Session’s fiscal highlights include low-profile bills with big-time benefits

Session’s fiscal highlights include low-profile bills with big-time benefits

Regarding tax and budget developments in the recently completed Legislative Session, measures such as the new personal property tax exemption, tax exemptions for Nebraska’s zoos and Woodmen of the World, increasing the Property Tax Credit Fund and the gas tax increase received the most attention.

However, some of the Legislature’s biggest fiscal accomplishments flew a bit more under the radar. Below, we take a look at some tax and budget highlights from the past session.

Budget protects critical investments but low level of funding growth will be hard to maintain

This session, the budget was signed into law by Gov. Pete Ricketts with no vetoes. As we wrote in a recent Omaha World-Herald opinion piece, the Appropriations Committee crafted a solid budget that kept funding growth down, protected critical services and maintained a relatively strong cash reserve.The Appropriations Committee’s proposal grew the state budget by 3.1 percent. When all other bills enacted into law this session were included, the state budget will grow at 3.5 percent over the next biennium. Nebraska’s long-term average budget growth is 5.4 percent.

One-time factors such as unusually low funding growth for K-12 education, downward adjustments to Medicaid and Public Assistance funding and stopping the practice of allowing agencies to keep unused appropriations played key roles in keeping overall funding growth down. The one-time nature of these changes will make it difficult to maintain this session’s level of funding growth in future budgets without cuts to schools, roads and other vital services.

Good government measures to guide budgeting and promote transparency

A process to conduct ongoing review of Nebraska’s business tax incentive programs was passed by lawmakers this session, an effort that began after a 2013 legislative performance audit found that the goals of Nebraska’s incentives were too vague to permit useful evaluations of the programs. This new process will help ensure these investments are a good use of taxpayer dollars.

Another measure adopted this session will require the Legislative Fiscal Analyst to create revenue volatility reports that will help lawmakers better understand the volatility of different revenue streams and more precisely determine how much money is needed in the cash reserve to protect the state in economic downturns.

Lawmakers also passed legislation to implement performance-based budgeting in the Department of Corrections. This will require the Department to use measurable goals and benchmarks and improve long-term planning by basing it on research and projections. This is a critical step to ensuring that lawmakers and the Department of Corrections share common goals, improving accountability for how taxpayer dollars are spent while prioritizing public safety.

Damaging tax-cut bills stall

Lawmakers this session chose not to advance two tax-cut measures that our research showed would negatively impact our state and reduce funding for schools and other key services.

Our analysis showed LB 357 – a measure to cut income taxes — would lead to substantial revenue losses, resulting in significant cuts to schools and other key services. Our analysis illustrated that, when fully enacted, the bill would annually cost the state about $419 million, which is nearly half of our school funding appropriation for FY 14-15. Furthermore, our research noted that the vast majority of the LB 357 tax cut – 76 percent – would go to the wealthiest 20 percent of Nebraska earners.

Our research also showed LB 350 – a bill to tax agricultural land at a lower rate – would create revenue losses for schools, community colleges and other localities, wouldn’t have helped many agricultural land owners, and would have actually increased property taxes for most Nebraskans

Law will put internet sales tax revenue into property tax credit fund

Lawmakers passed a measure to divert online sales tax revenue into Nebraska’s Property Tax Credit Fund should Congress pass the Marketplace Fairness Act.

The Marketplace Fairness Act, which has bi-partisan support in the U.S. Senate, would require online retailers to collect state sales and use taxes. Right now, a state can only require sellers to collect these taxes if they have a physical presence in the state. This puts local retailers at a competitive disadvantage with out-of-state online and catalog sellers who can’t be required to collect sales taxes.

School finance to be examined in the interim

Nebraska’s property tax and school finance challenges were a key topic this session and a pair of interim studies – LR 332 by Revenue Committee Chairman Mike Gloor, and LR 344 by the Education Committee — will focus on these issues in an effort to address Nebraska’s high reliance on property taxes to fund K-12 education.