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Prairie Tax Revolts Take Aim at Costly School Reforms

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Lincoln, Neb--The business-education alliance found in many states in recent years has splintered here, as a prairie tax revolt led by some of Nebraska's top corporations threatens a new school-finance-reform law.

In a Nov. 6 referendum, state voters will have a chance to overturn LB 1059, the law that doubled the state's share of school funding in order to reduce reliance on property taxes and begin equalizing spending among its 800 districts.

Like their counterparts in Kentucky, New Jersey, Oklahoma, and Texas, each of which also raised taxes this year to pay for education reforms, Nebraska lawmakers and educators argue the massive infusion of state funds will pay long-term dividends.

Here and in some other states, however, voters are asking whether that promise is worth its price.

The first answer will come from the Cornhusker State, where residents this summer began paying an extra 1 cent in sales tax and an additional 0.55 percent on their income-tax rate--an increase of 17.5 percent--to fund LB 1059.

The new law, passed by the legislature this spring over Gov. Kay A. Orr's veto, will use an estimated $178 million this year to replace the same amount in school revenues previously generated by property taxes. The state aid will largely be focused on property-poor districts where abovee taxes generated below-average funding. (See Education Week, April 18, 1990.)

As the campaign enters its final days, the tight battle over the repeal referendum appears likely to turn less on issues of classroom learning and student achievement than on the nitty-gritty politics of financial gain and loss.

Businesses such as Mutual of Omaha Insurance Inc. and ConAgra Inc. are pitted against educators and landowning interests represented by such groups as the Nebraska Realtors' Association and the Nebraska Cattlemen Association.

LB 1059's supporters charge that the repeal effort is being waged by businesses that are hit harder by sales and income taxes than property levies.

"It's not grassroots Nebraska rising up and opposing this," said Dale E. Siefkes, executive director of the Nebraska Association of School Boards. "If it were not for corporate Nebraska, this issue would have never been on the ballot."

Opponents of LB 1059, on the other hand, claim that the bill erodes Nebraska's competitiveness with neighboring states, which generally have lower taxes. They contend that the bulk of the law's support comes from landowners working to preserve their property-tax savings and educators fighting to maintain new inroads into state funding.

"A major concern is opening the floodgates of the state treasury for the education institutions of this state," said Ron Lockard, president of Technical Management Inc., a Lincoln life-insurance administrative-services firm, and co-chairman of Nebraskans Against Higher Taxes.

"The education institutions here are no different than in any other state," he added. "They seem to have an insatiable appetite for money."

"There is not one bit of information that says anything about how this is going to provide a better education to kids," argued Don Adams Sr., campaign director for NAHT.

But the bill's sponsor, Senator Ronald E. Withem, said the results of the November referendum will portend little about education or school-finance issues.

"I certainly wouldn't interpret a 'no' vote as meaning people are fed up with educators or as a vote of no confidence," Mr. Withem said. "This really has been fought more as a tax-equity issue than one of education quality."

Oklahoma Vote To Come

In Oklahoma, anti-tax groups have waged a vigorous effort to repeal a school-reform and tax-increase package that passed the legislature after a bruising political fight.

Education groups mounted a holding action in the courts against the repeal drive, however, and were able to prevent a referendum from being on the November ballot.

Even so, both gubernatorial candidates have pledged to schedule a special election on the issue next spring, after the state supreme court rules on educators' challenges to the repeal petition.

Dan Brown, an Oklahoma City stockbroker and chairman of a group called Stop Taxing Our People, said the law's reforms, which include reduced class sizes and higher teacher salaries, are not worth the $2.2 billion in new taxes he said it will cost over five years.

As in Nebraska, Oklahoma lawmakers increased sales and income taxes to pay for the plan, which also sought to reduce spending disparities among state school districts.

Mr. Brown said grassroots support for the repeal effort, which is opposed in Oklahoma by big business as well as by educators, should put lawmakers on alert that citizens are not yet convinced that money is the answer to school problems.

"We're trying to recover from a pretty severe recession here, and the legislature thinks raising taxes is the only answer," he said. "As we've seen more and more people raise taxes, the difficulties keep growing. Our point is that the answer is not new taxes. A cut in waste is the answer."

Full-Scale Rebellion?

The Nebraska and Oklahoma efforts to repeal tax increases for education--and a firestorm of discontent in New Jersey, where 500,000 citizens have signed petitions calling for repeal of a $1.1-billion tax hike largely for education reforms--illustrate a growing nationwide anti-tax sentiment, observers said.

In Massachusetts, a ballot question calls for the repeal of a $1.8-billion tax increase and a cut in the state income tax. Repeal would impact all state functions and cut $427 million in state education funding, including a 16 percent reduction in basic state aid to districts, officials estimate.

In addition, voters in Colorado, Oregon, and Nebraska will vote on proposals limiting the spending power of state and local government entities. Also in Oregon, voters will decide a question on rolling back property taxes, which provide the major portion of school revenue.

Still, the significance of the current proposals will become clear only after the votes are counted, suggested Scott Mackey, a fiscal-policy associate with the National Conference of State Legislatures.

"This is the most activity we've seen on the ballot since the late 1970's," he said, "but just because it's on the ballot doesn't mean it's going to win."

"The tax-revolt folks want you to believe there is a full-scale rebellion going on," Mr. Mackey continued. "If they pass, it could become a problem. You could see a dampening effect on states trying to reform their education-finance systems either in response to a lawsuit or in anticipation of one, but it's too early to tell."

While the Nebraska initiative is only one part of the November election picture, said Chris Pipho, state-relations director for the Education Commission of the States, it will generate great interest if successful.

"Nebraska really made a substantial move, and if it is pulled back right away, that sends a mixed message," Mr. Pipho said. "Theoretically, it's got to make legislators wonder what people really want."

'The Wrong Horse'

As Interstate 80 reaches northeast from Lincoln across a landscape of parched farmland and bends toward Omaha, a billboard calling for the reform law's repeal urges motorists to "Stop Higher Taxes." Beginning next week, the 70 such billboards around Nebraska will be supplemented with a flurry of television, radio, and newspaper advertisements, Mr. Adams said.

Critics charge that LB 1059 does not guarantee property-tax relief, since the state can allow districts to levy taxes beyond its required ceiling. Opponents add that, aside from redistributing funds, the bill does nothing to require that students in poor districts have the same opportunities as those in wealthy districts.

"We agreed that there was too much reliance on property tax, but what came out of the legislature was the wrong horse," Mr. Adams said. ''It would take in excess of 50 years to equalize the way they want to do it."

Opponents portray LB 1059 as a hollow plan that gives landowners a huge tax break while doing little more than giving the state a heavier hand in running the schools.

"If the people let this pass, they will live to regret it," Mr. Adams warned. "It's no holds barred after that, and we will have lost local control."

While opponents focus on higher taxes and state control, the law's supporters have turned from advocating the bill's merits to warning of what might happen in its absence.

"The focus in this final month has to be on what's going to happen to property taxes" if the bill is repealed, said Mr. Siefkes of the NASB, who helped organize a group called Progress for Nebraska with LB 1059.

If their effort fails, the bill's supporters claim schools will be left without the anticipated new state funds and with reduced local property taxes. Such a combination, they say, could force many schools to take out loans, contemplate shutdowns, and dramatically increase property taxes l year unless lawmakers quickly find another solution.

Prior to LB 1059, property-tax rates ranged from $0.37 to $3.21 per $100 of assessed valuation. Officials are still compiling this year's levies, but the state school-finance administrator said he had not yet seen a rate exceeding $2.00.

But if the law is repealed, state officials warn, property taxes might have to be set at double last year's levels to make up for the shortfall.

Education groups' strategy is to let real-estate agents and landowners take the more prominent public role in support of the reform law, while capitalizing on their school connections in rural areas and small towns.

Opponents of LB 1059 allege that teachers and administrators are warning students that, if their parents vote against LB 1059, schools might shut down and high-school graduations might be canceled.

Powerful School Network

While trying to counter such "gloom and doom" reports from around the state, opponents of LB 1059 acknowledge that the network of school officials is a campaign force that is nearly impossible to match.

"We're just a one-shot, one-time organization, so in terms of access to distribution systems, we're really way behind," Mr. Lockard said.

The state's close-knit, largely homogeneous social fabric, which has reinforced school performance, also has given local educators a great deal of clout in shaping public opinion, Mr. Lockard observed.

"Nebraskans would bend over backward to be fair, and that makes it tough," he continued, "because one of the things they said when they passed this bill was that this was going to be a fairer system."

LB 1059's critics plan to present their own equalization plan to the legislature regardless of the referendum's outcome.

But Mr. Siefkes of the school-boards group contended that that promise offers voters little hope for a better alternative.

"I think their admission of saying that it can no longer be business as usual, but not having an alternative, really tells the story," Mr. Siefkes said. "I'm the first to admit there are a lot of other issues educators need to address. But until we address the finance issue, we aren't going to be able to get at the issues of efficiency, accountability, and quality, and all of the things that are inherent in the national goals."

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