OpenSky Policy Institute - Funding Our Priorities 8.28.14

Editor's Notes

• #3: Mission, etc. Today I’ll be focusing on why taxes and tax policy matter, and particularly addressing the ongoing debate over whether the state income tax should be cut.
• #4: So first of all, here are some of the things our taxes pay for (point out a couple). I start with the spending side of the budget because the state has to balance its budget, so tax revenues and state spending on public services are really two sides of one coin. And that also means that any time we talk about tax cuts, it’s important to think about the effect that might have on our public services.
• #5: So here is the spending side of that coin. Nebraska spent nearly $8 billion of General Funds, Federal Funds, and Cash Funds combined in FY 11-12. Federal sources accounted for more than one of every three dollars spent by the state, and Cash Funds made up more than one of every five dollars. The General Fund is the largest piece of the budget -- $3.45 billion in FY 11-12 -- and because it is at the heart of state budget debates, it’s the fund we’re going to focus on. 84% of the general fund budget is spent on education and health care Nearly half (48%) is spent educating our children and Nebraska’s future workforce
• #6: And here’s what’s been happening to spending over time. From the beginning of this graph in FY99 to the low point in FY13, there was about a 15% decrease, equivalent to more than $600 million. That is to bounce back somewhat under the current budget, so that overall there is about a 11% decrease, or about $400 million.
• #7: Not surprisingly, with about half of the budget going to education, K-12 and higher ed have borne much of the brunt of those cuts. This amounts to a 22% decline for K-12 and a 23% decline for higher education.
• #8: Transportation and Infrastructure are shown separately because most of this funding is not through the General Fund, but through Cash Funds. Gas taxes are dedicated to roads funding. But because of that relationship it’s also a good example of the relationship between revenues and spending. This decline isn’t necessarily the result of legislators placing less priority on roads and infrastructure – it’s driven largely by the fact that gas tax revenues have been declining as people buy more fuel-efficient and hybrid vehicles, drive less, etc. Funding for roads, paid for primarily through cash funds, has declined significantly as well
• #9: And here we see that state aid to counties, cities, and school districts has declined as well. Which is important not only because we rely on these local governments for public services like law enforcement, city streets, and educating our children, but also because…
• #10: …because over the long run we see a relationship between state aid to local governments and local taxes like the property tax. So yet another potential consequence of tax cuts at the state level is that if those cuts cause cuts in state aid to local governments, that puts pressure on local property taxes which may increase to offset the lost state aid.
• #20: Finally, we have a real-life experiment going on just to the south in Kansas. They passed a major income tax cut a couple of years ago and have seen many of the negative consequences I have alluded to today. They have not seen the job growth or economic growth they hoped to see, generally falling behind the rest of the country since they passed their tax cuts. They’ve had to deeply cut funding for their schools, so much so that the Kansas Supreme Court has ruled their school funding is unconstitutionally low and must be increased. But revenues have come in even below what they projected, leaving a big budget shortfall that has to be made up through either tax increases or even deeper spending cuts.