2021 Budget Briefing State of Nebraska BUDGET PRIORITIES FY21-22 / FY22-23 FINANCIAL STATUS REVENUES Biennial Budget SPENDING GROWTH CASH RESERVE ● Sen John Stinner (C) PROPERTY TAXES ● Sen Anna Wishart (VC) PRISON OVERCROWDING ● Sen Robert Clements HEALTHCARE CASH FUND ● Sen Myron Dorn PROVIDERS ● Sen Steve Erdman BILLS IN COMMITTEE ● Sen Robert Hilkemann OTHER ITEMS ● Sen Mark Kolterman FLOOR DEBATE ● Sen Mike McDonnell BUDGET TIMELINE ● Sen Tony Vargas QUESTIONS / FEEDBACK Tax and Spending Proposals • $211 million available for the floor • Fiscal impact of Revenue Committee bills advanced: • $296 million in bills for upcoming biennium • $18.7m for military retirement accounted for in budget • $589 million in following biennium • Ongoing annual impact of $385 million • Fiscal impact of other priority bills advanced: • $177 million for upcoming biennium • $78 million following biennium • Ongoing annual impact of $22 million • Revenue Bill debate to begin after budget, likely starting April 20 Corporate Tax Cuts, etc. – LB 432 • Removes some corporate income from the state’s corporate tax base by decoupling from a tax-base broadening provision of the federal Tax Cuts and Jobs Act of 2017 intended to recapture domestic profits held in overseas tax havens • The state would forego a significant amount of revenue because of this longstanding method of tax avoidance • Lowers the top corporate rate from 7.81% to 6.84% • Benefits would primarily go to out-of-state corporations and shareholders Corporate Tax Cuts, etc. – LB 432 • Creates a new tax exemption for firefighters with cancer • Creates a tax credit for parents of stillborn children • Allows 529 plans to be used for apprenticeships • Will reduce revenue by over $148 million over the next two budget cycles Social Security Tax Exemption – LB 64 • Phases in a complete tax exemption of Social Security income over a span of nine years, with all social security income becoming exempt by 2030. • Retirees in the top 20% of incomes – receiving more than $114,000 – will receive two-thirds of the tax cut once fully implemented. • Threatens funding for health care and other services that Nebraska retirees rely upon. • Would reduce revenue by $139m upon implementation. Opportunity Scholarship Tax Credit – LB 364 • Creates Opportunity Scholarship Tax Credit • Dollar for dollar benefit for those who donate to an organization that provides private school scholarships. • AM 762 limits the annual cost of the tax credit to $5 million • Creates a separate tax credit for contributions to qualified early childhood education or childcare programs also capped at $5 million; sunsets end of 2026. Property Tax Relief – LBs 2 and 79 • Reduces the valuation of agricultural land to 50% of actual value for property taxes paid on principal and interest for school bonds issued after January 1, 2022 • AM 638 would have the state’s property tax credit program grow by 3% each year starting in 2024, regardless of Nebraska’s financial condition • Will have a growing annual impact School Property Tax Stabilization Act – LB 454 • With AM 789, provides an influx of state K-12 aid phased in over a four-year period to schools who are highly reliant on property taxes. • It will increase the disparity in levies between school districts. • There is language in the AM that tries to ensure that the new funding is used to reduce property taxes. • There is also language in the AM that says TEEOSA must be fully funded before funding the Property Tax Stabilization Act • Does not designate a new funding source for revenue; will cost about $83 million annually upon full implementation. Property Tax Caps – LB 408 • Would limit property taxes raised by local governments to 3% over the prior year • NOT a 3% spending cap or budget limitation • Could limit spending growth to well below 3% • Exceptions for improvements to real property and annexation • Excludes revenue needed to pay off bonds • Would allow an override of the cap with a vote of the people • AM to LB 408: can exceed cap no more than 2 consecutive years with vote of board but 3-year period can’t exceed 9% • Allows half of unused authority to carry forward • Sunsets in 2027 Source: LB 408 as amended by AM 371 and AM 521. Analysis of LB 408 Impact • 32 school districts analyzed from FY 17 to FY 18 • Disparate results • Ranged from a loss of $7.76 million in Millard to a gain of $0.9 million in Humboldt-Table Rock-Steinauer • School districts ranged from losing 40.2% of total receipts in Springfield-Platteview to gaining 12.7% of total receipts in Humboldt- Table Rock-Steinauer • Some districts gained because we assumed they would increase their property tax ask at 3% over FY 2017, even if their actual ask was less than 3% or negative* *Increased districts with FY 2018 ask of less than 3% to 3% if levy was below $0.95. Sources: Nebraska Department of Education; Nebraska Legislature LB 408. Small District – Wakefield Public Schools Actual, FY 2013 to FY 2018 Property Tax, Cumulative 62.0% State Aid, Cumulative -62.3% Total Revenue, Cumulative 14.8% LB 408, FY 2013 to FY 2018 Property Tax, Cumulative 15.9%*** State Aid, Cumulative -62.3% Total Revenue, Cumulative -7.8% ***Property tax revenue growth assumed to be 3% year over year due to proposals Note: Cumulative calculations in the table compare FY 2018 to FY 2013. • Under LB 408: • Wakefield Public Schools would have lost $5.24 million in property tax revenue from FY 2013 to FY 2018. • The average property tax lost per average daily membership from FY 2013 to FY 2018 would have been $12,713. Sources: Nebraska Department of Education; Nebraska Legislature LB 408. Large District – Kearney Public Schools Actual, FY 2013 to FY 2018 Property Tax, Cumulative 45.4% State Aid, Cumulative -36.4% Total Revenue, Cumulative 18.9% LB 408, FY 2012/13 to FY 2017/18 Property Tax, Cumulative 15.9%*** State Aid, Cumulative -36.4% Total Revenue, Cumulative 4.6% ***Property tax revenue growth assumed to be 3% year over year due to proposals Note: Cumulative calculations in the table compare FY 2018 to FY 2013. • Under LB 408: • Kearney Public Schools would have lost $19.8 million in property tax revenue from FY 2013 to FY 2018. • The property tax lost per average daily membership from FY 2013 to FY 2018 would have been $3,776. Sources: Nebraska Department of Education; Nebraska Legislature LB 408. City Example – Grand Island Actual, FY 2013 to FY 2018 Property Tax, Cumulative 39.0% Other Revenue, Cumulative 14.7% Total Revenue, Cumulative 18.7% LB 408, FY 2013 to FY 2018 Property Tax, Cumulative 15.9%*** Other Revenue, Cumulative 14.7% Total Revenue, Cumulative 14.9% ***Property tax revenue growth assumed to be 3% year over year due to proposals Note: Cumulative calculations in the table compare FY 2018 to FY 2013. • Under LB 408: • City of Grand Island would have lost $2.2 million in property tax revenue from FY 2013 to FY 2018. Sources: Nebraska Auditor of Public Accounts; Nebraska Legislature LB 408. County Example – Douglas Actual, FY 2013 to FY 2018 Property Tax, Cumulative 23.1% Other Revenue, Cumulative 12.9% Total Revenue, Cumulative 16.6% LB 408, FY 2013 to FY 2018 Property Tax, Cumulative 15.9%*** Other Revenue, Cumulative 12.9% Total Revenue, Cumulative 14.0% ***Property tax revenue growth assumed to be 3% year over year due to proposals Note: Cumulative calculations in the table compare FY 2018 to FY 2013. • Under LB 408: • Douglas County would have lost $24.3 million in property tax revenue from FY 2013 to FY 2018. Sources: Nebraska Auditor of Public Accounts; Nebraska Legislature LB 408. Consumption Tax – LR 11CA • Would put a resolution on the 2022 ballot asking voters whether the state should prohibit all forms of taxation except a consumption tax (sales tax on all new goods and services sold in Nebraska) • Companion proposal to LB 133 which calls for all other forms of taxation in Nebraska to be replaced by a 10.64% consumption tax; has a fiscal note of $4B American Rescue Plan More aid to state and local governments & education funding • $976 million to NE; $128m for state capital projects; $667m to localities (Total of $1.771B) • Chairwoman Maloney Announces Markup of Coronavirus Relief Measures | House Committee on Oversight and Reform Allowable uses: • Respond to COVID or negative economic effects • Provide services up to amount of revenue loss due to pandemic • Water, sewer, broadband investments State capital project funding: For capital projects directly enabling work, education and health monitoring (including remote health) Can’t use: • Offset net tax cut • Pension funds Funding must be spent by Dec. 31, 2024. • States (and other govts) will need to send a certification letter. Once that’s received Treasury has 60 days to disburse the funds. • They are expected to move the state $ quickly, assuming they retain a straightforward method of disbursement. Source: Department of Administrative Services.