Paul Hammel
LINCOLN — State lawmakers gave first-round approval Wednesday to the mid-biennium budget bill that made few changes from the spending proposals of Gov. Jim Pillen.
The budget calls for a spending increase of 3.1%, which is slightly higher than the 2% increase called for by the governor because of an unexpected, $94 million increase in state aid to K-12 schools.
The “good news,” according to State Sen. Rob Clements of Elmwood, the chair of the budget-writing Appropriations Committee, is that $904 million will be left in the state’s cash reserve fund at the end of the two-year budget in June 2025, and the budget should show excess funds of nearly $575 million.
During two days of floor debate, however, there were several complaints about spending cuts for services for the developmentally disabled and those with mental illnesses — services that advocates maintain are already underfunded.
Projections show spending exceeds revenue
Concerns were also raised about whether the state can sustain the deep cuts in state income taxes passed a year ago, but there was also talk of amendments during second-round debate.
State budget figures indicate that the excess $575 million in cash will shrink to $68.5 million at the end of the 2026-27 fiscal year, as the reduction in income tax revenue takes effect.
Impact of tax rate cut
Last year, state lawmakers passed a law to gradually reduce the state’s top income tax rate from 6.84% in 2023 to 3.99% by tax year 2027.
It would reduce state revenues by a projected $863 million by fiscal year 2027-28.
State Sen. Lynne Walz of Fremont expressed concern that the budget report issued by the Legislature’s Appropriations Committee shows state spending exceeding revenue in the next three fiscal years.
Clements said while that was true and that the situation could “only last for a short time,” the state has $904 million in its cash reserve fund, and he said the economy and tax revenue are projected to increase after 2027, when the income tax cut is fully implemented.
‘We expect a turnaround’
Concerns about the sustainability of the income tax cuts have also been raised by the OpenSky Policy Institute, a Lincoln-based think tank that monitors state tax and fiscal policies.
OpenSky Director Rebecca Firestone said Wednesday other states that have enacted tax cuts don’t have “a great track record” of sparking economic growth.
She said concerns about the sustainability of the tax cuts are heightened further by the proposal to “sweep” $244 million from state agency reserves to provide initial funding for the governor’s proposed 40% property tax reduction. That would leave those funds unavailable to cover a state budget shortfall.
“It really reinforces the concern about the financial sustainability of the tax cuts,” Firestone said.
Omaha Sen. Machaela Cavanaugh raised questions about the hundreds of job vacancies at the state’s largest agency, the Nebraska Department of Health and Human Services, and whether the agency was planning to save money by not filling the 1,000-plus unfilled jobs.
Discussions continue
During the debate, both Clements and Lincoln Sen. Danielle Conrad said that discussions were continuing about whether to restore some funding for some programs. Advocates for improved services for the developmentally disabled have said they will press for more funding during second-round debate.
Senators had to invoke cloture to shut off debate on the budget. They then voted 39-4 to advance the budget measure, Legislative Bill 1412, from first-round debate.
Debate on the bill containing the funds sweeps, or cash transfers, began late Wednesday and is scheduled to continue Thursday.