Nebraska’s $11 billion budget for 2025-27 advances to final round with $1.1 million to spare
LINCOLN — Nebraska lawmakers gave second-round approval Monday to a series of budget bills for the next two years, moving one stage away from closing a projected deficit of more than half-a-billion dollars.
The mainline budget bills, Legislative Bills 261 and 264, dominated debate Monday with a handful of changes. Other budget bills to appropriate additional funds to agencies for this fiscal year (LB 260) and to appropriate salaries for state senators (LB 262) and constitutional officers (LB 263) advanced last week with little debate.
With no further amendments expected, lawmakers will vote one last time on the budget bills Thursday, the final day to pass the budget, and send them to Gov. Jim Pillen, according to a scheduling announcement by Speaker John Arch of La Vista. Lawmakers will have $1.1 million to spare.
However, using the one-time fixes in cash fund sweeps and borrowing from the state’s “rainy day fund” to close the budget gap for the next two-year budget mean that lawmakers for the following biennium would be at least $110 million in the hole, current projections indicate.
Pillen retains his veto pen, including for line items, which could change the final figures. It takes 30 votes to override a veto.
The narrow positive balance will make it difficult to pass other senator priority bills this year with a revenue impact or cost, such as to reduce the state’s inheritance tax (LB 468), ban most tetrahydrocannabinol (THC) products in the state (LB 316) or crack down on adversarial nations’ “agents” (LB 644).
‘I’m pleased with the results’
State Sen. Rob Clements of Elmwood, chair of the Legislature’s Appropriations Committee, confirmed the hundreds of millions of dollars moved to close the projected deficit through June 30, 2027 — in cash fund transfers, reduced spending and taking from the state’s “rainy day” fund — is the most he’s seen in his ninth year on the committee.
He said appropriators shifted hundreds of millions of dollars in 2017, too, but had more time to respond, rather than this year’s “devastating” economic forecast that came in April.
“I’m pleased with the results of the budget,” Clements said after the debate. “I’m glad that we have a balanced budget again.”
When lawmakers returned in January, they faced a projected $433 million shortfall for the next two years, a number that has since grown. Lawmakers have shifted funds or cut spending by $850 million to cover the deficit since it was identified last November.
A large part of the deficit, but not all, came because the state’s economy, measured by per capita income, is doing well compared to other states. As a result, the federal government pulled back on the percentage of Medicaid costs it covers in Nebraska, passing on a cost of about $55 million this fiscal year and nearly $300 million next year.
‘We have cooked the books’
Blame for the remaining deficit largely differs by political ideology in the Legislature, with conservatives blaming shaky economic forecasts and progressives, such as State Sen. Danielle Conrad of Lincoln, blaming “inequitable, unaffordable tax cuts” passed in 2023.
By Jan. 1, 2027, Nebraska’s income tax rate for corporations and for individuals making $18,000 or more will fall to 3.99%. At that point, there will be three individual tax tiers, rather than four.
Conrad blamed Pillen and his legislative allies for the tax cuts, stating the economic forecasts are not like a “weather forecast” and that economic projections are lower “not by fluke, not by accident, not by surprise, but by design.” She said “chickens are coming home to roost.”
State Sen. Machaela Cavanaugh of Omaha, a member of the Appropriations Committee, alleged Clements and other committee members didn’t do their work or properly vet all the proposals before the Legislature. Instead, she said, senators gave a “rubber stamp” to many budget cuts and fund transfers that Pillen and his staff requested.
“We have cooked the books,” Cavanaugh said. “This isn’t real. This isn’t real money.”
Echoing Cavanaugh, State Sen. Ashlei Spivey of Omaha, a freshman on the Appropriations Committee, cautioned that one budget-balancing measure — sweeping an estimated $24 million in unspent agency funds by this June 30 — also isn’t reality. She said at least $7 million of those funds intended to be swept from the Nebraska Department of Education are already obligated and will be spent.
‘Let’s focus on real numbers’
However, State Sen. Mike Jacobson of North Platte told colleagues not to get “too carried away” on what he termed as “demagoguing” of “the sky is falling.” He pointed to possibly rosier forecasts in the state’s future that opponents rejected as natural wage growth.
Clements, too, has said lawmakers knew getting to 2027 would be a “pinch point.”
“Let’s focus on real numbers. Let’s focus on the numbers we know,” Jacobson said.
Conrad, a former eight-year member of the Appropriations Committee, said she was “intimately familiar” with the budget and told Jacobson and others she would “not be mansplained by anybody in this body how the state budget works.”
State Sen. Ben Hansen of Blair described what he viewed as a federal “carrot becoming a stick” for state spending cuts and that lawmakers should be looking at “tightening our belts as best we can.” He noted federal proposals in Congress to cut spending, particularly to Medicaid.
“It’s not about tightening our belt, as it is, we might be having to lop off limbs in order to help pay for our budget,” Hansen said of the future.
Cavanaugh has suggested lawmakers might need to come back for a special session, which some Republicans rejected publicly but quietly acknowledged is possible. If state revenues don’t bounce back, lawmakers who are set to adjourn in less than a month could be back sooner than next January.
After the budget bills pass, Pillen has set his sights on additional property tax relief that, with the final budget balance, would likely only come with increased sales or “sin” tax revenue, such as through currently exempt goods or services, a proposal that failed to gain traction last summer.
Nebraska Supreme Court increase
Throughout Monday, the budget deficit fluctuated as lawmakers approved final cash transfers and additional spending. Lawmakers closed the last remaining gap by taking $5 million more from the state’s “rainy day” cash fund.
“It’s the ‘rainy day’ fund, and folks, it’s raining,” said State Sen. Rick Holdcroft of Bellevue, who secured $3 million more for the Nebraska Supreme Court.
Holdcroft framed his proposal as investing in the Nebraska Supreme Court’s “core judicial services that are delivering results” and uplifting public safety, such as problem-solving courts and probation services that court officials said could be in jeopardy without additional funds.
Problem-solving courts are intensive court programs bringing individuals and families together with one-on-one interactions with judges, prosecutors and defense attorneys, law enforcement, court officials and more to help Nebraskans.
This includes Adult Drug and DUI Courts, Veterans Treatment Courts, Reentry Courts, Juvenile Drug Courts, Young Adult Courts, Mental Health Courts and Family Treatment Courts.
Each year, it costs the state about $4,400 per participant in problem-solving courts, Holdcroft said, compared to $41,000 for incarceration.
Clements and State Sen. Rob Dover of Norfolk said the courts had enough funds for the next year, citing the Legislative Fiscal Office, but that if the courts needed additional funds, officials could request more funding in January for the following fiscal year.
State Sen. George Dungan of Lincoln, an attorney, said that even if that was true, the fiscal office doesn’t make policy. He told senators to listen to county attorneys and others “who are running around like their hair is on fire” to promote a “need,” not a “want.”
Holdcroft said he understood that all senators were looking for ways to close spending but that they needed to distinguish between “cost savings” and “cost shifting,” which he said would fall to county jails, emergency responders, the Nebraska Department of Correctional Services and families or communities “already under stress.”
If the programs were cut, Holdcroft said, the people who need the programs “don’t disappear.”
“They simply fall through the cracks into more expensive and less effective systems,” Holdcroft. “If we let that happen, we are not saving the state money. We are making the problem worse and paying more for it down the line.”
Affordable and workforce housing
State Sen. Bob Hallstrom of Syracuse also made a deal to take $8 million out of the state’s Affordable Housing Trust Fund to preserve $4 million each in the Middle Income Workforce Housing Fund and the Rural Workforce Housing Fund.
Hallstrom said some projects in the workforce housing funds were put “in limbo” with the pending cuts, echoing Dover that “a house built today is much better than delaying the building of that house until a later time.”
“I will pledge to use whatever is at my disposal to try and avoid the ultimate transfer a couple years down the road from this fund,” Hallstrom said.
Conrad said lawmakers budget for two years, not one, and shouldn’t “backfill.”
Domestic violence services
Another major change, but not to the state’s bottom line, came in Bosn earning support for $3 million in each of the next two years to support domestic violence services for survivors.
Bosn said the “life-saving interventions” are required under state law but that it has been a “critical funding failure” as a previous “fix” fell short in actually getting dollars to survivors. She said federal funding in this area has also been cut.
“This amendment is about making sure survivors are not turned away,” Bosn said.
Conrad, in a tense exchange with Bosn, asked whether she voted for Trump and envisioned the cuts coming. Bosn said she did vote for Trump but didn’t expect the cuts.
State Sen. Jason Prokop of Lincoln had brought similar legislation this year, LB 348, seeking to find a long-term fix for domestic violence services.
The solution fell on the Medicaid Managed Care Excess Profit Fund, a cash fund that collects excess Medicaid dollars for use in other areas, such as supporting new moms and babies.
However, that’s the same fund that Clements and a majority of his committee targeted for $10 million to help rightsize the budget.
Taken together with Bosn’s changes and others this session, fiscal estimates show the fund would be depleted next fiscal year for a variety of services.
Other changes
In other changes to the state’s main budget, State Sen. Wendy DeBoer of Omaha clarified that lawmakers could sweep only $4 million in unspent funds for work on broadband, rather than a planned $5 million transfer. Clements and State Sen. Mike Moser of Columbus, chair of the Legislature’s Transportation and Telecommunications Committee, confirmed the situation.
DeBoer identified the error Monday morning after continuing to review a last-minute “murder sheet” of additional cuts last week.
“If this was a road, I’d be all over it,” Moser said, praising DeBoer.
Murman, chair of the Education Committee, said ESUs might have made up the cut by increasing property taxes.
Dover secured $1 million for the Robert B. Daugherty Water for Food Global Institute at the University of Nebraska “to support water and agricultural research and existing collaborative initiatives to implement best practices in water conservation.” A vote to preserve the funding in committee stalled 4-4, with Dover missing the vote for a doctor’s appointment.
State Sen. Brad von Gillern of the Elkhorn area, chair of the Revenue Committee, said the state funding was critical in the public-private partnership to not “run-off” private investors.
Clements said that NU could find the funding elsewhere as he noted its set to get more than $13 million more in the next biennium, which is less than the NU Board of Regents requested. NU President Jeffrey Gold has said tuition increases could be in the future.
Lawmakers rejected an amendment from Conrad, to restore $500,000 in a Nebraska State Patrol cash fund for equipment, and State Sen. Terrell McKinney of Omaha, to continue diverting at least $20 million in interest from the proposed new state prison and proposed Perkins County Canal to economic recovery.
McKinney said the previous deal was transferring interest for three years, not two, and that “a deal is a deal and a deal should be honored.”
