Unicameral Update: The Calm Before the Storm

Remember elementary school when everyone said their favorite thing about school was recess?  We are just wrapping up a four-day recess from the Capitol and it was GLORIOUS!  I decided to take a last-minute road trip with my husband, and I remembered to pack my computer power cord, but we were 40 miles from Lincoln when I realized that I left my computer in my car…  I still had my phone, so was able to take several calls over the weekend, but I have to admit a two-day break from my computer was just what the doctor ordered.  I got to do my part in supporting the general fund revenues of the state while visiting some of my favorite garden centers in northern Nebraska, and spent yesterday planting over 180 plants! I did still manage to read the 300-page budget book. More on that soon.

This week, Senators will dive into the turbulent waters that are the state’s financial status.  As I reported last week, the Appropriations Committee advanced the budget before the Forecasting Board issued their new forecast. So, the sausage will have to be made in the George Norris Legislative Chamber. Late last week a list of ideas for additional budget cuts was already floating around. There were also rumblings of new tax revenue proposals. I have no doubt that we will hear a lot about budget cuts and new taxes a lot in the coming days. However, as far as we know, there isn’t a plan or clear path forward. All we know for sure is that there are a lot of questions surrounding the budget as it was advanced from committee and even the committee members don’t agree on the package. 

The budget package, outlined in a 300-page document, illustrates that Governor Pillen, Chairman Clements, and the majority of the Appropriations Committee have found and propose to spend all of the “loose change from the sofa cushions.” When talking about loose change and the state budget, I am referring to the use of agency cash funds. Most reports on the budget focus on the general fund, which represents revenue from sales and use taxes, personal and corporate income taxes, and miscellaneous taxes. However, it is important to consider overall spending from all resources. There are four general categories: General Fund, Cash Funds, Federal Funds, and Revolving/Other Funds. When you look at total spending increases from the prior fiscal year (2024-25), and include deficit spending to cover shortfalls the Committee knew about before they released the budget, our overall spending will increase by 20.9%. If that number concerns you, take a deep breath because the source of the spending is more concerning. General Fund appropriations are increasing by just 2.2%; Cash Fund appropriations are increasing by 41.2%; Federal Funds are increasing by 28.7%; and Revolving Funds are increasing by 6.2%. Cash and Federal Funds have historically been used primarily for one-time expenditures because they are not a guaranteed source of revenue. The 41% increase in cash and federal fund spending follows a 23% increase over the previous four fiscal years. And those numbers were after we had received a historical bump in federal funds thanks to ARPA expenditures. This spending is simply not sustainable, and by fiscal year 2026-27 overall appropriations are expected to be cut (-1.2%) rather than increased. Let’s not forget that Senators still have to find an additional $190 million to balance the current budget. 

The deficit. Do we cut? Do we raise taxes? Do we pause planned tax cuts? Do we tap into the Cash Reserve? As I said earlier, there is a list floating around with additional budget cuts totaling just over $184 million. There are two bills on the floor that would eliminate sales tax exemptions for soft drinks, candy, and a variety of services that could potentially raise $60 million. Some have suggested that we need to pause the planned income tax reductions which would save $100 million. One think tank suggested today that the state should hold off on increased funding for property tax relief, scheduled to increase by over $50 million. Finally, the Appropriations Committee did not recommend dipping into the cash reserve but that could also be used – even if it leaves the future balance of the fund in a precarious position. All of these possibilities will debated beginning less than 12 hours from now. 

Senators will start their week with a budget briefing at 8:30 am Tuesday, and they will begin debate once they gather in the Chamber around 9:00 am. The Speaker has eight legislative days designated for budget debate. It has been decades since a budget took that long to make it through the process. If it does take that long, it will only leave a handful of days to get everything else done, which does not bode well for the remaining priority bills.  

I will be in touch with individual client representatives with anything of interest or concern.  I’ll be back with a general update as the budget debate progresses. 

Have a great week! 

Korby M. Gilbertson
Radcliffe Gilbertson & Brady