Former state official threatens lawsuit to stop Environmental Trust fund transfer

LINCOLN — A former state agency director who successfully sued to halt a transfer of funds from the Nebraska Environmental Trust in 2020 is threatening to sue again.

Jon Oberg, who once headed the Nebraska Department of Administrative Services, said a governor-proposed, legislatively embraced transfer of $15 million out of the state lottery-funded Trust to deal with the state budget shortfall is illegal, and if approved, would likely spur another lawsuit from him.

“We were hoping that it wouldn’t be tried again, but here we are,” Oberg said.

He was referring to a 2020 lawsuit that led to the dropping of a proposal by the Trust to defund $1.8 million in conservation projects and instead award that money to install ethanol blender pumps at Nebraska gas stations.

The lawsuit, filed by Oberg and W. Don Nelson, a former chief of staff under then Gov. Bob Kerrey, led to the dropping of the blender pump swap and an awarding of legal fees to Oberg and Nelson.

Oberg told the Examiner that Nebraska voters, when they established the state lottery, intended proceeds earmarked to the Environmental Trust to be used for environmental and conservation projects, not to fill gaps in the state budget.

Under proposed state budget bills, which are expected to come up for a final vote on Thursday, $15 million of the Trust’s funds would be transferred over the next two years to three state funds aimed at water sustainability and conservation.

Gov. Jim Pillen, who proposed the transfers, did not immediately respond at mid-day Tuesday to a request for comment about the threatened lawsuit by Oberg.

Transfers at issue

But the transfers come as state leaders scramble to close a shortfall in the state budget once estimated at $430 million. Proposals include transferring funds out of the state cash reserve, cutting programs and tapping excess funds held by state agencies.

Because the Trust gets about $20 million in state lottery proceeds each year to hand out in competitive grants, the proposed transfers from the Trust would grab most of that money next year, $13 million, followed by a $2 million transfer in 2027.

“This might be the last stand of the Nebraska Environmental Trust,” Oberg said.

One transfer proposed by Pillen was not recommended by the Legislature’s Appropriations Committee. It would have diverted $5 million in Trust funds to the Nebraska Game and Parks Commission.

The Pillen proposals were labeled as a “raid” on Trust funds when they were first introduced this year.

The Trust, when established in 1992, was intended to fund projects that “conserve, enhance and restore the natural environments of Nebraska.” Its grants, which are awarded on a competitive scoring basis, typically fund projects to restore silted-in lakes, establish and protect wildlife habitat and finance recycling projects.

Its work is often guarded by a mix of hunters, farmers, environmentalists and conservationists.

Oberg said that this year’s fund transfer is “worse” than the one that led to the lawsuit in 2020 in part because it is so much larger.

“This time around, it looks as though it’s going to be a permanent kind of thing,” he added. “This will open up the spigots so (Trust funds) can go to all kinds of different purposes.”

State seeking legal lane

This year’s proposed fund transfers from the Trust include some caveats that the money cannot be used for administrative purposes, but for purposes that align with the purpose of the Trust. But Oberg said that it would still be a transfer of funds away from the Trust, which is supposed to decide how best to utilize the funds.

In April, he wrote a blog post entitled “Asking for Another Lawsuit” because, he said, “I was afraid that people didn’t remember that we’d gone to court.” (His blog is entitled “Three Capitals” because he has worked and lived in Lincoln, Washington, D.C. and Berlin. His past jobs include posts with the U.S. Senate Budget Committee and the U.S. Department of Education.)

He confirmed this week that a new lawsuit was likely, adding that courts typically do not look kindly on a repeat violation of a state law.

Oberg, who used to work in the fiscal office of the Legislature and later led the state agency that includes the state budget division, said his interest in stopping such transfers from the Trust is about “fiscal integrity.”

He added that there are other, better ways to resolve a state budget problem than trying to raid Trust funds.

Past budget gaps, Oberg said, have been closed by borrowing, and then repaying, funds from state agency cash reserves or by raising taxes temporarily.

In addition to halting the funds transfer from the Environmental Trust, he said that a lawsuit would allow for an examination of Trust records to determine if the Trust Board purposely disqualified dozens of grant applications to build up excess reserves. The Trust Board came under fire in 2021 and 2022 for disqualifying a higher number of grant applications than in the past, including some grants that had routinely won approval.

In 2022, 40 out of 87 grants were deemed ineligible. The disqualifications led to an increase in excess cash held by the Trust, but also discouraged many past grant recipients from applying again, leading to a sharp decrease in applications.