Budget, taxes dominate legislature last week

Last week, the legislature gave final round approval to the two mid-biennium budget adjustment bills: LB1412 and LB1413. The two bills will increase the state budget by 2.7% in this two-year period, which is up from the 2.3% approved last year. The primary factor for this growth is due to an additional $94.1 million increase in state aid to schools, which accounts for actual education spending now that LB583 has taken effect. LB583 was passed last year as a revision to the TEEOSA school-funding formula to provide $1,500 in per-student foundational aid and increase state support for special education. The budget package also included $20 million to cover rising costs for foster care and $15 million to increase nursing staff at the Lincoln Regional Center, the state-run psychiatric hospital.

The budget will still leave a record balance of $549.2 million in the state’s General Fund by the end of the current budget period. The Appropriations Committee argued that the cushion in this budget cycle is needed to make last year’s tax cuts and school-aid package sustainable into the future. Based on the Legislative Fiscal Office’s projections, this cushion is expected to shrink to $62.3 million in the next biennium, which ends June 30, 2027.

The newly-adopted budget does leave senators with about $20 million available on the floor. However, current estimates show that if every bill that has cleared at least one round of debate were to pass, the state’s General Fund would be about $272 million short of the legally-required budget reserve. As such, many pieces of legislation with a substantial fiscal impact will need to be cut back or risk not being scheduled again by the speaker.

Meanwhile, the legislature began discussion on LB388, the Revenue Committee’s proposal for property tax relief. This bill as amended proposes to raise the state sales tax rate from the current 5.5% to up to 6.5%, although that increase could be less if revenues exceed projections, as well as place a property tax levy cap on counties, cities and villages based on real growth plus 3% or inflation. The cap would allow for a cap exemption of 6% line-item growth for the salaries of public safety personnel if understaffed. Additionally, the bill would eliminate several sales tax exemptions for discretionary purchases such as soda, candy, pet services and dry cleaning. To help offset the changes to the sales tax, a tax exemption is provided for residential utility bills, such as for houses and apartments.

The plan is supported by several groups, including Nebraska Farm Bureau, which contend that the bill will help rebalance what Nebraskans pay in income, sales, and property taxes. According to calculations by Senator Linehan’s office, the average Nebraskan in recent years paid about $2,703 a year in property taxes, $1,628 in income taxes, and $1,215 in sales taxes. Supporters of LB388 also argue the bill will slow property tax collections by political subdivisions while still maintaining and respecting local control.

This assessment is contested by several different groups. Organizations like the OpenSky Policy Institute estimate that LB388 will result in a minimal or no net tax cut and argue the bill is a regressive tax policy. Some senators would like to see no sales tax increase.

Other senators believe LB388 does not provide enough for property tax relief and instead propose a measure known as the EPIC Option Consumption Tax as outlined in LB79, LR6CA, and LR7CA. The EPIC consumption tax would repeal all local property taxes and state taxes except for consumption taxes on new goods and services and excise taxes.

After four hours of debate, LB388 was held off the agenda to allow the Revenue Committee to work with opponents of the bill over the weekend.

I would like to see more balance in the amounts Nebraskans pay in income, sales and property taxes, but I also want to ensure the bill will not be detrimental to rural Nebraska or the state as a whole. I will continue to listen to debate on LB388 when it is scheduled again.

You can always contact me with your thoughts and opinions on bills that have been introduced. Call my Capitol office telephone number at 402-471-2801 or send email to [email protected]. My mailing address is: Senator Barry DeKay, District #40, P.O. Box 94604, State Capitol, Lincoln, NE 68509.