State’s $1 billion ARPA budget moves forward but faces uncertain future

LINCOLN — A group of state lawmakers worked into the night Monday in hopes of crafting a grand compromise among three major issues in the 2022 session.

Amid that work, legislators gave second-round approval to the bill outlining proposed spending of the state’s $1 billion allocation from the federal American Rescue Plan Act (ARPA).

But a vote to end a filibuster was needed before the ARPA budget proposal moved forward to final reading on a 33-7 vote.

Senators want tax deal

Several of the “no” votes were prompted by the failure, at least by Monday evening, to reach a compromise to break the logjam that prevented a major tax break proposal from moving forward last week.

State Sen. Tom Briese of Albion, one of the “no” votes on the ARPA budget, said the ARPA bill, the state budget and the bill granting an income tax cut and an increase in state property tax credits are a “package deal.”  

Elkhorn Sen. Lou Ann Linehan, the main sponsor of the tax cut bill, said it didn’t make sense to support the regular budget and ARPA spending when there isn’t an agreement on tax relief.

Linehan said there won’t be enough votes to advance the budget proposals (33 would be needed to overcome a filibuster) unless there is an agreement on tax relief.

She and some other senators pointed out that neither budget bill has to pass this year — the budget bill makes adjustments to an existing, two-year budget, and the federal government gave states until 2024 to allocate its ARPA funds.

Prison reform push

Also involved in the negotiations is Omaha Sen. Steve Lathrop, who is seeking broader support for LB 920, the sentencing reform proposal from the Judiciary Committee, which Lathrop heads. Gov. Pete Ricketts has portrayed some of the aspects of the bill as soft on crime. 

Lathrop, who has led studies of the state’s overcrowded prison system, has portrayed LB 920 as essential if the state is to relieve overcrowding that is rated as the nation’s worst and to avoid building not just one, but two new prisons.

The tax relief proposal would reduce the state’s top individual income tax rate of 6.84% to 5.84% after three years, and would drop the state’s corporate income tax rate of 7.1% to 5.84% by tax year 2026. In a compromise, a property-tax relief component was added to Legislative Bill 939 as well.

Tax relief blocked

But that bill failed to advance March 22 amid complaints that its benefits mainly fell to the wealthy and that it was fiscally risky. Then, an attempt failed on Friday to merge the components of LB 939 into a measure that phases out state income taxes on Social Security.

On Monday, six amendments were adopted to alter LB 1014, the $1.02 billion ARPA budget.

Among the changes was one steering $4 million to increase child care programs in “areas of need.” 

Sen. John Stinner portrayed that amendment as necessary to address the state’s workforce shortage. More than 7% of the state’s child care providers were lost in the pandemic, according to First Five Nebraska.

Lincoln Sen. Adam Morfeld won approval of an amendment granting $500,000 for a state HIV prevention program. Morfeld said providing drugs that prevent high-risk individuals from contracting HIV would save the state  hundreds of thousands of dollars.

‘Guardrails’

Linehan won approval of two amendments that she said put some needed fiscal “guardrails” on the ARPA funds. One would limit spending on administrative costs to 15%. The other would ban spending of ARPA funds by a “joint public agency.”

She said that so-called JPAs have been used to get around spending lids imposed on local governments and that ARPA funds should not be used for that purpose.

Among the largest items in the ARPA budget are $150 million for housing and entrepreneurs in areas of North and South Omaha, $100 million for “shovel-ready” construction projects of nonprofits, $55 million to increase rates for providers of development disability services, $55 million for nursing facilities, and $60 million for a rural medical center at University of Nebraska at Kearney.