LINCOLN — With valuations of homes skyrocketing, and farmers still smarting over a steep rise in agricultural land values, Gov. Jim Pillen is forming a “working group” to look at reforming the state’s property valuation system.

It might lead to caps on valuation increases, or automatic “rate rollbacks” of property tax increases when valuations spike, observers said Monday. It might also lead to a proposed change in the state constitution, said Kenny Zoeller, who heads the Governor’s Policy Research Office.

“We’re kind of opening the hood and allowing all ideas to be brought to the table,” Zoeller said, with a goal of introducing legislation in 2024.

“The governor has some initial ideas,” he added. “His hope is that we can work with the counties and state senators and other interested parties to come to a unified solution.”

Spikes in property tax valuations, caused by increases in prices of homes and farm land, are a “hot issue” right now, said Michael Lucci, who studies tax policies for the Platte Institute.

“There are a lot of factors that go into property taxes, and a group like this will suss that out,” Lucci said of the governor’s panel.

This year, the cost of farm and ranch land rose 14% across the state, to a new record high.

Valuations of homes for property tax purposes, meanwhile, have risen dramatically, as well.

The increases varied between 10% and 30% in Lincoln, according to the Lincoln Journal Star, and rose an average of 12.7% in Douglas County, according to the Omaha World-Herald.

Pillen, in a press release, called such increases “reckless” and an “unbearable burden.”

“We will find a solution that will reduce the burden of insurmountable valuation growth in recent years,” he said.

One member of the working group, State Sen. Joni Albrecht of Thurston, said reforms in property valuation are a “much-needed fix” that would benefit all Nebraskans.

But people who watch Nebraska’s tax system say that it’s a complicated issue and that changes could cause tax shifts. They say that property valuations are just a part of what determines the final property tax bills and that controlling rises in tax rates — which are determined by a taxing entity, like such as a school district or city — is one way to control taxes.

The difficulty in adopting reforms was evident this spring when Pillen unveiled his plan to change the way ag land is valued from the current system, based on sales, to one based on the income-producing potential of a farm or ranch.

States such as Iowa and South Dakota value farmland on its productivity instead of nearby market sales.

But Pillen’s proposal, Legislative Bill 820, the Agriculture Valuation Fairness Act, was quietly shelved after data showed it might raise property taxes for some farmers and ranchers.

Valuation of agricultural land is a separate and distinct category, but when it comes to valuing residential and commercial property, the Nebraska Constitution say that values set for those two categories must be uniform and proportional.

The result is that residential and commercial property are both valued at 100% of market value, while ag land is a separate category that is valued at 75% of actual value.

Rebecca Firestone of the OpenSky Policy Institute said it is good that the governor’s group will be taking a “holistic” approach, and looking at all classes of property, because changing the valuation of one category can shift taxes to others.

For instance, she said, a reduction in ag land values, and a resulting reduction in taxes paid by farmers and ranchers, would shift a portion of the tax load onto homeowners and businesses in small towns.

“We don’t want a situation where one type of property owner is holding the bag more than others,” Firestone said.

But Nebraska’s farmers and ranchers have argued that they were left holding the bag when ag land values began spiking after the turn of the century. The statewide average value of ag land rose from about $750 an acre in 2000 to about $3,300 an acre by 2014, according to the University of Nebraska.

Jon Cannon, who heads the Nebraska Association of County Officials, said the uniformity clause in the State Constitution requires that if residential values are reduced, commercial values would be, as well.

To reduce taxes, he said, the state could lower the valuation of those two classes from 100% of actual value, but such a reduction would shift the tax load onto agricultural property. Plus, Cannon said, homeowners easily understand what 100% of market value is, and reducing the valuation to something less than that would be less well understood.

“It’s not as easy and cut and dried as they think it should be,” he said.

Lucci, of the Platte Institute, said controlling the amount of taxes levied is the best way to control tax bills.

A school finance bill passed this spring makes another attempt to do that by limiting increases in overall annual revenue of a school district to 3% or less, unless a school board or voters override it. (School districts already had lids on tax levy and budget increases.)

But, Lucci said, Nebraska might follow the lead of some other states and  require an automatic “rollback” of property taxes if an increase in valuation leads to a tax increase higher than the current rate of inflation or rises in the Consumer Price Index.

Zoeller, in the Governor’s Office, said the group might also consider changes in the State Constitution that would limit yearly increases in a property’s valuation.

He said meetings will be held throughout the fall, and a public hearing is likely in conjunction with an interim study being conducted by Sen. Albrecht on the issue of ag land valuations.

This story was originally published by Nebraska Examiner, an editorially independent newsroom providing a hard-hitting, daily flow of news. It is part of the national nonprofit States Newsroom. Find more at nebraskaexaminer.com.