LINCOLN — Gov. Dave Heineman is wasting no time promoting his push for tax-relief legislation in 2014.
Heineman scooped his own State of the State address — scheduled for delivery this morning — by revealing his plan Tuesday night to seek up to $500 million in tax cuts over the next three years.
In an usual press conference before his biggest speech of the year, Heineman used fiscal estimates by the Legislature to argue that the state's record cash reserve — and holding spending growth to 4 percent — would more than accommodate major tax cuts.
“We are sitting on a bundle of cash,” Heineman said. “We are overtaxing our citizens, and they deserve some of it back.”
Heineman did not outline a specific plan of exactly what taxes to cut and how much, saying he wanted to work with the Legislature on that.
But he said it should include a reduction in individual income taxes, as advocated by business groups, and a cut in the property valuation of agricultural land, as called for by groups representing farmers and ranchers.
The proposal by the conservative Republican comes in his final year in office and would be a feather in his tax-cutting cap.
Heineman pushed through a $425 million tax-cut package in 2007 and has touted improvements in Nebraska's ranking for business tax climate by the conservative-leaning Tax Foundation.
But the tax-cut proposal will spark a sharp debate in the Legislature on whether the $500 million cash reserve called for by Heineman will be adequate to weather another economic downturn.
Lawmakers also will disagree on whether it is wise to make a one-time withdrawal from the state's “rainy day” fund to cover an ongoing loss of revenue that could reduce funding for services.
State Sen. Heath Mello of Omaha, the Legislature's top budget-watcher as head of the Appropriations Committee, called the Heineman plan “voodoo economics” that might force the state to raise taxes if another recession hit.
“The reality is he's taking away from our emergency fund,” Mello said. “History has shown it's not good fiscal policy to do that.”
He said he would fight any attempt to draw down the cash reserve beyond a minimum of $643 million, the level recommended last fall by the State Tax Rate Review Committee, a panel that includes lawmakers and the state tax commissioner, who serves at the pleasure of the governor.
The cash reserve is projected to grow to $726 million by June 30, the end of the fiscal year, which would be a record amount.
Heineman said that Mello was “wrong” and that if you asked any citizens if they need tax relief, and if a $500 million cash reserve is sufficient, they'll answer with a resounding “yes.”
“A half a billion dollars? Isn't that enough?” Heineman said. “Who are we kidding?”
Mello has expressed worries that even the $726 million cash reserve might not be enough.
He said about $125 million of the reserve was a one-time infusion of tax revenue from the sell-off of assets in advance of the so-called “fiscal cliff” on Jan. 1, 2013. During the recent recession, Nebraska, unlike many states, avoided a tax increase and deeper cuts in services because it had a generous cash reserve — plus it received $600 million in federal stimulus funds, Mello said.
“I'm very cautious about utilizing the cash reserve on anything this year,” he said, citing uncertainties about the state's economy, including the steep drop in corn prices, prices that have padded farm incomes in recent years.
Mello said that if the cash reserve is too low, the state may have to cut services or reduce aid to K-12 schools, which could result in a property tax increase.
Sen. John Wightman of Lexington, who also sits on the Appropriations Committee, said he would support using some of the cash reserve for tax cuts.
Sen. Jeremy Nordquist of Omaha said Heineman's tax plan threatened the state's strong financial status. A report by George Mason University released Tuesday ranked Nebraska No. 1 for its ability to cover its long-term financial obligations and No. 4 for its overall fiscal health.
Nordquist also said that when neighboring Kansas cut income taxes, the cuts benefited the rich.
“Enormous tax giveaways for the wealthy did not create greater economic growth in Kansas, it created massive cuts to K-12 and higher education,” Nordquist said.
Nebraska's top individual income tax rate of 6.84 percent is the highest among neighboring states except Iowa. Heineman has repeatedly said income taxes are too high to lure workers for high-paying jobs.
The Nebraska Chamber of Commerce and Industry has called for cutting the top rate to 5.5 percent, but Heineman said Tuesday night that he was unsure if it could be cut that much.
Heineman has embraced a plan by the Nebraska Farm Bureau to reduce valuation of agricultural land from its current 75 percent of market value to 65 percent. He said that would relieve “record high” property taxes now being paid by ag producers.
Heineman did not detail any of his other budget priorities for 2014. But he said he was more than willing to work with the Legislature to craft a tax plan.
A long list of new spending proposals is expected to be introduced this year that might tap the cash reserve, but the governor made it clear that tax relief was his priority.
Those spending ideas include $25 million for lower-cost alternatives to imprisoning nonviolent criminals; $30 million for deferred state park maintenance; $1.5 million for public health centers; $2.5 million for new cabins and a swimming pool at Ponca State Park; and $3 million for a new state plane for use by the governor and state agencies.