State aid to cities, counties and NRDs could end

State aid programs for municipalities, counties and natural resources districts would be eliminated under a bill heard by the Revenue Committee Jan. 26.

LB383, introduced by Bellevue Sen. Abbie Cornett at the request of Gov. Dave Heineman, would reduce general fund appropriations by $22 million, based on current allocations.

Heineman testified in support of the bill, saying Nebraska has to make tough decision in order to prioritize education and jobs. While the state has a constitutional responsibility to provide for education, he said, there is no such requirement for state aid to cities, counties and NRDs.

State aid makes up only a small portion of local government budgets, Heineman said, so the loss could be absorbed. He cited pay freezes instituted for all legislative employees, top and middle managers and contract-covered employees as ways the state has addressed declining revenues.

“I would ask my friends in local government to follow the lead of state government,” he said.

Lynn Rex, representing the League of Nebraska Municipalities, testified in opposition. She said the state aid program was created to compensate local governments for tax exemptions enacted by the Legislature. Past exemptions for households, intangibles, livestock, farm equipment and business inventory amounted to $250 million in lost revenue, she said, for which municipalities were to be compensated on a dollar-for-dollar basis.

Instead, state aid to municipalities was created, Rex said, which amounted to $17.9 million in 1982 and has declined to approximately $11 million today.

“State aid has never been a gift from the state of Nebraska to subsidize local governments,” Rex said. “It was part of a commitment to reimburse local governments for exemptions granted by past legislatures.”

Rex said a cut to state aid of up to 10 percent would be manageable, but it would require expanded property tax levy authority to offset losses. Of the 532 cities and villages in Nebraska, more than 240 municipalities are at their maximum levy, she said.

Don Herz, finance director for the city of Lincoln, said the city has already constrained spending by eliminating 116 jobs in the past four years. He said the city cannot unilaterally freeze salaries to address the $1.8 million it would lose if state aid were discontinued. State law demands comparable wages, he said, which reduces budget flexibility because 70 percent of Lincoln’s budget is personnel costs.

“We will not simply be able to reorganize our way to $1.8 million in savings,” he said. “Now more than ever we cannot afford the total elimination of state aid.”

Douglas County commissioner Mike Boyle testified in opposition to LB383. He said the county already receives little county jail reimbursement, which is part of the county aid formula. The state has not paid more than $10 million in housing at the correctional facility, he said, and LB383 would add another $4 million hardship by eliminating aid.

While Douglas County could respond to cuts in aid with a property tax increase, Boyle said, that option is not available to many counties that are up against their levy lid.

“It is really a dire situation if you spread this out across the state,” Boyle said.

Johnson County commissioner Terry Keebler said the elimination of county aid would lead to a 3 percent reduction in their road budget, which contains their discretionary funds, or a 1.43-cent increase in their levy rate.

Topher Hansen, representing the Nebraska Association of Behavioral Health Organizations, also spoke in opposition to the bill, saying it would lead to fewer services for those suffering from mental illnesses, abuse and addiction.

“Let us not set a course to emerge from this deficit situation on the backs of those Nebraskans who need our help the most,” Hansen said.

Hansen also said cutting aid to cities and counties would represent an unfunded mandate from the state.

“It does not solve the underlying problem,” he said. “It just shifts costs to the next level down where there is less capacity to respond.”

The committee took no immediate action on the bill.