NTF Issue Paper: legwatch59.doc. 11-08.

NEBRASKA TAXPAYERS FOR FREEDOM ISSUE PAPER:

THE NEBRASKA STATE BUDGET CRISIS: FY 2008-2009.

BACKGROUND. The state will have a balanced budget for FY 2008-09, though the ending balance could stand at only $17,296 above the required 3% minimum reserve, so the state treasury is in a precarious position. General Fund appropriations rose by 5.3%. Revenue growth for the FY 2007-09 biennium probably will average only 3.9%, below the historic average of 5.4%. Higher incoming revenues forecast in Oct. 2007 saw reduction in Feb. 2008 by the Forecasting Board. Average revenue growth for the last 5 years was 6.9% annually, now dropping from 4.2% in FY 2007-08 and from 7.4% in FY 2006-07. Spending growth will average 4.6% for this biennium, $175.9 million more in FY 08-09, leaving a large deficit gap. It now appears that, at the end of FY 2009, the balance will set at $262 million below the 3% minimum reserve, a $90 million deficit! Budget growth will reach a 7.1% average because of the double digit rise in state aid to education. The projected deficit could reach $400 million. General Fund appropriations increased by $156 million in the biennium, $176 million more this year than last fiscal year. Total General Fund appropriations FY 2008-09 now stand at $3.5 billion. Senators could deplete the $474 million Cash Reserve Fund quickly because of this shortfall and lower revenue estimates because of the recession. They already plundered $5 million from the fund to move the state fairgrounds to Grand Island and $1 million for the Cultural Trust Endowment Fund, $2 million scheduled for the latter in each of the next 2 fiscal years.[1] Of major General Fund spending items, #1 is state aid to schools, and #3 is state employee health insurance, up $2.65 million. General Fund budget adjustments by the Unicameral this session increased new spending by $156 million over 2 fiscal years. State aid to schools added $53 million, behavioral health aid $5.8 million, a behavioral health rate hike $1.7 million, and developmental disability rate hike $3 million, or 8%. DD technicians received a generous 12.7% pay hike in FYs 2007-09.[2] FY 2008-09 aid to individuals equals 29.2% of General Fund expenditures, aid to local governments 35.5%. Universities and colleges consume 44% of general fund operations $$. The 5 largest state agencies comprised 15% of the budget. Universities and colleges, HHS, Corrections, the court system, State Patrol, and Dept. of Revenue equaled 87% of the cost of state operations; HHS 18.4%, Corrections 12.2%, courts 5.6%, and State Patrol 4.3%.[3] FY 2008-09 cash fund adjustments saw $1.5 million more for employee health insurance, $600,000 more for housing assistance.[4] Unless senators alter policies, we will see a fiscal meltdown. See the entire budget at http://nebraskalegislature.gov/web/public/reports/fiscal. Then click on 2008 biennial budget report.

EDUCATION. Senators added $69.9 million to state aid to education, now reaching $900.9 million, a 17.2% hike. $768.8 million more state aid in FY 2007-08 and $1.05 billion estimated by FY 2010-11. State aid to K-12 schools will increase by 9.3% in FY 2009, 14.8% in FY 2010, and by 11.5% in FY 2011. Previous hikes totaled about 5% to 5.5% annually.[5] This cost increase largely occurred because of a huge increase in public school budgeting expenditures for operating expenses, 5.7%, above historic average, and inflation formula allowances for special education and transportation. State aid to special education in FY 09-10 and FY 10-11 will rise 5% each year.[6] School breakfast reimbursements will hike by 8.4% in FY 08-09, state aid to educational service units, no longer needed in urban areas, by 41.6%.[7] Many children receiving free meals at school do not meet guidelines because of loose enforcement of federal regulations. $644,797 for K-12 teacher retirement plans.[8] Education Dept. funding will rise by 8.4% in FY 2008-09.[9] Senators granted $500,000 for the new but unneeded Omaha Metro Learning Community as its first annual appropriation.[10]

HIGHER EDUCATION. State aid to community colleges in FY 2008-09 is up 12.8%.[11] This boost is draining the state sales and income tax revenues. General Fund increases for state colleges are 5.3% and universities 4.2% in the next 2 fiscal years, 15.4% of the total budget.[12] Salary and benefit contracts at universities rose by 4.4%.[13]

WELFARE. In FY 2008-09, Health & Human Services costs will rise by 18.4%, with a 10% per year increase in drug and pharmacy costs. General Fund aid to individuals sees a 59.5% slice of the pie for Medicaid, 24.3% for general welfare.[14] State aid to Medicaid through FY 2010-11 will rise by 7.5%, general welfare by 9%, much of it pegged to increased child welfare costs, including illegal alien children, and socialist childrens’ health insurance by 10.5%.[15] These increased costs: developmental disabilities by 6.8% ($3 million), behavioral community health services by 14.8%, or $2.6 million (this new program supposedly would save tax $$), aging programs by 25.5% ($750,000 more), and public health aid by 4.6%.[16] $500,000 for Medicaid coverage of smoking cessation counseling and drugs. [17] The feds in 1996 made specific legal immigrants ineligible for food stamps. NE generously established its own program to continue this coverage for 600 who receive the stamps monthly. The cost for this largesse will rise 5% in both FYs 07-08 and 08-09.[18] Those not eligible for federal SSI payments may qualify for state SSI, an unnecessary drain on taxpayers. The state spends over $7 million annually on SSI payments to people not eligible for federal SSI benefits.[19]

LAW & ORDER. Corrections costs will rise by 4.5% the next fiscal year. Inmate per diem costs will rise by 6% because of inmate number increases. State court costs will rise by 4%.[20] $329,634 in FY 08-09 for court interpreters, used in court cases and probation services, some earning $50 per hour, with minimum 2 hr. payments plus mileage. This cost in FY 2006 stood at $85,500. The need has increased because of growth in our illegal alien population. An Interpreter Advisory Comm. accrues $10,000 in expenses.[21] Interpreter expenses added $126,862 in FY 08-09.[22] More reason to stem illegal immigration. The State Patrol will get a 6.2% hike in FY 2009.[23]

OTHER AGENCIES. UNL paid $21.5 million, the state $5 million, to relocate the state fair. [24] General Fund appropriations FY 2009 gave the Legislative Council a 16.3% hike, Parole Board 5.2%, Revenue Dept. 7.4%, Fire Marshal 24.7%, Labor Dept. 11.3%, Game & Parks Comm. 10.8%, Mexican-American Comm. 5.1%, Accountability & Disclosure Comm. 28.5%, Tax Equalization & Review Comm. 13.5%, and area agencies on aging 25.5%. [25] Required salary and health insurance increases FY 2008-09 total over $14.5 million for Dept. of Roads employees.[26] Upward salary adjustments for Games & Parks employees grabbed $2.2 million more.[27] The Dept. of Motor Vehicles will levy a surcharge of $8 on all our drivers licenses to comply with federal REAL ID costs. The hiked costs of issuing licenses and ID cards annually will reach $1.46 million plus increased postage costs of $247,000 to mail licenses and cards. Include 17 new staffers, central issuance development costs and equipment, and continuing annual expenses for training and travel.[28] Thus, the DMV required $2 million more next fiscal year.

AID TO LOCAL GOVERNMENTS. Growth in state aid will average 11.7% over 3 fiscal years, 7.8% in FY 2008-09, $89.3 million, twice the average growth of other categories.[29] During these 2 fiscal years, school aid will rise by 67.5%, special ed funding by 15.2%. Public schools were the top recipients of state aid. Financial assistance to local governments comprised 35.5% of the general fund budget.[30] Our property taxes are not dropping in response to this increased aid.

SALARIES. State employee salary hikes will rise by 3.9% in FY 2009. Commission on Industrial Relations rulings have increased salaries for state agency employees about $17 million FY 2008-09.[31] Costs in the Governor’s office will rise by 6%. The state constitution allows constitutional officers to receive a pay hike once every 4 yrs., and they have received one each cycle.

HEALTH INSURANCE. A 10% increase in the state portion of state employee health insurance costs occurred FY 08-09, costing the state $5.4 million more.[32] For this health insurance, the state pays 79% of premiums, employees pay 21%. In private enterprise, the ratio normally is 70%/30%. General Fund cost increases for these premiums are $11.2 million in FY 08-09. During recent years, reserves in the health insurance fund have covered shortfalls, because the premiums are insufficient to cover costs of health plans. There exists an imbalance between premium revenues and claims paid. So, taxpayers witness a transfer of up to $12 million looted from the Cash Reserve Fund from FY 06 to FY 2011. State college health insurance costs will rise by $841,595 in FY 08-09. College health insurance plan costs will increase by 7.6% in both FY 07-08 and FY 08-09. Ten-year average annual state health insurance rates have risen by 12.3%. [33] State employees should begin paying more of their premiums.

ETHANOL. Despite huge state and national subsidies, ethanol plants are going broke, because many motorists believe this fuel gives them lower fuel mileage. Nonetheless, per year NE state ethanol tax credits rose from $1.5 million from FY 2001-02 through FY 2007-08, to $2.5 million per year from FY 2005-06 through FY 2010-11, to $5 million more from FY 2005-06 through FY 2006-07, and to $15.5 million in FY 2007-08.[34] These ethanol subsidies subtract from the lower prices we pay at the gas pump and raise the prices of our groceries as grain prices skyrocket.

CASH RESERVE. This fund balance fell from $516 million in FY 06-07 to $474 million in FY 08-09, lawmakers seriously depleting the fund for capital construction, job training, state fair relocation, cultural endowments, and Dept. of Roads operations. Further depleting this reserve will add pressure for tax hikes.

CONCLUSION. Senators consider taxpayers as bottomless ATM machines. Senators must prioritize spending programs and reduce or terminate low-priority programs. Tough choices require strong leadership. See NTF list of 158 budget cut suggestions that will help you lobby your state senators to pare expenditures noted in this issue paper. We must halt these horrid deficits that encourage tax hikes. Email us at netaxpayers@cox.net or call (402) 551-0921.

Research, documentation, and analysis for this issue paper done by NE Taxpayers for Freedom. This material copyrighted by NE Taxpayers for Freedom, with express prior permission granted for its use by Citizens for Local Control, Cherry County Taxpayers, Dawes County Taxpayers, and other groups in the Tax Freedom Network. 11-08. C

[1] State of Nebraska FYs 2007-09 Biennial Budget (2008) , pp. 1-3,11, 28, 47-48.