NESCPA Legislative Update - March 29, 2024

Nebraska lawmakers ended a contentious week on a positive note, advancing 22 bills on final reading. Time is winding down as Thursday marked Day 52 of the 60-day session. Senators will return from the long weekend on Tuesday, April 2, to take up LB 388, described below. The Legislature adjourned Thursday afternoon.

Senators Clash Over Sales Tax Package

The Revenue Committee advanced LB 388 to the floor of the Legislature to begin the week on a 7-1 vote. The bill was promptly taken up for debate on Wednesday, March 27. However, debate was cut short after it appeared the supporters did not have the 33 votes necessary to invoke cloture to end debate and get to a vote on the bill. Senator Lou Ann Linehan, the sponsor of LB 388, ended the evening debate by letting colleagues know she planned to work on correcting drafting errors in the bill over the weekend.

LB 388 contains a package of bills that were heard in committee and represents Governor Jim Pillen's revenue package. Included in LB 388 is an increase in the state sales tax rate from 5.5% to 6.5%. However, there is a mechanism for the rate to be lowered in quarter-percent increments depending on state revenue collected. Additionally, a series of sales tax exemptions are eliminated, and new taxes are added on other products and services. The elimination of exemptions includes animal grooming, veterinary services, dry cleaning, soft drinks, and candy. Also, taxes on hemp products, cigarettes, and vaping would face sharp increases.

LB 388 would add a tax on revenues from advertising for large advertisers with gross revenues of more than $1 billion, such as Google and Meta. Opponents argue that this will be passed along to businesses using these services. Also contained in the package are caps on spending for counties, cities and villages, with exceptions for first responders, and methods for exceeding the caps.

Thankfully, the Revenue Committee decided NOT to include a sales tax on accounting services, following strong lobbying efforts by your Society.

All told, this package is expected to raise just over $650 million. Senator Linehan has said numerous times that she will “not keep pouring money into a bucket with a hole in it.”  She and Governor Pillen have long lobbied for a zero-based hard cap for local taxing authorities. Zero-based caps did not get traction, but there are proposed caps that should limit the growth of county, city, and school spending.

There is one remaining piece to the puzzle that Senator Linehan has been working on with the Education Committee, and that is tweaking the school funding formula by adjusting levy limitations for school districts.  We should see that proposal soon.  All told, it is estimated that property taxes paid for schools would be cut nearly in half.  Property taxes paid for county and city services would be reduced to a lesser extent. 

Budget Bills Advanced

The Legislature advanced LB 1412 and LB 1413 on Tuesday of this week. LB 1412 was the biennial budget adjustment bill to make updates to the biennial budget passed last year. LB 1413, which proposed a series of sweeps of the state’s various cash funds (more on that below), included an amendment to compromise with opponents who took issue with the proposed sweep of $70 million from the State Unemployment Insurance Trust Fund. Initially, the bill would have directed $10 million to the Workforce Development Program, and $60 million to the general fund. Under the compromise, only $30 million will go to the General Fund, with $40 million to the Workforce Development Program. Additionally, an amendment brought by Senator Ben Hansen would lower the minimum amount the Department of Labor can collect each year from businesses paying the tax. LB 1413 also directs $12.5 million each to the Rural Workforce Housing and Middle-Income Housing Funds.

The budget as passed represents a nearly 3% increase in state spending and will provide more than $500 million in general funds that can be used for property tax relief. This relief will, in part, come from additional state aid to K-12 education. The most controversial part of the budget was the “sweeping” of more than $200 million from cash funds in a variety of state agencies and programs. This is controversial because it represents “one-time” money and won’t be there next year to cover any shortfalls caused by the proposed tax relief. Many wonder how there could possibly be that much money sitting somewhere long enough to be swept. It appears that agencies aren’t spending it as directed by the Legislature—a problem that has been worsening over the past several years.

PTET Technical Corrections Bill

LB 1059, the bill to change provisions relating to income taxes imposed on partnerships and small business corporations and notices of deficiency, was placed on General File on March 5. Bills on General File may be amended, returned to committee, indefinitely postponed, or advanced to Select File. Stay tuned…

Please let me know if you have any questions on this information or on any other bills before the Legislature. You can stay up-to-date on Nebraska’s Legislature by watching a live stream from Nebraska Public Media at https://nebraskapublicmedia.org/en/watch/live/.

Thanks to our lobbyist Korby Gilbertson at Radcliffe Gilbertson & Brady and the Nebraska Bankers Association for contributing information for this update.