Governor’s Tax Plan Unites Diverse Group of Critics

Public hearings on various components of Governor Jim Pillen’s proposed budget and tax reform plans kicked off last week in the Revenue and Appropriations committees, to a more negative reception than we’ve seen with other recent governors’ budget and tax plans.

Pillen’s primary ally and proxy in the legislature has been Sen. Lou Ann Linehan, who has been consistently vocal about an urgent need to deliver property tax relief in her time as chair of the tax-setting Revenue Committee, though property tax reductions delivered under her leadership have been marginal thus far. (To be fair: analysts have noted that some of Nebraska’s immutable characteristics, such as a small population relative to land mass and demand for government-funded social services, make this a difficult goal to accomplish.) The budget-writing Appropriations Committee’s Chair Sen. Rob Clements has also fallen in line with publicly defending Pillen’s plan so far.

The proposed mechanisms to achieve the governor’s lofty goal of a 40% reduction in property taxes, including a sales tax increase, elimination of existing sales tax exemptions, broadening the sales tax base on services, hard caps on school district and local government spending, and some hefty sweeps of state agency cash reserve funds, continue to draw the ire of an increasingly broad swath of stakeholder groups. Many state agency leaders who are “non-code,” meaning not appointed or under direct control of the governor, shared concerns about how the raids on their agency’s cash reserves would impact operations and services; heavy-hitting corporate lobbyists like the Nebraska and Omaha Chambers of Commerce warned of the impact of ending sales tax exemptions on business inputs for companies’ bottom lines and willingness to stay in the state; while social service agencies, nonprofits, and public interest groups continued to point out the unfairness of a scheme in which lower income Nebraskans are asked to pay more to alleviate the tax burden on higher income, property owning Nebraskans. Conservative and liberal-leaning economic and fiscal policy think tanks alike have criticized the plan as short-sighted and ill-thought-out, suggesting alternative means should be considered that might be less regressive, or that perhaps promising this amount of property tax relief in one year given current budget constraints is not realistic.

This all comes at a time when, new proposals aside, the state budget is projected to fall “into the red,” or below the legally required minimum reserve balance, as soon as next biennium due to last year’s tax cuts, according to the Legislative Fiscal Office’s Long Term Budget Planning Report. You might recall that last year the legislature passed major income tax reform, slashing the top corporate and personal income tax rates, which left a major dent in state revenues. Those changes already threaten our budget solvency and the ability to fund critical social services in the near future, and it’s the highest earning Nebraskans who already saw the most benefit from those cuts. With the state in jeopardy of going bankrupt in the next decade, economic forecasters have cautioned that adding further cuts this year would leave lawmakers in a position of digging themselves out of a hole in the not-so-distant future.

More hearings will be held this week on key budget and revenue plan components, and it seems that the details of this grand plan could still be in flux and subject to stakeholder and public opinion. Some observers have noted that if things continue on the same track, Pillen could be shooting himself in the foot by delivering opponents an easy campaign mailer headline against him in a future election: that “Pillen has raised taxes.” It’ll be interesting to see how much he does or doesn’t dig in here, considering what we all know but isn’t said; that is, while there may be a genuine desire to lower property taxes, much of this is about getting a legacy “win” for his administration that seals his re-electability.

I’ve heard that there’s a good chance it could be reported sometime this week that due to TEEOSA (the state’s school aid formula) obligations being substantially higher than projected, there might be little to no “floor money” to work with this year. If true, that would mean that senators hoping to pass bills with an A-Bill, or fiscal note that requires an accompanying appropriation due to general or other state fund expenditure, may be out of luck unless they can find a “pay-for” fund or a way to eliminate the price tag for their bill.

Summer EBT Bill Has Successful Hearing

Sen. Day’s bill to implement Summer EBT in Nebraska (LB 952) was heard last week, and it’s very telling–and bodes well for the bill’s chances going forward–that no one showed up to testify in opposition to the bill after many proponents spoke in favor of it.

Today, Monday, February 5 is Day 22 of the 60-day session, meaning we’re over ⅓ of the way done for the year. We’ve also reached the point in the calendar where every remaining week has a built-in recess day, either Monday or Friday, to allow senators who live outside the Lincoln area a chance to drive home, spend time with their families, and catch up over the weekend. That’s welcome news, as those five-day session weeks can be grueling.

Until Next Week,
Your Capitol Fly on the Wall