LINCOLN, Neb. — Nebraska Gov. Pete Ricketts unveiled a sweeping legislative agenda Thursday that includes a property tax overhaul, a merging of state agencies and incremental income tax cuts that would begin in 2020.
The Republican governor also used his third annual State of the State address to call for relaxing licensing requirements for a variety of professions.
Ricketts’ speech came in the midst of a projected $267 million shortfall in the current budget and funding gaps for existing programs that total nearly $900 million through June 2019. He challenged lawmakers to show some “Nebraska grit” and balance the budget without raising taxes.
“In a year where we have to make difficult budget decisions, we have to favor the taxpayer,” Ricketts said. “Special interests can hire lobbyists to achieve their desired ends. As elected officials, we have a duty to be advocates for citizens and a voice of the people.”
Ricketts’ plan to balance the budget relies on a combination of spending cuts and drawing money from dozens of cash accounts that are separate from the state’s general fund. It also would pull money from the state’s emergency cash reserve, reducing it from a projected $630 million down to around $500 million.
Some of the major cuts Ricketts proposed for the upcoming budget are $50.7 million in state aid for individuals, $17.6 million from the University of Nebraska and $6 million from the state’s community colleges. Child welfare services, K-12 public education and the state’s problem-plagued prison system would see funding increases.
His package would change the way property taxes are calculated starting in 2019, using a land parcel’s earning potential rather than its market value. The new approach would provide “lasting, fair and structural property tax reform,” Ricketts said.
The overhaul could lower property taxes for farm and ranch owners when times are rough, but would also require an automatic increase in state aid for schools in future years.
Nebraska Farm Bureau President Steven Nelson said the proposal didn’t go far enough to address his members’ concerns about rising property taxes, calling it a “band aid solution.” His group has urged lawmakers to raise the state sales tax and eliminate sales tax exemptions, using the revenue to offset property taxes.
The income tax plan would lower the state’s top tax rate in increments anytime state revenue grows by more than 3.5 percent, starting in 2020. If passed, the top rate would be expected to fall from 6.84 percent to 5.99 percent over eight years.
Lowering the top rate would provide a much larger tax savings for the wealthy than the middle class because more of the wealthy’s income is taxed at the top rate. Nebraska’s largest business groups praised the package, saying it would create a friendlier environment for commerce.
Ricketts argued that Nebraska’s current top bracket affects the middle class as well because it kicks in at $29,831 for single taxpayers and $59,661 for married couples. People whose taxable income falls below those thresholds after claiming deductions would see no tax savings.
The governor also proposed merging the Department of Roads and the Department of Aeronautics to create a Department of Transportation. The new agency wouldn’t create any savings but would help streamline services, Ricketts said.
Under Ricketts’ budget, state spending over the two-year budget cycle would grow by an annual average of 1.7 percent. State spending has traditionally risen by an average of about 5 percent per year.
Several times in his speech, Ricketts stressed that he would oppose any proposed tax increase.
“We can balance the budget, set spending priorities, deliver essential services, all without raising taxes on Nebraska families,” he said.
The proposals drew mixed reviews.
Speaker of the Legislature Jim Scheer said he was glad to see some “realistic” budget-cutting options that still protected K-12 education funding while allowing for future tax cuts.
But Sen. Paul Schumacher, of Columbus, said the income tax cuts could create future budget problems. He noted that the proposal would lower taxes when revenues are strong, but wouldn’t raise them when revenues are weak.
“You have a boa constrictor effect,” said Schumacher, who serves on the tax-focused Revenue Committee. “It’s a way to let the current Legislature take praise for tax cuts and have a future Legislature figure out how to deal with it.”
Sen. Burke Harr, of Omaha, said it wasn’t yet clear what impact the tax proposal might have, but he questioned whether it would be sustainable.
“We just don’t know what the situation will be four or five years from now,” he said.
Sen. Jim Smith of Papillion, who worked with Ricketts on the income tax bill, said reducing the top rate would help Nebraska compete with its neighbors. Smith pointed to Iowa, where a Republican-led Legislature has promised to cut income taxes.
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