Institute The best choices are informed choices. At OpenSky, we - - PowerPoint PPT Presentation

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

K-12 Education, $1,329,407,819 (28.11%) Higher Education, $781,072,718 (16.51%) Medicaid and CHIP, $942,671,380 (19.93%) Health and Human Services (Non- Medicaid), $809,454,669 (17.11%) Public Safety and Law Enforcement, $538,792,227 (11.39%) General Government, $256,923,190 (5.43%) Agriculture, Environment and Natural Resources, $34,637,561 (0.73%) Humanities, $20,612,246 (0.44%) Labor and Economic Development, $13,673,152 (0.29%) Transportation and Infrastructure, $2,269,242 (0.05%)

Education, Health Care Top Spending

Note: Percentages do not sum to 100 due to rounding. Sources: Biennial Budget as Enacted in the 106th Legislature First Session, August 2019.

Total: $4.729 billion General Fund Appropriations, FY21

Source: Legislative Fiscal Office, Appropriations Committee Biennial Budget, Executive Budget in Brief.

Budget Proposal Keeps Budget Relatively Flat as a Share of the Economy

$36 $38 $40 $42 $44 $46 $48 $50 $52 FY99 FY01 FY03 FY05 FY07 FY09 FY11 FY13 FY15 FY17 FY19 FY21

General Fund Appropriations per $1,000 of NE Personal Income (FY99 to FY21)

Appropriations Trends in Major Budget Areas

Note; Dashed line represents FY2019-FY 2021 Biennial Budget. Sources: Legislative Fiscal Office, US Bureau of Economic Analysis, Appropriations Committee.

$0 $2 $4 $6 $8 $10 $12 $14 $16 $18 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21

K-12 Education Higher Education Medicaid & CHIP Health and Human Services (Non-Medicaid) Public Safety/Law Enforcement

General Fund Appropriations per $1,000 of NE Personal Income (FY00 to FY21)

State Aid and Local Taxes Have Mirrored Each Other

Sources: US Census Bureau; US Bureau of Economic Analysis. $15 $20 $25 $30 $35 $40 $45 $50 $55 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 Total Local Taxes State Aid

Aid and Taxes per $1,000 of Nebraska Personal Income

Rainy Day Fund Departing From a Healthy Balance

Sources: Legislative Fiscal Office, Nebraska Economic Forecasting Board 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20% 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 CRF Balance as Share of Revenues LFO Suggested Balance Estmated Balance

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

Cash Reserve Fund Balance as Share of General Fund Receipts, FY84 to FY22

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

Source: US Census Bureau 2016 Census of State and Local Government Finances; US Bureau of Economic Analysis.

2016 Rankings (U.S. Census Bureau) Per Capita Per $1k of Personal Income Per $1k GDP State & Local Taxes 15th 17th 27th State & Local Spending (Direct Expenditures) 20th 30th 38th Individual Income Tax 17th 24th 30th Corporate Income Tax 17th 19th 22nd Sales Tax 32nd 39th 41st Property Tax 12th 10th 12th

NE not a High Tax or Spending State

Nebraska’s Three-Legged Stool

Source: US Census Bureau, 2016 Annual Survey of State and Local Government Finances.

Property 37.53% General Sales 22.39% Selective Sales 6.92% Other 6.86% Personal Income 23.13% Corporate Income 3.17% Total Property: 37.5% Total Sales: 29.3% Total Income: 26.3% Total Other: 6.9%

State and Local Taxes by Type, 2016

Balancing the 3-Legged Stool

State and Local Taxes % Actual (2016) % - Balanced Difference Property 37.5% 31.05%

• $629M

Sales (Includes General + Selective) 29.3% 31.05% +$169M Income (Includes Personal + Corporate) 26.3% 31.05% +$461M 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.

Local Property Taxes 49.5% Other Local Sources 10.0% State Formula Aid 23.2% Other State Sources 9.6% Federal Sources 7.7%

Nebraska

Local Property Taxes 34.4% Other Local Sources 10.1% State Formula Aid 32.6% Other State Sources 15.0% Federal Sources 7.9%

States' Average

Source: US Census Bureau, 2017 Annual Survey of School System Finances.

Education Funding: Nebraska vs States’ Average

State: 32.8% (49th) Local: 59.5% (2nd) State: 45.3% Local: 46.9%

Residents in Highly Agricultural Counties Pay More in Taxes

$0 $500 $1,000 $1,500 $2,000 $2,500 $3,000 $3,500 $4,000 $4,500

Areas s with Least st Ag Land Areas s with Most st Ag Land

Income Tax Property Tax 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.

Property and Income Taxes per Person in 2017

Source: Institute for Taxation and Economic Policy; 2018 Shares of Family Income for Non-Elderly Taxpayers. –1% — 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% Lowest 20% Second 20% Middle 20% Fourth 20% Next 15% Next 4% Top 1%

Total Sales & Excise Taxes Property Taxes Income Taxes

Nebraska’s Tax System is Regressive

Lower income earning households pay a greater % of income in NE state and local taxes than higher income earning households

11.1% 10.0% 10.8% 9.8% 9.4% 8.7% 8.7%

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

$270,843,852 $266,485,853 $217,059,141

$0 $50,000,000 $100,000,000 $150,000,000 $200,000,000 $250,000,000 $300,000,000 $350,000,000 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

$314,473,229 $230,802,292

$0 $50,000,000 $100,000,000 $150,000,000 $200,000,000 $250,000,000 $300,000,000 $350,000,000 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 Nebraska Advantage LB 775 LB 720 Sum, all programs

$2,614,234,884

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

$1,777,212,962 $129,021,922 $708,000,000 Nebraska Advantage LB 775 LB 720

$2,614,234,884

Source: Nebraska Department of Revenue and Legislative Fiscal Office.

Stay Connected to OpenSky!

• www.openskypolicy.org
• Sign Up for our email updates
• Follow Us on Facebook and Twitter
• Contact Us:
• Office: 402.438.0382
• Email: rfry@openskypolicy.org