A. Schools - The passage of LB 806 in 1998 dramatically changed the distribution and increased the aid amount for schools. Currently, state aid to schools totals $795 million of which about $569 million is equalized aid.

Simplified, the equalization part of the formula (1) measures "needs" by counting students and multiplying the number by the average per student cost for similar local systems; and (2) counts "resources" which are categorical aid programs, aid based on income tax liability of system residents, other local resources, like fines and penalties, and revenue that would be derived from a single statewide property tax rate. By statute, that rate is ten cents less than the levy limit (90 cents beginning in 2001-02). The local valuation is adjusted to 100 percent of actual value to eliminate the influence of different assessment statistics between districts. State aid is the difference between the local "needs" and available "resources".

Under LB 898 (2002) needs have been reduced for all districts by 1.25% for fiscal years 2002-03 through 2004-05, saving about $22 million in state aid.

There are three groups of systems whose costs are averaged within the group, sparse, very sparse, and the standard group or tier. The formula assures relatively equal resources per student. However, students are weighted higher if they are high school or middle school rather than elementary, or if a higher percentage than average qualify for free or reduced school lunches.

The non-equalized portion of school aid is primarily special education funding, income tax rebate and net option student funding. Special education support is provided as a percentage of excess allowable costs attributable to special education in the prior year. The percentage reimbursed depends on the amount appropriated by the Legislature.

Under the Tax Equity and Educational Support Act, passed in 1990, districts received 10% of income tax liability attributable to residents of the school district. LB 1050 in 1996 capped the amount to be distributed under these provisions to $102 million and called for net option funding to be paid from this amount. Net option funding calls for the state to pay an amount for each student optioning into a district. The amount of state aid per net option student is the statewide average cost per student.

The state provides funding only for the "net" option students, that is those that are residents of other districts optioning in minus those from the district that are optioning out. If the district receives equalized aid, net option funding is accountable to the district and therefore the amount of equalized aid received is lower by the same amount. Under LB 898 (2002) the amount appropriated for rebate and net option funding was reduced for the same three years that the needs were reduced for purposes of equalized aid.

The temporary school fund distributes dollars earned from school lands to schools per student based on the census of students, or the absolute count. There are also smaller non-equalized aid programs such as small school stabilization.

B. Municipalities - Statutorially, $17.5 million of personal property tax replacement funds are distributed to municipalities annually. It is distributed based on population, that is, each municipality receives aid equal to the amount distributed times a fraction with the municipality's population in the numerator and the population of all municipalities in the denominator. This statutory amount is sometimes reduced in the appropriations process. For 2002-03, for example, the amount was reduced to $13 million.

Laws 1996, LB 1177 created an equalized aid program for municipalities. The bill provided that beginning in 1998, any qualifying municipality receives aid equal to the average per capita property tax levy times the population of the municipality, minus average property tax levy times the valuation of the municipality. If the result is negative, the municipality receives no aid. Essentially, this formula allows every city to raise the average amount of per capita revenue by levying the average property tax rate, with the state supplying any shortfall.

C. Community Colleges - Laws 1997, LB 269 enacted a new aid formula for Community Colleges that is equalizing in part. The new formula requires 40 percent state funding of each community college area, and assumes 40 percent local funding. The additional 20 percent is to be provided by student tuition and fees. If the community college is unable to generate 40 percent of its need from property taxes at the levy limit, a state fund supplies the rest.

Under Laws 1999, LB 881, additional money was appropriated to community colleges for fiscal years 1999-2000 and 2000-2001. It was distributed proportionately to valuation. For the two years, $30 million extra was appropriated, resulting in a 3.4 cent levy reduction each year.

D. Counties - Historically, counties also received $17.5 million personal property tax replacement dollars from the state. The formula for counties was in proportion to taxes levied meaning that each county received the amount to be distributed times a fraction with the numerator being the property taxes levied by the county and the denominator the property taxes levied by all counties.

This calculation is still the starting point for the distribution. However, since 1992, this $17.5 million has been reduced by $4 million. The reduction is levied against counties depending on how much farm machinery is now on the tax rolls due to net book value assessment of all depreciable property (LB 1063 (1992). Therefore an additional calculation is made for each county based on the share of all farm machinery assessed in the county and the initial distribution is reduced based on each county's share of farm machinery.

Additionally, this amount may be reduced through the appropriations process. About $1.6 million was shifted from aid to counties to aid to Natural Resources Districts and $4.8 million from counties to Community Colleges beginning in 1999. LB 142 (1999) changed the distribution of motor vehicle taxes from a distribution based on property taxes levied to 60% to the school where the vehicle is registered, 18% to the city and 22% to the county (except in Douglas County where the city/county shares are reversed). This distribution change benefited counties to the detriment of local governments that are not schools, municipalities, or counties. Consequently, the Legislature reduced county aid by $6.4 million and increased aid to Community Colleges and NRDs to soften the impact of this shift in the distribution of motor vehicle tax revenues. Budget cuts this year have reduced the county aid distribution further. For 2002-03, the actual amount appropriated is only $5.5 million.

LB 695 of 1998 created a modest new county aid program, for which $4.5 million was budgeted in 2002-03. This is capacity equalizing aid calculated by examining valuation per road mile. Aid is equal to the difference between the average property taxes per road mile which can be raised by counties, and the amount raised in the specific county, when a tax rate of 1.7 cents per $100 in valuation is multiplied by the statewide and individual county valuation. Counties with low valuation capacity using this formula receive aid that may be used for any general fund spending purpose. If the amount appropriated is insufficient to fund all the calculated need, the distributions are prorated.

E. Natural Resources Districts - Like cities and counties, NRDs traditionally received personal property tax replacement funds of about $750,000. It is distributed based on property taxes levied as is the county distribution. In 1999, $1.6 million of aid was shifted from counties to NRDs because counties began receiving a larger share of the motor vehicle tax and other local governments lost this source of revenue. This year cuts were made to all aid programs resulting in an appropriation of $1.7 million for fiscal year 2002-03.

F. Highway Trust Fund Distribution to Municipalities and Counties - The amount in the Highway Allocation Fund is distributed equally to municipalities and counties based on the following formulas.

1. The county distribution formula is based on seven weighted factors:

a) Rural population - 20%.
b) Total population - 10%.
c) Lineal feet of bridges 20 feet or more in length - 10%.
d) Rural motor vehicle registrations - 20%.
e) Total motor vehicle registrations - 10%.
f) Miles of county and township roads - 20%.
g) Value of farm products sold - 10%.

2. The municipal distribution formula is based on three weighted factors:

a) Population - 50%.
b) Vehicle registrations - 30%.
c) Lane miles - 20%.

All distributions from the Highway Allocation Fund flowing to cities and counties are also required to be spent building, repairing, or maintaining city and county roads.