As we await formal proposals in the fledgling Legislative session, OpenSky shared an overview of the state’s fiscal picture with participants in a virtual briefing on Wednesday.
Nebraska is in the first year of the biennium budget approved by lawmakers in 2023. In the mid-biennium year, the Legislature will consider adjustments to both FY 2024 and FY 2025. The governor and Legislature have not yet forwarded proposed adjustments to the budget, but agency budget requests analyzed by OpenSky are overall requesting slightly less in general fund spending.
The Legislature began the session with $379 million in available funds above what’s required in the state’s minimum reserve. Historically, that’s money available to the Legislature to appropriate through proposals for services or other state priorities. This year, however, the funds above the state’s minimum reserve will likely be protected to help cover revenue reductions from phased-in tax cuts and changes in education funding passed by the Legislature last year.
As a result of personal and corporate income tax cuts passed in 2021, 2022 and 2023, a tax-cutting process estimated to cost $3.1 billion over the next five years, Nebraska lawmakers will be facing revenue reductions for years to come. Net receipts are expected to grow in the current fiscal year but fall in each of the three years to follow. That’s less money available to sustain investments in schools, health care and public safety.
At the same time, the Legislature is expected to take up a proposal from the Governor to address property tax increases across the state. The Governor has committed to reducing property taxes levied by cities, counties and other political subdivisions by 40%. His proposal may include some effort to fund property tax relief through sales taxes, including a possible increase in the state sales tax rate or elimination of existing exemptions.
Sales taxes are the most regressive tax category, and in Nebraska, low-wage families pay almost five times more as a share of their income in consumption taxes than the best-off families, according to a recent report.
Throughout the session, OpenSky will provide research and analysis on these and other fiscal-related issues, including allocation of ARPA funds. Watch for advisories of future webinars.