As Nebraska legislators worked to pass a “grand compromise” regarding property tax relief, business tax breaks and funding for a future University of Nebraska project, many in the body, including some who would ultimately vote for the measure, expressed significant concerns about the state’s ability to fund the bill’s provisions.
Looking at the projected costs of the package, which provides property tax “relief” through a refundable income tax credit, grants hundreds of millions of dollars in corporate welfare and sets aside another $300 million for the University of Nebraska project, it is easy to see why they were concerned: Over the next 11 years, these pieces will combine to cost the state $4.6 billion, Department of Revenue data show.
That is a significant hole for future legislators to have to dig out of, especially since the plan is to be paid for using one-time funds and revenue projections that are speculative at best. If the Legislature had actually held a hearing on the 150-page bill instead of handing it to senators a mere 24 hours before they had to vote on it, there may have been an opportunity to do more than just cross our fingers and hope optimism surrounding future revenues is not misplaced. Given that we are currently in the middle of a global pandemic and record economic downturn, there is ample reason to question that optimism.
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This potential fiscal hit with little offsetting revenue means Nebraska is entering terrain similar to what our southern neighbor encountered when it passed income tax cuts in 2012 and 2013. The Kansas tax cuts, which also lacked significant offsetting revenue, devastated the state’s economy and led to nine rounds of budget cuts over four years. The wreckage included crumbling roads, school years ending early because of low funds and wait lists for disability services that were several years long.
The “Kansas Experiment” finally ended when lawmakers, facing a nearly $900 million budget gap, rolled back the bulk of the cuts in 2017. Some legislators who supported the tax cuts were ousted amid the fallout.
While the structure of Nebraska’s plan may keep the revenue loss from being as immediate as Kansas saw, the fiscal damage will likely rise to similar scope as Legislative Bill 1107’s costs grow and the one-time funds end. This means future lawmakers may be forced to pay for LB 1107 by cutting key services like education or by raising other taxes and fees.
In the end, the grandest compromise to come from this deal likely won’t be the bipartisan support it had in passing, but rather the compromises future state legislators will face as fiscal reality takes hold and cuts to education, health care, infrastructure and other vital services become unavoidable.
Renee Fry is executive director of the OpenSky Policy Institute, a Lincoln-based think tank focusing on Nebraska state issues.
