By Unicamiral Update Staff
Lincoln, Ne - Lawmakers gave first-round approval this week to six components of the state’s roughly $10.8 billion budget package. The state budget is structured on a two-year basis, with the budget enacted during legislative sessions held in odd-numbered years.
Sen. Robert Clements, chairperson of the Appropriations Committee, said members were facing a $396 million shortfall after a late-April meeting of the Nebraska Economic Forecasting Advisory Board lowered revenue forecasts for the current and upcoming two fiscal years.
“The state’s been hit with $630 million of reductions of revenues — $350 million more of Medicaid expense [and] $280 million in forecast revenues — and we have absorbed those without making drastic cuts,” Clements said.
The passage of two bills by the Legislature earlier this session brought that number down to $262 million, he said, and the committee has identified additional cuts and transfers that will be offered as amendments on the next round of debate in order to balance the state’s budget.
Clements said the end result would be an approximately $3 million surplus and a $690 million balance in the Cash Reserve, also known as the state’s “rainy day fund.” The Cash Reserve balance would be equal to roughly 12.4% of state expenses, which Clements said is within an “acceptable range.”
Sen. Jason Prokop of Lincoln, a member of the committee, supported the budget package, which he said reflected “difficult tradeoffs” that had to be made given the state’s changed economic landscape after the forecasting board lowered revenue projections.
“What this budget does is respond to the moment we’re in and balance our checkbooks while keeping a modest reserve, and [it] does all of this in the context of declining revenues and high pressure to deliver on property tax relief,” Prokop said. “This budget reflects the reality of governing and the hard work that comes with making choices.”
Mainline budget
LB261, introduced by Speaker John Arch of La Vista on behalf of Gov. Jim Pillen, is the mainline budget bill. An Appropriations Committee amendment, adopted 38-5, replaces the bill and contains funding recommendations for state operations and aid programs.
Clements said the measure would require additional amendment on the second round of debate in order to result in a balanced budget. But, he said, the bill would do so without making across-the-board cuts to state agencies.
Among other provisions, the committee amendment would maintain funding for biomedical research at $15 million annually in each of the next two fiscal years. It also would increase funding to the University of Nebraska by roughly $13 million — less of an increase than the committee originally settled on.
Kearney Sen. Stan Clouse supported LB261 and the committee amendment, acknowledging the difficult task of balancing the budget in the face of shortfalls. He noted the importance of maintaining funding for biomedical research and the university in general.
“The University of Nebraska is one of the largest economic engines that we have in the state,” Clouse said.
Also included in the committee amendment are provisions of the following nine bills:• LB55, sponsored by Adams Sen. Myron Dorn, which would appropriate $1.5 million from the Hospital Quality Assurance and Access Assessment Fund to the state Department of Health and Human Services for reimbursement to certain mental health providers;• LB57, also introduced by Dorn, which would appropriate $1.4 million in cash funds from the Medicaid Managed Care Excess Profit Fund to increase the rural single occupancy daily rate to match the urban single occupancy daily rate of $73.91;• LB173, sponsored by Prokop, which would appropriate $5 million in general funds for each of the next two fiscal years to aid community colleges for dual enrollment purposes;• LB452, also introduced by Prokop, which would appropriate $500,000 in Temporary Assistance for Needy Families funds in each of the next two fiscal years for court-appointed special advocate aid;• LB505, sponsored by Prokop, which would appropriate $10 million in TANF funds in FY2025-26 for grants to nonprofits to provide food assistance;• LB580, introduced by Omaha Sen. Machaela Cavanaugh, which would reappropriate funds in the Lead Service Line Cash Fund for grants to metropolitan utilities districts for lead service line replacements;• LB581, also sponsored by Cavanaugh, which would appropriate $500,000 in FY2025-26 from the Health Care Cash Fund for grants to a nonprofit entity for construction costs related to a new facility;• LB621, introduced by Sen. Robert Dover of Norfolk, which would appropriate $500,000 in FY2026-27 from the Health Care Cash Fund to DHHS for expanded health care access to the Nebraska Medicine Midtown Health Center; and• LB627, also sponsored by Dover, which would appropriate $250,000 in general funds in FY2025-26 for a study related to a residential facility for nursing and allied health professionals and state legislative intent to appropriate $750,000 each year for 20 years to the University of Nebraska starting in FY2027-28.
Several lawmakers questioned the need to make cuts or hold agency funding flat in order to close the state’s budget gap as outlined in the committee amendment.
Lincoln Sen. Jane Raybould suggested that a different approach would be to pause the staggered implementation of corporate and individual income tax cuts approved in 2023, or to delay fund transfers related to large infrastructure projects such as the proposed Perkins County Canal.
“There can be no denying that when we passed the accelerated income tax rate reductions in 2023, we were setting ourselves up for a structural imbalance,” Raybould said.
Sen. George Dungan of Lincoln agreed, calling the budget shortfall a “self-inflicted wound” created by lawmakers cutting tax revenue in order to provide property tax relief. In doing so, he said, the Legislature created a false need to cut programming and possibly raise sales taxes, which disproportionately impact lower-income Nebraskans.
“Do you want to try to make up the hole in our budget on the backs of everyday working people … or do we potentially freeze the corporate tax cuts at 4.99% and recognize upwards of $50 million to $120 million dollars in the next year and the year following that?” Dungan said.
North Platte Sen. Mike Jacobson pushed back on that argument. He said the budget shortfall resulted from events beyond lawmakers’ control for the most part, including a $90.3 million reduction in the share of the state’s Medicaid costs that are federally funded.
“This hasn’t been reckless spending; this hasn’t been due to tax cuts,” Jacobson said. “This has been due to a slowdown in the economy and loss of federal support.”
Amendments
An amendment offered by Omaha Sen. Dunixi Guereca to LB261 would provide $300,000 in each of the next two fiscal years from the Health Care Cash Fund to an entity “providing health care screening, sports competitions, educational opportunities and leadership training for people with developmental or intellectual disabilities.”
Guereca said the funds would ensure that Special Olympics impacts more communities in the western part of Nebraska. Twenty-nine other states provide tax dollars to Special Olympics, he said, and the amendment would not impact the sustainability of the Health Care Cash Fund.
Sen. Teresa Ibach of Sumner said the amendment was a “responsible” use of tobacco settlement funds and would allow Special Olympics to expand access to programs and services across the state.
Clements opposed the amendment, saying it was unclear how the entity used the $500,000 in one-time funds they received during the last budget cycle. As a nonprofit, he said, Special Olympics should reach out to donors rather than seeking additional state funding.
Ralston Sen. Merv Riepe said he would support the amendment if the state were “rolling in cash,” but that providing state funding to one specific nonprofit would set a bad precedent.
The Guereca amendment was adopted on a 29-7 vote.
Omaha Sen. Macheala Cavanaugh offered an amendment that she described as an alternative to the mainline budget bill. The proposal would replace the Appropriations Committee amendment and, among other provisions, would set aside $452 million currently directed to property tax relief for state aid to schools instead.
The amendment also would direct a percentage of the property tax credit to counties to help them defer jail and other costs. The result, she said, would “automatically” lower property taxes.
“[This amendment] is a balanced budget that looks at the resources available to us and how we can do the most good for the most Nebraskans while maintaining our obligations across the state,” Cavanaugh said.
The amendment failed on a vote of 4-32.
Sen. Glen Meyer of Pender offered and later withdrew an amendment that would add his LB382 to the mainline budget bill. Those provisions would provide funding for area agencies on aging. Meyer withdrew the amendment on the understanding that his desired change to his proposal would be taken up separately after the budget debate.
Following eight hours of debate and a successful cloture motion from Arch, lawmakers advanced LB261 to select file on a 37-6 vote May 6.
Fund transfers
LB264, also introduced by Arch at the request of the governor, would provide for fund transfers, change provisions governing the administration and use of funds and repeal previous expansions to aid and incentive programs.
A committee amendment, adopted 34-7, would make dozens of additional transfers from state agency cash funds and others to the state General Fund totaling $10.5 million in the current fiscal year and $149.8 million across the next two fiscal years.
Those transfers would include $27.7 million from the Water Recreation Enhancement Fund, $20.5 million from the Economic Development Cash Fund and $15 million from the Economic Recovery Contingency Fund.
The amendment also would transfer $132 million from the cash reserve to the state General Fund and add the provisions of LB451, sponsored by Prokop. Those provisions would transfer the first $1 million in the Unclaimed Property Trust Fund to the Capitol Restoration Cash Fund each year on Nov. 1, from 2026 to 2035.
Clements offered an amendment that would make nearly three dozen additional transfers from state agency cash funds to shore up general funds. The additional transfers were needed following the economic forecasting board projections, he said, and were made thoughtfully so as not to impact agency functions.
“This has been probably the most difficult [budget process] that I’ve had to lead,” Clements said. “And we’ve been trying to keep agency services from being slashed and that’s why there were a lot of cash fund transfers.”
Omaha Sen. Machaela Cavanaugh disagreed with his assessment. Calling the transfers “reckless and irresponsible,” she said many of them could have been avoided if lawmakers had not chosen to make funding property tax relief their overriding priority in previous legislative sessions.
“Everything on here is to fund property taxes,” she said.
Lincoln Sen. Danielle Conrad also questioned the transfers and the impact of the overall proposal on the state’s working families.
“The point of a budget is not just to put together a number,” she said. “The point is putting together a budget to do the most good.”
Other amendments
An amendment to LB264 offered by Lincoln Sen. Jane Raybould would transfer $500 million from the Perkins County Canal Project Fund to the General Fund.
Raybould said the Perkins County Canal project could take up to 20 years to complete and that funds set aside for it would be a better way to balance the state budget than taking more than $100 million from the state’s cash reserve.
Sen. Dave Murman of Glenvil opposed Raybould’s amendment. He said the state earmarked funds for the canal when it had a one-time influx of federal pandemic funds and needs to protect that investment in the state’s future water needs.
“We made smart decisions when we had the revenue a couple of years ago … and we need to stick to those decisions that we made,” Murman said.
The Raybould amendment failed 5-24.
Senators adopted a technical amendment offered by Sen. Jana Hughes of Seward on a 34-0 vote, which she said would fix an issue with special education reimbursement recently discovered by the state auditor.
Syracuse Sen. Bob Hallstrom offered and later withdrew an amendment that would have eliminated the transfer of $4 million each from the Rural Workforce Housing Fund and the Middle Income Workforce Housing Fund to the General Fund. Hallstrom said he would refile the proposal on the next round of debate.
Senators advanced LB264 on a 34-6 vote May 7 after eight hours of debate and a successful cloture motion offered by Arch.
Additional measures
Lawmakers also advanced LB534, sponsored by Business and Labor Committee chairperson Sen. Kathleen Kauth of Omaha, which would provide for payment of claims against the state. If a person sues the state of Nebraska, he or she files a claim with the State Claims Board. Approved claims exceeding $50,000 must be reviewed by the Legislature.
As introduced, LB534 includes:• three indemnification claims totaling $432,500;• two settlements totaling $482,700 reached by the state attorney general to be paid out of the state’s General Fund;• three Workers’ Compensation Court claims totaling $665,000 to be paid out of the Workers’ Compensation Revolving Fund; and• six tort claims totaling $1.396 million out of the State Insurance Fund.
The bill also includes approximately $1.767 million in agency write-offs approved by the State Claims Board.
Kauth said the measure reflects “good faith” settlements made by the State Claims Board and the attorney general.
“These are debts the state owes the victims of accidents, officers who died in the line of duty, the cost of publishing the ballot initiatives and the victims of brutal murders,” she said.
A committee amendment, adopted 36-0, would add the following additional claims:• a $49,826 additional tort claim;• a $395,000 indemnification claim;• six additional workers’ compensation claims totaling $595,000; and• two line of duty claims and a miscellaneous claim totaling $712,991.
Following adoption of the committee amendment, senators voted 37-0 to advance LB534 to select file May 8.
Lawmakers also gave first-round approval May 7 to three additional components of the budget package introduced by Arch:• LB260, which would make adjustments to appropriations in the current fiscal year, on a 41-0 vote;• LB262, which would appropriate funds for salaries of members of the Legislature, on a 40-1 vote; and• LB263, which would appropriate funds for salaries of constitutional officers, on a 38-0 vote.