Legislature passes budget adjustments in advance of tax debate

March 26, 2024, 5 p.m. ·

Senators watch as votes are tallied on budget adjustments (Photo by Fred Knapp, Nebraska Public Media News)
Senators watch as votes are tallied on budget adjustments (Photo by Fred Knapp, Nebraska Public Media News)

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The Nebraska Legislature gave final approval to adjustments in the state budget today/Tuesday, amid questions about how they will work with significant tax changes lawmakers are about to consider.

Most of the state’s current two-year, $10.8 billion budget was determined last year, so what was being considered Tuesday were adjustments to that. The biggest one was $65 million more in state aid to schools, where expenses were about two and a half percent higher than previously estimated. Still, projections show the state will end next fiscal year with $549 million more than its legally required budget reserve.

However, that could change, as Sen. Machaela Cavanaugh confirmed in an exchange with Appropriations Committee Chair Sen. Rob Clements.

“I don't understand what the thought is with this budget. It seemed like we had $549 million. But that's not really the case. Because if we spend that, then we're going to have a massive deficit next year,” Cavanaugh said.

“Yes, because we've got a lot of spending bills in the hopper,” Clements replied.

Those bills “in the hopper” range from increasing tax breaks for elderly or disabled homeowners, to expanding teacher training programs. If all those bills passed, in addition to the budget, the state would fall $272 million below its legally required budget reserve three years from now.

Sen. Lou Ann Linehan said that possibility reflects the fact that power is dispersed among the 49 senators, and any bill that gets out of committee is calculated in a potential deficit, whether it will pass or not.

“We could go back to way most legislatures work, and we'll just let the speaker and Appropriations chairman decide what we're all going to do. And we won't have any priority bills and we won't be allowed to speak and everything will add up just perfectly, because none of the rest have (sic) us get any input. I don't think that's really what we want to do,” Linehan said.

Linehan said senators should pass the budget, and then negotiate about any other spending they want to pass. But Sen. John Cavanaugh said any projected deficit reflects decisions made previously.

“We’re facing this cliff effect of decreasing revenue because of the tax cuts we passed in the last couple of years that have not fully gone into effect. And so here we are pushing and crunching all of this funding together to make it look like we're fiscally solvent in the current fiscal cycle, and those chickens are gonna come home to roost,” Cavanaugh said.

On the other hand, Sen. Mike Jacobson praised the budget.

“We have an Appropriations Committee who has done a great job of being mindful of the budget. The Revenue Committee works on the other side to figure out how we can make sure that the people who generate these dollars, also known as the taxpayers of Nebraska, are being fairly treated,” Jacobson said.

Senators voted 42-6 to pass the main budget bill. It now goes to Gov. Jim Pillen, who has the option to veto specific line items. They also voted 37-8 to approve a bill that transfers money from various funds that have accumulated a surplus to make the budget balance.

Also Tuesday, the Revenue Committee voted to approve a 62-page printout of tax changes it had already approved in concept last week. The bill, LB388, is part of Pillen’s initiative to lower property taxes by replacing them with other taxes. It would raise the state sales tax rate from the current 5.5 percent to 6.5 percent, although that increase could be less if revenues exceed projections.

The committee voted 7-1 to advance the bill to the full Legislature for debate. Sen. Linehan, chair of the Revenue Committee, said the bill would be a huge step toward increasing state support of schools, an area where Nebraska has consistently ranked toward the bottom among the states.

Sen. George Dungan, who was absent when the committee considered the bill last week, cast the lone ‘no’ vote.

“I’m just generally opposed to the increase in the sales tax that’s been outlined in that bill. I think anytime we’re talking about shifting the burden from one tax structure over to another is problematic. Generally speaking, our sales tax is regressive, and it hurts everyday working people in Nebraska. And so I think that saying we’re going to reduce property taxes by raising the sales tax disproportionately harms people in my community,” Dungan said.

Under the bill, the sales tax increase would be reduced if, by the end of the fiscal year on June 30, state revenues exceed projections by more than 3.5 percent. The way the bill is written, the rate could theoretically wind up at 6.5, 6.25, 6, 5.75, or the existing 5.5 percent.

Linehan has welcomed the possibility of less than a one percentage point increase, saying it could end up being only half a percent. But Dungan said he dislikes the uncertainty.

“One of my big problems with that structure is it makes it very confusing both for us as a state to anticipate our future revenues, but also for everyday shops and stores to determine what their prices might have to be down the road,” he said.

How the rest of the Legislature views that, and other proposed changes, will be seen in the coming days. Debate on the tax bill is expected to begin as soon as Wednesday.