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As the 105th Nebraska Legislature moves into the last month of the legislative session, the two most important functions of state government have been the topic of much debate: taxes and spending. Discussion of a comprehensive tax reform package and the state budget have dominated the time on the floor. Both are large legislative initiatives that impact the daily lives of every resident of District 38.
As a member of the Appropriations Committee I have been personally involved in crafting the 2017-2019 biennial budget during the entire session. As growth in state sales and income tax revenue continues to be slower than projected, spending decisions require greater prioritization. I, along with 2 other members of the Appropriations Committee, did not vote in favor the advancement of the mainline budget bill, the cash funds transfer bill, or the cash reserve transfer bill from the Appropriations Committee to General File. I have not voted to advance those three bills through the first two rounds of debate either.
Spending decisions are difficult. When revenues are high, it is easy to say “yes” to every new spending request and request for increases in spending. When the money is not available, saying “no” is difficult. Every dollar of the $4.3 Billion spent out of the General Fund has a constituency and advocate who will be affected. Distinguishing core functions and spending needs from that which is discretionary is essential. Accountability and transparency of how each of those tax dollars is spent is critical to evaluate the priority of each spending request.
To accommodate spending that exceeds the amount of sales and income tax coming into the state, the current budget proposal will transfer almost $209 million from specific Cash Funds into the General Fund. Cash Funds are fees and taxes collected for specific purposes to fund operations associated with those activities. For example, the documentary stamp fee collected on every property transfer is distributed to a number of economic development cash funds, such as the Affordable Housing Trust Fund and the Job Training Cash Fund. In addition, $173 million will be transferred from the Cash Reserve, known as the “rainy day fund”, to balance the General Fund. The minimum reserve requirement, which is the amount of cash the state must have on hand to ensure cash flow as the state pays its bills, was also lowered from 3% to 2.5%. That is a $45 million accounting change that permits new spending without matching revenue.
In total, $382 million of “one time” money is being used to fund on-going expenses in the proposed 2017-2019 biennial budget. Thus, 4.3% of the General Fund dollars spent in the coming two years for ongoing appropriations will be paid with one time cash transfers.
In order to meet those ongoing obligations in the next biennium, revenue growth will need to exceed the 4.3% level. An additional 1-1.5% growth will be needed to accommodate increases in state employee salaries and benefits. Failure to meet either target will require additional reductions to programs going into the future.
While I fully understand the need for some use of the Cash Reserve and one time transfers to balance the state budget, I do not support the magnitude of one time transfers used. Given continued low commodity prices, the challenges on the ag economy, and the overwhelming tax burden faced by Nebraska farmers and ranchers, meeting 5% or greater revenue growth in the coming two years is not a rational expectation. It is my assessment that the current budget as proposed is unsustainable.
Spending reductions are always painful. However, reasonable 1, 2, or even 3% reductions at a time are easier to accommodate than larger reductions forced by a fiscal crisis. By filling so large a gap between tax revenue and spending for ongoing expenses with one time money, we increase the likelihood that even modest revenue growth will require a special legislative session to adjust spending and balance Nebraska’s budget.
Sustainable spending is essential to fiscally sound state policy. Citizens that depend on state services need predictability for essential programs. The uncertainty created by an unsustainable budget negatively impacts all Nebraskans, and is not a policy I can support.