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The past couple weeks have been an interesting ride.
Last week, the Legislature passed its budget package, but not without a lot of political theater surrounding the debate. This week we have debated the Governor’s “line-item” vetoes, which are specific programs in the budget targeted for further cuts.
In total, the Governor’s line-item vetoes totaled $56.5 million. Some of these items include a veto of the Rainy Day Fund reserve requirement going from 3% to 2.5% over the biennium, an additional 1% across-the-board cut to most state agencies, $32.4 million in provider rate cuts, and a reduction of the transfers to a highway cash fund.
Under the Constitution of Nebraska, the State Legislature is required to balance the budget. To shore up that budget, the Appropriations Committee vetted more than $700 million in cuts over the next two-years for the state’s $8.9 billion biennium budget. A lot of discussion on other policy issues entered the budget debate along the way.
One of the most contentious issues has been provider rates, which are part of the payment formula to organizations providing mental and behavioral health services. The Governor’s line-item veto to provider rates cut $32.4 million, which was upheld by the Legislature. My committee- Appropriations, offered the motion to override the Governor’s cut to provider rates. The override motion lost.
Property taxes were a large issue during discussion on the budget. Many Senators wanted to see more in cuts to make up for increases to the Property Tax Credit Cash Fund, which is used to fund property tax credits for Nebraska taxpayers. Education was also a big topic of discussion as some in the Legislature wanted to provide more state aid to schools with the intent of lowering school districts’ reliance on property taxes.
Investments in the justice system also provided a point of contention throughout the budget discussion. With recent issues in the state prisons, many have highlighted the need for additional funding to properly staff the prisons. There are also obligations from the Justice Reinvestment Act from 2015 to lower prison overcrowding.
There has been a lot of discussion this year regarding the tax revenue projections that the state relies on when crafting its budget. It’s important for us to remember that tax revenues follow closely with business cycles in the overall economy. There are generally five phases of the business cycle: initial recovery, early upswing, late upswing, slowdown, and recession.
During the initial recovery phase – stocks surge as concerns about a longer recession ease and riskier investments tend to outperform. This phase typically lasts a few months. After this phase we begin to see an early upswing. Confidence rises, unemployment begins to fall, and profit margins improve. Short-term interest rates rise and inflation stays low. This phase tends to last at least one year – or several years amid soft growth.
Then we get into the late upswing – confidence is high, unemployment low, and inflation rises. But, the economy risks overheating. Stocks usually extend gains but can be volatile. It is at this point that we begin to see a slowdown – economic growth slows, confidence wavers, interest rates rise, and short-term interest rates peak. Slowdowns typically last a few months to a couple years.
That is when we run into a recession – defined as two straight quarters of lower gross domestic product. Consumer spending plunges, unemployment rises, and inflation falls. Recessions tend to last six months to one year.
As we look at the state’s tax revenue receipts, it’s important to pay attention to the trends. The Department of Revenue released its April tax receipts last week, showing a deficit of $55 million. Although we are seeing $55 million less than what was originally projected, we expected to see a $65 million deficit – that’s a $10 million improvement. As we finish out the fiscal year and head into the next, it will be important to monitor the trends.
Other than the budget items, my bill– LB496, was debated but failed by one vote to move onto the next round. It is the “companion bill” to Senator Williams’ bill- LB518, which has already been passed and signed into law. LB496 would have allowed the construction of workforce housing to be eligible for tax increment financing (TIF) in all Nebraska cities except Lincoln and Omaha. Like LB518, LB496 would have addressed workforce shortages in rural Nebraska by incentivizing investment in housing developments. Without affordable housing, workers are less likely to move to our communities.
Things are nearing to a close for the year. Thank you to all those who have contacted me throughout the session and have gotten involved in the Legislative process.
As always, I remain open to your feedback on how I may address the issues that mean most to you. Please do not hesitate to contact my office with any questions you may have. Thank you to those who have taken the time to express their views on various issues. My contact information is located on the right hand side of this webpage.