With the 2023 legislative session wrapping up on Thursday, here’s a look at some of the main developments in the state’s fiscal debate.

State commits more funds for public schools

The Legislature, acting on a proposal from Gov. Jim Pillen’s School Finance Reform Committee, approved historically significant changes to funding for public schools in Nebraska. Changes include the addition of foundation aid of $1,500 per student and an increase in state funding for special education so that the combination of state and federal support would cover 80% of school district costs. To sustain that commitment, the Legislature created an Education Future Fund with an initial $1 billion investment, with plans to add $250 million a year.

OpenSky has long noted that positive changes in the funding system can help the state reduce its historic overreliance on property taxes to fund education, and the state’s commitment to fund the community college system and the new investment in K-12 schools are big steps. But separate legislation that places a 3% revenue cap on school districts could be problematic because in some cases, modeling suggests that the amount they will receive in foundation aid and special education reimbursements will be less than the amount they will be required to drop their property tax request. School boards have the ability to go above the revenue cap, but in some instances, districts will still have less revenue available to fund education at a time of rising costs and staffing issues.

Massive tax cuts cloud future

It was only a year ago when the Legislature passed the largest tax cut package in the state’s history. This year, Nebraska lawmakers again dipped into a revenue surplus built largely on an influx of federal relief dollars to extend personal and corporate income tax cuts and increase funding to provide property tax credits. Some provisions of the original proposals were scaled back to fit within a spending blueprint packed with big-ticket items, but at full implementation, the income tax cuts will cost the state $905 million in revenue in FY 28-29 with three-quarters of the benefits going to the top 20% of wage earners. By FY 30-31, the property tax breaks will cost the state $415 million. Such massive commitments will likely lead to tough decisions for future lawmakers regarding cuts to services that Nebrakans rely on or raising other taxes and fees to balance the state’s budget.

The Legislature also approved funding tax credits to individuals and businesses who donate to organizations granting scholarships to students who attend private schools. OpenSky has opposed the credits which divert up to $25 million of public funds beginning in FY 24-25 to support private schools. In other states with similar voucher measures, the drain on state funds has continued to grow as most of the benefits flow to wealthy taxpayers.

Spending dominated by big projects

The Legislature passed a two-year budget that increases General Fund spending by an average of 2.2% annually, an austere blueprint considering that senators began the session with a $1.9 billion surplus and fit in the highest negotiated salary increases for many state employees in 35 years. The Legislature kept General Fund spending in check to pay for the tax cuts, for the added investment in schools and massive commitments to a proposed canal in southwest Nebraska and other projects. The state committed $575 million from the cash reserve for the Perkins County Canal and an additional $96 million toward building a new state prison. Contrast those obligations to the 2% rate increase in FY 24-25 for hospitals and nursing homes providing Medicaid services that was vetoed by the Governor, saving the state $15 million, and $40 million for investments in workforce housing that also drew a line-item veto.

Safety net bolstered

The Legislature drew funds from a variety of sources to maintain eligibility levels for SNAP benefits and child care subsidies, to extend Medicaid postpartum coverage and to provide funding for food banks this year. Senators voted to maintain eligibility for the Supplemental Nutrition Assistance Program at current levels for two years, allowing 10,000 families facing food insecurity to continue receiving support to meet their basic needs. Food banks will be eligible for grants totalling $10 million for emergency food assistance.

As part of the income tax package, the Legislature set aside $15 million annually for modest child care tax credits available first-come, first-served to families with annual incomes under $150,000. At most,15,000 kids would benefit from the credit each year.

A vote for good government

With record federal funding leading to unprecedented state investments over recent years, the Legislature voted to override a line-item veto and provide additional funding to the State Auditor’s Office for new staff members and salary increases. OpenSky supported legislation this year asking the auditor to review how American Rescue Plan Act funds have been appropriated and spent.

Save the date

OpenSky’s 2023 Fall Policy Symposium will be held on Tuesday, Oct. 24, in Lincoln. Program details and registration information will be announced in the coming months.