OpenSky provided an outlook on budget debate last week, and between then and now, the Legislature sent an $11.1 billion behemoth to Governor Jim Pillen’s desk for approval or line-item vetoes. To frame up the process and what may happen next, consider a punctuation analogy. In theory, the Legislature is meant to pass a budget in a 90-day session with a period at the end, or a complete package meant to direct the state’s expenditures for the next two fiscal years. Typically, though, the Legislature punctuates the budget with a comma. That means that this phase is completed, but changes or amendments should be expected in the short session that follows. This could be caused by shifting economic factors, unanticipated expenditures by state departments, or changing priorities of state legislators. However, this budget cycle is shaping up to be anything but typical, which means this biennium budget is best populated with an ellipsis. An ellipsis, or … is meant to communicate an incomplete thought or hesitation. With the significant threat of substantial cost shifts from the federal government to Nebraska in big-ticket programs like Medicaid and SNAP, this budget takes shape amid unprecedented uncertainty. Legislators may find themselves scrambling to meet basic state obligations if the federal share of programs is reduced, leading to some speculation of a special session.
If there were one thing to underline about this budget process for Nebraskans, it would be the gigantic swing from abundance to scarcity that the state has experienced since 2023. In that year, the Legislature came into session with a $1.9 billion surplus, which represents about 17% of this year’s total budget. Much of that was due to one-time cash infusions from the federal government for pandemic relief. Since the funds were not ongoing, using them to reduce revenue by way of tax cuts was never going to be sustainable. The surplus turned quickly into a deficit, leaving Legislators to grapple with a $432 million shortfall at the beginning of session. Major cuts to personal and corporate income tax rates over a period of several years, part of a national trend, have not yet resulted in the economic boom promised by supporters of LB 754 in 2023. Lower contributions from FMAP, or the federal portion of funds for Medicaid, were often blamed as the reason for the shortfall, but these were known to department heads prior to submitting their budgets, and are reflective of a strong state economy. The Legislature declined to consider LB 171, which would have paused continued income tax cuts, a decision which could prove costly, as the state is forecasted to face additional shortfalls in the near future.
An exclamation point on the session began yesterday, with debate on LB 170, a package that revived a failed relic of a plan debated during last summer’s special session, repealing several sales tax exemptions and increasing other sales taxes in order to fund additional property tax breaks. Achieving property tax relief at the expense of working families will increase regressivity in an already-regressive state, benefitting an increasing number of wealthy out-of-state landowners. The bill failed to advance after lengthy debate.
Nine legislative days remain in the session, and end-of-session surprises are not out of the question. OpenSky remains engaged in the fight for fair, sustainable tax policy and a Nebraska where everyone can thrive. Period.
