- 256 -

Nebraska Supreme Court Advance Sheets

300 Nebraska Reports

UPPER REPUBLICAN NRD v. DUNDY CTY. BD. OF EQUAL.

Cite as 300 Neb. 256

Upper Republican Natural Resources District and

Steve Yost, appellees, and FEM, Inc., and M & L

Cattle Company, appellees and cross-appellants, 

v. Dundy County Board of Equalization, 

appellant and cross-appellee.

___ N.W.2d ___

Filed June 15, 2018. No. S-17-814.

1. Taxation: Judgments: Appeal and Error. An appellate court reviews 

Nebraska Tax Equalization and Review Commission decisions for error 

appearing on the record of the commission.

2. ____: ____: ____. When reviewing a Nebraska Tax Equalization and 

Review Commission judgment for errors appearing on the record, the 

inquiry is whether the decision conforms to the law, is supported by competent evidence, and is neither arbitrary, capricious, nor unreasonable.

3. Administrative Law. An administrative agency’s decision is arbitrary 

when it is made in disregard of the facts or circumstances without some 

basis which would lead a reasonable person to the same conclusion; 

administrative agency action taken in disregard of the agency’s own 

substantive rules is also arbitrary and capricious.

4. Taxation: Appeal and Error. Questions of law arising during appellate 

review of Nebraska Tax Equalization and Review Commission decisions 

are reviewed de novo.

5. Constitutional Law: Due Process. The determination of whether 

the procedures afforded to an individual comport with constitutional 

requirements for procedural due process presents a question of law.

6. Taxation. Neb. Rev. Stat. § 77-5016(8) (Cum. Supp. 2018) provides that 

for questions other than taxable value, the Nebraska Tax Equalization 

and Review Commission’s power is limited to questions that are both 

(1) raised in the proceeding before the commission and (2) a basis for 

the order, decision, determination, or action appealed from.

7. Appeal and Error. An appellate court ordinarily considers only those 

errors assigned and discussed in the briefs, but may notice plain error.

Nebraska Supreme Court Online Library

www.nebraska.gov/apps-courts-epub/

06/22/2018 12:12 AM CDT
- 257 -

Nebraska Supreme Court Advance Sheets

300 Nebraska Reports

UPPER REPUBLICAN NRD v. DUNDY CTY. BD. OF EQUAL.

Cite as 300 Neb. 256

8. Appeal and Error: Words and Phrases. Plain error is error plainly 

evident from the record and of such a nature that to leave it uncorrected 

would result in damage to the integrity, reputation, or fairness of the 

judicial process.

9. Taxation: Property: Public Purpose. Property can be used by a public entity in more than one way and for more than one public purpose, 

and all public purpose uses should be considered together in evaluating whether any private use of the property is merely incidental in the 

analysis under Neb. Rev. Stat. § 77-202(1)(a) (Cum. Supp. 2012) of the 

extent to which the property is used or being developed for use for a 

public purpose.

Appeal from the Tax Equalization and Review Commission. 

Affirmed in part, vacated in part, and in part reversed and 

remanded with directions.

Jeanelle R. Lust, Richard C. Reier, and Carly L. Bahramzad, 

of Knudsen, Berkheimer, Richardson & Endacott, L.L.P., 

for appellant.

Todd R. McWha, of Waite, McWha & Heng, and Lindsay 

E. Pedersen for appellees FEM, Inc., and M & L Cattle 

Company.

Joel E. Burke, of Burke & Pribbeno, L.L.P., for appellee 

Upper Republican Natural Resources District.

Heavican, C.J., Miller-Lerman, Cassel, and Stacy, JJ., and

Luther and O’Gorman, District Judges.

O’Gorman, District Judge.

I. NATURE OF CASE

This is an appeal by the Dundy County Board of Equalization 

(Board) from the decision of the Tax Equalization and Review 

Commission (TERC). The central issue in this appeal is the 

tax exempt status of land purchased by the Upper Republican 

Natural Resources District (NRD) as part of a ground water 

integrated management plan. The NRD retired irrigated acres 

and converted them to grassland to achieve soil conservation 
- 258 -

Nebraska Supreme Court Advance Sheets

300 Nebraska Reports

UPPER REPUBLICAN NRD v. DUNDY CTY. BD. OF EQUAL.

Cite as 300 Neb. 256

and range management objectives. The NRD leased much 

of that grassland for grazing. The parties dispute the extent 

to which the lease was at fair market value for a public purpose, as described by Neb. Rev. Stat. § 77-202(1)(a) (Cum. 

Supp. 2012). The parties also dispute the scope, under Neb. 

Rev. Stat. § 77-5016(8) (Cum. Supp. 2016), of the questions 

properly before the TERC; whether due process allowed for 

any tax assessment to the lessees if they lacked notice of the 

proceedings before the Board; and whether it is legally permissible, under Neb. Rev. Stat. § 77-202.11 (Reissue 2009), to 

assess property tax to a public entity that has leased land for a 

nonpublic purpose.

II. BACKGROUND

1. Purchase and Lease Agreements

In order to comply with the Republican River Compact 

and to meet other water management objectives, in 2011, 

the NRD paid approximately $10 million to purchase from 

FEM, Inc., approximately 4,080 acres of agricultural land, 

3,262 of which were certified irrigated acres. Under the terms 

of the purchase agreement, FEM retained the right to lease 

back the property, but once the NRD had decertified the 

irrigated acres, FEM’s use of the land was limited to grazing and use of certain fixtures. During the years pertinent to 

this appeal, the land had been converted from irrigated land 

to native grassland. FEM exercised its right to lease back the 

entirety of the FEM property and, as allowed by the terms 

of the lease, subleased the land to M & L Cattle Company 

(M&L), the company through which FEM conducts its cattle 

operations (M&L and FEM together are referred to herein 

as “lessees”).

The lease agreement between the NRD and FEM provides 

that the NRD “shall pay all real estate taxes and personal property attributable to fixtures located on the property.”

In 2013, the NRD purchased an additional 3,200 certified 

irrigated acres from Maurice Wilder, for $8,050,000. The land 
- 259 -

Nebraska Supreme Court Advance Sheets

300 Nebraska Reports

UPPER REPUBLICAN NRD v. DUNDY CTY. BD. OF EQUAL.

Cite as 300 Neb. 256

was contiguous to the FEM parcels and was also acquired in 

order to carry out the objectives of the management plan.

Both properties were located in Dundy County, Nebraska.

2. Assessor Notice of

Taxable Status

In 2013, the Dundy County assessor sent the NRD notices 

of taxable status for 12 FEM parcels and 6 Wilder parcels. The 

notices stated that the reason the assessor determined the parcels to be taxable was because they were not being used for a 

public purpose.1 The notices did not state that the assessor had 

determined that any of the parcels were being leased at less 

than fair market value.

The notices advised the NRD that if the property was leased 

to another entity and the NRD “d[id] not intend to pay the 

taxes as allowed under subsection (4) of section 77-202.11, 

[the NRD] must immediately forward this notice to the lessee.” 

The NRD did not forward the notices to the lessees, and the 

lessees did not have actual notice of the assessment.

The assessor similarly determined the parcels nonexempt in 

2014 and 2015. The NRD similarly failed to forward notices 

of the 2014 and 2015 assessments to the lessees, who lacked 

actual knowledge thereof.

3. Protests to Board

The NRD protested the 2013 through 2015 assessments to 

the Board. The NRD had apparently paid assessments by the 

assessor for 2012, when the land was still being utilized by the 

lessees as irrigated farmland. The NRD did not object to the 

2013 through 2015 assessments against it on the ground that 

it was legally impermissible to assess property tax against a 

public entity leasing public land. The NRD argued simply that 

the property was exempt from taxation, because it was being 

used for a public purpose. The lessees did not have notice of 

1 See § 77-202(1)(a).
- 260 -

Nebraska Supreme Court Advance Sheets

300 Nebraska Reports

UPPER REPUBLICAN NRD v. DUNDY CTY. BD. OF EQUAL.

Cite as 300 Neb. 256

the NRD’s protests and were not parties to the proceedings 

before the Board.

Following a hearing, the Board determined that all 18 parcels were nonexempt, taxable property for the years 2013 

through 2015. The Board stated as the basis for its decision 

that the surface and buildings were not being used for a public 

purpose. The Board was not presented with and did not pass 

upon the issue of whether the lease was at fair market value.

4. Appeal to TERC

The NRD timely appealed to the TERC. The NRD stated in 

its appeal form that it was appealing the Board’s determination 

that the property was not used for a public purpose. Again, 

the NRD did not raise any issue of whether the lessees, rather 

than the NRD, should be assessed tax liability in the event the 

TERC rejected its contention that the parcels were for a public 

use. The lessees received notice of the appeal, but they were 

not originally made parties.

(a) Necessary Parties

The TERC issued an order to show cause whether it had 

jurisdiction to determine the tax-exempt status of any leased 

parcel without all lessees as parties. The NRD argued at the 

show cause hearing that the lessees were not necessary parties, 

because the question presented to the TERC was limited to the 

NRD’s tax liability. But the TERC ultimately concluded that 

any determination of whether the property was used for a public purpose would have implications for lessee tax obligations. 

Therefore, the TERC decided that it lacked some necessary 

parties to the appeal.

Though the informal hearing on the merits had already been 

held, the TERC vacated the hearing. The NRD, upon an order 

to disclose, stated that M&L was the missing necessary party 

to the proceedings. The TERC scheduled a new hearing and, 

pursuant to its authority under Neb. Rev. Stat. § 77-5015.01 

(Cum. Supp. 2016), served notice to M&L. Upon a joint 

stipulation of the Board, the NRD, FEM, and M&L, the TERC 
- 261 -

Nebraska Supreme Court Advance Sheets

300 Nebraska Reports

UPPER REPUBLICAN NRD v. DUNDY CTY. BD. OF EQUAL.

Cite as 300 Neb. 256

determined the issues based on the exhibits and transcript of 

the prior hearing.

(b) Evidence and 

Arguments Presented

At the informal hearing, the NRD and the Board were 

given the opportunity to present evidence and argument.2 The 

underlying facts related to the use of the property were not in 

dispute. Instead, the parties disputed how those facts applied 

to the concept of public purpose as set forth in the statutes. 

Neither party presented argument as to whether the lease was 

at fair market value.

The Board conceded that there was some public purpose 

served by the NRD’s ownership of the parcels, but argued that 

in determining whether the predominant use was for a public 

purpose, the TERC should focus on the use of the surface of 

the land and not the use or nonuse of the water underneath. 

The assessor explained that in determining the parcels were 

agricultural and not predominantly for a public use, she was 

“looking at the surface and the surface only.” She also found it 

pertinent in her assessment that the NRD was not specifically 

required by law to purchase land as the means of complying 

with its legal duties.

The NRD responded that its use of the land should include 

the use or nonuse of the water rights, because ownership of 

the overlying land was essential to that purpose. Moreover, the 

NRD’s ownership of the land brought into play important statutory duties of soil conservation and range and wildlife management, as set forth in Neb. Rev. Stat. § 2-3229 (Reissue 2012), 

which were furthered by the grazing.

(i) Management Plan

Dr. Jasper Fanning, general manager of the NRD, testified 

at the hearing. Fanning explained that the impetus behind the 

NRD’s purchase of the parcels was to carry out the goals of 

2 See Neb. Rev. Stat. § 77-5015 (Cum. Supp. 2016).
- 262 -

Nebraska Supreme Court Advance Sheets

300 Nebraska Reports

UPPER REPUBLICAN NRD v. DUNDY CTY. BD. OF EQUAL.

Cite as 300 Neb. 256

the NRD’s integrated management plan, which involved both 

the retirement of irrigated acres to reduce use and the establishment of a well field for controlled augmentation of streamflow during dry periods. Fanning explained that this combination of retirement and augmentation was a more reliable tool 

for ground water management than simply retiring irrigated 

acres and letting the water flow naturally into the streams during wetter periods.

The integrated management plan was directed primarily 

at compliance with the Republican River Compact. Fanning 

explained that the location put the NRD at the forefront of 

compliance. The augmentation aspect of the plan also sought 

to benefit local water users by increasing the amount of water 

that could be allotted to each irrigated acre.

Fanning explained that the integrated management plan 

required a sizable property, since the amount of water a property owner can reasonably use is related to the area of overlying 

land. The property would also have to have a lot of irrigation 

to retire, in order to balance the supply and use. The property 

had to be a certain distance from the river to be able to use the 

land’s aquifer as storage for the augmentation part of the plan. 

Finally, the land would have to have high-capacity wells.

(ii) Purchases and 

Implementation of Plan

The NRD discovered the FEM property listed for sale on the 

open market, and it was “ideal for what the district needed.” 

Fanning explained that the fact that the parcels were available 

in the open market “allowed us to purchase those at market 

cost and not have to go out and condemn property from multiple landowners to try to put the project together.”

Before the purchase by the NRD, the FEM parcels were 

being used for irrigated agriculture. By January 2013, the 

FEM parcels were decertified. By the relevant taxation 

period, the NRD had decertified all the FEM parcels and had 

completed construction of miles of pipeline underneath the 

FEM parcels.
- 263 -

Nebraska Supreme Court Advance Sheets

300 Nebraska Reports

UPPER REPUBLICAN NRD v. DUNDY CTY. BD. OF EQUAL.

Cite as 300 Neb. 256

Fanning explained that the ground water aquifer under the 

FEM parcels acted as a storage vessel. The NRD could then 

discharge that water at a creek on the adjoining landowner’s 

property as needed in order to “retime natural flows to the 

river from all the other upland irrigation pumping that occurs 

throughout the district.” The NRD utilized wells already on 

the land and formerly for irrigation to monitor the water 

depth and record the impact of pumping for the augmentation project.

Fanning testified that while the NRD could conceivably 

have purchased solely the right to use the water on the FEM 

parcels, this would not have served its augmentation purposes. 

The NRD also considered the purchase of water rights to be a 

risk, since the NRD would not have the land ownership that 

would justify the reasonable use needed for the integrated management plan. Moreover, the purchase price of the land from 

FEM with the leaseback was less than the purchase price of 

water rights alone would have been.

With regard to the leaseback provision of the purchase 

agreement, Fanning explained that FEM insisted upon the 

leaseback as a condition of the sale, and it reduced the purchase price of the FEM parcels.

In 2013, the NRD determined that due to declining water 

levels, it needed to acquire additional certified irrigated acres 

in order to balance water use. This led to the purchase of 

the Wilder parcels. There were no augmentation wells on 

the Wilder parcels, but the retirement of the irrigated acres 

adjacent to the FEM well field would allow for the infiltration of Wilder water onto the FEM parcels. This, in turn, 

would allow the NRD larger use for pumping water on the 

FEM property.

(iii) Soil Conservation and Range 

and Wildlife Management

Fanning explained that as the owner of the land, the NRD 

was required to carry out its soil conservation and other duties 

set forth in § 2-3229. The soil conservation also protected the 
- 264 -

Nebraska Supreme Court Advance Sheets

300 Nebraska Reports

UPPER REPUBLICAN NRD v. DUNDY CTY. BD. OF EQUAL.

Cite as 300 Neb. 256

water quality in that area. While the NRD purchased the property primarily as an augmentation project, Fanning pointed out 

that the NRD was a multipurpose natural resources district and 

that it was “not going to turn [the properties] into wasteland 

and watch it blow away.”

The NRD worked with Nebraska’s Game and Parks 

Commission, which considered the acquired parcels part of the 

biologically unique Sand Sage Prairie area. With a large grant 

from the Nebraska Environmental Trust, the NRD reseeded the 

parcels with a mix of native grasses, forbs, and sand sage to 

fit that biologically unique landscape. According to Fanning, it 

was one of the largest conversions of irrigated land to native 

grasslands ever undertaken in Nebraska.

The NRD understood that the parcels were going to “require 

significant mowing unless we want to fill every fence within 

20 or 30 miles full of tumbleweeds.” The alternative to mowing was grazing. Fanning described that mowing would cost 

the NRD $1 to $12 an acre. In contrast, the NRD could 

receive $5 or $6 an acre for the same weed control through a 

lease allowing someone to seasonally graze cattle on the land. 

Grazing, Fanning explained, had the additional advantage of 

incorporating the seed through “hoof action.”

Three FEM parcels had improvements other than wells and 

underground pipelines. Fanning testified that these improvements were used primarily by the lessees for the lessees’ 

agricultural or commercial purposes. One parcel contained 

seven grain bins and a 1-acre farmsite. One parcel contained 

three mobile homes, scales and a scale house, 12 grain bins, a 

garage, a livestock shed, two vertical tanks, a 1-acre farmsite, 

and a 4-acre homesite. And one parcel contained an old airplane hangar and a 2.07-acre farmsite.

With respect to the Wilder parcels, the NRD did not retire 

the certified irrigated acres and reseed with grassland during the first year of acquisition. At the time of acquisition, it 

was too late in the season to do so. Rather, the NRD determined that the best course of action for its ultimate goal of 
- 265 -

Nebraska Supreme Court Advance Sheets

300 Nebraska Reports

UPPER REPUBLICAN NRD v. DUNDY CTY. BD. OF EQUAL.

Cite as 300 Neb. 256

planting native grasses was to plant sorghum and a ground 

cover first. The NRD did not harvest the crop, but planted it 

to add organic matter to the soil and to prevent soil erosion. 

The NRD irrigated the sorghum, but Fanning emphasized that 

this use was a reduction from the parcels’ historical, fully 

irrigated use.

The NRD planted native grasses the following year, in 

2014, and retired the Wilder irrigated acres. One of the Wilder 

parcels contained a house, a machine shed, 10 grain bins, a 

scale house, a scale, a dryer, two vertical tanks, two anhydrous tanks, and a 1-acre homesite. All of these improvements 

were unusable. While the Wilder parcels had a lessee who 

was grazing cattle on the land at the time of purchase, those 

parcels were no longer leased after May 1, 2013. By the tax 

levy date of October 15, 2013, none of the Wilder parcels 

were leased.

(iv) Rents

Under the lease portion of the purchase agreement with 

FEM, the NRD could evaluate each year how many cattle 

were allowed to graze, in order to serve the NRD’s purposes 

without overgrazing the property. When asked if the lease 

had a base rate for grazing, based upon animal units per acre, 

Fanning responded:

Yeah, we knew that the lease was going to be variable — 

or the real world is going to be variable in the number of 

cows that they’d be able to graze, so the lease essentially 

sets out a grazing rate based on kind of what their fair 

market value was at the time for grazing a cow/calf pair, 

and then it’s adjusted based on the number of animals 

that we determined they can actually run.

The FEM lease also established a rent of 5 cents per bushel of 

all grain the lessees brought onto the property.

During the relevant tax years, after the NRD retired the 

irrigated acres and the lessees were limited to grazing and 

use of fixtures, the total annual income derived from the 

leaseback agreement with FEM was approximately $57,000. 
- 266 -

Nebraska Supreme Court Advance Sheets

300 Nebraska Reports

UPPER REPUBLICAN NRD v. DUNDY CTY. BD. OF EQUAL.

Cite as 300 Neb. 256

Fanning explained that by retiring the irrigated acres and 

turning them into grassland, the NRD reduced the market 

value of the land from “a $4,000 piece of irrigated property . . . into something that’s worth 5- or 600 bucks.” And 

Fanning pointed out that the NRD’s yearly rental income 

under the lease was less than its monthly electricity bill for 

the augmentation project.

(c) Posthearing Briefs

The NRD and the Board submitted posthearing briefs. The 

lessees did not. In its posthearing brief, the NRD argued that 

the parcels were predominantly used for the public purposes 

of ground water management, compact compliance, soil erosion control, and other public purposes under the NRD’s statutory authority.

The Board asserted in its posthearing brief that “[t]he narrow question before the Commission is whether 6,640 acres 

of real property owned [by the NRD] are exempt from taxation in 2013 because the property is ‘used or being developed 

for use . . . for a public purpose,’” although the Board also 

pointed out that the NRD had never adduced “independent” 

evidence on the fair market value of the lease. The Board concedes in this appeal that the “narrow question before TERC 

was whether 6,640 acres of real property owned by [the NRD] 

were exempt from taxation because the property is ‘used or 

being developed for use . . . for a public purpose.’”3

(d) TERC’s Decision

Pursuant to 350 Neb. Admin. Code, ch. 15, § 003.07 (2009), 

the TERC examined separate and distinct use portions of the 

properties and divided them broadly into three groups: the 

FEM parcels with improvements, the FEM parcels without 

improvements (except wellheads and underground pipes), and 

the Wilder parcels.

3 Brief for appellant at 5.
- 267 -

Nebraska Supreme Court Advance Sheets

300 Nebraska Reports

UPPER REPUBLICAN NRD v. DUNDY CTY. BD. OF EQUAL.

Cite as 300 Neb. 256

(i) FEM Parcels Without 

Improvements

The TERC determined that the nine FEM parcels without 

surface improvements were simultaneously used for multiple 

purposes, but that, considering the factors set forth in 350 

Neb. Admin. Code, ch. 15, § 003.07A (2009), the predominant 

use was for public purposes. The TERC found that the cattle 

grazing assisted in the NRD’s long-term and ongoing development of a project plan for the purposes of compliance with the 

Republican River Compact, management of water use, range 

management, and the control of soil erosion. The TERC also 

found that in order to achieve its plan, the NRD had expended 

significant resources in purchasing the parcels, converting 

wellheads, and planting natural grassland. The NRD received a 

comparatively small $40,000 per year in grazing rental income 

from the lease. At the same time, the TERC noted that the 

cattle grazing under the lease supported the NRD’s primary use 

by reducing costs that the NRD would otherwise have incurred 

to mow the grasses. Finally, the TERC found that the NRD’s 

public purpose use of the parcels was year round, while the 

cattle grazing was seasonal.

Having concluded that the nine FEM parcels without 

improvements were leased for a public purpose, the TERC 

turned to the issue of whether they were leased at fair market 

value. The TERC found sufficient evidence of fair market 

value in Fanning’s testimony that the lease of the grazed acres 

was based upon the fair market value of a grazing lease per 

cow-calf pair. The TERC noted that there was no evidence to 

the contrary.

(ii) Wilder Parcels

The TERC found that all six Wilder parcels were used 

for the public purposes of soil conservation, development of 

wildlife habitat, and range management. The TERC grouped 

both the parcels with and the parcels without improvements 

together. The TERC explained that none of the improvements on the Wilder parcels—except, apparently, the irrigation 
- 268 -

Nebraska Supreme Court Advance Sheets

300 Nebraska Reports

UPPER REPUBLICAN NRD v. DUNDY CTY. BD. OF EQUAL.

Cite as 300 Neb. 256

equipment—had any value. The improvements were unusable 

and merely incidental to the NRD’s use of the parcels.

The TERC determined that the Wilder parcels should not be 

considered leased property, even for 2013, because the lease 

terminated before the levy date on October 15, 2013. And 

under 350 Neb. Admin. Code, ch. 15, § 003.11A (2009), when 

the tax status of real property owned by a public entity changes 

after January 1, but before the levy date, the county assessor is 

required to modify its determination of the tax status as of the 

levy date. The TERC found that the planting of the sorghum 

and use of the irrigation equipment to grow the sorghum were 

for soil conservation and suppression of weeds until grasslands 

could be planted.

(iii) FEM Parcels 

With Improvements

With respect to the three FEM parcels with improvements, 

the TERC concluded that the entirety of the parcel with the 

airplane hangar and 2.07-acre farmsite was nonexempt and that 

only those portions of the other two parcels with the improvements were nonexempt.

In finding the one parcel nonexempt and portions of the two 

parcels nonexempt, the TERC reasoned first that the NRD had 

failed to adduce evidence that the portion of the lease associated with the use of improvements, other than wellheads or 

other fixtures used to provide water for the cattle, was at fair 

market value. The TERC reasoned second that the property 

was not used predominantly for a public purpose.

Cattle were grazed on the remaining portions of those two 

parcels. For the portions without improvements, the TERC 

applied the same reasoning it applied to the FEM parcels without improvements.

(iv) Responsible Party for 

Nonexempt Parcels

Having concluded that one parcel was nonexempt and portions of two parcels were nonexempt, the TERC believed it 
- 269 -

Nebraska Supreme Court Advance Sheets

300 Nebraska Reports

UPPER REPUBLICAN NRD v. DUNDY CTY. BD. OF EQUAL.

Cite as 300 Neb. 256

necessary to then determine which party or parties held the 

obligations to pay the tax for the nonexempt property.

Citing § 77-202.11(4), the TERC stated that a governmental 

subdivision is permitted to operate as a tax collector, collecting the tax on behalf of the county through monthly rental 

payments, which it in turn pays to the county. But the TERC 

believed the governmental subdivision was not permitted by 

law to “assume the tax liability.” Citing to § 77-202.11(3), the 

TERC concluded, “There is no set of circumstances under the 

statute where the actual tax liability shifts to the state or its 

governmental subdivisions.”

In the lease agreement, the NRD agreed to pay all property taxes. And the TERC specifically found that the NRD 

intended to exercise its authority granted by § 77-202.11(4), to 

voluntarily pay any applicable tax and collect it as part of the 

rent. Nevertheless, citing to § 77-202.11(1), the TERC decided 

that “[r]egardless of the contract, or even in the event that the 

[NRD] exercises its discretion to voluntarily pay the tax and 

collect it from FEM . . . , the ultimate responsibility for the 

property taxes lies with the lessee, FEM . . . .”

The TERC explained that while the NRD was allowed to 

voluntarily pay the tax, but collect it from the lessee through 

rents, the NRD was not permitted to assume its lessee’s property tax liability. Otherwise, the NRD would effectively collect 

taxes from all taxpayers in the district to pay for its lessee’s 

tax liability.

The TERC accordingly concluded that property taxes for the 

nonexempt portions of the FEM parcels with improvements 

should not be assessed to the NRD. The TERC turned to the 

question of whether it could assess the tax to FEM.

(v) Due Process for Lessees

The TERC concluded that FEM’s due process rights were 

violated by lack of notice of the proceedings before the Board. 

Though the TERC determined that no statutory notice provisions were violated, it concluded that FEM was deprived of 
- 270 -

Nebraska Supreme Court Advance Sheets

300 Nebraska Reports

UPPER REPUBLICAN NRD v. DUNDY CTY. BD. OF EQUAL.

Cite as 300 Neb. 256

participation in a contested hearing before the Board. Such 

lack of participation was meaningful, the TERC concluded, 

because the Board has a lower standard of review of an assessor’s determination than the standard of review in the appeal 

before the TERC of the Board’s decision. In the proceeding 

before the Board, FEM would have had the burden to demonstrate by a preponderance of the evidence that the assessor was incorrect.4

 In contrast, under § 77-5016(9), when the 

TERC acts as an appellate body, there is a presumption that 

the board of equalization acted upon sufficient competent evidence, which presumption must be rebutted on appeal before 

the TERC by clear and convincing evidence.5

The TERC pointed out that it was bound to exercise the 

appellate standard of review set forth in § 77-5016(9), and the 

TERC could identify no authority to remand the matter back to 

the Board to correct the due process violation. The TERC concluded that due to the due process violation, it lacked authority 

to assign tax liability to FEM. The TERC also found that the 

tax liabilities of FEM in relation to the nonexempt parcels or 

portions of parcels were “void.”

III. ASSIGNMENTS OF ERROR

The Board timely filed a petition for review6 by the 

Nebraska Court of Appeals, and we moved the case to our 

docket. The Board seeks an order reversing the TERC’s decision that (1) the unimproved FEM parcels and the Wilder 

parcels were exempt, (2) portions of the improved FEM parcel 

were exempt, (3) tax liability cannot be assessed to the NRD, 

and (4) tax liabilities of FEM are void. The Board asks this 

court to remand the cause to the TERC to assess tax liability 

to the NRD or FEM.

4 See Cain v. Custer Cty. Bd. of Equal., 291 Neb. 730, 868 N.W.2d 334 

(2015).

5 See id.

6 See Neb. Rev. Stat. § 77-5019 (Cum. Supp. 2016).
- 271 -

Nebraska Supreme Court Advance Sheets

300 Nebraska Reports

UPPER REPUBLICAN NRD v. DUNDY CTY. BD. OF EQUAL.

Cite as 300 Neb. 256

In its appellate brief, the Board assigns that the TERC 

unlawfully determined that (1) certain unimproved FEM parcels were leased for a public purpose at fair market value 

and were therefore exempt, (2) those portions of improved 

FEM parcels were exempt, (3) the Wilder parcels were used 

for a public purpose and exempt, (4) the property taxes of 

nonexempt portions of the FEM parcels could be assessed to 

neither the NRD nor FEM, (5) FEM’s due process rights were 

violated, (6) the TERC lacked authority to assign the tax liability for the nonexempt portions of the FEM parcels to FEM, 

and (7) the tax liabilities of FEM were void.

The lessees assign in their brief on cross-appeal that the 

TERC erred in determining that (1) it had subject matter jurisdiction to decide if any taxes could be assessed to the NRD or 

assigned to the lessees, (2) the lease agreement was in conflict 

with § 77-202.11, and (3) the lessees’ failure to receive direct 

notice of the assessor’s determination that the property was 

not exempt did not violate due process.

IV. STANDARD OF REVIEW

[1] We review TERC decisions for error appearing on the 

record of the commission.7

[2] When reviewing a TERC judgment for errors appearing 

on the record, the inquiry is whether the decision conforms to 

the law, is supported by competent evidence, and is neither 

arbitrary, capricious, nor unreasonable.8

[3] An administrative agency’s decision is arbitrary when 

it is made in disregard of the facts or circumstances without some basis which would lead a reasonable person to the 

same conclusion; administrative agency action taken in disregard of the agency’s own substantive rules is also arbitrary 

and capricious.9

7 Cain v. Custer Cty. Bd. of Equal., 298 Neb. 834, 906 N.W.2d 285 (2018); 

§ 77-5019(5).

8 Id.

9 See id.
- 272 -

Nebraska Supreme Court Advance Sheets

300 Nebraska Reports

UPPER REPUBLICAN NRD v. DUNDY CTY. BD. OF EQUAL.

Cite as 300 Neb. 256

[4] Questions of law arising during appellate review of the 

TERC’s decisions are reviewed de novo.10

[5] The determination of whether the procedures afforded 

to an individual comport with constitutional requirements for 

procedural due process presents a question of law.11

V. ANALYSIS

In its appeal from the TERC’s decision, the Board argues 

that all the parcels had a predominantly agricultural use 

instead of a predominantly public use. The Board also argues 

that the TERC erred in concluding the lease was at fair market 

value. Both the Board and the lessees assert that the TERC 

erred in concluding that the NRD cannot be assessed any 

tax in these appeals and in even addressing that issue, which 

the Board and the lessees assert was not properly before the 

TERC. The Board and the lessees disagree whether the TERC 

erred in concluding that assessing the tax to the TERC would 

violate FEM’s due process rights. Neither the NRD nor the 

lessees contest the TERC’s decision that one FEM parcel 

and portions of two other FEM parcels with improvements 

were nonexempt.

1. Scope of Questions Before TERC

As a threshold matter, we must determine what issues were 

properly before the TERC, because that governs what issues 

are properly presented in this appeal. The TERC was acting 

as an intermediate appellate body. In an ordinary civil case, an 

appellate court will not consider an issue on appeal that was 

not presented to or passed upon by the trial court, because a 

trial court cannot commit error in resolving an issue never 

presented and submitted to it for disposition.12 Statutes govern 

the scope of review by the TERC, and, as an administrative 

10 Id.

11 Id.

12 See Brown v. Jacobsen Land & Cattle Co., 297 Neb. 541, 900 N.W.2d 765 

(2017).
- 273 -

Nebraska Supreme Court Advance Sheets

300 Nebraska Reports

UPPER REPUBLICAN NRD v. DUNDY CTY. BD. OF EQUAL.

Cite as 300 Neb. 256

body, it only has that power that has been granted to it by 

the Legislature.13

Section 77-5016(8) provides that “[t]he [TERC] may determine any question raised in the proceeding upon which an 

order, decision, determination, or action appealed from is 

based.” Additionally, under § 77-5016(8), “[t]he [TERC] may 

consider all questions necessary to determine taxable value 

of property as it hears an appeal or cross appeal.” Neb. Rev. 

Stat. § 77-5017(1) (Cum. Supp. 2016) states that in resolving 

an appeal or petition, the TERC may “make such orders as are 

appropriate for resolving the dispute but in no case shall the 

relief be excessive compared to the problems addressed.” Neb. 

Rev. Stat. § 77-5018(1) (Cum. Supp. 2016) provides that the 

TERC “may issue decisions and orders which are supported 

by the evidence and appropriate for resolving the matters 

in dispute.”

Accordingly, in an appeal from the TERC’s decision denying tax exempt status under § 77-202(1)(c) to an assisted living facility, we held in Bethesda Found. v. Buffalo Cty. Bd. 

of Equal.

14 that only the question of whether the facility was 

used for charitable purposes was before us on appeal. The 

other element of exempt status under § 77-202(1)(c), i.e., that 

the facility be owned by a charitable organization, was not 

before us. That question was not before us because it was not 

a contested issue before the Board:

Since the issue was not presented to the [board of equalization], it could not be presented to TERC, and TERC 

had no power to reach the issue sua sponte. The appeal 

is restricted to questions raised before the [b]oard. TERC 

has no authority to consider questions not raised before a 

county board of equalization.15

13 Id.

14 Bethesda Found. v. Buffalo Cty. Bd. of Equal., 263 Neb. 454, 640 N.W.2d 

398 (2002).

15 Id. at 458, 640 N.W.2d at 402.
- 274 -

Nebraska Supreme Court Advance Sheets

300 Nebraska Reports

UPPER REPUBLICAN NRD v. DUNDY CTY. BD. OF EQUAL.

Cite as 300 Neb. 256

Likewise, in several cases decided when district courts acted 

as the intermediate appellate body reviewing decisions of a 

county board of equalization, we held that the district court 

lacked the power to consider questions that were not raised 

before the county board of equalization.16 Neb. Rev. Stat. 

§ 77-1511 (Reissue 1996) controlled appeals from decisions 

by a county board of equalization and provided that the district 

court shall hear and determine “all questions raised before the 

county board of equalization.”

In Nebraska State Bar Found. v. Lancaster Cty. Bd. of 

Equal.,

17 we said that the parties disputing the merits of 

whether the subject property was exempt under provisions 

relating to state-owned property had overlooked the “important and dispositive procedural point in [the] case.” The 

important and dispositive point, we explained, was that the 

issue of such exemption was not raised before the board 

of equalization.18 We explained that in the application filed 

with the county assessor, the issue presented was whether 

the subject property fell under charitable and educational 

exemptions. The discussion at the hearing before the board 

of equalization likewise focused on whether the property was 

owned by a charitable organization and was used for charitable purposes. Finally, the board’s decision disallowed the 

educational and charitable exemption and did not address any 

other exemption.19

16 See, Nebraska State Bar Found. v. Lancaster Cty. Bd. of Equal., 237 Neb. 

1, 465 N.W.2d 111 (1991); Gordman Properties Co. v. Board of Equal., 

225 Neb. 169, 403 N.W.2d 366 (1987); Reichenbach Land & Loan Co. v. 

Butler County, 105 Neb. 209, 179 N.W. 1015 (1920); Reimers v. Merrick 

County, 82 Neb. 639, 118 N.W. 113 (1908); Arcadian Fertilizer v. Sarpy 

Cty. Bd. of Equal., 7 Neb. App. 499, 583 N.W.2d 353 (1998).

17 Nebraska State Bar Found. v. Lancaster Cty. Bd. of Equal., supra note 16, 

237 Neb. at 19, 465 N.W.2d at 122.

18 See id.

19 See id.
- 275 -

Nebraska Supreme Court Advance Sheets

300 Nebraska Reports

UPPER REPUBLICAN NRD v. DUNDY CTY. BD. OF EQUAL.

Cite as 300 Neb. 256

We described the statutory limitation of the scope of the 

appeal from a county board of equalization as jurisdictional.20

We said that where there was no jurisdiction at the intermediate appellate tribunal to consider an issue, we likewise lacked 

the power to adjudicate its merits.21 We also pointed out that 

in Reichenbach Land & Loan Co. v. Butler County,

22 we had 

described that it is the public policy of the state that the county 

board of equalization should have an opportunity to pass on 

the question for ultimate decision before the public revenues 

become involved in protracted or vexatious litigation.

[6] Section 77-5016(8) provides that for questions other than 

taxable value, the TERC’s power is limited to questions that 

are both (1) raised in the proceeding before the TERC and (2) a 

basis for the order, decision, determination, or action appealed 

from. Thus, in this case, the TERC lacked the power to address 

questions that were not raised in the proceeding before the 

TERC or that were not questions upon which the Board’s decision was based. When the TERC addresses questions outside 

the scope of its limited statutory authority, its decision in that 

respect must be vacated.

This case began when the assessor gave the NRD notice 

that she had determined the parcels were taxable because they 

were not being used for a public purpose. Though it may be the 

burden on the party seeking the exemption to prove tax exempt 

status, the assessor initially frames the issues that the party 

seeking the exemption must respond to. More importantly, the 

parties raised before the Board solely the question of whether 

the parcels were being used for a public purpose. And the 

Board determined they were not being used for a public purpose, without addressing any other issue. The assessment by 

the Board was against the NRD.

20 See id.

21 See id.

22 Reichenbach Land & Loan Co. v. Butler County, supra note 16. See 

Nebraska State Bar Found. v. Lancaster Cty. Bd. of Equal., supra note 16.
- 276 -

Nebraska Supreme Court Advance Sheets

300 Nebraska Reports

UPPER REPUBLICAN NRD v. DUNDY CTY. BD. OF EQUAL.

Cite as 300 Neb. 256

Finally, on appeal to the TERC, the only issue raised by the 

parties was whether the parcels were being used for a public 

purpose. Indeed, the Board expressly stated that the only issue 

presented was whether the land was being used for a public 

purpose. The NRD did not contest its liability for the taxes 

in the event the TERC determined the parcels were not being 

used for a public purpose. And the Board did not argue as an 

alternative ground to affirm the nonexempt determination that 

the lease was not for fair market value.

In deciding whether to affirm or reverse the Board’s decision, the TERC erred in considering questions beyond whether 

the parcels were being used for a public purpose. Not only 

was it unfair for the TERC to decide issues that the parties 

had no notice were being litigated; doing so was outside of 

the TERC’s appellate jurisdiction as set forth by § 77-5016(8). 

The TERC also violated the mandate of § 77-5017(1) that it 

shall in no case provide relief excessive compared to the problems addressed.

[7,8] Though the parties dispute only the TERC’s power to 

decide the issue of whether the NRD could be assessed any 

tax for nonexempt property, we find plain error in the TERC’s 

consideration of the fair market value of the lease. An appellate 

court ordinarily considers only those errors assigned and discussed in the briefs, but may notice plain error.23 Plain error is 

error plainly evident from the record and of such a nature that 

to leave it uncorrected would result in damage to the integrity, 

reputation, or fairness of the judicial process.24

Neither the issue of assessment to the NRD nor the issue 

of fair market value was the basis for the Board’s order. And, 

as discussed, § 77-5016(8) limits the TERC’s review to questions upon which the Board’s decision was based. Furthermore, 

neither the issue of assessment to the NRD nor the issue of 

fair market value was an issue raised in the proceeding before 

23 See Cain v. Custer Cty. Bd. of Equal., supra note 4.

24 Id.
- 277 -

Nebraska Supreme Court Advance Sheets

300 Nebraska Reports

UPPER REPUBLICAN NRD v. DUNDY CTY. BD. OF EQUAL.

Cite as 300 Neb. 256

the TERC. And § 77-5016(8) also limits the jurisdiction of the 

TERC to the questions raised before it.

Thus, we vacate the TERC’s decision inasmuch as it 

addressed whether the parcels were leased at fair market value, 

whether the NRD could be assessed the tax on the one FEM 

parcel and the portions of the two FEM parcels it found nonexempt, and whether to assess this tax to the lessees would 

violate due process.

Without deciding the merits, we reverse that portion of the 

TERC’s decision concerning FEM’s due process rights. The 

lessees’ due process rights in this case were only potentially 

affected when the TERC elected to declare sua sponte any 

assessment against the NRD void, and we have vacated that 

portion of the TERC’s decision.

We affirm the TERC’s decision that one FEM parcel is nonexempt and that portions of two other FEM parcels are nonexempt, to the extent that the TERC reasoned the land was not 

being used for a public purpose. The nonexempt status of such 

property is not assigned as error, and we find no plain error 

in the TERC’s conclusion that the property was nonexempt 

for the alternative reason that it was not being used predominantly for a public purpose.

Because the TERC lacked the statutory authority to decide 

in this case that it was improper to assess tax liability to the 

NRD, it should have simply affirmed the assessment against 

the NRD as to any property it affirmed to be nonexempt. We 

therefore reverse, and remand with directions for the TERC to 

affirm the Board’s order as to the parcel and portions of parcels 

it found nonexempt.

The only issue remaining in this appeal is whether the TERC 

was correct that the parcels it found to be exempt were being 

used for a public purpose.

2. Use for Public Purpose

The Nebraska Constitution, article VIII, § 2, provides that 

the property of the state and its governmental subdivisions 

is exempt from taxation to the extent the property is used for 
- 278 -

Nebraska Supreme Court Advance Sheets

300 Nebraska Reports

UPPER REPUBLICAN NRD v. DUNDY CTY. BD. OF EQUAL.

Cite as 300 Neb. 256

a public purpose. This has been codified in § 77-202(1)(a), 

which states in part that “[p]roperty of the state and its governmental subdivisions [shall be exempt from property taxes] 

to the extent used or being developed for use by the state or 

governmental subdivision for a public purpose.”

Section 77-202(1)(a)(ii)(B) then defines public purpose in 

relevant part as use of the property “to carry out the duties 

and responsibilities conferred by law with or without consideration.” Section 77-202(1)(a)(ii) also states in part that 

“[p]ublic purpose does not include leasing of property to a 

private party unless the lease of the property is at fair market 

value for a public purpose.”

Under 350 Neb. Admin. Code, ch. 15, § 002.01 (2009), 

“[p]ublic purpose does not include the leasing of property to 

a private party for purposes other than a public purpose,” and 

that regulation elaborates that “[i]ncome generated for the state 

or governmental subdivision, either through leases or other 

receipts, will not convert a nonpublic use of a property to a 

tax exempt public purpose use.” Agency regulations, properly 

adopted and filed with the Nebraska Secretary of State, have 

the effect of statutory law.25

We have held that the primary or dominant use of the property, and not an incidental use, is controlling in determining 

whether property is exempt from taxation.26 Likewise, 350 

Neb. Admin. Code, ch. 15, § 003.06 (2009), explains: “When 

the assessor or county board of equalization determines the 

use of property pursuant to this regulation, the dominant or 

primary use of property shall be considered, such that any 

incidental use for other purposes shall not effect the tax status 

of the property.” Similarly, § 003.07 provides in relevant part: 

“When a parcel of governmentally owned property is used for 

several purposes simultaneously, the determination of taxable 

25 City of Omaha v. Kum & Go, 263 Neb. 724, 642 N.W.2d 154 (2002).

26 City of York v. York Cty. Bd. of Equal., 266 Neb. 305, 664 N.W.2d 452 

(2003).
- 279 -

Nebraska Supreme Court Advance Sheets

300 Nebraska Reports

UPPER REPUBLICAN NRD v. DUNDY CTY. BD. OF EQUAL.

Cite as 300 Neb. 256

status should be based on the predominant use of the property. The predominant use of the property is the primary or 

dominant use.”

Finally, § 003.07A states that in the analysis of mixed use 

parcels, a number of factors may be considered in determining the predominant use, including whether (1) “the use of the 

property assists the government entity in meeting a long term 

or ongoing purpose,” (2) “the governmental entity has spent 

significant money in making the property ready for its public 

purpose use in comparison with any revenue generated by its 

nonpublic use,” and (3) “the public purpose use is ongoing 

throughout the year as opposed to the seasonal nature of its 

nonpublic use.”

Generally, statutes exempting property from taxation should 

be strictly construed, and one contending that property is 

exempt must clearly show that it is within the exemption provided by statute.27 This does not mean, however, that there 

should not be a liberal construction of the language used in 

order to carry out the expressed intention of the Legislature, 

but, rather, that the property which is claimed to be exempt 

must come clearly within the provisions granting such exemption.28 Also, we must apply the plain language of the statutes 

when they are unambiguous.29

The policy behind limiting exempt status to leases utilized 

for public purposes is a balance of interests. On the one hand, 

the public should not have to subsidize a private party’s profitmaking use at an unfair competitive advantage because the 

public entity can offer the tax exempt land at a lower rate.30

27 See Berean Fundamental Church Council, Inc. v. Board of Equalization, 

186 Neb. 431, 183 N.W.2d 750 (1971).

28 See Doane College v. County of Saline, 173 Neb. 8, 112 N.W.2d 248 

(1961).

29 See Pfizer v. Lancaster Cty. Bd. of Equal., 260 Neb. 265, 616 N.W.2d 326 

(2000).

30 See Annot., 54 A.L.R.3d 402, § 3 (1973).
- 280 -

Nebraska Supreme Court Advance Sheets

300 Nebraska Reports

UPPER REPUBLICAN NRD v. DUNDY CTY. BD. OF EQUAL.

Cite as 300 Neb. 256

Furthermore, if the leased property were exempt without 

limitation to leases for a public use, exempt entities would be 

tempted to acquire and rent property for the sole purpose of 

generating income, thereby acquiring revenues in excess of 

those permitted through legal taxation.31

On the other hand, if a lease to a private party is for a public purpose other than simply creating revenue, taxation of the 

leased property would not inure to any public advantage, since 

the tax debtor would also be the tax creditor.32 The exemption 

from taxation of public property used for a public purpose 

avoids the burden of collecting tax revenues from, and disbursing them to, the same public entity.33

Courts addressing similar constitutional and statutory 

schemes generally hold that a lease is for a public purpose 

when it procures performance of the exempt function for 

which the owner would or might have used the property if 

not leased, regardless of whether private interests of the lessee are also served by such use.34 Two cases from other jurisdictions have specifically addressed use by a lessee of land 

acquired for the public purpose use of its aquifer or to prevent 

soil erosion.

In Whitehouse v. Tracy,

35 the court found that a lease to a 

farmer for his own profit was exclusively for a public purpose. The land was owned by the local government in order to 

31 See Pbgh. Sch. Dist. v. Allegheny County, Aplnt., 347 Pa. 101, 31 A.2d 707 

(1943).

32 See Cleveland v. Carney, 172 Ohio St. 189, 174 N.E.2d 254 (1961).

33 See id.

34 See, e.g., First Unitarian Soc. v. Hartford, 66 Conn. 368, 34 A. 89 (1895); 

Central Baptist Church of Miami, Fla. v. Dade County, 216 So. 2d 4 (Fla. 

1968); People ex rel. Korzen v. Amer. Airlines, 39 Ill. 2d 11, 233 N.E.2d 

568 (1967); Adams Co. v. Diocese of Natchez, 110 Miss. 890, 71 So. 17 

(1916); Davis v. Congregation Agudas Achim, 456 S.W.2d 459 (Tex. Civ. 

App. 1970); Hanover County v. Trustees, 203 Va. 613, 125 S.E.2d 812 

(1962); State v. Kittle et al., 87 W. Va. 526, 105 S.E. 775 (1921).

35 Whitehouse v. Tracy, 72 Ohio St. 3d 178, 648 N.E.2d 503 (1995).
- 281 -

Nebraska Supreme Court Advance Sheets

300 Nebraska Reports

UPPER REPUBLICAN NRD v. DUNDY CTY. BD. OF EQUAL.

Cite as 300 Neb. 256

utilize the ground water underneath the surface, in a well field 

that pumped water to the village residents.36 The government 

was renting the surface of the land to the farmer for the sole 

purpose of saving mowing and maintenance expenses that it 

would otherwise incur under its general obligations as owner 

of the property.37 The court held that the private use was sufficiently incidental to the public purpose of the property.38

Although the court found it significant that there was no lease, 

and that the government maintained full control over the property, the statutory scheme apparently lacked applicable provisions specifically for leased property.39

In City of Osceola v. Board,

40 land adjoining an artificial 

lake constituting part of a city’s waterworks was acquired as a 

watershed to prevent soil wash from filling the lake. The land 

was withdrawn from cultivation and seeded with grass. The 

city leased the land to a private entity for pasture. The court 

found that despite this fact, the land was exempt as devoted 

entirely to public use and not for profit.41 The court explained 

that the grass needed to be either cut or pastured in order to 

properly maintain it. The city’s rental for pasturing, the court 

explained, was simply an economical way of meeting the city’s 

maintenance obligations for the grassland.42

The following three Nebraska cases involving the city of 

York and the York County Board of Equalization are also relevant to the case at bar. We held in each of these cases that 

leased public property was used for a public purpose and therefore was tax exempt. In each case, the property was leased to 

a private party who utilized the surface for his or her private 

36 See id.

37 See id.

38 See id.

39 See id.

40 City of Osceola v. Board, 188 Iowa 278, 176 N.W. 284 (1920).

41 See id.

42 See id.
- 282 -

Nebraska Supreme Court Advance Sheets

300 Nebraska Reports

UPPER REPUBLICAN NRD v. DUNDY CTY. BD. OF EQUAL.

Cite as 300 Neb. 256

agricultural operations. We held in each case that such surface 

agricultural use was merely incidental to predominant public 

purposes of the property.

City of York v. York Cty. Bd. of Equal.43 (York I) involved cityowned land required by the Federal Aviation Administration 

to be a buffer zone around an airport. That federal agency 

also had applicable regulations regarding erosion control. To 

maintain the land as a buffer zone and to control erosion, the 

city could either seed and maintain the land on its own or 

lease the land for agricultural use. The city elected to lease 

the land, since that was a more economical means of carrying 

out its duties of maintaining the land and weed control. The 

revenue from the lease was used to support the airport’s operating expenses.44

The TERC had found the property to be nonexempt on the 

ground that the lessees were using the land for private purposes and in direct competition with other agricultural lessees 

not so fortunate as to be leasing public lands. We reversed, 

stating in York I that the TERC erred on the legal question 

of whether the lease served a public purpose, which question 

we reviewed de novo on the record. We held that the lessee’s 

agricultural use was incidental to the primary public purposes 

of maintaining the area as a buffer zone and ensuring that the 

buffer zone was properly maintained.45

In City of York v. York County Bd. of Equal.46 (York II), lots 

were acquired by the city for the purpose of resale as part of 

an industrial park meant to attract industry to the community. 

The lots were being leased for agricultural use until appropriate buyers could be found.47 The agricultural lease was 

43 City of York v. York Cty. Bd. of Equal., 266 Neb. 297, 664 N.W.2d 445 

(2003).

44 See id.

45 See id.

46 York, supra note 26.

47 See id.
- 283 -

Nebraska Supreme Court Advance Sheets

300 Nebraska Reports

UPPER REPUBLICAN NRD v. DUNDY CTY. BD. OF EQUAL.

Cite as 300 Neb. 256

subject to the sale of the property for industrial use, though 

no resale was imminent.48

We held in York II that the primary use of the lots was for 

a public purpose and that the agricultural use by the lessee 

was incidental. We noted that the industrial park was part of 

a comprehensive plan for community development. We also 

considered the fact that the revenue from the lease, $100 per 

acre, was small in proportion to the investment of the city of 

$13,500 per acre to improve the lots for industrial use.

Lastly, in City of York v. York County Bd. of Equal.49

(York III), we held that 44 acres acquired as part of the local 

solid waste agency’s long-term waste management and water 

monitoring planning were for public use, despite the agency’s 

lease of the surface for the lessee’s agricultural operations. 

The property was located adjacent to a landfill, and the agency 

contemplated it would need to use soil from the land in 

approximately 30 years. But the more immediate reason for 

the acquisition of the property was for water monitoring. Three 

wells placed on the land for such purpose were located along 

the property line.50

We concluded in York III that the use of the property by 

the lessee as irrigated cropland was merely incidental to the 

public purposes of waste management and water monitoring. We observed that long-term planning was necessary to 

ensure adequate capacity. We also observed that the income 

of $135 per acre from the lease was small compared to the 

$216,191 that the agency paid to acquire the land. We said 

that “[t]he fact that the [local agency] derives income from 

the leased property does not change its primary purpose.”51

48 See id.

49 City of York v. York Cty. Bd. of Equal., 266 Neb. 311, 664 N.W.2d 456 

(2003).

50 See id.

51 Id. at 316, 664 N.W.2d at 460.
- 284 -

Nebraska Supreme Court Advance Sheets

300 Nebraska Reports

UPPER REPUBLICAN NRD v. DUNDY CTY. BD. OF EQUAL.

Cite as 300 Neb. 256

We concluded that the TERC’s decision that the land was used 

primarily for nonpublic, agricultural purposes did not conform 

to the law.52

[9] We reject any assertion by the Board that the public use 

to be considered in determining the predominant use of the 

property is limited to one purpose for which the property was 

primarily acquired, to the exclusion of other public purposes 

incident to ownership of property. Public purpose is defined 

in relevant part as carrying out the duties and responsibilities 

conferred by law.53 As this language indicates, and York III 

illustrates, those duties and responsibilities are, or the usage 

to carry out those duties and responsibilities is, not necessarily singular. It would be illogical to read the statutory scheme 

as making property taxable when it serves several public purposes, but tax exempt when it serves only one. Property can 

be used by a public entity in more than one way and for more 

than one public purpose, and all public purpose uses should 

be considered together in evaluating whether any private use 

of the property is merely incidental in the analysis under 

§ 77-202(1)(a) of the extent to which the property is used or 

being developed for use for a public purpose.

As for the Board’s focus on the reason for acquisition, nothing in the statutory scheme indicates that the relevant public 

purpose use must be tied to the reason for acquisition. It would 

be contrary to public policy to discourage public uses that were 

not contemplated at the time of purchase. Presumably, a public 

entity ought to use exempt, publicly owned land for as much 

public benefit as possible.

We also find no merit to any contention by the Board 

that the lessees’ uses on the surface are the only activities 

considered in the analysis of whether the leased property is 

tax exempt as predominantly used for a public purpose. In 

52 See York III, supra note 49.

53 See § 77-202(1)(a)(ii)(B).
- 285 -

Nebraska Supreme Court Advance Sheets

300 Nebraska Reports

UPPER REPUBLICAN NRD v. DUNDY CTY. BD. OF EQUAL.

Cite as 300 Neb. 256

York III, we found the property exempt where the lessee was a 

farmer who cultivated the surface of the property, even though 

the only public purpose uses were of the property’s underground wells and its development for future use of the soil (to 

a significant depth).

We find no reason to treat underground uses—in this case 

the use of the aquifer, wells, and pipeline system—differently 

from any other use of the property. As the NRD points out, use 

of the ground water is a derivative right immediately dependent on ownership of the surface over it.54 We have thus held 

in other contexts that the ground water is part of the “property” at issue under the exemption statutes.55 The right to use 

the ground water “does not float in a vacuum of abstraction 

but exists only in reference to and results from ownership of 

the overlying land.”56 We have thus said, “[I]t is clear that the 

right to use ground water is an attribute of owning fee simple 

title to land overlying a source of ground water and is inseparable from the land to which it applies.”57

Accordingly, in our analysis of the public purposes for 

which the subject property was used, we give weight to the 

NRD’s continual use of the underground aquifer, pipelines, and 

wells, to carry out the NRD’s statutory duties of water management. The duties and responsibilities of the NRD are set forth 

in § 2-3229, which specifically describes programs to control 

water supply and conservation.

We held in Estermann v. Bose,

58 in the context of condemnation, that an easement sought by a joint water management entity to comply with the Republican River Compact by 

54 See Sorensen v. Lower Niobrara Nat. Resources Dist., 221 Neb. 180, 376 

N.W.2d 539 (1985).

55 Id. at 191, 376 N.W.2d at 548.

56 Id. at 191, 376 N.W.2d at 547.

57 Id. at 191, 376 N.W.2d at 548.

58 Estermann v. Bose, 296 Neb. 228, 892 N.W.2d 857 (2017).
- 286 -

Nebraska Supreme Court Advance Sheets

300 Nebraska Reports

UPPER REPUBLICAN NRD v. DUNDY CTY. BD. OF EQUAL.

Cite as 300 Neb. 256

augmenting waterflows to a creek and offsetting surface water 

depletions was for a public purpose. And we said that use of 

the surface by private irrigators was merely incidental to the 

overriding public purpose of the project. In evaluating the predominance of the augmentation use in the public purpose analysis, we observed that the failure to comply with the compact 

could expose the state of Nebraska to significant liability.59

Likewise here, the water management use of the property is 

significant not only in its physical scope, but also in its benefit 

to the public.

But that is not the only public use of the property. We further consider in our predominant use analysis the fact that the 

NRD implemented a plan on the property for the large-scale 

reseeding of the Sand Sage Prairie area. This is also encompassed by the duties and responsibilities conferred by law 

upon the NRD. Described in § 2-3229 is the NRD’s purpose to 

develop and execute programs of soil erosion prevention and 

control, soil conservation, development and management of 

fish and wildlife habitat, and range management.

The NRD developed and continuously maintains the ecologically unique surface prairie as part of its public purposes set 

forth in § 2-3229. As steward of this prairie, the NRD has an 

ongoing responsibility to control weeds that could destroy the 

public’s investment in this biologically diverse landscape. As 

steward of the property, the NRD also has a responsibility to 

prevent the nuisance for the community that would result from 

a failure to control weeds. The lessees’ grazing of the prairie 

performs, in a more economical way, an exempt function that 

the NRD would otherwise have to perform itself. We agree 

with the TERC that the lessees’ activities are “for a public purpose,” as required by § 77-202(1)(a)(ii).

While the lessees also serve their own interests through the 

grazing lease and grain storage, the evidence demonstrates 

59 See id.
- 287 -

Nebraska Supreme Court Advance Sheets

300 Nebraska Reports

UPPER REPUBLICAN NRD v. DUNDY CTY. BD. OF EQUAL.

Cite as 300 Neb. 256

that these private purposes are merely incidental to the important public purposes for which the NRD uses the property. 

Besides the predominance of public uses already described, 

relevant to this conclusion—as described in York II, York III, 

and § 003.07A—is the comparatively minor income from the 

lease in relation to the multimillion-dollar investment in the 

property’s acquisition and conversion to its current public uses. 

The evidence was undisputed that the lease income was minor 

even in comparison to the ongoing operations costs of the augmentation project.

The NRD is not making a profit from the lease and thereby 

acquiring revenues in excess of those permitted through legal 

taxation. Also, we observe that under the factors weighing 

in favor of exempt status set forth in § 003.07A, the NRD’s 

public purpose uses are ongoing throughout the year, while the 

grazing is seasonal.

For all the foregoing reasons, we affirm, in our de novo 

review of the record,60 the decision of the TERC insofar as 

it concluded property was exempt because it was predominantly used for a public purpose. We agree with the TERC 

that the property was used for the public purposes of water 

management and the development and maintenance of the 

prairie. We also agree that these uses were the predominant 

use of the property. The sorghum cover crop on the Wilder 

property in 2013 and the lessees’ grazing activities served the 

public purposes associated with the prairie project. Any private use by the lessees is incidental to the public purposes of 

the property.

VI. CONCLUSION

We affirm the TERC’s determination that the Wilder parcels, 10 FEM parcels, and portions of two FEM parcels were 

used for a public purpose and therefore exempt. We vacate 

60 See Harold Warp Pioneer Village Found. v. Ewald, 287 Neb. 19, 844 

N.W.2d 245 (2013).
- 288 -

Nebraska Supreme Court Advance Sheets

300 Nebraska Reports

UPPER REPUBLICAN NRD v. DUNDY CTY. BD. OF EQUAL.

Cite as 300 Neb. 256

those parts of the TERC’s opinion addressing issues other than 

whether the property was used for a public purpose. We reverse 

the TERC’s decision and remand the cause with directions for 

the TERC to affirm the Board’s tax assessment to the NRD of 

the property that the TERC found nonexempt.

 Affirmed in part, vacated in part, and in part

reversed and remanded with directions.

Funke, J., participating on briefs.

Wright, J., not participating.

Cassel, J., concurring.

I fully understand the social impact to Dundy County and its 

citizens of exempting at least 6,640 acres from the property tax 

rolls. The county’s land area comprises only 920 square miles.1

Thus, of approximately 588,800 acres, the decision removes 

over 1 percent from the tax roll. Taxes are lost that would have 

funded school districts and other local needs. Effectively, this 

compels the remaining property taxpayers to pay more. And 

other projects for Republican River Compact compliance may 

be looming to imperil even more of the area’s tax base.

I join the court’s decision, because I believe it faithfully 

follows existing law. Perhaps another provision of current law, 

not invoked by the parties before us, is available to address 

this problem. But only the Legislature is empowered to determine whether current law is adequate or whether the law 

should be changed to balance the competing public interests 

differently.

1 Nebraska Blue Book 2016-17 at 843.