Reduction of Nebraska’s ‘rainy day’ fund by $170 million gets pushback by lawmakers

LINCOLN, Neb. (Nebraska Examiner) — A move to reduce the size of the state’s “rainy day” fund brought concerns Wednesday in the Legislature that Nebraska was already tapping reserve funds to cover deep cuts in taxes proposed this year.

Under an amendment debated and approved, the state’s cash reserve fund — the money used to sustain state programs in hard times — was reduced from a projected $950 million to $780 million, a reduction of $170 million.

State Sen. Rob Clements of Elmwood, who chairs the Legislature’s budget committee, said that he believed it was needed so funds would be available in the general fund to cover the loss of tax revenue projected due to cuts in income taxes.

$170 million less for rainy day fund

Under his amendment, an extra $170 million would be retained in the state’s general fund -— the state’s checking account — rather than being transferred into the cash reserve fund, which was described as the state’s savings account.

Clements said extra funds must be kept in the state’s general fund because the recent economic forecast was reduced by $80 million, to cover the tax cuts in the future and because $80 million added to the budget for increases in provider rates for social services.

That brought howls of objections from some state lawmakers who had already questioned whether proposed tax cuts — projected to reduce state revenue by $5.5 billion over six years — were sustainable, or whether they would force cuts in services or tax hikes in the future to balance the budget.

State Sen. Danielle Conrad of Lincoln said she was already concerned about the affordability of the proposed tax cuts but was surprised that budget adjustments were already being made – before the tax cuts were finally approved.

‘Raises red flags’

“We are raiding the rainy day fund in the middle of having all of this money,” said Omaha Sen. John Cavanaugh, referring to the state’s glut of surplus funds. “It raises red flags.”

Lincoln Sen. Jane Raybould questioned what economic return is expected if corporate and personal income taxes are cut to 3.99%, as proposed.

“It’s as if we’re playing limbo and trying to go as low as we possibly can,” Raybould said, calling the cuts “generous” and “truly not sustainable.”

But Sens. Lou Ann Linehan of Elkhorn and Tom Briese of Albion, two main advocates for the tax cuts, defended the lowered transfer into the cash reserves.

Briese said that state tax revenue projections for the next five years are very conservative, and revenues are likely to be much higher. If not, he said, future lawmakers can make adjustments.

Future lawmakers ‘can hit the pause button’

“Future bodies can hit the pause button, but I submit to you it won’t be necessary,” he said.

“We are fine with money,” Linehan said.

She added that if times got really bad, the state could tap into the $1 billion education “future fund” being pushed by Gov. Jim Pillen to reduce property taxes.

Conrad said the prospect of using the future fund fed into the skepticism of K-12 school officials, who doubt that the state will sustain the extra funding into the future.

Clements said that it would have to be “desperate times” for the Legislature to raid the education future fund, and that he and the governor was fine with the lower amount in the cash reserve.

He added that it’s a priority to make state taxes more competitive with neighboring states.

In the end, Clement’s amendment was approved on a 31-9 vote, and the fund transfer portion of the state budget, Legislative Bill 818, was advanced from second-round debate on a voice vote.

Before doing that, lawmakers also approved an amendment extending the county “bridge match” program from its original termination date this year, to 2029.

Rural senators, such as Bruce Bostelman of Brainard and Tom Brandt of Plymouth, said the program provided critical funding for counties to replace and repair rural bridges. The amendment calls for spending the remaining $11 million of the $40 million made available to provide matching funds for counties to install new bridges or culverts.

Nebraska Examiner is part of States Newsroom, a network of news bureaus supported by grants and a coalition of donors as a 501c(3) public charity. Nebraska Examiner maintains editorial independence. Contact Editor Cate Folsom for questions: info@nebraskaexaminer.com. Follow Nebraska Examiner on Facebook and Twitter.