New Releases Initiative 423 Would Reverse 40 Years of Effort To Reduce Property Taxes Lincoln – Four decades of work to reduce Nebraskans’ property tax burden would come to an abrupt halt if Initiative 423 is adopted and an estimated $135 million or more in essential spending would be shifted to local governments, a longtime Nebraska tax expert said Friday (Oct. 27). John Cederberg, a Lincoln CPA, has studied Nebraska tax and budget issues for 23 years. He analyzed Initiative 423’s impacts on the state budget and state aid to local governments at the request of Nebraska Taxpayers Against 423, a coalition of taxpayer groups who believe Initiative 423 would be poor public policy. Understanding Initiative 423’s impact on local property taxes requires a short course in Nebraska public finance history, Cederberg said. “In the 1950s, Nebraska had no state income or sales taxes. We paid both state and local property taxes. In the 1960s, through the legislature and a statewide vote, Nebraskans made the decision to begin shifting the tax burden from property to sales and income taxes.” To achieve this shift within Nebraska’s tradition of local decision-making and local control, the state shared its sales and income tax revenues with schools and local subdivisions as state aid. According to Nebraska Department of Revenue figures, state aid appropriations for the current fiscal year are $1,059,000,000 — a full one-third of all state spending, Cederberg said. “It’s important to point out that Initiative 423 limits only state spending, not local spending, and to understand that state aid, including aid to education, would be subject to the limits of Initiative 423. Local governments would need to make up this loss and their likely source of revenue would be property taxes.” Cederberg analyzed the impact on the current two-year state budget as if it were subject to Initiative 423 and compared it with actual figures. “According to the Legislative Fiscal Office, Initiative 423 would have allowed a 3.8 percent increase in total state spending per year for fiscal years 2005-06 and 2006-07, which is about $234 million in additional funding for the two years combined. If state aid were increased by 3.8 percent, state aid for the two years combined would have increased by $72 million. “However, actual appropriations for state aid to schools and local governments increased by $207 million for these two fiscal years — $135 million more than Initiative 423 would have provided,” he said. Very likely, state aid would be reduced even more, he said, because total state spending for the period would be limited to $234 million. “The appropriations for Medicaid alone, which is largely a federal mandate, increased $89 million for these two years. Funding that program — along with $72 million for state aid — would leave only $73 million available for higher education, roads, public safety and all of the other responsibilities of the state.” The legislature’s first duty is to the responsibilities of the state government, Cederberg emphasized. “Within some limits of reasonableness, ‘state aid’ is properly what is left over. There is every reason to believe that under Initiative 423, state aid to local governments would have been reduced for the current two-year budget cycle by more than $135 million.” Historically, when the legislature has been unable to fully fund state aid, it has adjusted the property tax levy lids, giving local citizens and their governments the opportunity to increase property tax revenue, he said. “ This approach is entirely consistent with local decision-making and local control. There is no reason to believe that the legislature would not continue past practice — and also include the counties and cities in lid adjustments,” Cederberg said. In order to maintain education and other government services, property taxes would need to increase – reversing 40 year’s of state tax policy and leading to significant increases in citizens’ property tax burden, he said.