Gov. Pete Ricketts presented the Legislature Thursday with an agenda that combines proposed income and property tax reductions with state budget cuts and restrained spending growth.
"The reductions we make to the budget to balance it and continued attention to controlling spending will allow us to cut taxes and grow Nebraska," the governor said in his State of the State speech to the Legislature.
"This isn't easy," Ricketts acknowledged. "It will require Nebraska grit."
Ricketts said he will partner with Sen. Jim Smith of Papillion, chairman of the Legislature's Revenue Committee, to propose a gradual reduction in the top state income tax rate beginning in 2020 as long as state revenue growth exceeds 3.5 percent at the time.
In addition, he said, he will support legislation sponsored by Sen. Lydia Brasch of Bancroft, chairwoman of the Legislature's Agriculture Committee, to change the methodology of assessing ag property value from a market-based system to "an income-potential system."
That, he said, would slow the growth of agricultural land valuation increases beginning in 2019. If the system were in place for 2017, he said, it would reduce ag land valuations in Nebraska by about $2.2 billion.
While the governor said local taxing entities and county assessors would have "plenty of time to prepare" for such a change, the new valuation formula presumably would have a moderate-to-substantial impact on future funding available to support local schools and local government, particularly in agricultural areas of the state.
Ricketts said his current budget proposal would provide a 2.7 percent average annual increase in state aid for local schools.
However, in the long term, history has demonstrated that additional state aid without local school spending restraint only leads to additional spending and higher local property tax rates, the governor said.
The balconies in the legislative chamber were almost filled for the governor's address, a ceremonial moment in the Legislature.
Ricketts said his overall plan is based on "controlling spending" and not only avoiding tax increases to address the current shortfall of state revenue, but building in future tax cuts as a means of stimulating economic growth.
At the state government level, the governor said, he has instituted reforms and is proposing efficiencies, including merger of the Department of Roads and Department of Aeronautics into a new Department of Transportation. Nebraska is the only state with a Roads Department instead of a Transportation Department.
Earlier, Ricketts announced a proposal to move the Division of Veterans Homes from the Department of Health and Human Services to the Department of Veterans Affairs.
He also is proposing repeal of a number of regulations that he said are unncessary and hamper job growth.
A dramatic decline in farm income led to the current state revenue shortfall.
"Farm income has gone from $7.5 billion a few years ago to $4.5 billion in 2015 and may have declined to about $4 billion last year," the governor said.
"In a year where we have to make difficult budget decisions, we have to favor the taxpayer," Ricketts said. Thus, despite declining revenue and budget shortfalls, he said he is determined to pursue built-in future tax cuts.
"I will not support any effort to raise taxes on Nebraskans," he said.
"Raiding the property tax credit relief fund, raising sales taxes (or) taxing food and groceries would all harm Nebraska families and be bad for our economy," Ricketts said.
"The way to grow revenues is to grow the number of people who live here and create more and better-paying jobs," the governor said. "To do that we have to be more competitive."
The income tax plan he is sponsoring along with Sen. Smith would reduce the top rate by roughly one-tenth of 1 percent per year, beginning in 2020, as long as revenue growth exceeds 3.5 percent. The proposal would ultimately take the top rate down from 6.84 percent to under 6 percent.
"If our revenue doesn't grow fast enough, the tax rate doesn't come down," Ricketts said.
The top rate in Nebraska applies to any income above $29,830 for individuals annually or above $59,660 for couples.
At a news conference following his address, the governor said he will remain determined to "keep trying to provide tax relief."
Later, Ricketts embarked on a statewide tour that will take him to 17 events over the next seven days. The governor headed to Norfolk, Grand Island and Aurora on Thursday.