Before the Nebraska Legislature’s session was suspended in the spring, the Appropriations Committee proposed a package that would result in a 4% growth in state spending, increase cash reserves and have $133.8 million left over to fund bills pertaining to provide property tax relief and business incentives.
The projected state spending growth takes into consideration the historical increases for specific areas, existing law such as the TEEOSA school aid formula and the annualized impacts of the 2020 budget.
But the comprehensive impact of COVID-19 is unknown, and some lawmakers say there won’t be enough money left over to pass high-cost bills when the session resumes on July 20.
Craig Beck, fiscal analyst at OpenSky Policy Institute, said the likelihood of there being money left over wasn’t likely before the pandemic and even more so now with its effect on the economy.
“Using the surplus as the basis to fund major policy proposals, including property tax reform, was very concerning before the pandemic and is exponentially more so now considering the virus is likely to negatively impact state revenues for quite some time,” Beck said.
The Legislature’s 2020 session was suspended March 16 because of COVID-19. Four days before the Legislature’s suspension, state lawmakers gave first-round approval to two bills including the Appropriations Committee’s adjustment proposal to the state’s $9.4 billion budget.
The state budget is assembled on a two-year basis. During legislative sessions held in odd-numbered years, the budget is enacted and in even-numbered years adjustments are made.
The budget will be up for the second round of debate when the Legislature reconvenes. This legislation was introduced by Speaker Sen. Jim Scheer of Norfolk at the request of Gov. Pete Ricketts.
The Appropriations Committee passed an amendment to replace the budget legislation. The amendment would allocate $55.2 million to address damage from the 2019 floods and includes provisions of 19 additional bills with a cost of $15.2 million.
The toll the state budget has taken from COVID-19 is still unclear, but lawmakers are expected to learn more about the budget later this month. Income tax collections have to be reported by July 15, and the state’s revenue forecasting board meets July 23 to update its pre-COVID revenue projections.
Other potential impacts on the state budget include the COVID-19 emergency funding and the Coronavirus Aid, Relief, and Economic Security Act, referred to as the CARES Act enacted by the federal government.
On March 25, Ricketts approved a bill that provided $83.6 million to the governor’s emergency cash fund to aid in the fight against COVID-19. The aid helped the University of Nebraska Medical Center and the Department of Health and Human Services fund things such as personal protective equipment, staffing and medical and laboratory equipment.
The Legislature was prepared to spend state taxpayer money to fund the governor’s emergency fund. Once the CARES Act passed, Nebraska was able to reimburse the emergency funding they had already approved. Even though the emergency funding will appear on the budget, there will be no fiscal impact on the state.
The CARES Act helps address the economic fallout of the COVID-19 pandemic. The funds a state receives from the CARES Act are restricted and can only go toward expenses associated with the virus. In the CARES Act, there is a series of tax cuts intended mostly for businesses.
According to a report from OpenSky Policy Institute, these tax cuts in Nebraska would reduce revenue by $250 million over the next three years, unless the state opts to separate from this law.
Beck said that about 75% of the $250 million tax cut is dedicated to a single provision that can only be accessed by certain Nebraskans who make at least $250,000 annually for individuals or $500,000 for couples who file jointly.
“These tax cuts will mostly benefit the wealthiest Nebraskans during the middle of a pandemic,” Beck said.
The $250 million would add to other revenue losses caused by COVID-19, which are estimated to be between 10% to 25% of state revenues, according to Moody’s Analytics, a financial service that provides economic research regarding risk, performance and financial modeling. OpenSky Policy Institute suggested that adding this loss on top of the other anticipated losses would put priority bills such as property tax relief at risk.
Sarah Curry, policy director at the Platte Institute, said Nebraska should conform to the new tax cuts regardless of the fiscal hit.
“The Platte Institute believes that if the state has extra money, it should go back to the citizens in the form of a tax cut or the money should go in the cash reserve fund in case there is more uncertainty in the fall,” Curry said.
Curry said that the Platte Institute will guide lawmakers in avoiding a tax increase in these unprecedented times.
“There is an extreme amount of uncertainty with the state budget,” Curry said. “We don’t know the true economic impact of this pandemic yet.”
Appropriations Committee Chairman Sen. John Stinner of Gering spoke about the budget at a Platte Institute webinar on July 15. He said he is cautiously optimistic about Nebraska’s economy especially since Nebraska’s unemployment rate is the lowest in the nation.
The Platte Institute for Economic Research is a nonpartisan, nonprofit organization in Omaha, whose mission is to advance policies that remove barriers to growth and opportunity in Nebraska.
Stinner said he is looking forward to floor debate on property tax relief, business incentives and the military tax relief fund but he isn’t sure if there will be enough money to fund all of the bills.
“I think it’s going to be fifty-fifty having money for the floor,” Stinner said. “I say fifty-fifty because I think there are some adjustments we can make and leave a small amount of money for the floor then we need to have a real discussion.”