- Associated Press - Sunday, January 1, 2017

LINCOLN, Neb. (AP) - Nebraska Gov. Pete Ricketts said he’s confident that the state can reduce income and property taxes and balance the budget, despite its $895 million projected revenue shortfall.

Ricketts offered few specifics during an interview with The Associated Press before his annual speech to lawmakers, but he said the plan will focus on slowing state spending growth. He also hinted that he might call on state senators to tap Nebraska’s rainy-day fund to balance the budget.

Lawmakers will begin their 2017 session on Wednesday, and legislative leaders say the budget will make it nearly impossible to pass any major spending increases.

“We’re going to continue to make a priority of getting tax relief to the people of Nebraska,” Ricketts said. “That does mean we’re going to have to make some tough spending decisions.”

Ricketts said the cuts in his budget will ensure that state spending stays “roughly flat,” unlike most years when spending has grown by an average of 5 percent annually. He said he won’t call for cuts to the Department of Correctional Services, which has been facing staffing shortages and has had to deal with a series of dangerous incidents, including the escape of two inmates in June and a 2015 prison riot.



State revenue has fallen short of projections because of low commodity prices that have hurt Nebraska’s largest industry, agriculture. State officials say online retailers have also contributed to the downturn because very few customers pay sales tax on their purchases, as required. Additionally, Nebraska passed several major income tax cuts under former Gov. Dave Heineman.

To address some of the shortfall, Ricketts has already ordered state agencies to restrict their spending. In October, he imposed a hiring freeze for positions that aren’t “mission critical” and a moratorium on non-essential travel.

Ricketts said he’s willing to discuss changes to his proposals as long as they don’t raise taxes. He said he wants to keep some money in the state’s emergency cash reserve to provide flexibility in a downturn, but argued that the fund was designed for “times like this year, when we have challenges in our budget.” The rainy-day fund is projected to have about $630 million that could be used for the upcoming two-year budget.

“Anything we do with regard to taxes, we’ll have to fit within the budget,” Ricketts said. “We’ll do this the Nebraska way, which means we won’t spend money we don’t have.”

Ricketts said he’s opposed to paying for income or property tax cuts by eliminating sales tax exemptions on food, as some farm groups have suggested.

“We’ve got more work to do,” he said. “We didn’t get into this situation overnight, and we’re not going to get out of it overnight.”

Some senators have said they’re wary of drawing too much from the cash reserve in case the budget downturn continues. Others say passing major tax cuts will be difficult if supporters can’t find a way to pay for the package or show where they plan to cut.

“If a senator introduces a bill that reduces income taxes and it costs $750 million, they’re going to have to come up with a way to fund that $750 million,” said Sen. Jim Scheer of Norfolk, a Revenue Committee member who is running for speaker of the Legislature. “It’s not rocket science. You only have x number of dollars coming in. If you want to reduce property or income taxes, the only other source we have is the sales tax.”

Scheer said the Legislature is venturing into “unchartered water” with the revenue shortfall. Because of term limits, most current senators were not in office during the last major budget crisis in 2009.

Sen. Matt Williams, who is also running for speaker, said lawmakers will need to address lingering problems in the corrections department despite the budget problems. Williams, of Gothenburg, said he believes property taxes are a bigger concern for the state than income taxes, based on his conversations with constituents.

Williams said he’s optimistic that lawmakers will join forces to address the shortfall and some of the concerns about taxes.

“It’s not an easy task, but you have to set priorities,” he said. “I have a lot of faith that the 49 of us (senators) will do the work and come up with some solutions.”

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Follow Grant Schulte on Twitter at https://twitter.com/GrantSchulte

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