Editor’s note: This article is the third in a five-part series that will try to explain the UNMC budget and its relationship to a legislative special session that will take place later this month.
Taxation structural imbalance. Economic recession. Sept. 11th.
Combined, these factors led to a downturn in the state of Nebraska’s revenue and, ultimately, a special Legislative budget-cutting session that will begin next week.
“Certainly, there were a number of factors that contributed to the state’s current economic fiscal crisis,” said Don Leuenberger, UNMC vice chancellor for business and finance. “Strong consumer spending and the overall good economy of the late 1990s provided the state with more cash flow. That made it easier to fund more programs and to provide significant budget increases to state agencies and other projects at least for the short term, while at the same time cutting taxes. That spending can’t be sustained, though.”
On Tuesday, Nebraska lawmakers will convene in Lincoln for a special session to cut the state’s budget. The legislators will need to shave more than $250 million from current budget year, which began July 1. In all, budget adjustments totaling about $780 will need to be made through fiscal year 2004-2005.
The University of Nebraska is expected to be among the targets for budget reductions. Already, during a 2001 special session and the 2002 regular session, the Legislature has reduced the NU’s allocation by $16 million. At UNMC, that reduction amounted to about $3 million.
NU President L. Dennis Smith, Ph.D., in a memorandum to employees, said the university is prepared to do its fair share in responding to the crisis.
“It is inevitable that the university’s appropriation will be reduced again,” Dr. Smith wrote. “I want you to know that we will work with policy makers to minimize the reduction. However, we recognize that Nebraska is facing a fiscal crisis.”
That fiscal crisis results from state revenues being at levels below both 2000 and 2001. Certainly, reduced consumer confidence – the result of a shaky stock market and the Sept. 11 terrorist activities — has played a role.
Another cause is what Dr. Smith calls a “structural imbalance,” which grew from Legislative decisions in the late 1990s. In 1997, property owners were provided tax relief while no new taxes were raised to fund it. A year later, state income taxes were reduced. The actions resulted in a $200 million annual reduction in revenue available for the state to conduct its business.
“Increasing property tax relief without increasing state tax revenue would have been sustainable only if tax revenues continued to increase at an exceptional rate,” Dr. Smith said. “That has not occurred.”
So, the Legislature must take action to balance the state’s budget. They’ll meet to begin discussions on July 30.
Tomorrow: What can you expect during the Legislative session?