LINCOLN — Debate about tax cuts heated up Tuesday after a new report showed that Nebraska ended its fiscal year with a record amount of money in the bank.
Gov. Dave Heineman renewed his call for cuts, while two key state lawmakers sounded a more cautious note.
Because tax collections exceeded forecasts, Nebraska's cash reserve fund will grow to about $679 million, the biggest ever.
“With the largest cash reserve that the state has ever had and a consistently improving economy, it is time to provide the citizens of Nebraska tax relief,” the governor said. “Tax relief should be the top priority of the next legislative session.”
State Sen. Heath Mello of Omaha, the Appropriations Committee chairman, said the cash reserve fund should provide a cushion for tax changes.
“I anticipate using it for responsible tax reform proposals next year,” he said.
Sen. Galen Hadley of Kearney, Revenue Committee chairman, said he takes a long-term view of Nebraska taxes. He said that while the state appears to be in the upward part of an economic cycle, it will not stay there.
The State Department of Revenue reported Tuesday that Nebraska collected $4.052 billion in net taxes for the fiscal year that ended June 30. That's $52 million — or 1.3 percent — more than the state's official revenue forecasting board predicted just two months ago.
The total is 7.6 percent higher than the certified forecast, which was issued on July 16 last year.
Under state law, any money received in excess of the certified forecast must go into the state's cash reserve. The certified forecast was $3.767 billion, meaning that $285 million will be added to the reserve fund.
The report came a day before a scheduled meeting of the Legislature's Tax Modernization Commission. The committee was created after Heineman's two tax overhaul proposals met with a wall of opposition during the recent legislative session. The proposals were to be revenue neutral.
The governor is now calling for tax cuts as well as changes in the state's tax structure.
Lawmakers opted to rebuild the cash reserve instead of making tax changes, pending the results of the commission's study. Mello also argued that the reserve should be a hedge against tougher economic times.
He noted that the state has had higher reserves, when compared with total state revenues. A cash reserve of $679 million would be 17.1 percent of tax revenues. The state reserve equaled 17.2 percent of tax revenues in fiscal year 2008-09, according to legislative fiscal staff.
Jim Vokal, executive director of the Platte Institute, an Omaha-based think tank, argued for using the money to make income tax cuts to attract new businesses and residents to the state. He said the Legislature should not put the money into additional spending.
“Spending cuts along with lower taxes are the two ingredients for economic prosperity of states,” he said.
But Renee Fry, executive director of the Open Sky Institute, a Lincoln-based think tank, argued against tapping the reserve fund to cut taxes.
She said at least $125 million of the money going into the reserve came from a one-time increase in individual income tax receipts resulting from people selling stocks and other assets at the end of last year to try to avoid a potential increase in capital gains taxes. As such, she said, the increase is unlikely to be repeated.
“For now we are in good shape,” Fry said, “but we should leave the cash reserve intact in the event that we have a dip in revenues.”
Nebraska Tax Commissioner Doug Ewald said he expects that there will be opportunities for tax cuts but cautioned that they need to be balanced with maintaining adequate reserves.
Overall, he said, the state ended the fiscal year on a high note.
The one dark spot was net sales and use tax receipts, which at $1.48 billion for the year were $4.9 million lower than the certified forecast. However, that was just 0.3 percent lower than the forecast, which Ewald called “pretty darn close.”
Sales tax collections were more than balanced by surging individual and corporate income tax receipts.
Net individual income tax receipts for the year were 12.9 percent higher than the certified forecast, while net corporate income tax receipts were 19.8 percent higher.
For all taxes, net receipts for June were $390 million — or 7.7 percent — above the certified forecast for the month.