In the years following World War II, the population of Nebraska began to shift from rural to urban communities. Suburban development also contributed to significant growth in the size of metropolitan areas in both area and population. Omaha spread from Douglas county into adjoining Sarpy county to the west and south, and Lincoln encompassed more of Lancaster county. Farms continued to decrease in number and increase in size.

The tapping of groundwater for irrigation also rose dramatically during the postwar years. The heavy utilization of groundwater plus the possibility that more water could be diverted from the upper reaches of the Platte system in Colorado and Wyoming made Nebraskans more sensitive to the need to conserve water resources. In addition, they became more aware of the danger of groundwater contamination by chemical fertilizers and related products.

The importance of water also led to conflict with Nebraska’s neighbouring states—most notably over the flows of the Missouri and Republican rivers—which periodically led to litigation. In 1986, for instance, Nebraska filed a suit in the U.S. Supreme Court against the state of Wyoming to stop the building of a new dam on the North Platte River. The suit was finally settled in 2001 in Nebraska’s favour. In another case, Nebraska went to court to stop South Dakota from diverting water from the Missouri River for use in a coal-slurry pipeline. In a separate litigation, the state of Kansas filed a suit in the U.S. Supreme Court against Nebraska in 1998 claiming that Kansas was not getting the water it was entitled to under a 1943 Republican River pact agreed to by Kansas, Nebraska, and Colorado. The court ruled in favour of Kansas, and in 2007 the Nebraska legislature approved a bill to finance its water debt to Kansas through new sales and income taxes on farmers in the Republican River valley.

Urban growth and rising expectations for the provision of public services put increasing fiscal pressure on the state government, which sought to replenish its coffers primarily by raising property taxes starting in the late 1940s.Protests from Nebraska’s declining farm population, which felt it was bearing a disproportionate share of the tax burden, led to the adoption of a tax reform act in 1968 that implemented a system of income, sales, and property taxes. The combination of these three taxes meant that urban and rural residents would pay a more equitable share of taxes. Rejecting a call for a constitutional convention to address the rising costs of government, the Nebraska legislature began a process for streamlining state government by approving bonded indebtedness for major state projects and by attempting to attract new industries to broaden the tax base.

Throughout the 1960s and early 1970s, minority groups in Nebraska demanded greater civil rights. In Omaha in the mid-1960s, the frustration felt by many African Americans occasionally took the form of violence and rioting, largely a result of the growing political militancy and strained police-community relations. In the wake of this struggle, an equal opportunities commission was created and a civil rights code was enacted that made discrimination in housing and employment illegal. Moreover, there was a significant increase in the profile of African Americans in government, and overt racial tensions eased in response to the establishment of jobs programs and growing sensitivity among white residents.

Violence against Native Americans in northwestern Nebraska across the border from the Rosebud and Pine Ridge reservations in South Dakota erupted in the 1970s. During this period, the grievances of Nebraska’s Native Americans were brought to light after the siege of Wounded Knee in South Dakota in 1973 by members of the American Indian Movement. Some of the defendants were tried in a federal district court in Lincoln from 1974 to 1976 for their participation in the Wounded Knee occupation.

Also in the 1970s, rapid inflation and increasing oil prices threatened the prosperity of Nebraska’s farmers, as did the collapse of land values during a nationwide recession in the 1980s. As a result of these developments and because most of Nebraska’s industrial enterprises were tied to agricultural production, it became imperative to diversify the state’s economy. In 1987 the Nebraska legislature established tax incentives for the development of new businesses and industries and to encourage the expansion of existing industries. The benefits of these tax incentives continued to be debated throughout the 1990s and into the 21st century, even as economic diversification was achieved in Omaha (where oil refining and lead smelting, as well as the manufacture of railroad, telephone, and farm equipment became important) and other urban areas. An influx of Hispanics to Nebraska in the 1970s, followed by groups of Asian immigrants in the 1980s, further diversified the labour force.

Although the Nebraska economy has prospered, the state still wrestles with issues related to its dependence on agriculture while at the same time working toward greater diversity in industry, fairness of its tax system, and relief for property, sales, and income taxes. Consequently, the state government has increased its efforts to develop new markets for Nebraska’s agricultural exports. Also, in an attempt to prompt younger Nebraskans to become farmers, the legislature passed a bill providing income tax credits to anyone who rents agricultural land, buildings, or machinery to a novice farmer or rancher. The state has also continued to provide tax incentives for businesses in rural counties.