SCC property taxes to soar ahead of change to how Nebraska funds community colleges

Property owners living inside Southeast Community College's 15-county service area could see a big increase on their tax statement when they go to pay their 2023 taxes next year.

On Tuesday, the SCC Board of Governors gave preliminary approval to a plan to raise the total tax levy to 11.25 cents per $100 of valuation, the maximum allowed under state law, in order to fund a $358.5 million budget.

The board will give final approval to the 2023-24 budget and property tax levy at its September meeting.

Combined with an expected 15.3% average increase in property valuations throughout the district — including more than 23% in Lancaster County alone, which accounts for half of SCC's $79 billion taxable value — some taxpayers could see the amount paid in support of the community college go up by as much as 40% next year.

But college administrators say a change in how Nebraska's six community colleges will be funded in the future as decided by the Legislature this year necessitated the change and added a new tax credit that will return half of the property taxes paid to SCC in 2024 and 100% of the taxes paid beginning in 2025.

In January, Sen. Dave Murman of Glenvil introduced a bill (LB783) on behalf of Gov. Jim Pillen that eliminated SCC and other community college's ability to levy local property taxes beginning in the 2026-27 school year, replacing that funding with state tax dollars.

Eliminating the roughly $250 million in property taxes paid to support community colleges would save Nebraskans between 5%-6% on their tax bill, the Platte Institute, a conservative-leaning think tank, estimated at a hearing in February.

Community colleges raised concerns about the plan to the Revenue Committee, however, highlighting that removing the taxing authority of community college boards would erode local control and make the colleges less responsive to the needs of students, businesses and communities.

If, for example, a new manufacturing business were going to locate in McCook and told Mid-Plains Community College it needed to hire as many as 100 new welders within a short span of several months, the college would have no way to generate the funds needed to quickly expand the training program.

Rather, Mid-Plains, under LB783, would have needed to convince a state senator to bring an appropriations bill in the following session and hope that 25 lawmakers agreed to the plan on the floor in order for it to pass.

Depending on when a community college sought additional aid to respond to a need in their service area, it could take between 18-24 months before the college could respond to the needs of industry and the demands of students with that taxing authority removed.

Instead, during negotiations that SCC President Paul Illich and Nebraska Community College Association Executive Director Courtney Wittstruck described as collaborative and productive, negotiations with senators on the Revenue Committee and members of Pillen's team struck a middle road.

The agreement, which was included in LB243, a property tax reform package from Sen. Tom Briese of Albion, will continue to distribute state tax dollars to community colleges through the appropriations process, which occurs in every long, 90-day session.

Under LB243, community colleges will also retain their ability to levy 2 cents per $100 of valuation to pay for capital improvement projects on their campuses throughout the state — something SCC has taken advantage of since 2017, when it began an aggressive plan to renew and replace aging facilities in Lincoln, Beatrice and Milford.

The funding for community colleges' general operations that previously came from property taxes will be moved from a maximum 9.25-cent property tax levy to a "Community College Future Fund," a cash fund to be automatically funded by the Legislature every year.

The amount of funding each community college will receive from the future fund will initially be based upon the levy set for the 2023-24 fiscal year, or if community colleges are unable to raise their levy to the maximum, an amount equal to a levy of 7.5 cents per $100 of valuation.

Beginning in the 2024-25 school year and for every year after, the distribution to community colleges from the cash fund will increase by 3.5%. Colleges that experience enrollment growth in certain educational units could see their distribution from the future fund grow beyond that amount.

But over time, the 3.5% cap is expected to ultimately slow and then limit a community college's budget growth, which Illich said necessitated SCC, which has not captured all of the funds through property taxes that it was authorized to in recent years, to move to set a high budget baseline moving forward.

"We have to set those rates based on future needs because we no longer have the ability to wait and go up later in property tax," Illich said. "You set it based on your future needs. This is not a one-time thing."

During a meeting at the Jack Huck Continuing Education Center in Lincoln on Tuesday, SCC administrators told board members there is a backstop built into LB243 for the colleges and a safety net for the taxpayers.

The backstop allows a simple majority of SCC's board and other community college boards to raise their property tax levy to meet the institution's needs if the state fails to provide full funding from the Community College Future Fund.

That provides some insurance to the colleges so that they can continue to operate into the future. More than two decades ago, in the 1999-2000 and 2000-01 school years, an infusion of money from the Legislature in order to reduce property taxes was later pulled back after an economic recession took hold.

And the safety net gives property taxpayers a state income tax credit on all property taxes paid to community colleges — both to the general fund levy and the capital improvement fund — beginning in 2025, which would offset what they are expected to pay next year, college officials said.

An existing law will provide taxpayers with a 50% tax credit in 2024 on property taxes paid in support of community colleges this year.

Illich said SCC plans to meet with taxpayers across its district in order to explain that while they may see a huge increase on their tax bills this year, those dollars will be returned as the funding system for community colleges shifts over the next few years.

The board approved the preliminary plan on a 10-0 vote, with board member Brandon Gunther of Hickman abstaining.

Gunther said he was concerned about taxpayers seeing "a substantial increase" on their bills next year and not understanding the tax credit that will be available in the future.

Board member Arlyn Uhrmacher of Lincoln said SCC was acting to protect the college into the future by setting the highest baseline it could when its funding shifts from local property taxes to the cash fund set up by the state.

"We didn't ask for this," Uhrmacher said. "Nobody sitting at this table asked for our taxing authority to be taken away. Nobody asked for that, the community colleges didn't ask for that, but the governor wanted it and this is the situation we're set up with."

Chairman Neal Stenberg of Lincoln said requesting any less than the maximum property tax levy now could result in significant increases in tuition in the future when SCC is not receiving enough funding to meet its needs.

Hiking tuition too fast or too high could result in enrollment losses, which would be detrimental to SCC's open-access mission, as well as the local workforce that depends upon the college's training programs, Stenberg said.

"We've got one chance to get this right, and if we mess it up, it won't be just students that suffer, but the community will suffer," he said. "I know it's not an easy decision."