OpenSky Policy Institute - Funding Our Priorities 8.28.14
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"Protecting Our Revenue Base - Fund Our Priorities" Presentation by Dylan Grundman, OpenSky Policy Institute, August 28, 2014
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OpenSky Policy Institute - Funding Our Priorities 8.28.14
- 1. Clear thinking for a stronger Nebraska
- 2. About OpenSky Policy Institute We are a non-partisan think tank focused on fiscal policy in Nebraska. Our mission is to improve opportunities for every Nebraskan by providing impartial and precise research, analysis, education, and leadership.
- 3. Importance of the State Budget • Nearly 300,000 students are educated by 22,000 teachers in over 1,000 public schools each year • More than 107,000 students attend the University of Nebraska, state colleges, and community colleges each year • Almost 10,000 miles of highway and over 3,500 bridges are maintained (enough road to reach nearly halfway around the earth) • More than 137,000 children receive health care through Medicaid each month • More than 7,000 Nebraskans are cared for in state nursing facilities each month • More than 4,500 inmates are housed each month in the state correctional system • 175,000 professional licenses are overseen, including for more than 7,500 physicians, 35,000 nurses, 3,500 pharmacists, 7,000 mental health professionals, 1,500 dentists, and 1,000 veterinarians.
- 4. Education, Health Care Top Spending General Fund Expenditures, FY 11-12 General Government $156,629,137 Total: $3.45 billion 5% Sources: OpenSky analysis of data from Legislative Fiscal Office and Department of Administrative Services Accounting Division Note: Percentages do not sum to 100 due to rounding K-12 Education, $1,024,084,084 , 30% Higher Education, $627,403,585 , 18% Health and Human Services (Non-Medicaid), $663,934,522 , 19% Medicaid & CHIP, $576,385,969 , 17% Public Safety and Law Enforcement $317,672,714 9% Agriculture, Environment & Natural Resources $38,273,197 1% Humanities $17,939,902 <1% Transportation and Infrastructure $16,908,088 <1% Labor and Economic Development $6,476,974 <1%
- 5. State Spending in Nebraska Has Fallen General Fund Appropriations per $1,000 of NE Personal Income, FY 98-99 to FY 14-15 Sources: Department of Administrative Services Accounting Division and Budget Division, Legislative Fiscal Office, Nebraska Economic Forecasting Board, Congressional Budget Office, and US Bureau of Economic Analysis data. $51 $50 $49 $48 $47 $46 $45 $44 $43 $42 $41 FY 99-00 FY 01-02 FY 03-04 FY 05-06 FY 07-08 FY 09-10 FY 11-12 FY 13-14
- 6. Spending Trends in Major Budget Areas General Fund Appropriations per $1,000 of Nebraska Personal Income Sources: NE Legislative Fiscal Office, US Bureau of Economic Analysis $18 $16 $14 $12 $10 $8 $6 $4 $2 $0 FY 99- 00 FY 01- 02 FY 03- 04 FY 05- 06 FY 07- 08 FY 09- 10 FY 11- 12 FY 13- 14 K-12 Education Medicaid + CHIP Health and Human Services (Non- Medicaid) Higher Education Public Safety and Law Enforcement
- 7. Transportation and Infrastructure Spending has Declined General and Cash Fund Expenditures per $1,000 of Nebraska Personal Income Sources: OpenSky analysis of Department of Administrative Services Accounting Division, Legislative Fiscal Office, and US Bureau of Economic Analysis data. $16 $15 $14 $13 $12 $11 $10 FY 99-00 FY 01-02 FY 03-04 FY 05-06 FY 07-08 FY 09-10 FY 11-12
- 8. Aid to Local Governments Has Declined State aid to local governments, adjusted for economic growth, FY 00-01 to FY 13-14 Sources: OpenSky analysis of State Auditor of Public Accounts local budgets, Legislative Fiscal Office, Department of Revenue, and US Bureau of Economic Analysis Personal Income data. $1,600 $1,400 $1,200 $1,000 $800 $600 $400 $200 $0 FY 01-02 FY 03-04 FY 05-06 FY 07-08 FY 09-10 FY 11-12 FY 13-14 Millions Total Aid to K-12 Schools Aid to Municipalities Aid to Counties
- 9. State Aid and Local Taxes Have Mirrored Each Other $55 $50 $45 $40 $35 $30 $25 $20 $15 Aid and Taxes per $1,000 of Nebraska Personal Income State Aid Total Local Taxes FY 79-80 FY 84-85 FY 89-90 FY 94-95 FY 99-00 FY 04-05 FY 09-10 Sources: US Census Bureau, Survey of State & Local Governments; US Bureau of Economic Analysis
- 10. Most Revenue for State Budget Comes from Sales and Individual Income Taxes General Fund Tax Revenues, FY 12 Total: $3.61 billion Sources: Department of Administrative Services Accounting Division, Annual Budgetary Report (December 2012). * Other taxes are primarily Business and Franchise Taxes and special income taxes on fiduciary income and financial institutions. Individual Income $1,808,244,570 Sales and Use 50% $1,436,909,372 40% Corporate Income $234,266,238 7% Excise $73,477,570 2% Other* $53,431,064 1%
- 11. Nebraska’s Three-Legged Stool State and Local Taxes by Type, FY 10-11 Personal Income 22% Selective Sales 9% Source: US Census Bureau, State and Local Finances data Corporate Income 2% Property Tax 37% General Sales 22% Other 8%
- 12. Nebraska’s Tax System is Regressive State & Local Taxes in 2010 Shares of family income for non-elderly taxpayers Total Sales & Excise Taxes Property Taxes Income Taxes Federal Deduction Offset Source: Institute for Taxation and Economic Policy 12% 11% 10% 9% 8% 7% 6% 5% 4% 3% 2% 1% — –1% –2% –3% Lowest 20% Second 20% Middle 20% Fourth 20% Next 15% Next 4% TOP 1%
- 13. Effect of Cutting Personal Income Tax Rates to 2.25%, 4.75% and 5.5% Average Annual Tax Change by Income Group, 2013 Income Levels Total Annual Cost to State: $353 Million $122 $230 $346 $766 Sources: Institute for Taxation and Economic Policy $1,768 $8,509 Lowest 20% (<$21k) Second 20% ($21k-$36k) Middle 20% ($36k-$58k) Fourth 20% ($58k-$88k) Next 15% ($88k-$161k) Next 4% ($161k-$371k) Top 1% (>$371k)
- 14. The Real Taxpayers of Nebraska
- 15. The Real Taxpayers of Nebraska
- 16. Cutting Income Taxes Doesn’t Spur Economic Growth
- 17. Nebraska Economic Growth Higher than Neighbors with Lower Top Income Tax Rate Growth in Real GDP Per Capita, 2003-2012 Iowa (9 brackets, 8.98% top rate) Nebraska (4 brackets, 6.84% top rate) Kansas (2 brackets, 4.9% top rate) South Dakota (no state income tax) Wyoming (no state income tax) (flat 4.63% rate) -0.8% 2.1% 6.7% 8.8% 8.6% Colorado Source: OpenSky Analysis of US Bureau of Economic Analysis Data 12.8% 11.5% -2.0% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% Missouri (10 brackets, 6% top rate)
- 18. Economic Growth in States with High Income Taxes and No Income Taxes Growth in Real GDP Per Capita, 2003-2012 -0.6% -3.1% -3.8% 13.8% 12.0% 11.3% 11.2% 9.8% 9.3% 9.2% 8.5% 7.6% 6.9% 6.6% 4.7% 3.3% 2.2% 2.1% Oregon New York Texas Maryland Nebraska Washington Alaska Vermont South Dakota Hawaii New Hampshire Wyoming California Tennessee Maine New Jersey Ohio Florida Nevada Source: OpenSky Analysis of US Bureau of Economic Analysis Data 32.0% -10.0% -5.0% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0%
- 19. Example: Income Tax Cuts in Kansas
- 20. How to receive our information • www.openskypolicy.org • Sign up for our email updates • Find us on facebook • Follow us on twitter • Contact us: (402) 438-0384 or (402) 250-4518 rfry@openskypolicy.org
Editor's Notes
- Mission, etc. Today I’ll be focusing on why taxes and tax policy matter, and particularly addressing the ongoing debate over whether the state income tax should be cut.
- So first of all, here are some of the things our taxes pay for (point out a couple). I start with the spending side of the budget because the state has to balance its budget, so tax revenues and state spending on public services are really two sides of one coin. And that also means that any time we talk about tax cuts, it’s important to think about the effect that might have on our public services.
- So here is the spending side of that coin. Nebraska spent nearly $8 billion of General Funds, Federal Funds, and Cash Funds combined in FY 11-12. Federal sources accounted for more than one of every three dollars spent by the state, and Cash Funds made up more than one of every five dollars. The General Fund is the largest piece of the budget -- $3.45 billion in FY 11-12 -- and because it is at the heart of state budget debates, it’s the fund we’re going to focus on. 84% of the general fund budget is spent on education and health care Nearly half (48%) is spent educating our children and Nebraska’s future workforce
- And here’s what’s been happening to spending over time. From the beginning of this graph in FY99 to the low point in FY13, there was about a 15% decrease, equivalent to more than $600 million. That is to bounce back somewhat under the current budget, so that overall there is about a 11% decrease, or about $400 million.
- Not surprisingly, with about half of the budget going to education, K-12 and higher ed have borne much of the brunt of those cuts. This amounts to a 22% decline for K-12 and a 23% decline for higher education.
- Transportation and Infrastructure are shown separately because most of this funding is not through the General Fund, but through Cash Funds. Gas taxes are dedicated to roads funding. But because of that relationship it’s also a good example of the relationship between revenues and spending. This decline isn’t necessarily the result of legislators placing less priority on roads and infrastructure – it’s driven largely by the fact that gas tax revenues have been declining as people buy more fuel-efficient and hybrid vehicles, drive less, etc. Funding for roads, paid for primarily through cash funds, has declined significantly as well
- And here we see that state aid to counties, cities, and school districts has declined as well. Which is important not only because we rely on these local governments for public services like law enforcement, city streets, and educating our children, but also because…
- …because over the long run we see a relationship between state aid to local governments and local taxes like the property tax. So yet another potential consequence of tax cuts at the state level is that if those cuts cause cuts in state aid to local governments, that puts pressure on local property taxes which may increase to offset the lost state aid.
- Finally, we have a real-life experiment going on just to the south in Kansas. They passed a major income tax cut a couple of years ago and have seen many of the negative consequences I have alluded to today. They have not seen the job growth or economic growth they hoped to see, generally falling behind the rest of the country since they passed their tax cuts. They’ve had to deeply cut funding for their schools, so much so that the Kansas Supreme Court has ruled their school funding is unconstitutionally low and must be increased. But revenues have come in even below what they projected, leaving a big budget shortfall that has to be made up through either tax increases or even deeper spending cuts.