Center for Rural Affairs May 2, 2005 Nebraska Legislative Update

-- from the desk of Jon Bailey, Director Rural Research and Analysis Program
Center for Rural Affairs

Legislative Update
May 2, 2005

Appropriations Committee Budget Released

On April 28, the Appropriations Committee officially released its recommended 2005-07 biennial budget to the rest of the Legislature. This budget plan concerns the two-year period starting July 1, 2005.

The budget proposes $6.1 billion in state government spending during the two years, an annual average spending growth of 6.9 percent. Spending on state agency operations increases the least (5.75 percent), while spending on state aid to individuals increases the most (8.4 percent).

The vast majority of spending increases are in programs over which the Legislature, absent statutory changes, has limited control – public assistance, Medicaid, state aid to schools, and state employee salaries and benefits. Several of these programs suffered budget cuts in the past several years – the Appropriations Committee now proposes significant spending increases (for example, 9 percent in K-12 state aid; 8 percent for Medicaid; and 6.8 percent for postsecondary education).

The Appropriation Committee also proposes spending $145.8 million from the state’s cash reserve fund to make a lump-sum payment of the low-level radioactive waste dump litigation settlement.

As proposed, the committee’s budget has a $22 million cushion above the legally required amount that must be placed in reserve. This amount represents the money the Legislature has to play with in the remaining days of the 2005 session and the 2006 session. As we outlined last week, over $90 million worth of spending proposals are now at various stages of legislative debate.

From the Center’s perspective, one piece of good news in the proposed budget was the maintenance of the Governor’s proposed doubling of funding to the Nebraska Microenterprise Partnership Fund (from $247,500 to $497,500). The Center’s REAP program is a grantee of the Partnership Fund.

Without any changes in anticipated spending and revenue, the picture is not as bright for the next budget period (2007-09). The Appropriations Committee is forecasting a budget deficit of over $146 million for that period. This deficit is caused in large measure by an increase in state aid to education caused by a property tax levy limit decrease.

The forecast got immediately rosier – at least for this year and next two years – as the Nebraska Economic Forecasting Board (meeting the same day as the Appropriations Committee budget was released) upped their revenue forecasts by an additional $40 million for the current fiscal year and $20 million for each of the next two years. This will likely have the effect of allowing the Legislature to meet more of the pending spending proposals in the Legislature. However, the storm clouds on the horizon and the policy choices that caused them will need to be dealt with in the coming years.

Debate on the budget will begin this week.

Finally, a Business Tax Incentive Proposal

After weeks of negotiations, the Revenue Committee finally adopted a business tax incentive and economic development plan last week. The proposal is estimated to cost about $30 million over the next two years and $430 million over 10 years in addition to the estimated $140 million per year the state already spends on business tax incentives.

LB 312 – the bill in which the proposal is now contained – uses LB 775 (the state’s largest business tax incentive program) as a start and modifies job and investment requirements. Under the plan qualifying businesses would also be required to pay workers at least 60 percent of the average state wage; there is currently no wage requirement under LB 775.

A full analysis of LB 312 will be provided in next week’s update.

A Full Calendar

There are only 19 days left in the 2005 session and many contentious and important issues remain to be debated.

Several Senators are beginning to discuss the possibility that many bills will be held over until the 2006 session, and that the budget – the only item the Senators are required to act upon – will be the only major piece of legislation decided in the remaining days of the session.

Bills Update

Again, no action was taken last week on any of the bills listed below.

Any bill designated a Priority Bill will also have a “P” attached to its number (for example, LB 123P). The chief sponsor of the bill is listed in parentheses.

The words Support or Oppose after a bill description indicate where the Center for Rural Affairs has taken a position on the bill. If neither word is indicated, the Center has not taken a position at this time.

NOTE: Once a bill is Indefinitely Postponed (killed) or signed into law, we will remove it from the Legislative Update list.

Rural Development

LB 28 (Connealy) – The “Endow Nebraska Act.” The bill would provide a tax credit for a contribution to a qualified charitable organization. The bill sits on Select File. Support

LB 273P (Cunningham) – Would create the “Building Entrepreneurial Communities” program through a grant program for each of the next two years. The bill remains on General File, though it is bracketed until April 19 and cannot be brought up for consideration before that date. Support

Agriculture/Livestock

LB 71P (Stuhr) – Would re-authorize the Agricultural Opportunities and Value-Added Partnership Act (formerly the LB 1348 grant program). This program was terminated through budget cuts in 2001 and 2002. This bill would reauthorize the program through 2009. Sen. Stuhr has designated this as her Priority Bill. The bill awaits a vote on Final Reading. Support

LB 132 (Cunningham) – This bill modifies the Nebraska Pasteurized Milk Law by providing exemptions to small-scale dairies and processors to the often-expensive bottling and processing requirements, and by allowing dairies and farmers to advertise on-farm sales of non-pasteurized milk (currently, the sale of non-pasteurized milk cannot be advertised). The bill sits on General File. Support

LB 346P (Agriculture Committee) – Would modify several provisions of the Beginning Farmer Tax Credit Act all with the goal to increase utilization of the tax credit. The bill sits on General File. Support

Education/Schools

LB 126P (Raikes) – Would mandate the “assimilation” of Class I schools (elementary-only schools) into K-12 school districts for the 2006-07 school year. The bill awaits action on Select File. Oppose

LB 129P (Education Committee) – An overhaul of the formula for state aid to schools. The bill is pending in the Education Committee.

Taxes

LB 309 (Connealy) – Would establish the Small Business Rural Microenterprise Tax Credit. The bill would provide for $2 million worth of tax credits annually for small business (with five or fewer employees or beginning farmers/ranchers) in areas with declining population or low incomes or federal enterprise zones. The bill is pending in the Revenue Committee. Support

Other

LB 208 (Stuthman) – Provides for the appropriation of $1.75 million annually for the next two years to the state’s five federally qualified health clinics to provide services to the uninsured (the clinics are in Omaha, Lincoln and Scottsbluff). The bill is pending in the Appropriations Committee. The Appropriations Committee budget adds $875,000 to compensate the federally qualified health clinics for the increase in services provided uninsured patients. Support

LB 550 (Jensen) – Requires a plan to be submitted by December 1, 2005, for the financial support of community health centers and emergency medical services in the state. The bill awaits action by the Health and Human Services Committee.