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Sen. John Kuehn

Sen. John Kuehn

District 38

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Letter to the District 28

July 15th, 2016

Last week year-end tax receipts were released by the Department of Revenue. Following months of lagging revenues, the 2015-2016 fiscal year ended on June 30 with a $95 million dollar revenue shortfall. Thus, the state will collect 2.2% less in taxes than the revenue forecast we used to create the budget.

In June net sales tax revenue was 6.3% below forecast, while personal income tax and corporate income tax were 8.6% and 26.5% lower respectively. The decreases are largely attributed to the reductions in farm income due to dropping commodity prices, which has a ripple effect throughout our communities. Main street businesses and ag manufacturing suffer when farm incomes drop. This creates a cumulative economic impact.

Farm income in 2015 fell to levels not seen since 2002, and continues to drop even more during the first half of 2016. As detailed in a University of Nebraska report, ag production costs more than doubled, ag debt increased by 150%, and living expenses tripled during the same time period. The economic engine of our state, agriculture, is struggling. While record farm profits buoyed the Nebraska economy and government spending during the aftermath of the Great Recession, the cyclical nature of agriculture has now presented a correction.

Just like our families and businesses face tough decisions when income doesn’t materialize as expected, state government will need to quickly adapt to this reality. Prioritizing existing spending and careful oversight of expenses are the first steps required to address the shortfall. The circumstances are serious, but they are not catastrophic. With careful stewardship of your tax dollars I am confident state agencies will be able to adjust. If revenues continue to lag behind projections into the 2016 fiscal year, greater structural changes will be need to be implemented by the Appropriations Committee.

State Senators and our local government leaders must recognize several important lessons as we develop budgets for the next year and set priorities for spending and tax relief. First, we cannot continue to ride a wave of agricultural prosperity without being able to accommodate the natural lows of the industry. Record high agricultural land valuations boosted local government budgets, and high farm incomes sent unprecedented dollars into our local economies and state coffers. Continuing to tax agriculture disproportionately during this down cycle threatens to kill the proverbial goose that has laid the golden egg. Our tax policy should not amplify and perpetuate a boom/bust cycle of taxing and spending. Rather, we should seek to limit the wild fluctuations and the uncertainty they bring.

Second, a 2.2% decrease in state revenues cannot continue to be plugged temporarily with one-time dollars. Borrowing against our stability by raiding cash funds or state reserves without addressing long-term spending is short sighted. It is irresponsible to jeopardize essential state programs that provide economic stability, public safety, care to the vulnerable, and public education. We cannot starve agencies in need of additional resources, like the Department of Corrections, during this time. Thus, other programs need to strategically realize greater than average reductions to balance the budget.

Finally, the state will be able to provide a concrete example to local governments with regard to spending. While special interests fighting property tax relief efforts last session called budget growth caps of 5% “draconian” and impossible, we will successfully decrease General Fund spending in state government. If families, business, and state government can adjust to the economic reality we are facing, local governments can most certainly operate with reasonable caps on spending growth.

These revenue shortfalls are a reflection of the economic conditions faced by families, farmers, and businesses. As your representatives, we cannot prioritize special interest spending and non-essential programs. We must be ever mindful that behind the revenue forecasts and data are families working hard to meet their obligations. My approach will be to promote accountability and to carefully prioritize state spending needs to insure our state will not only meet its obligations but prosper.

Sen. John Kuehn

District 38
Room #12th Floor
P.O. Box 94604
Lincoln, NE 68509
Phone: (402) 471-2732
Email: jkuehn@leg.ne.gov
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