About OpenSky Policy Institute The best choices are informed choices. At OpenSky, we work to make sure lawmakers and other leaders have quality data and research to make decisions that help our communities thrive. We are non-partisan and focus on tax, budget, and education finance policy in Nebraska.
Today’s Presentation: • Nebraska budget and tax basics • Main tax policy discussions in 2020
Education, Health Care Top Spending General Fund Appropriations, FY21 Public Safety and Law Enforcement, Health and Human $538,792,227 Services (Non- (11.39%) General Government, Medicaid), $256,923,190 $809,454,669 (5.43%) (17.11%) Agriculture, Environment and Medicaid and CHIP, Natural Resources, $942,671,380 $34,637,561 (19.93%) (0.73%) Humanities, $20,612,246 (0.44%) Labor and Economic K-12 Education, Higher Education, Development, $1,329,407,819 $781,072,718 $13,673,152 (28.11%) (16.51%) (0.29%) Transportation and Infrastructure, $2,269,242 Total: $4.729 billion (0.05%) Note: Percentages do not sum to 100 due to rounding. Sources: Biennial Budget as Enacted in the 106 th Legislature First Session, August 2019.
Budget Proposal Keeps Budget Relatively Flat as a Share of the Economy General Fund Appropriations per $1,000 of NE Personal Income (FY99 to FY21) $52 $50 $48 $46 $44 $42 $40 $38 $36 FY99 FY01 FY03 FY05 FY07 FY09 FY11 FY13 FY15 FY17 FY19 FY21 Source: Legislative Fiscal Office, Appropriations Committee Biennial Budget, Executive Budget in Brief.
Appropriations Trends in Major Budget Areas General Fund Appropriations per $1,000 of NE Personal Income (FY00 to FY21) $18 K-12 Education $16 $14 Higher Education $12 $10 Medicaid & CHIP $8 Health and $6 Human Services (Non-Medicaid) $4 Public Safety/Law Enforcement $2 $0 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 Note; Dashed line represents FY2019-FY 2021 Biennial Budget. Sources: Legislative Fiscal Office, US Bureau of Economic Analysis, Appropriations Committee.
State Aid and Local Taxes Have Mirrored Each Other Aid and Taxes per $1,000 of Nebraska Personal Income Total Local Taxes State Aid $55 $50 $45 $40 $35 $30 $25 $20 $15 FY 79-80 FY 81-82 FY 83-84 FY 85-86 FY 87-88 FY 89-90 FY 91-92 FY 93-94 FY 95-96 FY 97-98 FY 99-00 FY 01-02 FY 03-04 FY 05-06 FY 07-08 FY 09-10 FY 11-12 FY 13-14 FY 15-16 Sources: US Census Bureau; US Bureau of Economic Analysis.
Rainy Day Fund Departing From a Healthy Balance Cash Reserve Fund Balance as Share of General Fund Receipts, FY84 to FY22 CRF Balance as Share of Revenues LFO Suggested Balance Estmated Balance 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% FY84 FY85 FY86 FY87 FY88 FY89 FY90 FY91 FY92 FY93 FY94 FY95 FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 Source: Legislative Fiscal Office: Tax Rate Review Committee Summary, November 2018; Legislative Fiscal Office, State of Nebraska Biennial Budget as Enacted by the 106th Legislature, August 2019 Sources: Legislative Fiscal Office, Nebraska Economic Forecasting Board
Revenue Challenges • Ag economy/tariffs; flooding/disaster recovery • Tax changes since 2006 ($913M in FY20) • Tax incentives (spiked in 2013, 2016 and a bit in 2018) • Base issues (i.e. services, other exemptions) • Revenue fluctuations due to federal tax changes
Main Tax Discussions in 2020 1. Property tax reductions/reform & eliminating tax expenditures -increase ed funding vs. PTCP vs. sales tax rate reduction 2. Tax incentives
NE not a High Tax or Spending State Per $1k of 2016 Rankings Per Per $1k Personal (U.S. Census Bureau) Capita GDP Income 15 th 17 th 27 th State & Local Taxes State & Local Spending 20 th 30 th 38 th (Direct Expenditures) 17 th 24 th 30 th Individual Income Tax 17 th 19 th 22 nd Corporate Income Tax 32 nd 39 th 41 st Sales Tax Property Tax 12 th 10 th 12 th Source: US Census Bureau 2016 Census of State and Local Government Finances; US Bureau of Economic Analysis.
Nebraska’s Three -Legged Stool State and Local Taxes by Type, 2016 Other 6.86% Selective Sales 6.92% Personal Income Corporate Income 23.13% 3.17% General Sales 22.39% Total Property: 37.5% Property Total Sales: 29.3% 37.53% Total Income: 26.3% Total Other: 6.9% Source: US Census Bureau, 2016 Annual Survey of State and Local Government Finances.
Balancing the 3-Legged Stool State and Local Taxes % Actual % - Balanced Difference (2016) Property 37.5% 31.05% -$629M Sales (Includes General + 29.3% 31.05% +$169M Selective) Income (Includes 26.3% 31.05% +$461M Personal + Corporate) Other 6.9% 6.85% $0 Note: Numbers do not perfectly sum due to rounding. Source: US Census Bureau, 2016 Annual Survey of State and Local Government Finances.
Education Funding: Nebraska vs States’ Average Nebraska States' Average Local: Local: State: 59.5% State: 46.9% 32.8% (2 nd ) 45.3% Other Local (49 th ) Sources Other Local 10.0% Sources 10.1% State Formula Aid 32.6% State Formula Aid Local Property 23.2% Taxes Local Property 49.5% Taxes Other State 34.4% Sources Other State 15.0% Sources 9.6% Federal Federal Sources Sources 7.7% 7.9% Source: US Census Bureau, 2017 Annual Survey of School System Finances.
Residents in Highly Agricultural Counties Pay More in Taxes Property and Income Taxes per Person in 2017 $4,500 $4,000 $3,500 $3,000 $2,500 Income Tax $2,000 Property Tax $1,500 $1,000 $500 $0 Areas s with Least st Ag Land Areas s with Most st Ag Land Note: Areas with the least ag land are counties where ag land is less than 20% of the total real property valuation, and areas with the most are greater than 60%. Sources: Nebraska Department of Revenue and US Census Bureau.
Nebraska’s Tax System is Regressive Total Sales & Excise Taxes Property Taxes Income Taxes 12% 11% 11.1% 10.8% 10% 10.0% 9.8% 9% 9.4% 8.7% 8.7% 8% 7% 6% 5% 4% 3% 2% 1% — – 1% Lowest 20% Second 20% Middle 20% Fourth 20% Next 15% Next 4% Top 1% Lower income earning households pay a greater % of income in NE state and local taxes than higher income earning households Source: Institute for Taxation and Economic Policy; 2018 Shares of Family Income for Non-Elderly Taxpayers.
Potential 2020 Ballot Initiative • Creates a refundable income tax credit = 35% of property taxes paid. • Costs approximately $1.5B or 32% of the general fund budget. • Would require increases in other taxes and fees or force deep cuts in state funding for health care, public schools, and roads. • Potential ballot initiative in 2020
Main Tax Discussions in 2020 1. Property tax reductions/reform & eliminating tax expenditures -increase ed funding vs. PTCP vs. sales tax rate reduction 2. Tax incentives
Tax Reductions by Year, LB 775 and Nebraska Advantage $350,000,000 $266,485,853 $217,059,141 $300,000,000 $270,843,852 $250,000,000 $200,000,000 $150,000,000 $100,000,000 $50,000,000 $0 LB 775 Advantage Sum, 775 and Advantage Note: Includes tax credits used, sales and use taxes refunded, and estimated property taxes exempted. Source: Nebraska Department of Revenue.
Nebraska’s Estimated Tax Incentive Liability, 2019 -28 $350,000,000 $314,473,229 $2,614,234,884 $300,000,000 $250,000,000 $230,802,292 $200,000,000 $150,000,000 $100,000,000 $50,000,000 $0 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 Nebraska Advantage LB 775 LB 720 Sum, all programs Note: Nebraska Advantage and LB 775 are projected on a calendar year basis; LB 720 on a fiscal year basis. Sources: Nebraska Department of Revenue and Legislative Fiscal Office.
Nebraska’s Estimated Tax Incentive Liability, 2019-28 $708,000,000 $2,614,234,884 $129,021,922 $1,777,212,962 Nebraska Advantage LB 775 LB 720 Source: Nebraska Department of Revenue and Legislative Fiscal Office.
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