Pillen-backed bill would help reduce state budget shortfall by $71M, aiming at business incentives

LINCOLN — A proposal that legislative supporters say would take a $71 million bite out of Nebraska’s projected $289 million biennium budget gap — largely through clawing back several business-related incentives — cleared a hurdle on Friday.

The amended Legislative Bill 650 is an effort by the Nebraska Legislature’s Revenue Committee and supported by Gov. Jim Pillen to help create a required balanced budget. 

A nearly three-hour discussion ended in a 36-2 vote by lawmakers to advance the package to its second stage. State Sen. Brad von Gillern of Omaha, committee chair, said the proposal would save $71 million in projected state spending over the next two budget years by scaling back or eliminating several programs approved in recent years by the Legislature and Pillen.

Von Gillern said the committee used a “last-in-first-out” approach, targeting newer initiatives and considering input from an earlier public hearing. He characterized the package, which hits both rural and urban economic development, as largely a loss for programs designed to grow jobs and the economy. He said such moves were necessary in an era tighter than previous years when federal and pandemic related funds were more plentiful.

“We are talking about minimal impact to consumers,” he said. “It’s primarily a negative impact on businesses.”

‘Low-hanging fruit’

The bill is but one piece of a budget-making process set to continue over the remaining days of a 90-day session that wraps up in early June.

State Sen. George Dungan of Lincoln, a member of the Revenue Committee, anticipates more contentious debate on other bills, such as expansion of sales and use taxes that he said could more specifically affect “everyday working people.”

Of LB 650, he said: “All said and done, I do think it represents a good step forward with some proverbial low-hanging fruit in order to try to make up some of that budget deficit.”

The package calls for scaling back incentives including: an income tax credit for food donations; credits to retailers for collecting sales tax; a tax credit for reverse osmosis water-related systems; employer tax credits for relocating new workers; and income tax credits for short-line railroad maintenance expenditures. 

It calls for cost-cutting changes to or repeal of the Urban Redevelopment Act, the Nebraska Advantage Rural Development Act, the Renewable Chemical Production Income Credit, Nebraska Biodiesel Tax Credit, and the Creating High Impact Economic Futures (CHIEF Act).

Von Gillern said he didn’t yet have a financial breakdown of anticipated savings attributable to each program. 

In addition, a handful of other bills would fold into LB 650, most of which von Gillern said are attempts to clarify or improve earlier laws. One of the five, LB 547 introduced by State Sen. Victor Rountree of Bellevue, at a projected cost of $288,000, would exempt disabled veterans from the state’s motor vehicle tax.

An exchange with State Sen. Margo Juarez of Omaha — who wanted to know how certain components would hit the pocketbook of an average consumer — sparked more explanation from von Gillern. He said the focus was on business-related and other incentives — saying less of them had been used than anticipated.

Asked, for example, about the clawback of the biodiesel tax credit, von Gillern said it largely affects truck and agricultural users.

Of the scaled back credits for retailers for collecting state sales tax, he said that would lead to as much as $2,000 a year additional loss for a retailer and was not aimed at consumers.

‘Please explain’

State Sen. Terrell McKinney of Omaha cast one of the two “no” votes on the amended package. He took particular offense to repealing the Urban Redevelopment Act, a tax credit intended to help grow small businesses and investment in urban cores, and paring back the CHIEF Act, a tax credit designed to encourage individuals and businesses to make charitable contributions that ease chronic economic distress.

McKinney wanted to know more specifics on the projected savings, noting those two programs were just recently enacted. He said the information the committee chair distributed to lawmakers was not complete. “Please explain to me … what is the increase in revenue that the state is getting? What is the savings?”

He urged lawmakers instead to consider saving dollars by halting construction of a new prison, with costs expected to surpass $350 million, which he said would be overcrowded on Day One.

State Sen. Danielle Conrad of Lincoln, who cast the other no vote, pointed out reduced tax credits for food bank donations and for the installation of a reverse osmosis water filtration system.

“So we’re clawing back tax credits to help feed the hungry and the poor,” she said. “And adjusting or changing the little bit of help we can provide to Nebraskans who have undrinkable water in their homes.”

Conrad said the state is in the position of having to “scramble” for dollars due to the “self-created, reckless and irresponsible” actions of Pillen and the Legislature to promote income and corporate tax cuts that Conrad said benefitted the wealthiest Nebraskans and corporations.

Von Gillern said the last-in-first-out approach aimed for an unbiased process. Committee discussions led to restoration of a few programs originally to be cut, such as the sales tax exemption for agricultural twine and a tax credit for pregnancy assistance organizations.

State Sen Beau Ballard of Lincoln said the employee relocation tax credit he pushed over the finish line last year — now to be scaled back — addressed a state priority: luring new talent.

Ballard said he was looking forward to working in the future with the Revenue Committee on a restoration.

State Sen. Mike Moser of Columbus said he was encouraged by the committee’s work, and noted that much is ahead in the budget-making process.

“This is just the beginning of the discussion,” he said. “We’ve got a number of things we’re going to have to do to make this all add up.”