Judge halts transfer of funds from Environmental Trust to Nebraska's general fund

"The court does find that the plaintiffs have a probability of success on the merits. I'm not saying it's absolute. Don't get excited," Lancaster County District Judge Susan Strong said.

At this stage, the judge must accept all the allegations as true.

Strong said if she hadn't granted a temporary injunction now, the plaintiffs could be irreparably harmed. The funds could be transferred and spent, making the matter moot.

"I think the balance of equities is in the plaintiff's favor at this point," the judge said. "Mostly because it is in the public's interest to make sure that those funds are spent lawfully."

Last month, Jon Oberg and W. Don Nelson, both former state government officials, filed the lawsuit against State Treasurer Joey Spellerberg and other state officials seeking to block the transfer, saying in recent years, the Legislature has misused the Environmental Trust as a "piggy bank" to cover other state expenses.

The Nebraska Environmental Trust Fund was created to provide grants to organizations for projects to protect and preserve the state's natural environment and is primarily funded through state lottery proceeds.

The Environmental Trust gets a percentage of state lottery funds, which was laid out in an amendment to Nebraska's constitution.

"I think that the real sticking point, the point of disagreement between the parties, really boils down to legislative discretion, and what, if any, discretion does the Legislature have in determining how lottery proceeds are spent," attorney Daniel Gutman said Monday. 

He said before 2004, the Legislature had unfettered discretion to do what it wanted with lottery funds. But, in 2003, voters approved an amendment, directing the funds to four places: the Compulsive Gamblers Fund, the Environmental Trust, education and the Nebraska State Fair. 

"The result is clear, and that's that lottery proceeds ... must be directed to the Environmental Trust, and those funds must be spent according to the Environmental Trust Act," Gutman argued. "The state sees this very differently."

He said the state agrees the money must go to the Environmental Trust, but the money is just "parked there" and can be transferred and used however they want. They're just choosing to use it for conservation purposes.

"We think that's wrong," he said.

Earlier this year, Gov. Jim Pillen proposed a $40.7 million transfer from the fund to cover water resource management and state park lake improvement costs, in what State Budget Administrator Neil Sullivan, one of the defendants, described as an effort to deliver a balanced budget and property tax relief.

The Legislature ultimately directed $13.5 million in transfers, in addition to $15 million the Legislature took from the fund last year.

The lawsuit alleges the transfer to cover expenses that otherwise would have been covered by the state's general fund was a violation of the Nebraska Constitution and statute and ran counter to the Environmental Trust Act's clearly defined focus on conservation and its competitive grant process.

In recent years, the trust has awarded about $20 million annually to local and regional organizations.

On the other side, Assistant Nebraska Attorney General Carlton Wiggam, who represented the state officials at the hearing, argued Monday against the restraining order, saying the case should be dismissed.

He said the state has offered a plain language interpretation of this provision, which says that 44.5% of the funds go into the Nebraska Environmental Fund and that the funds must be used pursuant to the act.

"There's nothing in here that says you have to have additional restrictions on it that are, for example, in the act itself," Wiggam said.

He said it's really just telling someone where to go to see how the money is being spent, which is in the act itself.

Wiggam said the state still has discretion as to how the money is spent. Lawmakers just gave up the right to identify what percentages of the funds are spent where.

He argued that a temporary injunction would harm the state because many of the funds already transferred by the state have gone out as grants to carry out various environmental projects.

"If an injunction issues, we have to tell them: 'Listen, we aren't going to be able to pay you anymore.' And whether they're going to continue with the projects or not is going to cause a significant amount of harm to the state," Wiggam said.

In the end, Strong issued the temporary order effective immediately, which will stay in place until the case is resolved on the merits. 

In 2020, Oberg filed a similar lawsuit, which was successful, when the state proposed defunding $1.8 million in conservation projects and redirecting the money to install ethanol blender pumps at Nebraska gas stations.