The school aid fund that Nebraska lawmakers established this year with the goal of reducing property taxesÌýat Gov. Jim Pillen's urging will dwindle faster than state officials initially projected, according to a new report made public Monday.
Nebraska's Legislature established the Education Future Fund this year and poured $1 billion into it, withÌý$250 million more set to go into the fund each year going forward.
Lawmakers created the fund to guaranteeÌý$1,500 of state support for every public school student inÌýall Nebraska school districts while boosting state support for special education funding.
The Legislature approved the increase in state aid to schools while in an effort to provide long-sought property tax relief for the state's homeowners, since nearly 60% of property tax collections in Nebraska go toward school funding.
At the same time, lawmakersÌýcut the state’s top individual and corporate income tax rates by nearly one-third — worth about $3.3 billion over six years.
°Â³ó±ð²ÔÌýthe Legislature's AppropriationsÌýCommitteeÌýweighed the issue in March, the state's budget director acknowledgedÌýthat theÌýEducation Future FundÌýwould dwindle over time, even when accounting for interest on the initial investment, but estimated it would have a $500 million balance by 2030.
But a new report presented Monday to the state'sÌýTax Rate Review Committee suggests the $1 billion fund will dip near $500 million as soon as the 2025-26 fiscal year and will drop another $99.4 million a year later.
Compiled by theÌýLegislative Fiscal Office, the report projects appropriations from the fund to increase by millions each year, starting at around $325.2 million in the 2023-24 fiscal year and growing to $349.4 million by 2026-27.
The report does not forecast the fund's health beyond then, but the projected annual increase in appropriationsÌýfrom the fund combined with the flat $250 million annual deposit into it suggests the fund could be depleted as soon as the early 2030s.
"The Education Future Fund, created with a $1 billion investment this year, will be drained within a decade without a sustainable revenue stream that addresses the needs and outcomes for Nebraska’s students," said Rebecca Firestone, the executive director ofÌýOpenSky Policy Institute, a Lincoln-based think tank that focuses onÌýfiscal analysis.
The updated forecast —Ìýwhich calls into question the sustainability of the property tax relief the fund is meant to help facilitateÌý— is in part due to higher-than-expected special education costs.
In providing local property tax relief, lawmakers doubled the amount of state aid for special education, with the state covering 80% of special education costs rather than the 40% it previously funded.
But the actual cost of that provision was about $27 million more than what lawmakers had set aside for it in the 2023-24 fiscal yearÌý— $12 million of which will be paid for out of the Education Future Fund,ÌýLegislative Fiscal Office DirectorÌýKeisha Patent told the committee Monday.
"I hadn't realized the Education Future Fund was dropping that fast," said Sen. Rob ClementsÌýof Elmwood, who chairs the Appropriations Committee and who this year introduced the bill (LB681) that established the fund.
Patent noted the projections didn't include potential earnings from investments that would provide an additional revenue stream into the fund.
"I don't know that that would make upÌý— I mean, obviously the appropriations are still exceeding the transfers (into the fund), so this may be something that the Legislature has to take a look at going forward, relative to the sustainability of that fund," she said.
The Legislature could move to put more money into the fund or decide to help pay for the increased school aid out of another fund, such as the General Fund.
Reached by phone after Monday's committee meeting, Clements suggested the state could rely on the Education Future Fund "for a long time."
"The main thing is that I believe the tax relief and the additional state aid is sustainable, and actually it's looking better than it did at the end of June," he said. "So I'm not concerned."
The Legislature will face the dwindling education fund as it grapples with the impact of shrinking state revenue,Ìýthanks in part to tax breaks lawmakers approved this year.
Monday's report projects the state will end the 2024-25 fiscal year with $379.4 million in excess money in its General Fund — a line item that provides a window into the Legislature'sÌýspending power. By the end of the 2026-27 fiscal year, that number is projected to shrink to $74.9 million, according to the report.
That's largely because the state's net revenue is forecast to drop from $5.8 billion last year to $5.3 billion by 2027.
And the nearly $380 million in excess money heading into this year's legislative session — a figure that was boosted by state agencies returning $126.4 million in previously appropriated funds that they failed to spendÌý— is largely already spoken for, thanks again to tax reform.
"I just wanted to make people aware that that's not money we can spend," Clements said at Monday's meeting. "Because it's really — it's committed to make the tax cuts sustainable in the future."
Photos: The business of governing in Nebraska in 2023