Paul Hammel: Second verse, same as the first -- more budget cuts needed
Reporters take a lot of notes, and as I recall, the notes I took during 2023 when the state approved dramatic cuts in state income taxes had supporters saying: “don’t worry, if the state gets into financial straits, it could pause the cuts.”
Well, let’s fast forward to today.
Paul Hammel
Gov. Jim Pillen, in a recent letter to state agencies, told them to tighten the belt a little harder because the state is short of tax revenue. Again.
The governor said that agencies should cut spending by 5%, freeze new hiring, and restrain costs of travel, membership dues and new equipment.
This comes as state tax revenue continues to lag behind projections.
Ok, let’s go back a couple of years. In 2023, the state was swimming in extra cash, in large part due to funds sent to states to recover economically from the COVID-19 pandemic.
The State Legislature and Pillen, likely thinking that the “good times” were here to stay, passed a very ambitious, phased-in reduction in state income taxes, reducing the state’s top rate of 6.84% over four years to 3.99%.
(The battle cry was that if Nebraska didn’t lower its income tax rates, like several other states, people would not move here, or would move away. Research has also shown that to be a bunch of that stuff they scrape out of feedlots — people relocate primarily for other reasons: to be close to family, for a better job, or to retire in a better climate.)
Now, everyone loves a tax break, but a few savvy state senators posed the question: “That’s a pretty steep cut, what if the state runs short of money (something that happens pretty regularly) what do we do then?”
Again, my notes reflected reassurances from the tax cut proponents (who are now mostly gone from the Legislature) that “if times get tough, a future Legislature could pause the cuts.”
Well, that hasn’t happened. Lawmakers and the governor absolutely could not do that earlier this year because 2026 is an election year. Gotta think about getting re-elected.
This latest letter from Pillen means the third straight year of budget cuts for state agencies. Instead of maybe pausing the income tax cuts, or reducing their size (thereby preserving hundreds of millions in tax revenue), state leaders want state agencies who serve us to go on another fiscal diet, cutting services, laying off workers.
I thought University of Nebraska President Jeff Gold said it best after stating that NU faced another $36 million in cuts, just after cutting $20 million by eliminating programs and giving buy-outs to professors.
In so many words, Gold said it’s hard to build an excellent university “if we are operating in a constant cycle of cuts and related restrictions.”
According to the Legislative Fiscal Office and Department of Revenue, those income tax cuts were projected to reduce state revenue by between $470 million and $572 million in the fiscal year that just ended on June 30.
That ain’t chicken feed, and is one of the main reasons state agencies have had to make budget cuts the past two years, and are being asked to cut again.
Seems to me, we have some tough times, and it’s time to take a “pause” or slightly reduce the income tax cut for a year or two.
It would allow state agencies like the University of Nebraska to catch their breath a bit, and allow state income tax payment to catch up a bit. Maybe farm prices will improve, or foreign trade will resume.
The state could still, maybe a year or two down the line, reduce that top rate to 3.99%, which was a worthy but overambitious goal.
But of course, that would take some political courage and leadership. We will see.
Paul Hammel has covered the Nebraska state government and the state for decades. He is a retired senior reporter for the Nebraska Examiner and the former Capitol Bureau Chief for the Omaha World-Herald. A native of Ralston, Nebraska, he loves traveling and writing about the state.
