalization aid” to public school districts if it calculates that a local district has more “needs” than “resources.”

“Needs” is calculated among 18 buckets, including a district’s poverty concentration, students with limited English proficiency, transportation needs and student growth. 

“Resources” includes six buckets of funds, such as estimates of property taxes that could be raised with a $1 tax levy and net option enrollment funds.

The formula diverts about $1.2 billion between 245 school districts each year. An increasing number of districts do not receive any TEEOSA aid under the formula, which is why Pillen and other senators in 2023 created “foundation aid,” distributing $1,500 to school districts roughly for each student. About 60% of foundation aid is considered a “resource.”

Pillen, in a Friday statement, said the state’s history with TEEOSA has indicated some “glaring flaws.” He thanked Hughes for championing a commission that Pillen said could find the “right solutions” to funding schools and “ultimately be a part of solving our property tax crisis.”

‘A long time coming’

Hughes said the “significant milestone” has been “a long time coming” with multiple senators, including State Sen. Wendy DeBoer of Omaha and former State Sen. Al Davis of Hyannis, who each proposed similar commissions.

DeBoer, now in her seventh year, routinely fought for the commission, including with LB 500 this year, because she believes it is the best way for a “deep dive look” at TEEOSA and property taxes generally. She said it can help understand if the state is on the right path,” or if corrections are needed, “not just today but in the long run.”

DeBoer and Hughes are among a rare crop of senators who understood TEEOSA before coming to the Legislature, Hughes because of school board service in Seward and DeBoer because of preparations during her 2018 campaign and as a self-described “nerd.”

The two senators said the implementation of term limits in 2006 also complicated major changes to TEEOSA.

‘Desperation’ for change

State Sen. Dave Murman of Glenvil, chair of the Legislature’s Education Committee, said the commission shows the need to reform property taxes and how the state funds its public schools.

“I agree with the desperation of farmers and homeowners that nothing else has worked, so it’s worth a try with the commission,” Murman said.

A former senator had questioned whether a commission was needed, arguing that lawmakers didn’t need an outside advisory group and could act right away for any TEEOSA changes.

Murman said the commission could be beneficial, but he’s been hesitant to support one in the past because he feared school officials might push conversations in ways that support their local schools or a set group of schools. He said their representation is needed, but he also wanted more taxpayer representation. Hughes embraced those suggestions.

With those reservations, Murman said senators should take any recommendations with “a grain of salt” as they have the final say in legislation. Murman plans to appoint himself as the Education Committee representative on the commission.

Property tax relief

Hughes, vice chair of the Legislature’s Education Committee, has made it one of her personal legislative missions to reform the state’s model for funding K-12 schools. Over her years in the Legislature, she hopes to lower school property tax levies and push them closer together. Right now, school districts can tax up to $1.05 per $100 of taxable property valuation.

TEEOSA considers a “local effort rate” of $1 per $100 of taxable property valuation for every school district, a mathematical model to determine what a district could theoretically contribute.

LB 303 would have originally lowered both the maximum tax rate and the “local effort rate” by 3 cents, thereby distributing more dollars to schools to ease the burden of local property taxes. That would have cost more than $120 million, proving too big a hill to climb with the state’s budget woes.

Pillen originally included LB 303 in his budget proposal in January, but the Appropriations Committee made key diversions from Pillen’s proposal, and downward economic projections in April derailed hopes to find additional funds without expanding sales taxes.

Instead, the bill moved forward only with the review commission, the members of which will need to be appointed within one month of the governor signing the bill. A first report is due Dec. 1, with subsequent reports each Nov. 1 after.

Commission duties

The commission’s main duties are to:

• Evaluate TEEOSA and make recommendations for adjustments or changes “that may be necessary to help prevent the increase of property taxes.”
• Regularly review both the “needs” and “resources” sides of the TEEOSA formula.
• Analyze how to minimize the negative impact on schools during times when the state might not be able to fully fund the TEEOSA formula.
• Examine the impact of funding for education on student achievement and outcomes, including access to early childhood education, student attendance, literacy, graduation rates, college-going rates and postsecondary workforce participation.
• Consider the impact of funding on issues and resources impacting students with relatively high needs, including students who live in areas of high concentrations of poverty, students with an individualized education program and students with limited English proficiency.

Path to the governor’s desk

Hughes’ bill languished in the Education Committee until mid-May, largely because of a lack of funds. But it also stayed behind as a backup for property tax reform.

“We had to get a better feeling of what mechanisms might work to fund schools and property tax relief,” Murman said. “We wanted to keep all options open.”

Murman tried to keep LB 303 in committee longer than when the committee met May 9 to advance the bill 7-0, which could have hurt the chances of the bill reaching its finish line. The bill reached the full Legislature on May 15, the 80th legislative day, and passed on the 88th legislative day. Lawmakers will adjourn for the year Monday.

At the committee meeting to advance LB 303, a committee staffer urged Murman to oppose LB 303, or at least not vote to advance it. But Murman voted it out of committee and approved it along the way. He said his concerns weren’t personal.

Hughes challenged Murman for committee chair in January. He won reelection 29-20.

LB 303 sought three state senators as nonvoting members of the commission. However, Murman said the Education Committee chair should be a member, which some committee members pushed back on.

‘A big deal’

Hughes changed her bill so the senators are the chairs of the Education and Revenue Committees, or their designees, and one at-large senator. No more than two senators can be of the same party, and both chairs are Republicans.

If the Revenue Committee chair appoints himself, Hughes would not be able to serve on the commission because she, too, is a Republican.

Hughes said she doesn’t see a big recommendation coming from the commission this year but will continue work ahead of the 2026 session on how to drop school property tax levies and increase property tax relief. She plans to work with at least six other senators, two each from the Appropriations, Education and Revenue Committees, with even political party splits.

“People may or may not have noticed what a big bill it is,” DeBoer said, “but it is a big deal towards the ultimate goal of finding the right way for Nebraska to finance education.”