LINCOLN, Neb. ( Associated Press) — Nebraska Gov. Pete Ricketts ramped up his push Wednesday for income tax cuts, a new state prison and a $500 million canal to claim water from Colorado, arguing that the state is expected to collect more than enough revenue to pay for it all.
The Republican governor’s remarks came just days after a state board predicted that Nebraska will receive $775 million more than expected. That will leave lawmakers with nearly $500 million in available cash for new spending, plus a projected $1.7 billion cash reserve and $1.04 billion in federal pandemic money.
“With these stronger forecasts, it makes it even more important that we hit upon all these different priorities,” Ricketts said at a news conference.
Ricketts has endorsed a measure that would lower Nebraska’s top individual and corporate income tax rate, which would benefit many middle-class taxpayers but would give a much larger boost to the state’s highest income earners. Taxpayers who earn at least $1 million a year account for more than half of all income reported in Nebraska, but they pay about 10% of the state’s total income taxes.
Ricketts noted, however, that neighboring Iowa just approved a 3.9% flat tax that’s well below Nebraska’s top individual rate of 6.84%.
The Nebraska proposal would drop that rate to 5.84%. Missouri’s top rate is 5.4%, Kansas’ is 5.7% and Colorado’s is 4.55%, while South Dakota and Wyoming don’t impose income taxes.
“We risk being a huge outlier in the region if we do not act,” Ricketts said.
Sen. Lou Ann Linehan, a fellow Republican and chairwoman of the Legislature’s Revenue Committee, argued that lowering income taxes is “critically important” to keep the state affordable for middle-income families.
“When we have these kinds of revenues, we have no right to keep this money,” said Linehan, of Omaha.
Opponents, however, said the tax measure would take money from other priorities, such as public schools and health care.
“We are concerned that we are in a fiscal bubble at the moment and could hamstring ourselves financially by rushing to pass tax cuts without a clear understanding of our state’s true economic prospects,” said Rebecca Firestone, executive director of the OpenSky Policy Institute, a Nebraska think tank that usually opposes such measures.
Ricketts also said he wants full funding for a new, $270 million state prison to replace the 153-year-old Nebraska State Penitentiary in Lincoln.
Department of Correctional Services Director Scott Frakes said the current facility is badly outdated and was last upgraded in an era when most people wanted to “warehouse” prisoners, instead of providing them services to keep them from reoffending once released.
Ricketts has also identified the canal project between Colorado and Nebraska as a top priority, saying it’s the only way for Nebraska to ensure that it continues to get an adequate water supply from the South Platte River. Colorado’s fast-growing population has put more pressure on the river, but a century-old compact between the states allows Nebraska to build a canal and stake a legal claim to some of the water.
Nebraska Department of Natural Resources Director Tom Riley said failing to preserve the state’s water supply would have huge economic and environmental consequences.
Nebraska’s revenue surge was largely driven by federal COVID-19 aid, as demonstrated by many other states that went from doom-and-gloom budgets early in the pandemic to large surpluses.
Ricketts argued that the state’s light-touch approach to the pandemic played a role as well. Nebraska was one of seven Republican-led states that never issued a formal stay-at-home order. Nebraska also has the lowest unemployment rate ever reported by a state and its agriculture and manufacturing industries are faring better than they were before the pandemic.
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