State cuts: Lawmakers look at options

LINCOLN — The buzz started as soon as the words “special session” and “budget cuts” began circulating last week.

Where would Nebraska lawmakers look to slice spending?

The exact size of the revenue shortfall won’t be known until the end of the month, but some estimate it could be from $100 million to $200 million.

Gov. Dave Heineman has offered few clues about where he’s aiming his cost-cutting ax, other than to say he won’t allow a tax increase in the mix and prefers not to tap the state’s cash reserve.

As far as where to cut: “Nothing is off the table,” Heineman said Friday through a spokeswoman.

But interviews with several state senators revealed what might be affected — and what lawmakers might seek to protect.

“I’ve heard more of what’s off the table than the targets,” said Sen. Kent Rogert of Tekamah.

Here are some possibilities:

State school aid

Aid for K-12 schools is the largest single item in the budget, accounting for nearly one-quarter of state spending. Given that, Sen. Greg Adams of York, the Education Committee chairman, said it would be unrealistic to spare state aid from cuts.

But mid-year cuts would wreak havoc on school districts, which have already set their property tax levies and signed contracts with teachers.

And there’s a complication: Cutting more than $125 million in state aid would jeopardize the state’s $150 million in federal stimulus funds for education.

At least a couple of states have exempted K-12 aid from their budget cuts, and some Nebraska senators would argue for that, saying education is a priority. They said that growth in state aid was significantly reduced in a tense debate last spring and that there’s little appetite to revisit the issue.

Across-the-board spending reduction

Several states, including Iowa, have opted for across-the-board cuts for most or all state agencies. Gov. Chet Culver on Thursday ordered a 10 percent cut, the second across-the-board reduction in the past year.

Sen. John Harms of Scottsbluff, who supports that approach, said every state agency in Nebraska should share the pain.

But a colleague on the Appropriations Committee, Sen. Danielle Conrad of Lincoln, said cuts should be selective, in line with state priorities.

Cash reserve

The state’s “rainy day” fund contains nearly $330 million, even after lawmakers drew it down to support the current budget. That would be more than enough to fill the likely budget hole.

Sen. Lavon Heidemann of Elk Creek, the Appropriations Committee chairman, ruled out dipping into the fund again, saying the money will be needed when federal stimulus dollars dry up in two years.

Using one-time money for continuing expenses creates a problem, said Sen. Tony Fulton of Lincoln.

Others said the cash reserve will have to be part of the discussion.

“It’s for a rainy day — and it’s getting to be blizzard conditions,” said Sen. Tom Hansen of North Platte, an Appropriations Committee member.

Developmental disabilities, children’s behavioral health

To address crises, both areas received new money this year. Reversing course now would be unwise, said Sen. Tim Gay of Papillion, chairman of the Health and Human Services Committee.

One spending boost addressed problems exposed by the state’s former safe haven law, which had drawn national condemnation. More than 30 children were abandoned before lawmakers adopted an age limit to narrow the law to infants. Most of the children who were dropped off were teenagers or preteens with mental, emotional or behavioral problems.

Lawmakers also approved nearly $100 million to deal with the troubled Beatrice State Developmental Center. Half of that replaces federal Medicaid funds, which the state is expected to lose because of failure to meet care standards.

Major cuts to that expanded spending could delay the restoration of federal funds and put the state in violation of an agreement with the U.S. Department of Justice to improve conditions at the center.

“There is nothing about BSDC that is discretionary,” said Sen. Steve Lathrop of Omaha.

But Sen. John Wightman of Lexington said lawmakers might be able to recapture some money allocated for those two purposes if it has not been obligated already.

Medicaid

Medicaid accounts for 13.4 percent of the current year’s budget. That makes it an automatic target for cuts.

But the same economic woes that are shrinking state tax revenue have swollen Medicaid rolls.

The federal government also is picking up a larger share of Medicaid costs, thanks to the federal stimulus package, Gay said. The stimulus money came with requirements that the state could not cut eligibility for the program, although other types of cuts could be made.

Higher education

Spending on the University of Nebraska system represents about 14 percent of the state budget, but NU President J.B. Milliken said any cuts would put pressure on tuition, which has been kept affordable.

Conrad, who has the Lincoln campus in her district, said she would resist any cuts because higher education is a priority.

But Sen. Brad Ashford of Omaha said the 1.5 percent spending boost given the NU system in the current budget might have been too high, in light of the dismal tax receipt news.

Corrections

Ashford says Nebraska should look harder at prison alternatives for nonviolent offenders — Colorado hopes to save $45 million by releasing up to 3,500 prisoners early.

Ashford said Nebraska could save $10 million to $15 million if it adopted such alternatives and cut its prison population by 500.

Speaker of the Legislature Mike Flood of Norfolk said such an idea is worth discussing, but probably not during a short special session.

As to simply opening the prison doors, Heidemann said: “I hope things aren’t that bad.”

Property tax credits

Tax receipts would really have to dim for Heineman to abandon a program that last year gave property owners $115 million worth of property tax credits, or about $85 on a $100,000 home.

Several senators said ending the tax break would amount to a tax increase, as has Heineman.

But Rogert said the program ought to be debated. He said that he didn’t want to increase taxes but that in bad times, ending the tax credit might be necessary.

Layoffs, hiring/wage freezes, furloughs

The University of Nebraska-Lincoln is laying off 28 employees, and positions there and in other agencies have been cut. Several other states have had layoffs and furloughs, and further job actions in Nebraska are “on the table,” Flood said.

“It all depends on the seriousness of the budget hole,” he said.

Heineman told state agencies last week to avoid new hiring and spending unless absolutely necessary.

But union contracts with state employees make wage freezes and furloughs difficult and would require new negotiations.

Miscellaneous

Sen. Heath Mello of Omaha said funding for long-vacant state jobs should be considered for elimination. Agencies can use the money for other purposes, but Mello said that if an agency can live without that employee, maybe the funding should go away.

Other ideas: merging state operations such as the Departments of Labor and Economic Development, and tapping unused cash funds from state fees and licenses for general budget needs.

Contact the writer:

402-473-9583, martha.stoddard@owh.com