LINCOLN — Let the bargaining begin at the State Capitol.
The battle between tax cuts and spending priorities has begun.
Gov. Dave Heineman conceded Tuesday he doesn't have legislative support for his entire $130 million-a-year tax cut package.
He's now working on a "workable and practical" alternative, he said, that costs less but fits within senators' competing spending and tax cut priorities.
"I think we could do the full plan if we did less spending, but at the same time, I'm a practical and pragmatic guy," he said.
But as Heineman seeks middle ground, some senators and groups are saying the state cannot afford even a less costly, compromise tax cut package.
The Legislature's budget writers, the Appropriations Committee, finished their final spending plan Tuesday, and it allows no room for the tax cut proposal.
The proposal leaves only $17.6 million of unspent funds for the fiscal year starting July 1, which would be $20 million less than required for a compromise tax cut package being floated by State Sen. Abbie Cornett of Bellevue.
A coalition of groups opposed to the governor's tax plan said Tuesday that even Cornett's less-ambitious alternative is "irresponsible" and would still leave the state with a $609 million budget gap in the next budget biennium, 2013-15.
"Even with the revisions being suggested, Legislative Bill 970 would drain our capacity to invest in the future of Nebraska and the future of our children," said Nancy Fulton, president of the Nebraska State Education Association.
Two other coalition members, Voices for Children and the Nebraska Appleseed Center, said a tax cut proposal would rob money needed to bolster the state's ailing child-welfare system and reinvest in social services that saw budget reductions in recent years.
"LB 970 diverts our limited resources," said Rebecca Gould of the Appleseed Center. "Most Nebraskans would see, at most, $12 a month in savings as a result of LB 970."
The give-and-take came amid a flurry of activity on state budget and taxing priorities.
Heineman, a conservative Republican, said he is working with Cornett, chairwoman of the Revenue Committee, on a plan that fulfills his priority of tax relief for "hard-working, middle-class Nebraskans." Cornett also introduced the original proposal on the governor's behalf.
"This is about a choice," Heineman said. "More spending or lower taxes. The vast majority of Nebraska citizens agree with me on that choice."
"It's a work in progress," Cornett said, after a daylong series of discussions with fellow lawmakers and Heineman.
She floated a less ambitious, compromise tax cut package Monday that preserves proposals Heineman made to cut individual income taxes for low- and middle-income Nebraskans but drops a reduction in corporate income taxes and elimination of inheritance taxes.
It would cost 31 percent less than the governor's original proposal, which had a three-year price tag of $326 million.
The plan, Cornett said Tuesday, is probably not in its final form.
Tuesday's approval of a budget plan by the Appropriations Committee gives lawmakers a starting point from which to calculate how a tax cut might fit with other spending priorities.
Sen. Lavon Heidemann of Elk Creek, the committee's chairman, said discussions continue about how to make tax cuts fit.
There's already talk the governor is suggesting fitting in the tax cuts by vetoing two spending priorities approved by the committee: $9.6 million to partially reverse some cuts in payments to doctors, hospitals and other Medicaid providers, and $4 million to serve more people with developmental disabilities.
At least one Appropriations Committee member said such vetoes would be a mistake.
"We're losing (Medicaid) providers where I live," said Scottsbluff Sen. John Harms.
Social services were hurt badly by past spending reductions, Harms said, and he can't support tax cuts at this time.
Sen. Mike Flood of Norfolk, the speaker of the Legislature, said lawmakers now know "the starting line" with the release of the committee's proposed budget.
Will tax cuts make it to the finish?
"I've said all along that tax relief will be part of the discussion," Flood said. "I still think that discussion will happen."
A key signal may come later this week when the Revenue Committee meets to discuss LB 970. The bill the committee puts out — or doesn't — will set the tone for the rest of the session.
The governor could make room for tax cuts by exercising his line-item veto power to reduce spending. Money could also be pulled out of the state's cash reserve to offset spending.
The Appropriations Committee's budget plan would leave $341 million in the cash reserve fund at the end of the two-year budget period.
The budget proposal currently includes $6 million toward replacing the Nebraska Veterinary Diagnostic Laboratory at the University of Nebraska-Lincoln.
The plan also calls for taking $80 million from the cash reserve for construction projects at the University of Nebraska and state colleges and to help rebuild Lincoln's Centennial Mall.
The budget plan will go to the full Legislature on Wednesday and is expected to be up for debate next week.
Contact the writer: