Paul Hammel
LINCOLN — Gov. Jim Pillen’s plan to use excess cash reserves to “jump-start” his property tax relief proposal got a rough reception Tuesday during a state legislative hearing.
A long line of representatives of wildlife, hunting, banking, retail, grocers, recycling and affordable housing groups spoke against two bills in the governor’s plan for “transformational” property tax relief. Officials with natural resources and rural water projects, as well as the state’s major chambers of commerce also voiced opposition. And while Secretary of State Bob Evnen testified “neutral,” he also raised concern about parts of the proposal.
Parade of opponents
Some called the plan to sweep $274 million out of state agency reserve funds for the plan a “bait and switch” because it would use money that was dedicated for programs like litter reduction, workforce training and affordable housing and not tax relief.
A parade of opponents said the sweep could delay much-needed projects, such as building more affordable housing, flood-control structures in Saunders County and a new rural water system in northeast Nebraska.
“If we don’t get this money, we’re really in dire straits,” said Annette Sudbeck of the Lewis & Clark Natural Resources District.
Her district is looking at a possible loss of $15.5 million in funds for the $29 million replacement of an aging rural water system in Knox and Cedar Counties, which she said would balloon the expected monthly water bill for a family of four to $140 a month.
Cash funds ‘overbloated’
But representatives of the Pillen administration said that agency cash funds had become “overbloated” and that agencies can afford to give up the funds. Some contracts might have to be cancelled or postponed, they said, but contracts include language to allow that if money is short.
“We have more than enough cushion to mitigate a recessionary blow,” Lee Will, the governor’s budget administrator, told the Legislature’s Appropriations Committee.
The agencies will still have $2.49 billion in reserve funds, the Pillen administration has said, even after the $274 million “sweep” of those funds.
The onslaught of opposition was not unexpected, based on past opposition to transferring money out of agency cash funds, said State Sen. Rob Clements of Elmwood, who heads the committee.
This is a little bit of a bait and switch, and I think it's bad policy.
– John Lindsay, a former state senator representing several interest groups
Clements, who has said high property taxes are a crisis that warrant the fund transfers and new taxes, said his committee will carefully review the testimony presented Tuesday.
The senator said he was swayed by at least one group’s argument. Tim McCoy, head of the Nebraska Game and Parks Commission, said taking $9.5 million out of the agency’s game and habitat funds — funds that coming from hunting licenses and habitat stamps — would cost the agency in excess of $24 million in federal funds.
65 opponents to the bills
Some 20 other opponents to Pillen’s plan gave similar stories, as did 45 people who submitted written comments.
Representatives of the Nebraska Chamber of Commerce and other business groups said those entities helped set up cash funds years ago to provide money for worker training, litter reduction grants and unemployment insurance payouts during economic downturns.
If those funds were raided for a purpose beyond their original intent, they said, their members would ask “why are we paying these fees?” and would likely work to eliminate the programs.
“This is a little bit of a bait and switch, and I think it’s bad policy,” said John Lindsay, a former state senator who spoke on behalf of the beverage industry, as well as the state’s grocers and retailers.
Representatives of the state’s telecommunications industry said a proposed $14.5 million transfer from a Universal Services Fund used to enhance broadband and cell phone service in remote areas was unconstitutional, based on a recent Nebraska Supreme Court ruling.
State Sen. Tony Vargas, as well as a representative of the OpenSky Policy Institute, a state policy watchdog group, questioned the sweep of cash reserves held by state agencies at a time when the state is flush with funds.
Sandpit lake study funds
Among the fund transfers Gov. Jim Pillen proposed is $85 million that had been set aside for future study and development of a massive sandpit lake near Gretna.
Lee Will, the governor’s budget administrator, said Pillen’s budget focuses on “needs” and not “wants.”
Tom Riley, the director of the Nebraska Department of Natural Resources, said sufficient funds would be remaining to complete studies on the lake’s projected impact on nearby well fields and financial feasibility.
Ninety percent of the $1 billion project, officials have said, would come from private donations or housing developers.
In the past, they said, raids on agency cash funds — sometimes referred to as the state’s “cookie jar” — has happened only when the state faced a true budget crisis and was scraping every up available penny to avoid spending cuts or tax hikes.
But Will, the governor’s budget director, said those cash reserve funds have been growing steadily at state agencies and had become “overbloated.”
‘Must be bold’
The $274 million in fund transfers, he said, were needed to fund state government during a few months before the second — and also controversial — part of the Pillen plan would go into effect: taxing formerly tax-exempt sales and possibly raising the state sales tax from 5.5 cents to 6.5 cents.
“We must be bold and provide a 40% property tax reduction,” Will said, calling high property taxes a “crisis” that was forcing some people out of their homes.
In recent years, state lawmakers have boosted state tax credits by $1 billion to defray local property tax bills. But in most cases the credits simply blunted increases, rather than lowering those bills, to the frustration of conservatives like Pillen.
His proposal contains another $1 billion in relief — getting the property tax reduction to 40% — along with a “hard cap” on local government and school spending to ensure the extra funds translate into lower taxes.
Will said that if Pillen’s plan passes, the state would rank in the middle of the states in terms of property tax burden. Nebraska now has the 43rd highest property taxes, according to Wallet Hub.
John Albin, the state’s labor commissioner, was among a handful of state agency directors testifying in support of Pillen’s fund transfers.
Albin said the state’s unemployment insurance fund, amassed by employers’ fees, had grown to $515 million by the end of 2023. So the fund, he said, could easily afford to transfer out $60 million, the largest fund transfer proposed by the governor.
But Ron Sedlacek, who testified for the Nebraska, Omaha and Lincoln chambers of commerce, said those “trust” funds were paid by businesses to ensure that Nebraska wouldn’t run out of funds to pay unemployment checks even if a recession or depression hit.
“If it’s going to be used for another purpose, I suppose the best course would be just to repeal (the unemployment insurance fee),” Sedlacek said.
Most opponents said they’d like to see something done about high property taxes but objected to the approach taken by Pillen.
“I haven’t met anyone opposed to tax relief. But it’s a real complicated issue,” said John Heaston of the Nebraska Sportsmen’s Foundation.