By Grant Schulte - Associated Press
LINCOLN, Neb. (AP) _ With an eye on the farm economy, last year’s drought and the prospect of future tax reforms, Nebraska lawmakers are planning to shovel more money into the state’s rainy-day fund.
Lawmakers who dug into Nebraska’s cash reserve at the height of the recession are looking to rebuild the state’s cash reserve. Those senators, who are now among the most senior in the Legislature, say they’re concerned that Nebraska will need the money in case drought conditions continue and weaken the state’s farm economy.
Still, the uptick in revenue may tempt lawmakers to spend more on K-12 education, juvenile services and other big-ticket budget items that the Legislature has acted on this year.
“It’s hard to say at this point, but I’d guess that most of my colleagues understand that we need to build back the cash reserve,’’ said Speaker of the Legislature Greg Adams, of York. “That isn’t to say there won’t be efforts to take a bite at the apple.’’
Sen. John Harms, a member of the Appropriations Committee, said lawmakers might have to tap the reserve if drought returns this summer and damages the farm economy.
Harms said lawmakers may also need the money in a few years, depending on the outcome of a statewide tax study. The study could prompt lawmakers to cut taxes, he said, which would be more difficult to pass if the state’s finances are shaky.
“That revenue should go into the cash reserve,’’ Harms said. “With this economy, we don’t know whether things are going to stay good, or how long it will last.’’
Last year, lawmakers pulled $50 million from the cash reserve to help finance a cancer research center at University of Nebraska Medical Center. Their budget-balancing left the state with about $400 million in the rainy-day fund.
Gov. Dave Heineman said last week that lawmakers should use the increased revenue to ease the tax burden on Nebraska families.
Nebraska’s cash reserve reached about 15 percent in 2007. The balance allowed lawmakers to tap the reserves when the economy tanked, which kept service cuts smaller than they otherwise would have been.
The OpenSky Policy Institute, a Nebraska tax-policy think tank, recommended that lawmakers keep the additional money inside the state’s cash reserve. The group cited recommendations by the Government Finance Officers Association, which urges states to keep a reserve balance equal to at least two months’ worth of general-fund expenses in their cash reserves.
The Nebraska Economic Forecasting Board predicted last week that the state would collect an additional $125 million from personal-income taxpayers before July 1, the start of the new fiscal year. The windfall came largely from personal-income taxpayers, who sold their investments and paid capital-gains taxes amid fears that Washington’s fiscal-cliff showdown would increase the federal rates.
“What’s happened has really been extraordinary,’’ said legislative fiscal analyst Michael Calvert. “In fact, I’d use the word `unprecedented.’’’
By law, all of that projected revenue will flow into Nebraska’s cash reserve. The fund serves as a savings account to help the state pay its bills when the economy slows.
Lawmakers also are expected to see a net increase of $51.4 million, beyond what they have planned for the state’s upcoming two-year budget. The new projections were released as lawmakers plod through often-testy floor debates over priority bills and what the state can afford.
“I truly believe that all 49 senators understand that most of that money needs to go into the cash reserve,’’ Adams said. “But the operative term is `most.’ Is it 85 percent? Is it 95 percent? There will be a lot of discussion.’’
Sen. Heath Mello of Omaha, the Appropriations Committee chairman, said last week he will recommend placing all of the extra money _ the $125 million this year and the $51.4 million for the upcoming budget _ in the state’s cash reserve.
“We need to be extremely cautious,’’ he said.
The committee is expected to release its budget this week, with about $449 million in the state’s cash reserve. With the extra revenue, the cash reserve would grow to roughly $625 million.