District judge blocks Nebraska Environmental Trust diversions as lawsuit plays out

LINCOLN — A district court judge granted a temporary motion Monday blocking the transfer or spending of funds diverted from the Nebraska Environmental Trust in the past two legislative sessions while a lawsuit challenging the transfers plays out.

Lancaster County District Judge Susan Strong granted the temporary injunction as part of a lawsuit from two former state officials. They seek to declare unconstitutional $28.52 million in legislatively authorized transfers in lottery proceeds that were directed to the Environmental Trust but later legislatively diverted to other funds.

The lawsuit argues those transfers were unconstitutional and have been used to close budget shortfalls, not for environmental purposes as voters intended in the 1992 or 2004 elections.

The Trust was created when voters approved the state lottery in 1992. It is intended to “complement” governmental and private programs via competitive grants that “conserve, enhance and restore the state’s natural environments,” the lawsuit says.

“I think the balance of equities is in the plaintiff’s favor at this point and, mostly, because it is in the public’s interest to make sure that those funds are spent lawfully,” Strong said.

Judicial reasoning

Strong, in court Monday, said the plaintiffs — W. Don Nelson, a former chief of staff to then-Gov. Bob Kerrey, and Job Oberg, a former director of the Nebraska Department of Administrative Services that oversees various funds for state agencies — had a “probability of success on the merits.”

“I’m not saying it’s absolute, don’t get excited, but I’m also saying the plaintiffs will be irreparably harmed if the temporary injunction is not granted,” Strong said.

The Nebraska Attorney General’s Office is defending State Treasurer Joey Spellerbeg, director Lee Will of the Nebraska Department of Administrative Services, state budget administrator Neil Sullivan, director Jesse Bradley of the Nebraska Department of Water, Energy and Environment and director Tim McCoy of the Nebraska Game and Parks Commission.

Strong, who became a county judge in 2006 before being elevated to the district court in 2015, said she could foresee a situation where, by not granting a temporary injunction, the state would transfer and spend the funds, rendering the case moot, thus tying Strong’s hands.

Transfers and spending frozen

Spokespersons for the AG’s Office, Spellerberg and the Game and Parks Commission declined to comment on the ruling. Spokespersons for the other agencies, as well as Nebraska Gov. Jim Pillen who oversees them, did not respond to requests for comment by publication.

The injunction covers four sections of law in Legislative Bill 264, which passed in 2024 for a total of $15 million in transfers from the Environmental Trust, and two sections of LB 1072, which passed this year for a total of $13.52 million in transfers from the Environmental Trust.

Spellerberg’s chief of staff said three of the four sections in LB 264 were completed Dec. 31, 2025. One $7.52 million transfer in LB 1072 was completed April 23. The other two sections of law — $8 million total — call for transfers between July 1, 2026, and June 30, 2027.

The $7.52 million transfer this April diverted funds to the Water Recreation Enhancement Fund. Lawmakers simultaneously swept $8.52 million from the Water Recreation Enhancement Fund to the state’s main checking account, helping to close the state’s budget deficit.

Of funds already transferred, Strong’s order also blocks further spending.

“No transfers have occurred since the State Treasurer’s Office received the complaint May 21, 2026,” Spellerberg’s chief of staff said in an email.

Pillen had proposed taking millions more from the Environmental Trust, which lawmakers did not approve.

Core legal arguments

Gutman told Strong the case is about “constitutional interpretation,” namely Article III, Section 24, and how much “legislative discretion” voters left behind after amending the Nebraska Constitution in 2004 to guarantee funds be diverted to the Environmental Trust.

That year, the Legislature asked voters whether to limit authority over lottery funds. Gutman said before voters weighed in, lawmakers had near “unfettered discretion” over using lottery funds.

Carlton Wiggam, an assistant state attorney general, said 44.5% of lottery funds go to the Nebraska Environmental Trust each year, as voters directed. He argued that the guardrails Gutman and his team say exist in the Constitution do not.

“The plain language meaning of this is really just that this is telling someone who’s reading the Constitution, ‘Here’s where you go to look to see how this money is being spent,’ which is in the act itself,” Wiggam said.

Wiggam said some legislative discretion was lost following the 2004 vote, but he told Strong the Legislature didn’t see that as ending discretion altogether. He cited lawmakers amending the laws underpinning the Environmental Trust 10 times since 2004, including the first change immediately in 2006 to authorize a transfer and various other transfers since.

“Clearly, they still thought that they had the authority to do this,” Wiggam said.

Case will play out in district court

Gutman said the state’s argument treats the Environmental Trust as a “parking lot,” that if enough funds are placed into the account each year, it doesn’t matter how they’re used.

He said that would void voters’ wishes from the 2004 election.

“It’s as if the people just wanted to set up more red tape and bureaucracy, establish some parking lots, and then give the discretion back to the Legislature,” Gutman said. “That’s not what they did.”

Wiggam warned Strong that funds caught up in the injunction have already been transferred or promised to natural resource districts, municipalities, some landowners, public power districts and irrigation districts, and all for environmental purposes.

The state, in a brief against the injunction request, said blocking the funds could specifically tie up improvements at Lewis and Clark State Recreation Area or jeopardize various other projects, such as efforts to reduce water use, improve groundwater recharge, enhance streamflows, support wildlife habitats and protect the Ogallala Aquifer.

Gutman argued the “public interest never tips in favor of an unlawful expenditure.”

Strong’s order takes effect immediately, she declared, and “will last until we resolve the issue on the merits.”