Preliminary Appropriations Committee budget unveiled, includes Pillen cuts to NU

LINCOLN — The Legislature’s Appropriations Committee on Tuesday unveiled a preliminary committee budget, a key early step before Nebraska lawmakers pass a two-year budget by mid-May.

Led by State Sen. Rob Clements of Elmwood, one of the committee’s biggest tasks this year is closing a projected $432 million budget shortfall, which the preliminary budget takes steps toward closing. 

The committee has gone through all state agencies at least once, in addition to the budget recommendations that Gov. Jim Pillen outlined in his Jan. 15 address to the Legislature, advancing some in the preliminary budget. Pillen’s recommendations would close the projected $432 million budget shortfall with more than $63 million in the positive direction. 

Meanwhile, the committee’s preliminary budget closes approximately $171 million of the projected shortfall, leaving another $262 million to find either through increased revenue or reduced spending.

“It’s going alright,” Clements said of the process. “It’s still going to be a challenge to get the budget balanced.”

‘Cutting off our nose’

State Sen. Machaela Cavanaugh of Omaha, a new face on the Appropriations Committee, said it is “not best practice” to make substantial policy changes through the budget.

She described the in-progress “moral document” as one that still has the potential for more “devastating cuts,” such as to direct support or assistance to vulnerable populations, which she said she would work to protect. 

Cavanaugh sees a “manufactured crisis” from stair-stepped reductions in income and corporate tax cuts, passed in 2023, that won’t be fully implemented until 2027 and continued steps from her colleagues to do “anything and everything” for property tax relief, even when the state doesn’t set property tax rates.

“I’m concerned that there’s a lot of cutting off our nose to spite our face in this budget,” Cavanaugh said.

The University of Nebraska cuts

One key cut included in the preliminary committee budget: an annual $14.3 million cut from the University of Nebraska, approximately 2% of what the state spends on NU from its main checkbook.

The committee narrowly advanced that cut with opposition from the committee’s three Democratic members and State Sen. Rob Dover of Norfolk, a Republican.

The NU Board of Regents in August requested a 3% increase, partly for research, expanded scholarships for top students and employee compensation.

This is on top of uncertainty with federal research dollars, potentially leaving the regents to dig out of a fiscal hole, after just doing so last summer.

The preliminary budget doesn’t address whether to give $100 million in promised cash funds to NU for Project Health, a significant $2.19 billion public-private investment in expanded health care training, research and more in Omaha. Dorn and Clements said those funds would be added back. Pillen had included that funding in his budget recommendations.

The anticipated Project Health spending has “broad support” among the committee, Dorn said, noting NU also has ongoing funding for multiple capital construction projects. He said the committee also advanced keeping $6 million in NU’s share of the Nebraska Tobacco Settlement Biomedical Research Fund. Pillen recommended removing all of NU’s $11 million share of that settlement research fund. 

The hearing on NU’s budget is in one week, where President Jeffrey Gold and other NU advocates have promised to testify about the need for continued state support for the university.

“The University strives to be a good partner with the state,” Gold said in a Jan. 17 statement. “But cuts of this magnitude would significantly impact the university at a time that our mission of research, teaching and extension and engagement is critically important to the state.”

Chair: Cuts won’t ‘severely hurt’ NU

Cavanaugh said she plans to ask a lot of questions next week on what the cuts would mean to NU, including the University of Nebraska at Omaha in her district. 

She noted the solution, if the state won’t step in, is raising tuition and fees or cutting programs and jobs, hurting NU’s “workforce ecosystem.”

A range of opposition rises to Nebraska Gov. Jim Pillen’s budget bills

Clements said it is still “too early to tell” the impact of changes in federal spending, but he noted NU already has hundreds of millions in cash reserves that are also bringing in interest.

“Everybody’s going to have to contribute to fix the shortfall,” Clements said. “I think they have resources that it’s not going to severely hurt them.”

Other bills fall outside committee

Tuesday marked the beginning of public hearings on the budget process, beginning with the budget bills introduced by Speaker John Arch of La Vista at Pillen’s request — Legislative Bills 260, 261, 262, 263 and 264.

Much of the variance in the two budgets so far comes because Pillen’s budget includes requests to other committees, mostly the Revenue Committee, and includes hundreds of millions of dollars in additional investments in state aid to schools, largely for property tax relief.

To meet those goals, Pillen is calling to expand the sales tax by eliminating certain sales and use tax exemptions and increasing “sin” taxes on cigarettes, vapes, gambling cash devices, fantasy sports, spirits and consumable hemp products, estimated to net nearly $500 million over the next two years.

This includes net wrap and twine, in Legislative Bill 650 from State Sen. Brad von Gillern of the Elkhorn area, but also taxes for about two dozen “luxury” items, such as lobbying or dating services, that are included in LB 169 and LB 170, from State Sen. Tom Brandt of Plymouth.

Pillen’s budget also proposes increasing fees, including those through:

• The Nebraska Department of Motor Vehicles, including to obtain driver and vehicle records (LB 114, State Sen. Mike Moser of Columbus).
• The Nebraska Department of Agriculture in food establishments (LB 245, State Sen. Barry DeKay of Niobrara) or the sale of certain products by weight, measure or count (LB 394, DeKay).
• Fireworks display permits and sale licenses, fire alarm inspector certifications, fire safety inspections, heating oil tank registrations and underground storage tank installation permits and registrations (LB 434, State Sen. Dave Wordekemper of Fremont).

The governor’s recommended budget also calls for an excise tax on electricity for cryptocurrency mining operations (LB 526, State Sen. Mike Jacobson of North Platte) and seeks to reduce the state’s annual contribution to school retirements (LB 645, State Sen. Beau Ballard of Lincoln).

The committee hasn’t yet decided whether to repeal funding for some recently enacted laws, including $500,000 for a yet-to-be-enacted prescription drug donation program and $4.5 million to implement an expanded veterans justice program.

LB 650, from von Gillern, would pull funding for multiple tax credit programs in the Revenue Committee, which he chairs.

There were also areas where the committee just hasn’t yet taken up recommended cuts until the committee holds a hearing for each state agency and agency directors give more information, according to Clements and State Sen. Myron Dorn of Adams, an Appropriations Committee member.

Another major exclusion from the preliminary budget is LB 303, from State Sen. Jana Hughes of Seward, which would revamp the state’s school funding formula to help stabilize year-over-year state aid to schools. That proposal, which would cost about $120 million over the two years, is in the Education Committee.

New economic forecast on Feb. 28

Another cog in the appropriations machine is the Nebraska Economic Forecasting Advisory Board, which meets again at the end of next week to consider the state’s financial health. That Feb. 28 meeting will help guide budget-making conversations, as will a final forecasting board meeting in April.

Von Gillern said the preliminary budget offers “steps in the right direction” and said he’s looking ahead to the forecasting board meeting. He and Clements noted revenue trends have been positive since the last forecast in October, before the presidential election.

“That’ll help us work backward to a number,” von Gillern said.

Cavanaugh cautioned that the latest tax receipts were before President Donald Trump returned to office in the White House and, alongside tech-billionaire Elon Musk, began freezing and implementing cuts to federal programs. Cavanaugh noted those cuts will trickle down to Nebraska.

Dorn, in his seventh year on the Appropriations Committee, said he feels a lot more comfortable and understands the process more, though there is a little more of a challenge.

“I keep telling people it’s a big puzzle,” Dorn said. “When we get everything done and made, that puzzle will be complete. It’s going to take us a while to get there.”

Under the Legislature’s current schedule, the Appropriations Committee must advance its budget bills to the full Legislature by April 29 and the full budget must pass by May 15, under the Legislature’s rules. Committee hearings for the committee will continue through March.