A budget package forwarded by the Appropriations Committee leaves $575 million in the state’s general fund by the end of the current biennium in FY 25. But other facets of the proposal starkly contradict any notion of a budget surplus.
The proposal set for debate in the Legislature on Tuesday afternoon sweeps $245 million from cash funds to the state’s general fund, an unprecedented transfer at a time of fiscal stability. The last time the Legislature agreed to a cash fund transfer of a similar magnitude was in FY18, a time when the state had to contend with a billion-dollar budget shortfall.
As debate gets underway, here are three things to know about the budget package in LBs 1412 and 1413:
- Without the new cash fund transfers, the state’s general fund would hit a deficit in the next biennium (FY 26 and FY 27). Even with the new cash fund transfers, the $575 million surplus for the current biennium falls to $69 million by FY 27.
The cash funds targeted for transfers to the general fund will result in fees paid for specific uses being diverted away from their intended purposes. Examples include the Universal Services Fund, which uses fees collected to enhance broadband and cellphone service in remote areas, and the State Unemployment Trust Fund, which uses fees paid by employers to ensure that funds are available to pay unemployment benefits in an economic crisis. More than 25% of the cash fund transfer is proposed to come from the State Unemployment Trust Fund alone.
- Despite the $575 million surplus, the committee’s budget proposal would support additional spending of only $23 million per year for the next three years. As proposed, the budget reduces spending on public assistance programs through the Department of Health and Human Services by $30 million over two years and behavioral health programs by $15 million annually.
Under normal circumstances, a greater portion of the $575 million could be spent on key services and other state priorities brought forward by policymakers outside the budget. But before any additional appropriations, the state is already at a structural deficit of over $500 million – spending more than it is taking in – by FY 25.
- The structural deficit in coming years and the large swing between the projected ending general fund balance in FY 25 and FY 27 is due to income tax cuts passed in 2023. Income tax cuts passed last year continue to ramp up in cost through FY 28, cutting revenues to the state by $1 billion each year when fully implemented.
To prepare for those revenue losses, the budget proposal calls for an atypical sweep of cash funds to the general fund and suggests there is little room for additional investment in programs important to all Nebraskans. These moves, made necessary to pay for income tax cuts that overwhelmingly benefitted wealthy Nebraskans and out-of-state corporations, reduce the state’s ability to respond to future economic downturns and portend future cuts in services without new revenue sources.
Watch the budget debate on Nebraska Public Media
Read more from the Omaha World-Herald
Sign up for budget webinar
Register today for OpenSky’s next webinar on Wednesday, March 20. The noon-hour discussion will provide additional details on the budget proposal and how the income tax cuts are impacting the funds available to maintain services and respond to future economic downturns.