LINCOLN — Let the sausage making begin.
Gov. Dave Heineman laid out his top priorities for the 2014 legislative session, during which ideas will be ground up and stuffed together during hearings and debate.
In his annual State of the State address on Wednesday, the conservative Republican called for tax relief for struggling Nebraskans, rejection of expanding Medicaid and temporary steps to relieve prison overcrowding.
With an abundant cash reserve and a growing economy, Heineman said lawmakers can help families struggling with falling incomes by lowering income taxes to increase their “take home pay” and lowering property taxes to help farmers and ranchers.
“Middle-class families, farmers, ranchers and small-business owners need our help,” Heineman said.
Reaction from state senators ranged from thumbs-up to thumbs-down.
State Sen. Beau McCoy of Omaha, a candidate for the GOP nomination for governor and perhaps Heineman's closest ally in the Legislature, said he agrees that the state can afford the $370 million to $500 million in tax cuts over three years envisioned by Heineman.
“We're overtaxing them,” McCoy said.
Sen. Galen Hadley of Kearney, who heads the powerful Revenue Committee, said he remains cautious about the size of the tax cuts and skeptical that lawmakers can agree, in a short, 60-day session, on such tax changes.
“We're going to give it an honest examination,” said Hadley, who led an interim study on taxes. That study last month concluded that Nebraska's property taxes were too high and needed work but that major reductions in state income taxes weren't needed.
Sen. Steve Lathrop of Omaha was more blunt. He said Heineman's plan did nothing to help urban homeowners who have complained about high property taxes and would do little to help farmers, because rural taxing entities would just raise tax levies to finance local schools and counties.
“We're taxing more than we're spending, which suggests there's some room for tax cuts after we take care of responsibly funding government,” Lathrop said. “But people in Omaha need to know this (property tax plan) will do absolutely nothing for them.”
Heineman, during his speech, said cutting the state's income tax rates will help all taxpayers, not just the wealthiest Nebraskans as some critics maintain.
He said he supports the push by state business groups to reduce the state's top income tax rate of 6.84 percent — the highest among Nebraska's neighboring states except Iowa. The Nebraska Chamber of Commerce & Industry has called for a cut to 5.5 percent, though Heineman, during a press conference, said he wasn't sure if that was possible.
The governor also backs the Nebraska Farm Bureau's proposal to lower the valuation of agricultural land for tax purposes 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.
Sen. Tom Hansen of North Platte noted that property values in his area have risen 30 percent in each of the past two years and said something needs to be done.
“Dropping the valuation isn't even going to keep up with that trend,” he said.
But a rural colleague, Sen. Ken Schilz of Ogallala, acknowledged that it would be “challenging” to achieve the size of cuts sought by Heineman. “I hope we get something done,” he said.
This year, perhaps as a nod to past disappointments, Heineman did not outline a specific plan, saying he wanted to work with the Legislature on that.
“I am willing to work with you anytime, anywhere to develop a responsible and meaningful tax relief plan. Nebraska can afford tax relief,” he said.
Heineman opened his speech by attacking the idea that Nebraska should expand Medicaid to close a “coverage gap” of 33,000 people who will not be covered by the Affordable Care Act, known as Obamacare.
Such an optional expansion is unaffordable by the state and federal government, he said.
Sen. Kathy Campbell of Lincoln, who has crafted a “Nebraska plan” for Medicaid expansion, said her proposal is substantially different from last year's bill. Campbell said she hoped that her colleagues would consider that.
Heineman laid out plans to use county jails and a state prison work camp in McCook to help temporarily relieve overcrowding in state prisons, which now hold about 1,700 more inmates than their design capacity. He also called for hiring 59 new corrections officers to catch up with the rising inmate population.
He also expressed support for looking at alternatives to incarceration for nonviolent offenders to cut prison expenditures and reduce prison populations, but he did not include specific proposals in the speech.
Sen. Brad Ashford of Omaha, who introduced his prison bill, LB 907, on Wednesday, said the governor was “two for three” in the changes he is seeking.
Ashford said he was encouraged to hear Heineman voice support for his “supervised release” plan and support his proposal to hire more prison guards.
But the Omaha senator disagreed with the governor's plan to require violent inmates to “earn” good time reductions in their sentences, and he said he was discouraged that Heineman didn't propose an increase in prison rehabilitation programs.
An “earned” time system, Ashford said, will only increase prison overcrowding and won't do anything to reform violent inmates prior to their eventual release.
“I don't see the rationale. We want to focus on things that will actually make a difference.”
Framing the issues
Gov. Dave Heineman
The goal: Provide up to $500 million in tax cuts: Tap cash reserve fund, restrict state spending growth to 4 percent, rely on continued economic growth to bring in tax revenue.
The plan: Advocates no specific plan but supports cutting state income tax rates so middle-class families don't pay the highest rate of 6.84 percent.
Also: Backs reducing agricultural land valuation for tax purposes from 75 percent of market value to 65 percent.
The plan: Various proposals on tax relief, including income tax cuts and ag land adjustments similar to the governor's plan. Some senators advocate a more moderate approach, saying the state should protect its cash reserves. Others propose more study on the complicated issue of cutting property taxes, which are levied locally.
Ideas: Change income tax brackets so lower-income retirees and middle class taxpayers pay less; create a tax amnesty program to increase revenue and cut taxes; remove tax exemptions for churches.
His position: Opposes expanding Medicaid coverage to cover more low-income Nebraskans and says the latest plan, “Wellness in Nebraska,” is just a new version of the federal health care law, which he says is unaffordable and unsustainable.
New plan: Would be a mix of private insurance and Medicaid, with emphasis on wellness. All but the lowest-income participants would pay a portion of the cost of coverage. The program would go back to the Legislature for review if the federal government reneges on funding promises.
Initial views: Mixed among lawmakers who blocked expansion of traditional Medicaid during the last session.
The plan: Replace “good time” with “earned time” for people convicted of violent crimes. Offenders would have to earn “good time” reductions in sentences, instead of receiving them automatically. Study long-term solutions to overcrowding. Short-term, use county jails and McCook work camp to house inmates. Hire 59 new correctional officers.Provide $8.6 million in new funds for extra costs associated with overcrowding, including meals, clothing and medical care.
The plan: Spend up to $25 million. Invest in alternatives to incarceration of nonviolent offenders, provide more rehabilitation programming for inmates, hire dozens of new probation officers. Require “supervised release” for violent offenders to provide a better transition into society and fewer repeat crimes.
Disagreement: Views on “earned time” are split. Some maintain that it will increase overcrowding.