July 2003      Vol. 12, No. 7  REAP HOME PAGE  A publication of the Center for Rural Affairs    
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Nebraska Legislative Wrap-up
Budget cuts, tax increases, cuts to education, and no major rural development initiative but microenterprise funding was spared. All-in-all the 2003 session could have been worse.


The Nebraska Legislature ended its 2003 session on May 30, one day early and potentially many dollars short. Future fiscal and economic happenings will determine how successful the Legislature was in balancing both the budget and the needs of the state.

There is already some concern that the budget, while balanced on paper, may create a cash flow crisis for the state and a new round of budget cuts if actual tax revenues do not keep pace with projections.

The Legislature adopted a biennium budget that consisted of two main blocks:

  1. $436 million in spending reductions to state agencies, including $60 million less in K-12 school aid.
  2. a $345 million revenue plan that increased some taxes and maintained 2002 increases in others.

These were vetoed by Governor Mike Johanns, who expressed a general desire for more spending cuts – particularly to all levels of education – and less reliance on revenue measures. Governor Johanns particularly disapproved of portions of the revenue package that maintained the 2002 increases in sales and income taxes and expanded the sales tax base.

All vetoes were overridden by the Legislature by handy margins, with most Senators expressing the need to spare education from deeper cuts.

In our view, the budget approved by the Legislature is markedly superior to the Governor’s budget in its impact on rural Nebraska. However, the budget does significantly affect rural people and rural communities.

The budget highlights an important policy issue – the potential for a dramatic shift from state to local responsibility and the possibility of increased local taxes.

The past policy theory of the state was to assist in keeping a lid on local property taxes through direct aid programs to local units of governments. The budget adopted in 2003 continues cuts to those aid programs begun in 2001 and 2002.

If local political subdivisions and institutions attempt to replace these state funds with local funds, equivalent amounts may be taken from rural taxpayers and the rural economy. The alternative available to local officials is to adjust their budgets without increased revenue, with the potential for decreased services and local job losses.

The Nebraska Microenterprise Fund appropriation was maintained at the current $250,000 annual amount. It was included at this amount in the budgets proposed by both the Governor and the Appropriations Committee.

There was no effort to remove the funding at any stage of the process, which speaks well for the work being done by the NMPF and its grantees and the educational efforts focused on the Legislature. Those efforts must continue, however, in the event of further budget cuts or increased funding for the NMPF in the future.

The Main Street Business Development Act (LB 776) will be held over to the 2004 session. This bill seeks to double the funding for the NMPF and restore funding for the agriculture value-added grants program through some changes to the state’s LB 775 business tax incentive program.

The Center for Rural Affairs and others will be working with Senator Matt Connealy and other interested Senators to gain more support for the bill so it can be moved out of the Revenue Committee and to the floor of the Legislature in 2004.

Senator Connealy also introduced an Interim Study Resolution that will be of interest to those concerned with small business development. LR 156 is a study of options for creating a small business tax credit system in Nebraska.

Finally, the Rural Development Commission was revived in the waning days of the session, and the Governor is currently accepting applications for new members. The RDC will likely have a focus on rural economic development, of which small business development must play a vital role.

 Contact: Jon Bailey, jonb@cfra.org with questions or comments.
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