Projected shortfall limits expectations for legislative session

The Nebraska Legislature begins its 2025 session Wednesday facing a projected budget shortfall that’s lowered senators’ expectations for what they might accomplish.

Ask Sen. Jana Hughes what she thinks the big issues will be in the upcoming legislative session, and she’s quick to answer.

“Clearly the major issue is that we're in a deficit, so we will have to address that,” Hughes said. "I think that'll overshadow everything, honestly."

By law, senators can’t appropriate any money that doesn’t leave at least a 3% reserve compared to projected state revenues. With income tax changes and lagging sales tax collections, the state is projected to fall $433 million short by the end of the next two-year budget cycle.

That means less money available for everything from schools to prisons and health care to law enforcement. Speaker of the Legislature John Arch said times have changed.

“In previous years, with ARPA money and all the excess cash, there was a lot of money to spend,” Arch said. "And now we may be coming into a year where…appropriation bills, will be very limited… This could be a year that we pay our bills and digest some of the bills that we passed."

At the same time, Sen. Danielle Conrad said people’s needs are growing.

“Nebraskans are working really, really hard and finding it harder to keep their head above water,” Conrad said. "So we need to really get serious about coming together to focus on things like housing and workforce development and child care."

That tension between needs and resources is evident in how people talk about what has been a dominant issue in recent years: property taxes. Gov. Jim Pillen said they remain a crisis.

“We have to lift the burden of property tax," he said. "And the highest burden of property tax is K-12 education. And the best way to have the strongest K-12 is to make sure that all school districts are funded appropriately from the state."

Pillen wants the state to pay for all schools’ operating expenses. But how would he fund that multibillion cost, when the state faces a budget shortfall?

“Obviously, to be able to do that, there has to be a broadening of sales tax, and there has to be there has to be people that that believe in spreading that (tax burden) out,” he said.

Pillen’s idea of the state taking over school funding, and paying for that by broadening sales taxes, went nowhere in last summer’s special legislative session. Hughes, running to chair the Legislature’s Education Committee, favors a more modest approach, taxing a few luxury items, like swimming pool cleaning services, to chip away at property taxes.

“It’s little bites here and there. Summer was too big, right... It was too much," she said. "So let’s start little and show we can do it. And then we can keep incrementally taking more."

Sen. Dave Murman, the current Education Committee chair who’s seeking reelection, said the projected budget shortfall limits what senators can do.

“We’re going to have to tighten our belts and hopefully, at the same time, at least hold property taxes steady, or keep cutting if we can,” Murman said.

Sen. Brad von Gillern, running for chair of the tax-writing Revenue Committee, doesn’t foresee major changes.

“I don't have any huge plans for major changes in property tax relief,” von Gillern said. "I think this is a good year to maybe nibble around the edges and clean some things up."

Pillen says he doesn’t want to set a deadline for major property tax changes. But he says they have to happen soon, for the state to grow and prosper.

“I'm going to keep talking about it as a very urgent problem, because if we don't get it fixed -- our time to grow, our time to shine, is now," he said. "If we keep biting around the edges of the cookie, Nebraska is going to start shrinking, and population will not get there."

Sen. George Dungan, also running for Revenue Committee chair, said personal and corporate income tax cuts passed by the Legislature in recent years have limited senators’ options.

“Nobody ever really wants to say ‘I told you so,’ but for the last two years, myself and a number of my colleagues across the political spectrum have been concerned that with these massive tax cuts, we're ultimately going to run into a situation where we simply don't have enough money to do the things that we need to do to make Nebraska a great state for everybody,” Dungan said.

Dungan said the Legislature should consider delaying those tax cuts, which are still be phased in. Von Gillern rejects that idea.

“I'll be a staunch defender of the income tax reductions, because I know that there are some folks that are probably going to be targeting rolling those back,” he said.

Conrad said tight budget times could shift legislative attention elsewhere. But she doesn’t expect that.

“Usually when there's not a lot of money on the table in the legislative session, that also can push the Legislature to focus more on social issues which don't have a steep price tag," she said. "It seems to me, in visiting with members of the Legislature that there's not a great deal of appetite to spend a lot of time and energy on divisive social matters."

However, Pillen has named as one of his priorities legislation that will be introduced by Sen. Kathleen Kauth to limit transgender athletes to sports teams and facilities corresponding to their sex at birth.

That, and other bills that will be proposed in the first 10 days of the legislative session, are likely to provoke fierce debate. But incoming Sen. Dan Quick, who is returning to the Legislature after a four-year absence, is optimistic about what senators can accomplish.

“Hopefully, with this new class of senators…I think there's 17 of us that are new, and that would be counting me… hopefully, we can have open minds and we can work directly on things that are going to help Nebraskans,” Quick said.

The accuracy of that prediction will be seen over the next six months, starting Wednesday.