For decades, Nebraska’s public school funding system has exerted a major influence over the state’s tax policy.
In 1989, the state adopted the Tax Equity and Educational Opportunities Act (TEEOSA), in an attempt to alleviate disparities in property tax burdens and education funding between districts by having the state take on a larger responsibility for funding public schools.
However, in the last 30 years, this funding formula has become outdated and increasingly failed to reduce property tax burdens on school district residents, especially those in rural areas.
Currently, Nebraska ranks third in the nation for the proportion of total K-12 public school revenues it derives from local revenue sources, trailing only New Hampshire and the District of Columbia. These local tax sources–primarily property taxes–comprised 59.5% of the state’s public school funds in the 2019-2020 school year. This is a problem because it creates an education system that is too dependent on local wealth, leading to large disparities in education funding and tax rates.
While implementing comprehensive school finance reform is a politically arduous process, Nebraska can’t afford to wait.
TEEOSA lacks transparency and doesn’t fund students fairly. School districts in the lowest property wealth quartile receive $13,048 per student from state and local sources on average, while districts in the highest property wealth quartile receive $23,245 per student.
Additionally, substantial increases in property assessments have rendered the current formula irrelevant for most of the state’s rural school districts. Nebraska residents’ frustration over rising property tax burdens has caused policymakers to adopt the band-aid solution of increasing individual property tax credits to partially offset increases in taxes for some property owners.
However, the only sustainable education-related solution to alleviating high property taxes in Nebraska is to reform the state’s school finance system. At the same time, state policymakers should also use this opportunity to adopt a fairer, more streamlined, and student-centered formula.
The decline in TEEOSA’s ability to fund school districts fairly and control property taxes began in the early 2000s. At the beginning of the millennium, most Nebraska school districts qualified for state equalization aid. But in the 2019-2020 school year, the number of school districts receiving equalization aid was just 34%. In other words, two-thirds of Nebraska’s school districts today are almost fully reliant on property taxes to fund schools and receive no equalization aid from the state. Additionally, the Local Effort Rate—the property tax rate school districts use to raise formula funds—varies substantially across the state.
The main factor that has driven most Nebraska school districts off the state funding formula is the skyrocketing values of agricultural lands. This phenomenon has driven a wedge between the state’s rural and urban school districts. On one side, Nebraska’s urban school districts serve most of the K-12 population and have a large proportion of low-income students. They are also less dependent on property taxes and receive the lion’s share of state equalization aid. This constituency is primarily concerned with how the state funding formula accounts for student needs.
On the other hand, the state’s rural districts rarely receive equalization aid from the state and have large property tax burdens—but they’re also more highly funded in per-student terms compared to the more urban school districts. Understandably, the rural constituency is more concerned with how the state funding formula imposes significant property tax burdens on their residents (for more data on K-12 funding patterns in Nebraska, see Reason Foundation’s resource here).
No singular reform will address all the issues with TEEOSA. Reason Foundation partnered with the Platte Institute to create the Nebraska K-12 Education Funding Reform Model, a new tool that allows Nebraskans to explore potential reforms to the state’s education funding system.
Nebraska policymakers should consider forming a study committee with the goal of developing a better K-12 funding model. A politically viable proposal would likely include a permanent reduction in local property tax reliance for K-12 funding, a transparent student-centered formula, and other elements that make the reform attractive to rural and urban school districts.
Modernizing Nebraska’s school finance system means adopting a model where taxpayers and students are treated fairly, regardless of where they live. State policymakers can get the momentum going by forming a study committee with that concrete goal.
Find the full Nebraska K-12 Funding Reform Model here.