John Stinner: Careless budget decisions threaten state’s stability

In my time as a state legislator and chairman of the budget-writing Appropriations Committee in the Nebraska State Legislature, I encountered the extremes, both feast and famine.  When times were good, my fellow appropriators and I diligently crafted budgets that took care of the state’s needs while tackling pressing issues, like property tax reform. When times were bad, we buckled down, weighed the options and worked within the constraints, ensuring first and foremost that the state would continue to provide for its most basic obligations.

That’s why I’m so dismayed by today’s budgetary disaster. There’s no recession driving it. Rather, it’s been a series of careless decisions overturning decades of good budgeting practices. No business would or, more importantly, could ever run its finances the way the state has been; the business would fail.

Let’s start with the basics. The budget is a numerical presentation of the state’s priorities, which have been established over decades. Education makes up the biggest portion of general fund spending, some 41%, supporting K-12 and higher education. The next largest slice of the pie is made up by programs that provide aid to individuals, which I’ve always considered the “have to” spending. These are mostly administered by the Department of Health and Human Services, which makes up about 37% of the budget. The largest program is Medicaid, and much of it is dictated by federal regulations and mandates. The third priority is public safety, about 13% of the budget, and includes corrections, the court system and state patrol. That leaves about 9% for everything else, including operations at many other state agencies. The work of the Appropriations Committee is to ensure efficient operation and effectiveness of all of these agencies. Underfunding operations is neither efficient nor effective.

Separate from these priorities are initiatives, which may reflect the priorities of the current administration or legislators. Cutting income taxes for individuals and corporations was an initiative. Property tax relief is an initiative. Importantly, initiatives can only be funded when the priorities are taken care of. However, that’s not how the budget has functioned in recent years, instead funding initiatives (wants) at the expense of priorities (needs).

In order for an initiative to be successful, it must have sustainable, predictable funding. Legislators leveraged a one-time budget surplus as the basis for cutting income taxes, which was never going to sustain the roughly $900 million annual reduction in tax receipts, even with widespread sweeps of existing cash funds, overreliance on the cash reserve and deep cuts to state agencies. The effect of the income tax initiative has been a swift dismantling of the budget’s structural integrity.

Property tax relief, the costliest initiative, is funded through excessive use of a budget tactic that bypasses the state general fund altogether. In fiscal year 2022-23, these “transfers out” totaled $518 million, which included $310 million of property tax credits. Fast forward to FY 2026-27, and transfers out now account for $1.76 billion, an increase of 239%. Less than $1 million of that money will go to something other than property taxes.

This has not been reported as an increase in spending, but should absolutely be analyzed as such. When you look at the spending that includes transfers out, cash fund sweeps, department-level cuts and depletion of the cash reserve, Nebraska has seen an increase of around 60% in total expenditures over the last four years. The explosion of spending on transfers out for the property tax initiative has forced budgetary moves that would get any businessman laughed out of the boardroom.

Taken together, cutting revenue and increasing spending through two major initiatives have left the state’s priorities high and dry. Structural integrity, now a distant memory of a seemingly bygone era, has disappeared altogether, and agencies are continually asked to cut spending at a time when they’ve already sustained cuts and had their cash funds raided.

Any good business manager knows that it is much cheaper to retain an employee than it is to replace one. Continual cutting of department budgets will inevitably result in an exodus of top talent from state agencies and higher education. Losing top talent defies gravity. Asking state employees to sleep in their cars on state travel is not a serious retention strategy.

I’ve always supported diligent tax reform – look no further than my record – but any business run like the state has been in recent years would be destined for failure.

This is no way to run a business and certainly isn’t the way to run the state.