LINCOLN — Gov. Pete Ricketts launched his final State of the State speech Thursday with reflections on his last seven years in office, a period in which the state faced historic floods, fires and the COVID-19 pandemic.
“In the face of unprecedented challenges, the State of the State is strong,” he said, lauding the state’s handling of the pandemic, its unemployment rate, manufacturing sector, workers, legislators’ work last session and problem-solving efforts across the state.
And he set the tone for the session ahead, highlighting initiatives and causes that would receive funding under the spending proposals he delivered to state lawmakers and laying out his top priorities.
"Putting money back into the pockets of hardworking Nebraskans. Protecting public safety. Securing access to our natural resources. And investing in one-time projects that will enhance our state. These are the ways we can keep Nebraska strong and growing in 2022,” he said.
Ricketts delivered his budget proposals during a year when the state is flush with cash. There’s expected to be $1.5 billion in its cash reserve by the end of the budget period, $412 million in unanticipated state general fund revenues, and $1.04 billion in federal COVID-19 relief funds.
Given those numbers, he argued that lawmakers needed to return tax money to Nebraskans. He proposed reductions worth around $85 million for the current two-year budget period. Through the next budget biennium, the total would exceed $460 million.
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For his last year in office, he shifted the focus for tax relief from property taxes to income taxes. He proposed phasing down the top tax rate for both individual and corporate income taxes and accelerating plans to exempt Social Security benefits from income taxes.
For property taxes, he proposed setting the new floor for the LB 1107 property tax credit program, which provides income tax credits to offset a portion of school property taxes paid, at the current level of $548 million annually. He also called for putting more money toward homestead exemptions for low-income elderly and disabled homeowners.
As he has in the past, Ricketts held the line on state spending. Under his plan, ongoing expenses paid for with state general funds would increase by an average of 2.9% for the two years ending June 30, 2023. That's below his perennial target of 3% spending growth but higher than the 2% average approved by state lawmakers last year.
"While there is an opportunity to fine-tune this plan, I expect state agencies and our partners to live within our existing budget and limit any budget growth to under 3 percent," he said.
Ricketts kept the increase from going higher by tapping federal pandemic relief dollars to cover some costs, including $23 million worth of corrections officers pay, $36.7 million worth of salary increases for employees at the state's 24-hour institutions and $25 million worth of increased costs in child welfare.
He attributed those costs to pandemic-driven disruptions in the labor market and in child welfare, the kinds of problems that the federal relief is designed to alleviate.
Pay raises negotiated with key state employee groups account for most of his proposed increases. The state agreed to more than $105 million in raises to make the state competitive in hiring and keeping workers in the face of record low unemployment rates.
Ricketts also focused on the $155 million that he proposed to take from the cash reserve for building a new prison. Along with money set aside by lawmakers last year, that would cover the full $270 million cost of the proposed institution, which he has argued is necessary to replace the aging Nebraska State Penitentiary.
Lawmakers did not appropriate the money last year for a prison to give officials more time to look at whether criminal justice reforms could ease overcrowding. The three branches of government cooperated with the nonprofit Crime and Justice Institute on a study of options. The report from the study has not been released yet.
"I am not asking anyone to choose between supporting a modern State Penitentiary and pursuing policies that aim to reduce crime and recidivism," he said. "These solutions are not at odds, and there is room for both as we work to strengthen Nebraska.”
The governor's budget package included a separate set of proposals for using money coming to the state through the American Rescue Plan Act. His plan laid out 29 uses for the money in five areas: public health emergency response; responses to negative economic impacts; premium pay for essential workers; infrastructure including water, sewer and broadband; and administrative costs.
Ideas in the public health area range from helping ensure sufficient hospital capacity for the state to covering part of the cost for replacing the heating, ventilation and air conditioning system in the State Capitol.
Projects addressing negative economic impacts included workforce housing, assistance for Omaha's North 24th Street economic development projects and support for a planned beef processing plant in North Platte. They also included a program offering grants for low-income parents to help their children make up pandemic-related learning losses.
Under the heading of premium pay for essential workers, Ricketts included some of the pay increases for state workers.
The infrastructure projects include part of the cost for a major canal system in Perkins County adjoining Colorado and construction of a lake along the Platte River between Omaha and Lincoln. Also included are additional repairs on an irrigation canal between Fort Laramie, Wyoming and Gering, Nebraska, as well as some drinking water and wastewater projects.