Transcript Prepared By the Clerk of the Legislature Transcriber's Office Floor Debate March 13, 2018 [LB44 LB694 LB702 LB749 LB776 LB778 LB786 LB891 LB909 LB944 LB945 LB946 LB950 LB993 LB1030 LB1052 LB1090 LB1090A LB1110 LB1119 LR335 LR336 LR337 LR338 LR346 LR347 LR348 LR349 LR350] PRESIDENT FOLEY PRESIDING PRESIDENT FOLEY: Good morning, ladies and gentlemen. And welcome to the George W. Norris Legislative Chamber for the forty-second day of the One Hundred Fifth Legislature, Second Session. Our chaplain for today Pastor Tom Starkjohn of the Louisville Evangelical Free Church in Louisville, Nebraska, Senator Clements' district. Please rise. PASTOR STARKJOHN: (Prayer offered.) PRESIDENT FOLEY: Thank you, Pastor Starkjohn. I call to order the forty-second day of the One Hundred Fifth Legislature, Second Session. Senators, please record your presence. Roll call. Mr. Clerk, please record. CLERK: I have a quorum present, Mr. President. PRESIDENT FOLEY: Thank you, Mr. Clerk. Are there any corrections for the Journal? CLERK: I have no corrections. PRESIDENT FOLEY: Thank you, sir. Are there any messages, reports, or announcements? CLERK: I have neither messages, reports, nor announcements, Mr. President. PRESIDENT FOLEY: While the Legislature is in session and capable of transacting business, I propose to sign and do hereby sign the following four legislative resolutions: LR335, LR336, LR337, and LR338. (Doctor of the day introduced.) We'll now proceed to the agenda, General File budget bills. Mr. Clerk. [LR335 LR336 LR337 LR338] CLERK: LB946, a bill introduced by the Speaker at the request of the Governor. (Read title.) Introduced on January 10, referred to Appropriations. Advanced to General File. There are Appropriations Committee amendments pending. (AM1701, Legislative Journal page 893.) [LB946] 1 Transcript Prepared By the Clerk of the Legislature Transcriber's Office Floor Debate March 13, 2018 PRESIDENT FOLEY: Thank you, Mr. Clerk. Senator Stinner, you are recognized to open on LB946. [LB946] SENATOR STINNER: Thank you, Mr. President. Members of the Legislature, today is budget day, so let's get ready. I want to first start the presentation off with thank-yous. And there's a lot of folks that we need to thank. The first one is the Governor and their budget staff. They prepared this deficit request. We used it as a template in our committee. I felt that it was a very fair and balanced report and proposal, very fair and balanced proposal as it relates to rebalancing the budget. So I want to thank the Budget Office and the Governor for that. I also want to thank somebody really special, somebody that spent 35 years in the service to the state of Nebraska. Mike Calvert has decided to retire in September. His leadership, his expertise has been invaluable. He has developed an above-average, an exemplary staff at the fiscal side of things, and I'd like Mike to stand. And actually, I'd like to have a round of applause for Mike and his service, (applause) a job well done. I'd also like to thank Tom Bergquist. I hope everybody brought their yellow pad today, because I am going to be referring to this as a guide so that you can refer in detail to the detail. Tom Bergquist actually does all of these reports, inclusive of the giant budget package we get at the end that summarizes everything. I do want to thank, also, the Fiscal Office. They are invaluable in this process. Their expertise is unmatched. And I want to thank the Fiscal Office for actually putting up with us over the last two years of a very, very rough situation. And I want to also thank our Appropriations Committee. There's eight members...nine members on there, inclusive of myself. They always came prepared. We did a very deliberative, thoughtful process, and I'm very appreciative of everything that they had to contribute. I will say this, for the members. We got into some really frank and very, very difficult discussions during this year. Nobody got their way, inclusive of myself. I didn't get my way 100 percent of the time. But we came out and we compromised and we came out actually on the main line budget with unanimous and one vote against the transfers, as well as the Cash Reserve. I'd also like to thank the agencies. They're the ones that are really doing the heavy lift. They are the end result of what has happened as far as revenue and the revenue shortfall. So thank the boards, commissions, and agencies. With that, LB946 was introduced by the Speaker on behalf of the Governor. The bill was introduced to make transfers from the Cash Reserve to the General Fund in the amount of $108 million, and reduces the transfer from the Nebraska Capital Construction Fund by $2.3 million due to a lower cost of Central Nebraska Veterans' Home project. With that, with your consent, Mr. President, I would like to request to move to the committee amendment, AM1701. [LB946] PRESIDENT FOLEY: Please proceed with the committee amendment, Senator Stinner. [LB946] SENATOR STINNER: Thank you, Mr. President. The committee amendment becomes the bill. It contains an emergency clause and will become operative when signed. AM1701 retains the reduction of the veterans' home by reducing the proposed transfer to the General Fund, but 2 Transcript Prepared By the Clerk of the Legislature Transcriber's Office Floor Debate March 13, 2018 reduces the proposed transfer from the General Fund from $108 million to $100 million. It also accelerates previously planned transfers to the Capital Construction Fund for the HVAC system to the Capitol Building. This is a result of advancing to 90 percent completion bid documents for Phase A, B, and 1. The earlier transfer of Cash Reserve Funds ensures adequate cash flow for this stage of bid development. Cash Reserve Fund transfers do not increase, nor does the total project cost increase, over $106 million. The adjustment secures an earlier cash flow to meet the change in the timing of obligations. Yesterday we had a budget briefing, and I think that the Cash Reserve was discussed, and maybe we should take time as we talk about what level the Cash Reserve was. The committee got the proposal from the Governor, and the Governor had used $108 million of the Cash Reserve, which took it from $369 million to $261 million. And I have commented on the fact that one of the objectives that I had and the committee had was to maintain at least a $250 million minimum reserve within the Cash Reserve Fund, the rainy day fund. And I indicated that the reason was is that 5.5 percent was the median contingency fund throughout the United States. That was one of the reasons. But I also had, over the summertime, spent some time with the Pew Charitable Trust folks and actually did a stress test on where the Cash Reserve needed to be at a fully funded reserve. And they did a matrix for me. And one of the matrix was is to take a look at what type of coverage do you want to have within your reserve. And they did a matrix that had a 50 percent coverage over a three-year, two-year, and a one-year period of time. And really the low point over a three-year period of time with a 50 percent coverage rate was approximately $250 million. So there is a stress test that backs this $250 million up. But I think now we're at $296 million, still a low number, still needs to be discussed. This needs to be a priority as we push forward. Remember, too, that where we're at in this business cycle, in May will be the second-longest business cycle state...within the United States, the second-longest business. I went to a recent Federal Reserve Board meeting. Esther George, who is the head of the Kansas City Reserve, talked about the fact we're at full employment, talked about the fact that we will see at least three rate increases, that we are going to see because of full employment, wage growth, wage increase, and ultimately inflation. So they are committed to starting to raise interest rates. That always signals some beginning and end of a business cycle. So we need to be wary of that. I know that next...the template that I received from the Governor as we move forward, if we're able to control spending at a 3 percent level, and I want to repeat that, if we are able to control spending at a 3 percent level and we hit the growth rate, we may be able to add up to about $200 million to that reserve, which will bring us right to about a $500 million reserve. And that will put us into, if we have an insurance policy, about an 80 percent coverage factor, given the fact of a garden variety recession, not a deep recession. Of course we went through a black swan event back in 2008, 2009, where we had the extreme recession, one of the worst that we've had since the Great Depression. So those are the things that we need to put into our calculus, we need to put into our priority listing, is to build this reserve back to be ready, to put us on good financial and fiscal ground. I think that this is a beginning. I think $296 is a good number. Obviously, we have some competing factors that may come into play as we look at what we are able to do with tax reform and job creation and the 3 Transcript Prepared By the Clerk of the Legislature Transcriber's Office Floor Debate March 13, 2018 work force development side of things.