Nebraska could join other states allowing families to take advantage of new federal rules governing tax-exempt college savings plans to pay for K-12 education under a bill introduced by Sen. Lydia Brasch.
As part of the Tax Cuts and Jobs Act signed into law by President Donald Trump late last year, 529 plans were expanded to offer families a tax deduction to save money to pay tuition to private or parochial schools.
Nebraska was among the 20 or so states whose 529 plan did not immediately align to the new federal government rules, however.
While the 529 plans offered by the Nebraska Educational Savings Trust for college tuition at the state’s four-year and two-year public and private colleges and universities will remain intact, Brasch’s bill (LB804) would bring NEST plans in line with the new federal guidelines.
Families choosing to use the NEST 529 plan to send their child to a private elementary school, for example, could exempt up to $10,000 from their tax bill for their contribution.
Brasch said LB804 gives families an opportunity to make better decisions for their children.
“LB804 allows everyday Nebraskans to save their own money for their children’s education and to spend their money at the school they are most comfortable with and aligns with their family’s beliefs,” she said.
After its creation by the Legislature in 2001, NEST quickly gained national popularity for low administrative costs and solid returns on families’ investments.
State Treasurer Don Stenberg told the Revenue Committee on Friday that more than 254,000 accounts have been opened in the NEST program from families nationwide as of 2018, with about 79,000 of those accounts being held by Nebraskans.
About $4.8 billion is held in those savings accounts, Stenberg said.
Without aligning NEST with the new guidelines, Deborah Goodkin, managing director of college savings plans at First National Bank of Omaha, which manages the NEST plans, said more families will invest their money in other states’ plans.
Brasch’s bill also has the backing of religious groups and school-choice advocates, who echoed her sentiments that it gave families the ability to make better decisions in where to send their children to school.
Deb Portz said she had long contributed to a NEST plan for college, but would have used it to pay for tuition at private schools here in Lincoln for her children if given the choice.
But public school backers said the plan would put further strain on state resources.
Expanding the number of families contributing to a tax-exempt 529 plan would narrow the state’s income tax base, said Renee Fry, executive director of the Open Sky Policy Institute.
The Nebraska Association of School Boards said in reducing the amount of state funding for schools, the tax exemption offered by LB804 would make school districts more reliant on property taxes.
Tim Royers, a Millard West High School teacher who was named the 2016 Nebraska Teacher of the Year, pointed out to the committee that language in LB804 would codify into law that the state does not have adequate resources to fund public education.
Some committee members voiced skepticism of the plan as well.
Sen. Paul Schumacher of Columbus said an expansion of how 529 plans operate at the federal level forced the states to adopt similar policies — action he equated with federal overreach.
No action was taken on the bill Friday, and senators closed the hearing with a back-and-forth that exemplified a larger debate echoing in the halls of the Capitol.
Following Brasch’s closing, Sen. Curt Friesen of Henderson asked the Bancroft senator to explain what the difference was between her plan and creating a school voucher system in the state.
“Why should I subsidize it with my tax dollars?” he asked Brasch. “There’s a tax credit there.”
Brasch responded: “People who are already or want to send their children to a private or parochial school are subsidizing someone else’s public education.”
“That’s their choice,” Friesen shot back.
“We all benefit from their positive outcomes,” Brasch replied.