2 days Ago By Erin Bamer Omaha World-Herald
In Nebraska’s Panhandle, where one out of five young people has considered suicide, members of the Panhandle Public Health District have been ramping up their suicide prevention efforts over the last six years. The district does so with the backing of state aid, which makes up nearly a quarter of its overall budget. But under the pending two-year state budget, $4.
5 million could be cut from various local health departments, which would mark a 38% reduction in the district’s state-appropriated funding. That’s not the only service facing a cut under the plan being mulled over by the Nebraska Legislature’s Appropriations Committee. Under Gov.
Jim Pillen’s budget proposal, there are dozens of cuts to resources like affordable housing, small-business assistance and early childhood education. Service cuts and cash fund sweeps bear most of the burden in the Republican governor’s attempt at balancing the budget, which is facing a projected $289 million deficit. But even with those reductions, expenditures are exceeding revenues year-over-year in the state’s general fund.
This is due to several factors, according to legislative fiscal analyst Keisha Patent. Revenue growth is flatter due to recent income tax rate reductions, she said, and transfers out of the general fund have increased dramatically over the last three years from the creation of a few new and large cash funds. In fiscal year 2022-23, $517 million was pulled from the general fund to finance state priorities like property tax credits and water projects.
In comparison, the first fiscal year of the upcoming biennium, fiscal year 2025-26, general fund transfers are slated to be over $1.7 billion. These funds, largely created and overseen under Pillen’s administration, were framed as sustainable funding sources that would bolster the budget.
But critics say they’re anything but. Bryan Slone, CEO of the Nebraska Chamber of Commerce and Industry, warned lawmakers earlier this year that continuing such general fund transfers risks depleting the state’s cash balance, and eventually the cash reserve — also known as the “rainy day fund.” Without a change in direction, Slone said he expects more service cuts and possible tax hikes in Nebraska’s future.
“It’s starting to become a structural question in our heads,” said Hunter Traynor, government affairs manager for the chamber. How we got here As early as the last budget cycle, Nebraska was facing a very different budget with huge surpluses that prompted massive investments. The state had a ballooning cash reserve projected to reach nearly $1.
6 billion. Lawmakers authorized millions of dollars in new projects, including over $574 million for the Perkins County Canal, over $95 million for the construction of a new prison and $1.25 billion to create the Education Future Fund, and still left room for roughly $561 million in tax relief.
So how did Nebraska get from a budget with overflowing funds to one with a $289 million shortfall? If you ask State Sen. Machaela Cavanaugh of Omaha, it comes down to poor planning. Nebraska had a bevy of one-time funds — much of which came from federal pandemic relief — and some lawmakers saw the dollars as ongoing resources, Cavanaugh said.
As a result, she said, the Legislature opted to invest in massive projects and cut taxes the state couldn’t afford to cut. Cavanaugh, a Democrat on the Appropriations Committee, said that for the past several years, her colleagues have been focused on “shortsighted solutions” to cut taxes in exchange for political points. But she suspects the long-term impacts of those cuts will just lead to future tax hikes.
“We are going to cut our way into a state that is not desirable to live in,” Cavanaugh said. Over the last two years, lawmakers approved the creation of three of the state’s four largest cash funds. Together with the Property Tax Credit Cash Fund, which was established in 2007, the four are responsible for over 99% of the $1.
7 billion in annual transfers out of the general fund. Neil Sullivan, the state budget administrator, said these cash funds are meant to be dedicated sources of funds that can be self-sustaining through more than just general fund transfers. The Property Tax Credit Fund, for example, gets some of its dollars through Nebraska’s casino gaming tax.
As it stands, however, all four cash funds still rely heavily on general fund transfers, if not entirely. The Community College Future Fund is supported solely through general fund transfers, Sullivan said, and is slated to receive $265 million in the next fiscal year, and $279 million the year following. The Education Future Fund persists primarily through a recurring $250 million transfer from the general fund each year, but it also earns some funds through transfers out of smaller cash funds and estimated investment income.
Due to additions the Legislature made in what the fund is used for, expenses out of the Education Future Fund far exceed its appropriations. At the pace it’s going, the fund will be completely depleted by 2028, even with the ongoing $250 million transfers. Patent said Pillen’s proposed solution to that is to increase the general fund transfers in the upcoming budget to $370 million in fiscal year 2025-26, and $385 million the following year.
When asked about the sustainability of these cash funds, Sullivan said the governor’s plan also incorporates various revenue bills that are pending this session. If they pass, that will generate new revenues for the state to balance out its expenses, though Sullivan said it might take a couple of years to see those results. “We used to have like over $1 billion in the cash reserve, and .
.. hundreds of millions in the general fund, and we don’t want that money just sitting there,” Sullivan said.
“You want to bring those balances down to something that’s reasonable, and the way you do that is by having negative structural balance numbers.” The bills that Pillen’s budget hinges on would increase sales taxes on various items, and rollback several initiatives the Legislature recently passed that have attached price tags, among other things. Sullivan said the governor is also interested in a bipartisan proposal to legalize online sports betting.
What’s being sacrificed While several sources agreed that it is a good government practice to regularly review state finances for excess cash on hand, the heartburn lies in the severity and consistency of the cuts Pillen proposed. Pillen’s budget proposes dozens of cuts to government services and smaller cash funds — a trend that has continued from the last budget Pillen oversaw as governor. Critics have long accused Pillen of concealing government spending under the veil of these transfers.
From mid-February through late March, the Appropriations Committee heard concerns from a long list of Nebraskans who were worried about these cuts. One of them was Jessica Davies, health director of the Panhandle Public Health District. Davies said the cuts to local health departments would eliminate around $231,000 of state funds from their annual budget.
This would drastically reduce the district’s capacity to offer suicide prevention programming, which has been a constant concern for the last several years in the region, she said. According to a 2021 survey, one in four Panhandle youths has self-harmed, and one in 10 has attempted suicide. Davies said the district uses part of its state aid to provide services like counseling, education, peer-to-peer programs and public training on identifying warning signs of self-harm.
The full proposed cut would debilitate what the district is able to do, Davies said. It would likely have the greatest impact on its staff, although she said the district would do its best to avoid reducing staff numbers. But it would change how responsive the district is able to be, she said.
“Travel can be a barrier,” Davies said. “To be at various meetings and to be in local communities ..
. the funds help us get to those things and get to people.” On top of that, the district is also grappling with an abrupt end to its COVID-19 immunization funding based on a federal order earlier this week, which Davies said will have the largest impact on its immunization program that administers over 5,000 vaccinations per year.
Combined with Nebraska’s budget plan, she said the cuts will “severely undermine” the district’s ability to provide essential public health services. Sullivan said the proposed cuts to local health departments comes from Pillen’s desire to revert funding levels back to what they were before the COVID-19 pandemic. But Cavanaugh claimed the pandemic relief dollars Nebraska received were always supposed to become permanent, as the state planned to shift to general funds once the federal funds had depleted.
After the Pillen administration took over, she said the plan changed without notice. “Inflation is so much greater now that to go back to pre-COVID levels is essentially saying we want to drive these providers out of the state,” Cavanaugh said. There is little debate that the funding slated for cuts has gone to support public good.
Jannelle Seim, president of the Aurora Housing Development Corp., said her organization received $2 million in grants through the state’s Rural Workforce Housing Fund. That fund is slated to sunset in the current budget, though there are pending bills to extend it.
With the grants, Seim said they were able to create a self-sustaining fund that has helped build dozens of housing units in the small city of Aurora. Before the grants, she said, most of the housing built in the area was individual custom homes. In rural Nebraska, declining populations is a prevailing issue, and Seim said the lack of housing stock contributes to the problem.
Once they started building new homes, she said they were snapped up quickly, and that trend continues to this day. Most of the homes are getting bought by residents who live outside Aurora, Seim said. “I have no doubt that we were losing people to York, Grand Island, even Central City .
.. during that lull when we didn’t have that much building going on other than custom homes,” Seim said.
Seim’s organization has no need for additional state aid now, but she’s concerned that the sunsetting fund could hurt other communities. Without the grants, she said she doubts they would have been able to get their housing projects off the ground, and she suspects there are other rural areas in a similar position now. Where is Nebraska headed? The Appropriations Committee has until April 29 to advance its revised budget plan to floor debate.
The Legislature must send the approved budget to Pillen’s desk by May 15. According to the state’s latest general fund financial status, Nebraska is on track to not only increase its deficit, but to also incur nearly $354 million in debt by fiscal year 2028-29. That won’t actually happen, as the state legally cannot incur debt, Patent said.
But sources still contend Nebraska is in a precarious financial position that could foreshadow future struggles. Cavanaugh said she fears Nebraska is on a fast-track to replicate Kansas’ budget crisis. That crisis began in 2012 with one of the largest income tax cuts in the state’s history, which resulted in dropping revenues and a long line of service cuts, and culminated in the Kansas Legislature repealing the policy in 2017.
Slone said the “self-made budget issue” Nebraska has created could easily lead to tax increases and could leave other state priorities, like affordable housing and child care, in the dust. That’s already happening, to an extent. Though most lawmakers agree that affordable housing and child care are vital to solving Nebraska’s workforce development struggles, few bills on those issues have passed in recent sessions, and fewer still have had substantial funding to back them.
Slone said the solutions to this problem may not come with immediate rewards, and argued that lawmakers should be focused on making sound investments now that will reduce costs later on. “We need to grow our way out of some of these issues,” Slone said. Cavanaugh held a similar mindset, saying the state should improve funding for child care, Medicaid and other government programs.
While doing this comes with an initial cost, the economic benefits will help Nebraska overall, she said. She mentioned expanding food stamp eligibility as an example, an idea that has struggled to garner support in recent sessions. Whereas food pantries are meant as an emergency resource, food stamps benefit both the consumer and local grocers, she said.
Despite this, Cavanaugh said she didn’t have much hope that her colleagues would change their current direction, saying there needs to be a “huge cultural shift” before that happens. “I think the state of Nebraska is on a fast train to have them be hit with reality that you need to have people in public service that are willing to make hard choices that are not necessarily politically expedient, but are the right things for Nebraska,” she said..
