Get ready for a good, old-fashioned “wrestling match” pitting additional property tax relief against “fiscal responsibility” in the Nebraska Legislature.
On Friday, the Legislature’s top budget watcher, state Sen. John Stinner of Gering, objected to a move by Gov. Pete Ricketts to trigger additional property tax relief via a new state income tax credit.
Stinner said the governor is “violating the spirit” of a law passed last year that triggers an increase in the income tax credits if state tax revenue grows by at least 3.5% a year. The credits increase even more if revenue grows by that amount and the state’s cash reserve is above $500 million.
The cash reserve is expected to be a tad short of the $500 million figure at the end of the fiscal year on June 30, so Ricketts authorized a transfer of an extra $88 million to the fund to “fully mechanize” and trigger the additional tax relief, which would amount to about $173 million.
Ricketts, when asked about claims that he is “artificially” triggering the additional tax credits, said he’s actually upholding the intent of the law, which was to provide more tax credits if the state’s economic growth allowed it. He said some state fund transfers don’t occur until July 15, a few days after the end of the fiscal year, and if they were accounted for, revenue growth would have been enough to trigger the tax relief.
“What we’re doing is actually 100% in the spirit of the legislation,” the governor said.
Stinner disagrees. He said the fiscal maneuver means that the state has $173 million less to provide a needed rate increase for private providers of social services and to fund the governor’s proposed new prison. It would also deplete the state’s rainy day fund to worrisome levels, said the senator, a banker and chairman of the Appropriations Committee.
At one point, during a Friday morning exchange with Ricketts’ budget director, Stinner even suggested that the $230 million prison project — proposed to relieve the state’s chronic prison overcrowding — might have to be delayed a year. Under the governor’s plan, the cash reserve would drop to an estimated $335 million by the time the prison is paid for.
“You have to make the rainy day fund one of your top priorities,” Stinner said at a public hearing on the governor’s budget proposal. A healthy reserve, he said, is the reason Nebraska gets such high marks for fiscal stability.
But people are “sick” of high property taxes, said Lee Will, the governor’s budget administrator. “They want more property tax relief.”
And Ricketts, at a news conference on COVID-19, said his budget, even with the move to trigger additional property tax credits, still leaves about $40 million for state legislative priorities.
But that is less than half the funds, about $90 million, needed to raise providers’ rates by 2%, which Stinner said is about average.
“It’s going to be a wrestling match,” the senator said.
The fund shift was not included in the preliminary budget crafted by his committee.
Last year, state lawmakers passed LB1107, which included a new state income tax credit to offset property taxes paid for schools. Money allocated for the tax credit, which will show up on income tax filings this year, began at $125 million a year but was set to rise if revenue grew at least 3.5%.
The Open Sky Policy Institute, a Lincoln-based think tank, testified against the governor’s fund shift. Craig Beck of Open Sky said Ricketts’ “artificial” manipulation of the growth mechanism overrode the “fiscal guardrails” included in LB1107 that ensured that additional tax relief would be delivered only if the state had adequate revenue growth to fund its operations.
Ricketts’ transfer of funds would leave the state’s rainy day fund below healthy levels and could require a special session to cut spending, Beck said.