School funding increase advances; income tax cuts debated

March 29, 2023, midnight ·

Nebraska Capitol (Photo by Fred Knapp, Nebraska Public Media News)
Nebraska Capitol (Photo by Fred Knapp, Nebraska Public Media News)

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Big changes to school funding and income taxes took the spotlight in the Nebraska Legislature Wednesday.

The Education Committee voted 6-1 Wednesday, with one abstention, to advance a bill containing big school funding changes to the full Legislature for debate. The legislation is part of a package proposed by Gov. Jim Pillen.

The proposal would use part of the state’s record revenue surplus for a significant increase in state aid to schools.

Currently, about one-third of the state’s school districts – mostly larger urban districts -- receive the vast majority of that aid. The bill changes that by giving other districts, mostly smaller, rural districts, $1,500 per student in so-called “foundation aid.”

Another major change would boost state aid to school districts for special education expenses so that, combined with federal aid, it would cover 80 percent of the costs.

Altogether, those changes would increase state school aid by $300 million, from $1.1 billion to $1.4 billion next fiscal year. The increase would come from $1 billion the state would set aside in a so-called Education Future Fund.

(To see how these changes would affect individual school districts, according to the state Budget Office, click here).

Sen. Rita Sanders, a member of the Education Committee who worked with the Pillen administration on the plan, said she’s pleased it advanced.

“The good news is we have something. There's that foundation funding for $1 billion that will be put aside for the students, plus this $1,500, plus the special education component up to 80% guaranteed,” Sanders said.

Sen. Lynne Walz, another member of the committee, voted for the bill, although she said it could be improved.

“I think that for the most part, this is a pretty thoughtful package -- the fact that the governor got together with so many people who are involved in education, and really tried to work on a solid plan that would provide funding not only today but in the future. I do think there is some room for maybe some type of a poverty allowance that can be given for kids or for schools that have a high poverty student body,” Walz said.

Sen. Justin Wayne cited that same concern as his reason for voting against the plan.

“I don't think this bill adequately addresses the poverty funding in districts who have significant poverty such as OPS (Omaha Public Schools) and Lexington and other school districts,” Wayne said.

Sen. Lou Ann Linehan abstained from voting on the plan. Linehan said she doesn’t oppose it. But she wants to make clear that other bills in Pillen’s package have to advance for her to continue to support the big increase in school aid.

“It's gotta be all of it, not just part of it. So, I have income taxes up this afternoon and then we're going to go to property taxes probably Friday. Hopefully education comes up next week. I'm supportive of the whole package. But I'm I'm leery that some of the people that are so supportive of this aren't supportive of the tax cuts, and also my priority bill,” Linehan said.

That priority bill is $25 million for tax credit-funded scholarships to private and religious schools.

The full Legislature began debating income tax cuts Wednesday afternoon. Under consideration is a proposal to reduce the top tax rate for personal and corporate income taxes from just under 6 percent to just under 4 percent in the next four years.

Those cuts, along with a proposed child tax credit, would save a family of four with an adjusted gross income of $120,000 about $3,000 a year. The same-sized family with an AGI of $80,000 would save about $1,200 a year, according to Linehan’s office.

Linehan said the state can afford it, and it’s the right thing to do.

“Right now, paying for all these tax cuts, we still have $1.6 billion in the cash reserve, plus the minimum rainy day fund, which means we have $2 billion. So I think we should give the money back to the people that actually pay the taxes,” she said.

Sen. Danielle Conrad said she likes parts of the proposal, but has concerns for the future.

“I'm genuinely concerned about the price tag that comes with these massive tax cuts and their sustainability, in terms of what everybody agrees is a significant amount of economic uncertainty. Yes, to Senator Linehan’s point: today, our bottom line, our fiscal health in terms of our fiscal picture is healthy and we have $2 billion. But we need to also unpack that about what's ongoing and what's one-time,” Conrad said.

Sen. John Cavanaugh proposed an amendment that would move some tax cuts from the upper to the middle income bracket. Linehan and her allies resisted that, saying Nebraska needs to concentrate on reducing the top rate in order to attract and retain people in the state. A first-round vote on the bill is expected Thursday.