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The “Mindset List” has been published every fall since 1998. Compiled by faculty of Beloit College in Wisconsin, the list details notable cultural, historical, and technological events from the year that college freshmen were born. Students entering college this fall were born in 1999, representing the last class to be born in the 20th century. They have never known a world without emojis or Amazon.com. Humorous and written to convey the perspective of young adults entering college, the “Mindset List” provides a poignant reminder of how quickly American society, culture, and technology changes.
Although developed as a retrospective to provide a context of the past, looking back at previous Mindset Lists published over the last 19 years provides an important reminder of the need for long-term perspective. All too often policy discussions, especially those led by special interests, focus on immediate payoffs and benefits. This can come at the cost of sound, long-term policy decisions. The fate of property tax relief proposals in the last legislative session provide a perfect example of shortsighted decision making. Agricultural special interests rejected long-term structural changes to ag land valuation because it did not have an immediate effect. Sound tax policy was opposed and the long-term property tax relief for the future was lost.
Students entering college and vocational programs this fall will likely be working in jobs two decades from now using technologies we have not yet envisioned. When they began kindergarten 12 years ago, the iPhone was incomprehensible to most. Today they enter college with more technology in the palm of their hand then was available to the original Apollo astronauts when they landed on the moon. It is shortsighted and illogical for us to assume that the technologies and skills required for jobs in 2017 will be the same skills required for a successful career in 2037.
The emphasis on vocational skills and career readiness in K-12 and higher education has a valuable short-term goal and arises from good intentions. However, the dramatic changes demonstrated by the Mindset List reminds us that these programs should not substitute or crowd out an emphasis on strong intellectual and analytical skills. Proficiency in reading, strong quantitative skills, and problem-solving abilities enable and equip all students to learn and develop skills for success in their first jobs as well as throughout their careers and working life. Career readiness has become equated with a trade rather than a strong foundation for lifelong learning and career advancement.
As we seek to expand high skill manufacturing jobs and train students specifically for those roles, we must learn from the experience of our neighboring states. Communities in Iowa and Kansas have seen significant economic stress created by layoffs and plant closures. These are the very high-tech, high skill, high paying manufacturing jobs we are rushing to train students for in career academies and vocational programs. Despite having held highly technical positions, retraining for new jobs has proven costly and time consuming, in large part due to the need to remediate basic reading and quantitative skills in adult workers. The lack of a strong, comprehensive education has proven a barrier to successful reentry into new jobs.
Those of us over 40 find it difficult to comprehend that today’s young adults have no frame of reference for popcorn that couldn’t be popped in the microwave or rotary dial phones. My niece, who started kindergarten this year, will graduate high school using technologies and likely pursuing a career that does not even exist today. A comprehensive educational foundation will be vital to her future career success.
Short-term goals and immediate policy outcomes are important. However, they should not come at the price of future disadvantage. As we begin a new school year and marvel at how “things have changed” for this generation, we should be sure we are equipping all Nebraskans with the intellectual skills to be adaptable for whatever the future holds.
The past week the Revenue Department released the certified report for state revenue during July, the first month of the 2017 fiscal year. Tax collections were $7.6 million below the level projected in April by the Nebraska Economic Forecasting Advisory Board. This is the third consecutive month in which revenues did not meet projections since the Board lowered revenue expectations in April. This trend raises the possibility of modifications to the budget enacted during the past session that became effective on July 1st. Concluding my discussion over the past few weeks of the budget process, this week I will address how the budget can be modified after its adoption as law.
The state budget covers a two-year funding period, known as a biennial budget. Developed during 90-day legislative sessions held during odd numbered years, the budget covers two fiscal years that begin July 1 of each year. Although state dollars are appropriated to a specific fiscal year, it is general practice that funds not spent in the first fiscal year, known as reappropriations, roll over into the second fiscal year of the biennium. Adopting a balanced budget and meeting the statutory minimum reserve levels are required at the end of the two-year period, not at the beginning of the budget cycle, at the end of each fiscal year, or each month throughout.
The General Fund portion of the state budget is built to meet the revenue the state is predicted to collect by the Nebraska Economic Forecast Advisory Board. The revenue forecast is based upon analysis of economic models that attempt to predict consumer behavior, earnings of Nebraskans, and economic conditions both locally and nationally. If revenues do need meet forecast, spending must be reduced or money must be taken from other sources, like the rainy day fund, to make up the difference. Revenues in excess of forecast are automatically transferred to the Cash Reserve.
Although a budget is developed and adopted on a biennial basis, the “off year” involves the development and adoption of a “deficit budget”. This does not mean that the budget is allowing spending by the state in a deficit balance, but rather that modifications are being made to a previously adopted budget. Special sessions can also be called to modify an existing budget.
In theory, off year adjustments to the budget would only address unforeseen expenses, differences from the revenue projections, and statutory changes. However, in recent years the deficit budget process has expanded to include new spending and additions to the base appropriations of some agencies. The expansion of this practice is more political than pragmatic. Deficit requests made to a previously adopted budget can obscure the total increase in spending an agency may request by breaking it up into two smaller requests, one at the beginning and one the second year of the biennium.
As was seen with LB 22 at the beginning of the last session, a deficit budget bill can be a vehicle to decrease spending to meet lower revenues. With the exception of state aid to K-12 public schools, agencies receive their appropriation in equal installments from the Department of Administrative Services at the beginning of each quarter of the of the fiscal year. If the distribution has already been made for the quarter, any reductions will be taken from the remaining distributions. For example, if a deficit bill passed in the next session were to reduce an agency’s appropriation by 4%, it would all be taken from the remaining quarter of the fiscal year, meaning the agency would receive only 21% of its original appropriation on April 1st, rather than 25%. In contrast, if the same 4% reduction were taken in a special session in October, a smaller reduced distribution would take place over the last two quarters of the year, with each being 23% of the original appropriation.
Since the state budget is a plan for spending, the plan changes as state revenues and government program needs change. This flexibility is needed, but should not be abused for political gain. The dynamic nature of the appropriations process requires careful attention by lawmakers and taxpayers alike.
A common misconception is that the Legislature appropriates money to the level of a specific position, agency process, or reimbursement fee. A high level of detail may be provided during public hearings and in budget documents to explain the intention for how requested funds plan to be used, but the actual appropriations bill is not that specific. “Intent language” is statutory language associated with an appropriation amount that provides specific legislative direction for how funds are to be used. These earmarks are the exception, not the rule. A budget can best be described as a plan for spending during a fiscal year. A government budget document does not tell you how dollars were actually spent, but rather is a prospective document that details how they plan to be spent.
Each state agency is assigned a number within the state budget system. For example, the Department of Agriculture is Agency 18, while the Department of Corrections is Agency 46. An agency can be a “code” or “non-code” agency, indicating whether it is under direct management of the Governor or is independent. Code agencies have a Director hired by and are accountable to the Governor. The Departments of Economic Development and Revenue are examples. Non-code agencies are autonomous, with governing boards that may be elected or appointed. Management of those agencies is accountable to their board, although the Legislature has the sole authority to appropriate public money. To illustrate, the Tourism Commission is governed by an appointed Board of Directors defined by statute, while the Board of Regents of the University of Nebraska operates under constitutional authority.
The Appropriations Committee allocates specific dollar amounts of General, Cash, and Federal Funds to each agency. Within the agency, the appropriations are specified into one of three categories: operations, aid to individuals, and aid to local government. Operations budgets are the dollars appropriated for the day-to-day functions of the agency. This includes employee costs, office space, and all of the expenses associated with running the agency. Contrary to popular belief, operations expenses are only approximately $1.5 Billion of the $4.6 Billion General Fund budget. Higher education makes up over ⅓ of the total. Operations of all of state government comprise less than 25% of the total General Fund Budget.
Aid to individuals is commonly referred to as entitlement spending. These are public dollars that are paid directly to individuals, such as with public assistance, or paid for specific services associated with an individual, such as developmental disability aid. Some programs, like student grants for higher education, are wholly funded with state tax dollars. Others, like Medicaid, are a cost share with the federal government. Thus, the appropriation includes both General Fund and Federal Funds. Aid to individuals is about ⅓ of the General Fund budget, with Medicaid, by far the largest individual aid program, comprising 60%.
Aid to local government is dollars that pass through the state to local political subdivisions. Over ⅔ of that aid, almost $1 Billion is TEEOSA aid to K-12 public schools, commonly referred to as state equalization aid. Special education and community college aid make up another $300 Million in aid to local governments. One-third of the state General Fund is distributed to local governments.
An agency may have specific subdivisions, known as programs, which divide the agency’s budget. The number of programs or their size within any agency has a historical basis. Some agencies are appropriated as a single program, while others have many program areas of varying size. Management within an agency has the statutory authority to move dollars around within a program area. They may not transfer appropriations between programs in an agency without legislative approval. An appropriation is a legal authority for the agency to spend allocated dollars within the boundaries of state statute.
The budget is a plan, and is not actual spending. Expenditure reports detail how and if the dollars were spent as originally planned. If budgeted funds are not spent, they may be rolled over into the next budget. These carryover funds are known as “reappropriations”. Because Nebraska uses a baseline budget process that does not require justification of funds appropriated in prior budgets, reappropriated dollars are common. Historically there has been little legislative oversight of the use of these funds, as blanket reappropriations are frequently allowed.
In July, the Nebraska Department of Revenue released a final report on General Fund tax receipts for the end of the fiscal year. Despite the Nebraska Economic Forecasting Advisory Board reducing revenue projections at its April meeting, the state still ended the fiscal year on June 30 collecting $34 Million less than predicted. In the event that revenues continue to fall under projections in coming months, the biennial budget passed in May will need to be adjusted. This may require a special legislative session this fall or adoption of adjustments in the next legislative session, depending on the magnitude of any shortfall in the next few months.
In light of these numbers, a review of the budgeting and appropriations process will help citizens of District 38 put these numbers in context. Over the next several weeks, I will address a how budget requests are developed by state agencies, the difference between the budget and actual expenses, and deficit budget adjustments made to a biennial budget after it has been adopted. While I have discussed the biennial budget and appropriations process in previous columns, I want to highlight unique aspects of the state budget from other budgets you may have experience with.
The budget of any state agency consists of appropriations from three types of funds: General, Cash, and Federal. The General Fund budget, over $4 Billion, is funded by income and sales taxes. When most taxpayers think of the “budget”, it is typically the General Fund. Cash Funds are dollars that are collected by an agency as “fees”, usually associated with a specific function. Those fees are intended to pay for the cost of delivering that service. An example would be fees collected by the Department of Agriculture for food safety inspections. Federal Funds are allocated by the federal government to the state for specific programs. Most of these dollars require some portion of state General Fund as a match. The federal portion of Medicaid and federal education dollars are examples.
Nebraska utilizes a “baseline budgeting” process. The philosophy behind baseline budgeting assumes an agency will receive its prior year’s budget in addition to any increases such as negotiated employee salary raises, increases in health insurance premiums, and other inflationary costs. In a typical budget process, the primary task of the Appropriations Committee is to accept or reject requests for new funding. No justification is required for previously appropriated dollars.
The baseline budgeting approach makes reductions to a General Fund budget challenging. Since previous spending is not evaluated for effectiveness and prioritized as part of the request, it is not readily obvious how any reduction may impact specific services. Since previous spending is expected to operate in perpetuity, it is assumed that any increases in employee costs or due to inflation will have to be covered with new appropriations and not within an existing budget.
When submitting their budget requests, state agencies also include budget “modifications”, which are items they identify and offer as potential reductions to their base budget. The Governor provides instruction to state agencies when developing their budgets whether to propose modifications at 5, 8, or 10% of their General Fund budget. Typically, Cash and Federal Funds are not suggested for reduction. In my experience as a member of the Appropriations Committee, these voluntary modifications are generally not helpful. To avoid the possibility of a reduction being adopted, agencies offer politically popular programs or funding that would require a statutory change to reduce. Thus, they are not a sincere attempt at spending prioritization or management of budget growth.
The default of the state budget process assumes the General Fund budget will continue to grow. You may recall discussion about a projected $900 Million shortfall when the legislative session began this spring. That figure assumed the General Fund budget would grow at approximately 6% annually for the two years of the biennium. That projected growth alone comprised over 75% of that figure. A flat budget would have immediately dropped that figure to $250 million without any reductions to spending or increases in taxes.
I do not believe government should pick winner and losers in private industry. Using publicly available campaign reports, voters can see all of the political donations made to elected officials. Since candidates are required to disclose campaign contributions they receive and the reports are available on the Nebraska Accountability and Disclosure Commission website, voters can easily make their own evaluation regarding these donations.
A much more direct but far less transparent way of influencing public policy is known as political “rent seeking”. Through direct manipulation of policy, a company or trade group can gain a financial advantage in the marketplace. The adoption of regulations that favor one special interest at the expense of others, creating mandates that capture a specific market share regardless of consumer choice, or incentives that lower the cost of production for some businesses but not others, are ways of using the political system to seek financial gain. While direct payment of bribes or corruption are illegal, there are many legal means of political rent seeking that have become common practice. Most of these strategies are not readily obvious to taxpayers.
A tactic I have observed in the Nebraska Legislature is the use of interim studies and task forces to give special interests a public hearing, then using the credibility gained by the subsequent legislative report to pass rent seeking legislation into law. The past two legislative sessions provide a textbook example of how an industry interest can use the system to gain a direct financial payment.
LB 1093, introduced by Omaha Senator Heath Mello, was adopted by the Legislature in 2014. Amended into LB 1093 was LB 987, a bill introduced by Lincoln Senator Adam Morfeld, as well as Mello and Gothenburg Senator Matt Williams, which created the Biosciences Steering Committee. The steering committee was tasked by statute with creating a strategic plan for the biosciences industry in Nebraska. I was selected to serve on the Steering Committee.
The statute stated the committee “shall commission a nonprofit corporation to provide research, analysis, and recommendations to the committee for the development of the study and strategic plan. The nonprofit corporation … shall be engaged in activities to facilitate and promote the growth of life sciences within Nebraska, and shall be dedicated to the development and growth of the bioscience economy.” While Nebraska law prohibits legislation specific to an individual group or company, the criteria written in the statute applies to only one nonprofit corporation: the trade industry group for bioscience companies in Nebraska. Consequently, the trade organization for the industry was paid, using tax dollars, to develop recommendations for policy that would benefit their member companies. Senator Morfeld chaired the committee, hearings were held, and a report was written, with direct input from the special interest.
During the past Legislative session LB 641 was passed. Introduced by Senator Morfeld and designated his personal priority bill, LB 641 used the existence of the Biosciences Steering Committee process to give credibility to the policy of providing $2.5 million in direct financial assistance to bioscience companies over the next two years. The funds were redirected to the industry through repayment of loans made by the Nebraska Progress Loan Fund.
An industry trade group getting paid to conduct and produce a study that results in $2.5 million in public funds for use by the private companies it represents is a perfect example of successful political rent seeking. There is not a publicly available report for voters to identify the specific lobbying activities, participation of lobbyists in the public hearings, or legislation that results from the those activities. While I fully support the biosciences industry, I do not approve of the practice of government financial support of private industry that gives competitive advantages.
As policy discussions continue regarding expansion of Tax Increment Financing to private housing developers, expansion of tax incentives, energy mandates, and countless other issues, voters should carefully look for manipulation of the social or political environment by interests who stand to gain financially. Political party affiliation and campaign contributions are really easy to see and evaluate. The cronyism and influence trading at play in political rent seeking that benefits private interests are difficult to track but have profound implications for voters and taxpayers.
Using data to demonstrate the effectiveness of programs funded by state tax dollars is the basis of Evidence Based Budgeting. As states nationwide face greater demands for spending, many are adopting principles that use evidence to support strategic prioritization of taxpayer dollars and improve government accountability. Non-profit organizations such as the MacArthur Foundation and Pew Charitable Trusts have championed best practices and assisted states with implementation of evidence based budgeting policies.
In order for lawmakers to appropriate tax dollars based on evidence of their effective use, knowing how your tax dollars are spent is a basic requirement. The third largest expense in the Nebraska General Fund budget is the appropriation to the University of Nebraska system. As such, Nebraska taxpayers deserve the same level of accountability and transparency about how tax dollars are spent by NU as is provided by all other state agencies.
Unfortunately, the University of Nebraska cannot detail how over half a billion dollars of state funds are spent each year. During the deficit budget and biennial budget process in 2017 I came to understand that state General Fund dollars appropriated to the University of Nebraska are not tracked beyond the level of the campus to which they are allocated. I learned this through communication with University administration. Requests by my office for further specificity concerning how state tax dollars have been spent resulted in only estimates to the level of college and major unit.
Simply put, of the $583 million appropriated to the University system from the General Fund in the last fiscal year, the only transparency for the specific use of those tax dollars was that $266 million was allocated to UNL, $153 million to UNMC, $66 million to UNO, $40 million to UNK, $28 million for system wide administration and computing, $27 million for university-wide activities and legislative earmarks, and $3 million for NCTA in Curtis. Beyond that level, tax dollars are mixed with other revenue, including tuition. No tracking of your tax dollars for transparency and accountability is done beyond that point.
Every other state agency is subject to full scrutiny of how taxpayer dollars are used. Recent reports by the State Auditor of small, cash funded agencies such as the Tourism Commission and Brand Committee detailed how public funds were used inappropriately, specifying specific purchases of goods via individual receipts and actual miles traveled in a state vehicle for personal use. The response of the Assistant Vice President of Budget & Planning as to why there was no data on how your tax dollars were spent by NU that “it’s really no different than the joint checking account” used by he and his spouse in their home does not pass even the basic standard of accountability.
In light of tax receipts falling $34 million below projected forecast levels for the conclusion of the 2016-2017 fiscal year, full accounting of all state dollars is even more important. As spending across state government is scrutinized, the University system must provide equal transparency regarding the use of public tax dollars.
Furthermore, the lack of data confounds the ability of lawmakers to effectively appropriate tax dollars. Over the course of the next biennium, the University received an average reduction of 0.2% over the previous budget. University leadership made a variety of dramatic claims and generalizations about the impact of this reduction. However, they provided no clear evidence of direct, specific impacts to programs, much less harm to the overall mission of the University. With no tracking of tax dollars to their point of use, it is impossible to evaluate the impact of either reductions or increases in state appropriations on University programs. Sound principles of Evidence Based Budgeting cannot be followed.
The significance of the University of Nebraska to our state is indisputable. Nebraska taxpayers value affordability of higher education, research, and the cultural contributions of a vibrant university system. Legislators have shown a commitment to the University of Nebraska with generous General Fund appropriations in excess of half a billion dollars annually. Additional tax dollars are provided through various Cash Funds, the Capital Construction budget, and specific earmarks. In fact, Nebraskans underwrite higher education at the University of Nebraska at a level unmatched by most states. Public confidence in that investment and effective decisions about future appropriations require full transparency and accountability of how taxpayer dollars are spent.
Transparency and public access to voting records and the legislative process is my top policy issue. Open discussion of the votes of elected officials is essential for voters to make informed decisions at the ballot box. Citizens need objective, factual information to empower them to effectively engage in their government. Every recorded vote of a state senator is available to the public on the website of the Nebraska Legislature at www.nebraskalegislature.gov.
Special interest and lobby groups routinely publish “scorecards” and rankings of votes on specific issues. While the intent and motivation of these scorecards is to promote the interests of the particular lobby group, they provide another opportunity for voters to see how their senator voted on specific bills. For voters to glean useful information from these special interest publications, careful attention should be paid to how the information is presented, which issues and votes are considered “record votes”, and the methodology used to calculate voting percentages and rankings.
To illustrate the challenges in understanding exactly what is presented in these scorecards, I will use the recently released Nebraska State Chamber of Commerce 2017 Legislative Voting Record as an example. The report is based on ten record votes of interest to the Nebraska Chamber of Commerce and calculates an annual and cumulative voting percentage of specific votes selected by the Chamber.
To begin, the information published in the table of recorded votes is not straightforward. It identifies issues only by number, 1 through 10, with the senator’s vote recorded as a “+”, “-”, or “?”. Contrary to what a voter my initially think, a “+” does not mean a “yes” vote, nor does a “-” indicate a “no” vote. Rather a “+” refers to a vote, either yes or no, that is the same as the position of the State Chamber, while a “-” reflects a vote in opposition. Thus, if the State Chamber opposes a bill, a “no” vote would be listed as a “+” on the voting record. In order to determine how their senator voted on a particular issue using this table, a voter would need to know first which bill the number on the chart refers to and what motion the vote was for. Next, what the State Chamber’s position was on the motion, then interpret what the “+” or “-” means.
Voters also need to carefully examine which votes are selectively determined as “record votes” by the special interest group publishing the scorecard. Of the hundreds of votes taken, and many on a single bill, groups may pick a procedural vote or a vote on an amendment, not necessarily the vote on final passage of an entire bill. For example, on the State Chamber scorecard, they include two different votes on a single bill, LB 461, among their ten record votes. Both are motions to return the tax reform bill to committee, one during General File debate, the second during Select File debate. If a voter were only to look at the voting percentage, they may not realize the total is weighted heavier by the same vote on the same motion on two separate rounds of debate on a single bill.
Remember, the votes selected for scorecards are not objective. They are intended to present a particular special interest point of view. Votes can be selected with the intent of making specific senators look favorable or unfavorable to target audiences. The information is presented to lobby and persuade, not to inform.
I encourage voters to go to the Legislature’s website and examine all of my votes on any bill. If you have questions about why I voted how I did on any motion, please contact my office. Whether you agree or disagree with my vote, I am happy to explain my position. I do not cast my votes in obligation to any special interest group or in hope that it may produce a favorable ranking or scorecard, but in my assessment of the best long-term policy interest of District 38 and the state of Nebraska.
Most of us think of early July in the context of Independence Day celebrations, summer baseball, and long hours irrigating. July 1 is a significant date in state government, marking the beginning of the new fiscal year for the state of Nebraska. Running from July 1 to June 30, the new fiscal year operates using the biennial budget adopted in the past legislative session. Although the start of the fiscal year means implementation of the new budget, most of the statutory changes passed by the Legislature during the 2017 session will not become effective law for another 30 days or more.
The lawmaking process in Nebraska has a number of important delays built into the system. For example, there must be five legislative days between the introduction of a bill and a vote on Final Reading, the third and last stage of debate. Moreover, a bill must layover a full legislative day after being advanced to Final Reading before the vote can be taken. These delays provide a minimum time for the public to access, read, and provide input on legislation before it can be passed by the Legislature.
Once a bill has been passed by a majority of the senators and signed by the Governor, it does not become effective law until three calendar months from the date it is signed. This 90 day delay has several practical implications. First and foremost, the 90 day time period is critical to the referendum process in Nebraska. Voters of Nebraska have the ability to overturn any law passed by state government via public vote. If 5% of registered voters sign a petition within the 90 days following passage of a bill, the bill will be considered by all voters on the next General Election ballot. Since General Elections are only held in November of even numbered years, the law may take effect before the people vote. However, if 10% of registered voters sign the petition, the bill is barred from becoming law until after the public vote. A simple majority of General Election voters then determines whether the law is repealed or allowed to remain.
In addition, the three month delay allows adequate time for those impacted by the new law to understand how to fully comply with the statutory changes. State agencies with the responsibility to implement or modify programs as a result of the bill may need to promulgate and adopt new rules and regulations or issue Request for Proposals for contracted services. The regulation process also has specified time periods for public input, and the RFP process is intended to provide open, fair access to all willing bidders.
In some cases, bills passed need to take effect sooner than 90 days after passage. To eliminate that delay, bills must include in their language an “emergency clause”. A bill with the emergency clause will generally have the phrase “to establish an emergency” in the bill description on the first page of the introduced copy, and will contain the phrase “since an emergency exists, this act takes effect when passed and approved according to law” in the text of the bill. Bills with an emergency clause will also be identified with the letter “e” following the bill number of the Final Reading agenda. A two-thirds majority of 33 votes is required on Final Reading to pass a bill with the emergency clause, as opposed to a simple majority of 25.
Passing a bill with the emergency clause does not mean “emergency” in the common useage of the term. While it may, as in the case of a special session or a deficit appropriation, it generally is included when it is most practical to have a new law take effect at the start of a new fiscal year on July 1, not later in August or September. The merger of the Department of Roads and Department of Aeronautics into the Department of Transportation is an example of a change that was most efficient at the start of the new fiscal year, but not what one might call an “emergency”. LB223, a bill of mine this past session, passed with the emergency clause to authorize prescriber’s designees to input data into the Prescription Drug Monitoring Program as soon as the bill was signed into law, making the PDMP system more efficient for prescribers.
While government is frequently criticized for its inefficiencies, delays such as these are essential to provide adequate access of the public to the lawmaking process. If you followed a particular bill that was passed into law this past session, you may still be able to influence its implementation. The more comprehensive the public input in the process, the more effective the law will ultimately be.
Discussion of taxes in Nebraska typically centers on property, income, and sales taxes. The state sales tax, along with corporate and personal income taxes, provide approximately $4 billion to the state General Fund annually. Local option sales taxes and property taxes are levied and spent by local governments, totaling another $4.3 billion. However, in addition to the “big three”, nearly $1 billion in taxes are collected through over 20 distinct miscellaneous taxes collected by state and local governments.
Almost $600 million is collected by the Motor Vehicle Fuel Tax, Motor Vehicle Registration Tax, and the Motor Vehicle Registration Fee. The Motor Vehicle Fuel Tax, commonly known as the “gas tax”, is determined by three components. The fixed portion is a two-thirds/one-third split between the Highway Cash Fund, used by the state, and the Highway Allocation Fund, which is used by local cities and counties. The wholesale portion, which is 5% of the 6-month average wholesale fuel price, is split between state and local government in the same proportion. The third component, known as the variable rate, is adjusted semi-annually to meet the funding needs of the state Highway Cash Fund. It runs around 2.5 cents per gallon. Motor Fuel Taxes generate over $330 million annually to fund state and local road construction and maintenance.
When you renew your motor vehicle registration every year, two separate taxes are assessed. The Motor Vehicle Registration Fee is spent by the cities and counties, and is typically the smaller of the two taxes. The fee you pay is the product of a fraction based on the age of your vehicle and a base fee determined by the type of vehicle you own. Over $20 million is distributed to cities and counties from this fee.
The Motor Vehicle Registration Tax is calculated based on the manufacturer’s suggested retail price (MSRP) for you vehicle when sold new, regardless of what you paid. Each $2,000 interval has a base tax, which is fully assessed when new, with a declining proportion assessed each year until the vehicle is 14 years of age or older. For a $30,000 MSRP vehicle, the first year tax would be the full base of $500. The next year, the tax would be $450, the third year $400, and so on. The almost $250 million collected annually is distributed to and spent by local governments. Regardless of where you live, 60% is distributed to your school district. If you live in a city, 22% is distributed to the county, while 18% is distributed to the city. If you live outside a city, the entire 40% remaining is distributed entirely to the county.
Taxes assessed on vehicle ownership and use are only but three of the additional taxes. Often called “sin taxes”, almost $100 million is annually collected on the sale of alcohol, cigarettes, tobacco products, and gambling, including charitable gaming, keno, and pari-mutuel wagering. The revenue generated is distributed among a wide variety of funds, including the state General Fund and cash funds to support an array of different programs.
Nebraska is one of only six states that charges an Inheritance Tax on the transfer of assets to beneficiaries after death. The rate of the tax and the amount of property exempt from taxation is dependent upon the relationship of the beneficiary to the deceased. The tax is assessed based on the current market value of the property and is paid directly to the county. Over $70 million is collected annually by counties from the Inheritance Tax.
Additionally, any time real estate is sold in Nebraska, a tax of $2.25 per $1,000 of value is assessed. Known as the Documentary Stamp Tax, the revenue collected is distributed among a number of funds. The County General Fund in which the real estate is located receives 50 cents of the $2.25, while the remainder is split among four state funds: the Affordable Housing Trust Fund, the Site and Building Development Fund, the Homeless Shelter Assistance Trust Fund, and the Behavioral Health Services Fund. For example, the sale of a $100,000 home would be assessed a $225 “Doc Tax” upon transfer of the legal title of the property.
Accounting for all of the various taxes assessed by state and local government is essential for any discussion of changes in tax policy. Unless spending is decreased or held static, reducing one tax typically results in an increase in another. Shifting the source of the revenue can eliminate inequities, but can also exacerbate them. Isolating one tax from the comprehensive list fails to consider the full implications of any change in tax policy.
Following adjournment of the Legislative session, legislative staff and committees begin work on interim study resolutions. These study proposals, designated with the “LR” prefix, can be submitted by individual senators or standing committees. Each study is referred to one of the standing committees, where Committee Chairs prioritize the resolutions and determine whether a public hearing will be held. This year 127 different studies were introduced. A full list of the interim study resolutions and their full text is available on the homepage of the Nebraska Legislature’s website.
Interim studies vary significantly in their depth and purpose. Public hearings are not required and are at the discretion of the chair. Interim studies tend to be political, rather than objective, in nature. They should not be confused with a performance audit, which is an objective study of a legislative program with defined standards for analysis conducted by trained professional auditors. Interim studies can be used to research future legislation, providing an opportunity to identify stakeholders that may engage on an issue. They may also examine a concept that failed to advance in a prior session, helping to refine and improve legislation for future years.
This year I introduced two interim study resolutions. The first, LR 190, is to study the creation of an Ethics Committee in the Nebraska Legislature. Outside of issues of campaign finance under the jurisdiction of the Nebraska Accountability and Disclosure Committee, there are no ethics rules for members of the Nebraska Legislature. Consequently, there is no process for addressing ethical concerns among members of the Nebraska Legislature unless it is illegal activity defined by statute via the courts. The public assumes there are rules and a process in place for ethical conduct, even though none exist.
During my three years in the Legislature a number of ethical issues have emerged with no guidance for resolution. These include concerns of conflicts of interest, senators registering to lobby while in office, personal use of state resources, and expectations of residency within a district among others. Public confidence in the legislative process necessitates greater transparency in the ethical expectations of state senators. LR 190 has been referred to the Executive Committee.
My second interim study, LR 242, examines the feasibility of adopting a zero based budgeting process for state agencies. Zero based budgeting is a process for building a budget that begins at “zero” and requires justification for each component of the budget request. Thus, the budget is built each time based on the current priorities and needs of each agency.
Currently, the Nebraska state budget is developed using a “baseline budget” process. This means that a new budget assumes the previous year’s budget will be supplied, with the appropriations process focusing primarily on the addition of new spending programs to the prior budget base. No justification of need is required for previous funding, nor accountability for the use of taxpayer dollars appropriated before. This process can promote inefficient use of state funds, as well as distort revenue and spending needs. For example, the often cited $900 million shortfall at the beginning of the year was not based on actual spending decisions, but an assumption that state spending would grow during the next two years at an annual rate of 6%.
As progress is made on each of these two studies, I will continue to update constituents of District 38. My office will also be undergoing a staff change. John DeWaard, my Administrative Assistant, will be leaving to start medical school in Missouri at the end of the month. Although he will be missed greatly in the office, I am excited to see my former student and research advisee move forward in his medical career. Jessica Shelburn, my Legislative Aide, will be staffing the office alone until John’s replacement is in place. I do ask for your patience as we accommodate summer schedules during that time.