Ricketts' call for belt-tightening and tax cuts gets mixed reaction

Senators welcome Gov. Pete Ricketts at the start his speech Thursday (Photo by Fred Knapp, NET News)
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January 12, 2017 - 5:44pm

Gov. Pete Ricketts called for belt-tightening and tax cuts in his State of the State speech Thursday, as lawmakers reacted with a mix of support and skepticism.

Speaking to senators and spectators in the state Capitol’s legislative chamber, the governor was clear about what he doesn’t want to do to balance the state budget. "First, the revenue gap must be closed without increasing taxes. Raiding the property tax credit relief fund, raising the sales tax, taxing food and groceries would all be bad for Nebraska families and would hurt our economy," Ricketts said.

Instead, Ricketts proposed a budget that limits spending increases to 1.7 percent a year for the next two years. And he proposed cutting the top state income tax rate by one-tenth of a percentage point each year state revenues grow at least 3.5 percent.

That means in eight years, the top income tax rate could decline from just under 7 percent to just under 6 percent. Anticipating criticism, Ricketts said that would not just be a tax cut for "the rich." "Any single individual making $29,831 is caught in this highest tax bracket. Folks, $29,831 is not ‘rich.’ It is middle class," he said.

Following the speech, Lincoln Sen. Kate Bolz said she was still coming to terms with the governor’s proposal. "I’m grappling to understand how we justify an income tax cut in a manner that includes the wealthiest Nebraskans, while also considering cuts to things that impact middle-income Nebraskans – things that could potentially increase tuition at higher education institutions or limit access to health care services," Bolz said.

University of Nebraska President Hank Bounds said the proposal would reduce university funding by $12 million next year, affecting tuition, jobs, and services. And Bolz said a proposed 3 percent cut in rates paid through Medicaid to providers of child welfare, nursing, and developmental disabilities services could hurt those services.

Bolz herself is executive director of an association of developmental disabilities service providers, but said she declares a conflict of interest and does not vote on measures directly affecting her job.

Sen. Paul Schumacher of Columbus questioned how realistic it is to project such a small spending increase. "You’re going to end up spending overall an increase at least the rate of inflation," Schumacher said. Projections based on past spending "neglects to take into account that in that last 20 or 30 years, you had the Baby Boomers pulling the wagon. Those same Baby Boomers have undersaved, for whatever reason, and are now expecting to ride on that wagon," he added.

While some senators were worrying about budget cuts, others expressed concern the tax cut proposals did not go far enough. Among them was Lou Ann Linehan of Elkhorn. Linehan said she likes the direction Ricketts was proposing. However, she added "I’m a little disappointed (in) what he said about income taxes. If I understood it right, it would take until 2025 to drop a full point. That seems like a long time to me."

Likewise, Sen. Jim Smith of Papillion, chairman of the Revenue Committee where tax proposals are considered, said he supports Ricketts income tax plan. However, Smith said"I certainly would like to see a reduction in our corporate tax rate. We rely too much on business incentives to offset our high corporate rates."

Ricketts also proposed a potentially major change in the way farm and ranch land is taxed in Nebraska. Farmers and ranchers have been squeezed in recent years, as low prices for agricultural products have hit at the same time as property taxes skyrocketed in response to high farm prices in prior years. "Income potential is much more fair and will slow the growth of ag land valuation," Ricketts said.

In other words, agricultural property would be assessed for its income-producing potential, rather than for its market value if it were sold. But Sen. Dan Hughes of Venango, a wheat farmer himself, wasn’t sure that would help. The problem I’ve found with it, it still requires a subjective percentage by a bureaucrat or an elected body on how much you pay, what the revenue generated is. So it really doesn’t make that much difference in my opinion of how we tax our agricultural real estate," Hughes said.

In a statement, Steve Nelson, president of the Nebraska Farm Bureau, said Ricketts proposals fall short. Nelson said "smaller, band-aid solutions, that provide minimal property tax relief, are not the solution." The Farm Bureau has suggested raising sales taxes, and expanding what they cover, as a way of cutting property taxes.

Ricketts also stressed if his budget and tax plans were adopted, the state would still maintain a cash reserve of $500 million. That fund started this fiscal year with more than $700 million in it. In addition to other previously promised spending, Ricketts is proposing to use nearly another 100 million. Sen. Burke Harr of Omaha said that concerns him. "We’re taking money from the rainy day fund. So we’re spending more money than we’re bringing in," Harr said.

And Nebraska Democratic Party Chair Jane KIeeb likened Ricketts proposals to income tax cuts in Kansas that have led to a fiscal crunch there. Kleeb said "Modeling our state after Kansas is a lose/lose for everyone." In his speech, Ricketts said by making tax cuts dependent on future revenue growth, Nebraska would avoid fiscal problems.

Ricketts’ budget and tax proposals will now go to the Appropriations and Revenue Committees, which will consider reshaping or replacing the proposals that will eventually be debated by the full Legislature. Omaha Sen. Bob Krist said the governor’s proposal is a starting point. "It’s a plan. And you know what a plan is: it’s a point from which to deviate," Krist said. "So here we go."



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