Pillen signs tax cuts; senators reject veto overrides

Gov. Jim Pillen signed what he called historic tax cuts into law Wednesday. Meanwhile, attempts to override his veto of funds for housing and Medicaid providers fell short in the Legislature. From the Capitol, Fred Knapp of Nebraska Public Media News has this legislative update:

Among the tax cuts Pillen signed at a ceremony Wednesday were reductions in the top rate for personal and corporate income taxes. Currently, businesses and individuals pay a top rate of just under 7 percent. The new law cuts that to just under 4 percent by 2027. Pillen said the change would improve Nebraska’s ranking among the states having the lowest tax rates.

“These cuts they don't put us in the top 10. But we go from the bottom half of the states, we get in the top 15. That means that we start competing. That means that our kids stay here. That means that our grandparents don't run away,” Pillen said.

The law also ends the taxation of Social Security income, effective next year, and increases child care subsidies.

The second bill Pillen signed into law increases the amount of state subsidies to reduce local property taxes by more than $100 million over the next five years. Under the new law, the state takes over costs for community colleges that are currently borne by property taxes, at a net cost to the state of about $180 million starting next year. And the law limits school district tax increases to 3 percent a year, although they can increase another 4 to 7 percent if a supermajority of the school board or taxpayers votes in favor of an increase.

The law is the latest in a series of attempts to lower local property taxes by substituting state sales and income tax dollars. Previous attempts, notably in 1967 and again in 1990, reduced property taxes for a few years, but then they resumed rising.

Asked why this time would be different, Pillen said he hoped the state has learned from history. But he said the way property valuations are calculated still needs to change.

“People are totally misled. ‘Hey, the levee’s capped. Your property taxes aren't going up.’ When your house increases by valuation of $100,000, you're writing a bigger property tax check. That has to stop. We have to change how the valuation is (calculated). And together, together we can. Jim Pillen can’t solve anything. Our team can't solve anything alone. But all of us together – we will,” he said.

Pillen declined to get into specifics of what changes he thinks should be made.

In legislative debate Wednesday, lawmakers considered overriding line-item vetoes Pillen made to the state’s budget for the next two years. Originally, that budget called for increasing the amount Nebraska pays people who provide services under the Medicaid program by 3 percent next year, and another 2 percent the year after that. The governor left intact the 3 percent for next year, but vetoed the two percent the following year, which he said would save about $15 million in state funds.

Sen. Anna Wishart, supporting the override, said the veto would hurt services for seniors, hospital patients, and children.

“Those are the three constituencies that are impacted by these provider rate cuts. And the reason why I call them a cut is that a three percent increase and a zero percent increase, or even a two percent increase, as we originally proposed, in an inflationary period of six or seven percent, is absolutely a cut,” Wishart said.

Opposing the override, Sen. Mike Jacobson said senators could always approve further increases next year.

“There's no emergency to do anything now. The Legislature can come back next session and either go to 2% or greater next year. So there's no reason to have to do the veto override on this particular issue for that reason,” Jacobson said.

Senators defeated the override attempt, 24-22.

Lawmakers attempted another override on the governor’s veto of $40 million to subsidize rural and middle income workforce housing. Supporters of the override said a lack of housing is hurting businesses’ ability to attract workers and fill available jobs.

Sen. Ray Aguilar in support of the attempt, recounted what a member of the Grand Island Chamber of Commerce told him about the need.

“Most importantly, we need housing. If we have housing, we can bring in workers. If we have workers, we can create jobs and grow our economy. It's that simple,” Aguilar said.

Sen. Steve Erdman opposed the proposed override on philosophical grounds.

“Is the government the solution to build houses? Or should it be a free enterprise system, where a house is needed, someone builds one, and puts an employee in there and it’s part of their compensation? So I will not be voting to override the governor's veto. And I've never been in the past, nor will I be in the future, in favor of the government building houses,” Erdman said.

Twenty five senators voted in favor of the override, with 23 opposed. But it takes a three-fifths majority, or 30 votes, for an override, so the attempt failed.

The only override that did succeed was a relatively small one of $850,000 over the next two years for staff and salary increases for the office of State Auditor Mike Foley.

Supporters said the increases would more than pay for themselves in savings that would be realized from closer audits of government agencies.

Opponents of the override said Foley is doing a good job, and could continue to do so even without the increase. Senators voted 31-14 for the override.

They also voted 29-11 to confirm Dr. Timothy Tesmer as the state’s chief medical officer. They now head into the final day of their 2023 session on Thursday.