The 2003 Legislative Session

Source:  Legislative Bill 407, Appropriate funds for state Government expenses, sponsored by Sen. Curt
Bromm, req. of Gov., Nebraska Legislature, 98th Leg., 1st Sess., 2003, 15 January 2003.

Special education appropriations and state aid to ESUs also would be dramatically impacted by the Governor's budget proposal.  However, there was a middle ground backed by the art of compromise.  On February 27, 2003, the Legislature's Appropriations Committee issued its preliminary budget recommendations.  The committee's plan would constitute the third scenario, a variation of which would become the work-in-progress between the Education and Appropriations Committees.  Under the third scenario, state aid to education would actually witness a slight increase (2.6%) over the prior year's amount.  In 2002-03, the state aid appropriation was $647,477,820.  The Appropriations Committee proposed to increase this base amount by $16,884,145 to equal $664,361,965 for FY2003-04 (General Funds).  After adding the insurance premium tax amount, the total projected amount of state aid for FY2003-04 would be $679,173,612, as shown in Table 139.

Given the certified amount of $722.5 million for FY2003-04, the Appropriations Committee still amounted to a major loss in state aid.  However, it did not represent as great a loss as that proposed by the Governor.  The Appropriations Committee proposal accepted some of the budget reductions recommended by the Governor.  For instance, the proposal upheld the Governor's suggested cuts to special education and ESUs.  But the proposal also would reverse other gubernatorial recommendations with the hope of a revenue package to make up the difference.  The revenue package (e.g., changes in sales and/or income tax rates) would naturally derive from the Revenue Committee.

"The difficult fiscal environment we face"

At the outset of the 2003 Session, the often-heard discussion in the corridors and offices of the State Capitol involved the infamous three major "pots" of money flowing from state government.  These included the University of Nebraska, Medicaid, and state aid to public schools.  Of the three, it was widely believed Medicaid would have the best chances of escaping any major reductions, although talk of reform would become a theme during the session.  For the University and public schools, it was much less a matter of "if" as "how much" would be deducted from their respective budget lines.  In a familiar condition of the economic times, postsecondary education was politically pitted against elementary and secondary education even though it was generally accepted within academic circles that the success of one was dependent upon the success of the other.

For Senator Ron Raikes, as chair of the Education Committee, it was a matter of economic academics that public education, the single largest draw from state coffers, step up to the plate during the budget crisis.  The education lobby met with Senator Raikes before the session to discuss alternatives, but in the end the lobbying entities were as much spectators to the unfolding events as anyone else.  There was not much that education interest groups could say or argue that was unanticipated by lawmakers.  While there was still a general feeling among legislators to protect K-12 education as best as possible, there was no patience for those who believed any one segment of the budget should be immune from cuts.  The best move for education groups, it was believed, would be to willingly support some form of hit to education funding.  To appear otherwise would simply draw a larger target for legislators to take aim.

Thus, the introduction of LB 540 by Senator Raikes on January 21, 2003 came as no surprise to education groups and their constituent memberships.  "Legislative Bill 540 deals with the funding of K-12 public schools in the difficult fiscal environment we face," Senator Raikes said at the public hearing on March 10th.¹  The intent of LB 540 was to change the calculation of state aid to education for 2003-04 and 2004-05 by doubling the temporary aid adjustment factor from 1.25% to 2.5%.²  The temporary aid adjustment factor was first implemented in 2002 under LB 898 to artificially reduce the needs and resources of each local system.  The result of LB 540 would be a savings to the state of approximately $23.5 million for 2003-04 and presumably a similar amount for 2004-05.³  The legislation allowed school districts, as LB 898 before it, to exceed the levy limitation with a three-fourths majority vote of the school board by an amount equal to the amount of state aid that would have been provided without the changes made in LB 540.  Finally, LB 540 required the recertification of the 2003-04 state aid before June 15, 2003.⁴ This meant another long wait-and-see for school officials anxious to finalize a school budget for 2003-04.  It meant another period of anxiety for teachers who worried for their own jobs while the Legislature wrangled with the state budget.

Compounding the situation, Senator Raikes filed an amendment to his own measure just seven days before the public hearing was to be held on March 10, 2003.  Senator Raikes was attempting to forward a proposal in concert with the work of the Appropriations Committee and its preliminary budget plan.  The amendment proposed to strike the original contents of the bill and insert new language.  The newly proposed version of the bill would use a different tactic on the budget situation as it related to public schools.  First, the amendment proposed to increase the maximum levy for schools from $1.00 to $1.03 for 2003-04 and 2004-05 only.  Second, the spending limitation would be lowered from 2.5% to 1.5% for same two-year period, but school boards would be allowed to exceed their applicable spending lid by 2% rather than 1% by a super majority (3/4s) majority vote.  Finally, the amendment proposed to void the February state aid certification for 2003-04 and to require a recertification by June 15, 2003.⁵

According to Senator Raikes, the problem encountered by expanding the temporary aid adjustment factor, as originally proposed under LB 540, was that school districts receiving equalization aid would suffer an impact greater than those receiving little or no equalization aid.  The disproportionate impact caused him to consider an alternative approach to the issue.  As Senator Raikes explained during the public hearing:

The exclusion mechanism works when you have a relatively small cut to make.  If you have a 1.25 percent reduction in needs, I think the exclusion works okay.  If you get a much bigger amount than that, then you run into serious discrepancies between school districts based on the valuation per student.  It becomes very dis-equalizing.⁶

Senator Raikes apologized for filing the alternative approach to the bill so soon before the hearing, but added that the fluidity of the budget crisis required flexibility on the part of everyone concerned.  The alternative approach was meant to offer the Education Committee other ideas to examine.  "One way to look at this is that it simply opens up to us a range of tools that we can use to address the situation we find ourself in," he said.⁷

While the education community was willing to step to the plate and take its lumps, it did have a limit.  Many of the major organizations comprising the K-12 lobby testified in support of the original version of LB 540 and opposed the alternative approach offered by Senator Raikes.  Herb Schimek, representing the Nebraska State Education Association (NSEA), reminded members of the Education Committee of the original intent of LB 1059 (1990) to provide greater state financial support of schools while simultaneously providing property tax relief.  Schimek said:

Our formula is based on LB 1059, which was referred to the people of the state of Nebraska, and the people voted to keep that law.  If we change that law, I think you're reneging on those people's vote.  And something you need to think about, shouldn't just be made haphazardly.⁸

While the NSEA was willing to support the temporary provisions contained in LB 540, it would absolutely not go along with any plan to change provisions related to the Commission on Industrial Relations for the sake of making it more convenient for local school boards.

Prior to Herb Schimek's testimony, Virgil Horne, representing Lincoln Public Schools (LPS), had testified that the committee should consider temporarily changing the deadline for filing reduction-in-force (RIF) notices.  "I would request that this committee consider changing the notification date to June 15," Horne said.⁹  The deadline had always been April 15th of each year, but Horne, an LPS administrator, believed this date was inconsistent with the proposed state aid recertification date of June 15, 2003.  If schools were not to learn of the amount of state aid for 2003-04 until June 15th, how could they be expected to know how much or little of their teaching staff would be allowed to remain employed?  This was a reasonable question for the management side of public education, but not to the instructional side.  "As far as the changing the riffing date, if you want to see a lot of feathers in the air, that's a good one to go after," Schimek testified in reference to Horne's suggestion.¹⁰

This would become the first of several clashes between factions of the public education community during the deliberation of LB 540.  In the meantime, the humor of the moment was not lost upon Senator Raikes as he provided closing remarks at the public hearing.  "Well, I did jot down one thing, Herb Schimek, feathers in the air, we might have quite a few feathers in the air before this is all over with; and unfortunately, I think, there is probably no other way," Senator Raikes said in an attempt to breakup the serious tone of the hearing.¹¹ In truth, there would be no effort to change the reduction-in-force deadline, but Senator Raikes was nonetheless correct about the inevitable flutter of feathers.  The differences would arise between members of the Legislature and even among member groups of the K-12 lobby corps.

The only two sure things that derived from the public hearing on LB 540 were that Senator Raikes planned to designate the bill as his personal priority measure and that the Education Committee was put in a position to prepare a proposal aimed at a floating target.  The target, of course, was the magic number, the amount the Appropriations Committee determined to be the amount of reduction in state aid.  It certainly would be no use to anyone concerned for the Education and Appropriations Committees to disagree on this important figure.  In fact, the best approach would be for the three key standing committees (i.e., Education, Appropriations, and Revenue) to forward a coordinated, unified plan to the floor of the Legislature.  But then few regard politics to be perfect.

On April 10th, exactly one month after the public hearing, the Education Committee advanced LB 540 by a 6-0 vote.¹²  As advanced, LB 540 would:

• Void the February 5, 2003 certification of state aid;
  
  
• Maintain the existing 1.25% temporary aid adjustment factor as per LB 898 (2002);
  
  
• Maintain the existing authority to exceed the maximum levy to recover lost state aid due to the temporary aid adjustment factor;
  
  
• Increase the maximum levy from the current $1.00 to $1.04 for 2003-04 and 2004-05 only;
  
  
• Increase the Local Effort Rate (LER) from the current $ .90 to $ .94 for 2003-04 and 2004-05 only;
  
  
• Lower the base spending lid from 2.5% to 0% for 2003-04 and 2004-05 only;
  
  
• Permanently extend the spending lid range from 2% to 3% thereby creating a lid range of 0 - 3% for the 2003-05 biennium and 2.5% to 5.5% thereafter;
  
  
• Authorize a school board to exceed its annual growth rate by 1% with a 3/4s vote (consistent with existing authority); and
  
  
• Provide for a recertification of the 2003-04 state aid by June 15, 2003.¹³

The major change from the previous two versions of LB 540 was the extension of the spending lid range.  Prior to LB 540, the spending lid range was established by adding 2% to the 2.5% base spending lid (i.e., 2.5% to 4.5%).  Under LB 540, as advanced from committee, the lid range would become the base lid (0%) plus 3% (i.e., 0% to 3%).

Amended into LB 540 were portions of LB 246 (2003) to provide levy and bonding authority for school districts in the amount of expenditures for modifications to correct life safety code violations, for indoor air quality, or for mold abatement and prevention.  The existing law, allowing school boards to levy up to 5.20¢ to cover environmental hazard abatement or accessibility barrier elimination projects, would be amended to allow the additional levy authority to also include life safety, indoor air quality and mold abatement and prevention projects.  The measure also would incorporate provisions of LB 302 (2003) to impose a 0% resource/spending lid on community colleges and to provide a levy exclusion to make up lost state aid (similar to the existing K-12 levy exclusion).¹⁴

As noted in Table 141, the projected savings to the State under the proposed committee amendments to LB 540 was expected to be $73.2 million in 2003-04 and $122.1 million in 2004-05.  The proposal was in keeping with the preliminary budget report issued by the Appropriations Committee.  By this time, the Legislature was facing a projected $761 million budget gap.  The Appropriations Committee proposed to fill the bulk of the gap with budget cuts, not the least of which derived from cuts to state aid to K-12 schools.  Roughly half the budget gap, about $360 million, was expected to be filled by a package of revenue-generating bills.¹⁵

"We've got a formula, a system, that isn't working"

First-round debate of LB 540 occurred on April 24, 2003, the 68th day of the 90-session.  Earlier on the same day, the Legislature had advanced LB 759, the main revenue-generating vehicle to help address the budget situation.  The debate on LB 759 was anything but smooth and the projection for the amount of revenue to be raised by the measure fell far short of the $360 million anticipated by the Appropriations Committee.  As advanced to second round, LB 759 was expected to generate between $150 and $180 million over the following two years.  "It ain't big enough to fill the hole," remarked Senator Paul Hartnett of Bellevue, adding, "Something's got to give."¹⁶

For educators, the long awaited debate on the school finance portion of the state budget debate was excruciating.  The April 15th deadline to file reduction-in-force notices had come and gone, and the Legislature was just at the first stage of debating a major school finance-related bill.  On the whole, first-round debate of LB 540 progressed relatively well for Senator Ron Raikes, who guided his colleagues through the intricate details of the legislation.  The debate lasted about three hours.  The first two hours were devoted to the K-12 portions of the measure and the last hour was filled with discussion on the community college portion of the bill.

In his opening remarks, Senator Raikes provided a brief history of actions taken by the Legislature relevant to school finance, most recently LB 898 (2002) which reduced districts' formula needs and provided a levy exclusion to make up the difference in lost state aid.  He noted that the provisions under LB 898 remain unchanged under LB 540 with the temporary aid adjustment factor and levy exclusion remaining in existence through the next biennium (i.e., 2003-05).  As anticipated, the provision to increase the maximum property tax levy for schools was the major item of debate.  Senators Ed Schrock, Roger Wehrbein, Floyd Vrtiska noted their reluctance to raising, or potentially raising, property taxes.  These same senators, however, also noted their support for K-12 education, which outweighed their objections to higher property tax levies.

But property taxes were not the only area of concern.  In fact, the state aid formula itself came under fire at one point, and from a member of the Education Committee no less.  "I can't resist pointing out that this is the second year in a row now that we've had to mess with the formula," said Senator Chip Maxwell of Omaha.¹⁷  "[W]e, the state, make a promise to local districts about how much of the burden we're going to shoulder and then we back off," he added.¹⁸

Ears tend to perk when dissension emerges among members of a standing committee.  Such an occurrence opens doors for political opportunists.  And if Senator Maxwell had not yet caught everyone's attention, what he said next would do the trick:

Educators are trying to hire staff and make budgets for the next year and beyond, projections, and here you've got this spectrum going with a hundred-million-dollar range of what money they're actually going to get.  It's craziness.  So I think it's proof that we've got a formula, a system, that isn't working.¹⁹

Naturally, the chair of the committee on which Senator Maxwell served would be expected to address the comments made.  "He mentioned that the fact that we need to make changes indicates the formula is not working," said Senator Raikes, "I would offer a different view."²⁰

What Senator Raikes said in response to his colleague on the Education Committee may or may not have been appreciated by those paying attention that day, but it did attempt to explain one of the enduring characteristics of the modern school finance formula:  its complexity.  Raikes said:

Our formula is fashioned in a way that we have flexibility so that if we need to make adjustments, like we need to this year, we can do it within the context of the formula.  I'm not going to argue that the formula is perfect.  I've attempted and failed several times to make a number of changes.  But I would tell you that the formula is the consensus, it is our policy consensus at the moment as to how we fund K-12 schools.  It's complicated for one reason -- trying to be fair involves complication.²¹

Senator Raikes' comments seemed to magnify one of the ongoing frictions between local school officials and the Legislature.  School officials want and expect a stable school finance formula with predictable results in state financial assistance from year to year.  The Legislature, on the other hand, has no choice but to address the circumstances dealt to it, which on occasion involves severe economic distress and budget shortfalls.

Senator Raikes may have felt put on the spot by Senator Maxwell's comments, but the chair of the Education Committee had to like the outcome of the debate over all.  The committee amendments, which became the bill, were adopted by a unanimous 26-0 vote (although 14 were present, not voting, and nine were excused, not voting).²²  The bill was advanced to second round consideration by a more reassuring 33-0 vote.²³

"We're heavy in administration"

Select File debate of LB 540 began on May 7, 2003 but would not conclude until the following day.  The topic of discussion on May 7th was a rehash of a familiar theme of legislative debate:  Nebraska has too many school administrators, and classroom teachers need to be protected from budget cuts.  The topic of conversation dates back perhaps as far and long as the history of the Nebraska Legislature itself.  The more modern version of the subject peaked in 1996 when the Legislature adopted an amendment to LB 299 (1996), the companion spending lid bill to LB 1114 (1996), stating that:

It is the intent of the Legislature that any reductions in a school district budget, made to comply with the budget limitation in the Tax Equity and Educational Opportunities Support Act, affect classroom expenses as a last resort.²⁴

Many of the provisions of LB 299 automatically expired two years after its passage, just prior to the time when the levy limitations became operative.  However, the intent language relevant to reductions in school district budgets remained in place permanently.

Senator Pat Bourne of Omaha, on behalf of the Nebraska State Education Association (NSEA), filed an amendment to LB 540 in time for second-round consideration that would take the intent language to the next level.²⁵  The amendment proposed to strike the phrase in the existing law that classified it as merely intent language and inserted the word "shall" in relation to the objective to affect classroom expenses as a last resort.  In other words, Senator Bourne proposed to change the law from intent language to a state mandate.  The amendment also expanded the existing statute to define "classroom expenses" to include programs and courses offered as part of the school curriculum and the cost of instructional and administrative employees needed to offer such programs.  It would not include technology, equipment, supplies, maintenance, the cost of non-certificated employees, transportation, extracurricular programs and activities, capital expenditures, and national travel.²⁶

As he defended his amendment during floor debate, Senator Bourne produced a chart depicting state rankings of ratios between numbers of classroom teachers and "district-level" administrators.²⁷  The chart apparently illustrated that Nebraska ranks as one of the more administrator-laden states in the nation.  "[W]e're heavy in administration here in this state when you compare us to a similar demographically situated state where there is 204 teachers in Utah for every 1 administrator, versus Nebraska, where we have 37 teachers for every administrator," Bourne said.²⁸

Senator Bourne was not alone in his beliefs.  Senators Mike Foley of Lincoln, John Synowiecki of Omaha, Adrian Smith of Gering, Matt Connealy of Decatur, and Don Preister of Omaha all voiced their support of the amendment.  Senator Preister said the amendment provides a system of prioritization:

I think this says that it takes one component off the table.  It says that the instruction and the classroom work has top priority and that can't even be played with in a political kind of way to generate opposition to those cuts.  It says we, as a legislative body, value what takes place in that classroom, we value it above all of the other extracurricular, transportation, administrative, all of the other kinds of things that could be done to cut when monies are tight, and that's where I think the priority should lie.²⁹

Senator Bourne seemed to gain some momentum on the theme of prioritization.  "I'd rather have our kids have books than, you know, replacing the fleet, the cars in a school district, or 're-Astroturfing' the stadium," Bourne said.³⁰

For many school officials, Bourne's comments as well as the comments of those who supported his amendment were considered demeaning if not outright insulting.  How many school board members would knowingly and willingly choose to re-turf the football field over purchasing needed instructional materials?  But Bourne admitted his concern for the feelings of school officials were not an issue to him.  Said Bourne:

If this hurts the administrators' feelings or if they're upset by this, it doesn't matter to me because I think that, you know, the kids are a priority, the students are a priority, and that's all I can say and that's my intent here, is that, again, that we recognize that priority, that the kids of our students are the future of this state.³¹

Of course, school board members too would have had hard feelings about the Bourne proposal.  After all, school boards approve the budgets and the spending priorities at the local level.  Were school boards incapable of establishing the appropriate priorities in the best interests of the students under their care?

Senator Raikes rose to speak against the amendment several times.  He did not necessarily disagree with the concept of reducing the number of administrators, but he did have a problem with mandating such a scheme upon school boards.  "This would convert that intent language into a mandate," Raikes said, "It would trap schools into a situation where, despite declining enrollments, they couldn't reduce their teaching staff, they couldn't reduce administrators."³²  Senator Raikes' remarks seemed to highlight the contradiction between Senator Bourne's objective to reduce the number of administrators and the language he chose for his own amendment.  Bourne defined "classroom expenses" to include "programs and courses offered as part of the school curriculum and the cost of teaching and administrative certificated employees needed to offer such programs."³³ Would this not protect administrative staff as well as instructional staff?

Joining Senator Raikes in opposition to the amendment was fellow Education Committee member Senator Elaine Stuhr of Bradshaw, herself a former educator.  "I feel that it would tie the hands of those that have been elected to serve in that capacity and those that have been selected as being administrators of our schools," Senator Stuhr said, "I believe that it would limit the local district's ability to control their budget."³⁴  Senator Roger Wehrbein of Plattsmouth echoed the concern for local control of such decisions.  "I think that leads to all kinds of unintended consequences that will certainly not accomplish what we might want to do and, in the same process, cause some serious damage at the local level," he said.³⁵ Senator Wehrbein also reiterated concerns brought forth by Senator Raikes and others about potential lawsuits against school boards deemed to have violated the mandate contained in the amendment.

Behind the scenes, the Bourne amendment pitted various members of the K-12 lobby against one another, perhaps at a time when unity was most needed.  The Nebraska Council of School Administrators (NCSA), in particular, found itself at odds with those promoting the amendment.  And the forces at work had not escaped Senator Bourne's attention.  "I've been in the Legislature five years," Senator Bourne said during his closing comments.³⁶  "It's interesting to me what a well-organized group with a blast e-mail type system can do to generate what I would call the Chicken Little syndrome," he added.³⁷  Whether the sky was falling or not, the curtain was certainly falling on the Bourne amendment, which was defeated by an 8-28 vote.³⁸

The "Bourne again" amendment

Senator Pat Bourne may have been down but certainly not out.  Following the rejection of his first amendment on May 7th, he launched yet another campaign on the following day to amend LB 540.  This time the subject was the proposed zero percent spending lid to be imposed upon schools for the two-year period specified in the legislation.  On behalf of Omaha Public Schools (OPS), Senator Bourne introduced and advocated an amendment to substantially increase the spending authority of school districts in 2005-06, the year after the zero percent lid was set to expire.  In essence, the amendment would allow schools to double their allowable growth rate for 2005-06 in order to recapture some of the spending authority lost during the previous two years.³⁹

Senator Bourne said the amendment would require the Legislature to track the spending growth of school districts as if the zero percent base lid did not exist.  This would allow everyone to witness just how much school expenditures would have grown under normal circumstances.  In fact, it was estimated that the Bourne amendment would require an additional $49 million in state aid for 2005-06.  However, Bourne explained, the Legislature would not be obligated to fund or support that amount of additional spending once the zero percent lid expires:

But again, that's not a real number ... we don't have to fund that.  It just simply allows us to say, okay, had we left the formula alone, had we left in agreement what we said we would do in terms of state aid, the number would be $49 million higher in four years than it is today.  It doesn't increase our budget, doesn't increase our contribution there.  It just simply allows us to track what it would have been.⁴⁰

But no matter how thorough Senator Bourne's explanation, the nagging question was, "Why?"  The political nature of the amendment seemed obvious, especially in light of the increasing talk from OPS officials about legal action against the State concerning the state aid formula.  In fact, OPS would file suit shortly after the 2003 Session.

To the amusement of those on the floor and a welcome break from the tense debate, Senator Raikes referred to the second Bourne proposal as the "Bourne again" amendment.⁴¹  But Senator Raikes was not going for this Bourne proposal either.  Raikes noted that the two Omaha area senators pushing the amendment (Bourne and Maxwell) spoke of the integrity of the Legislature in relation to its commitment to schools and the state aid formula.  "We should honor whatever our formula is," Senator Maxwell said, "We can't just change the dials and change the settings from year to year to accommodate our problems."⁴²  To Senator Raikes, however, the Bourne amendment was anything but honorable, or even honest.  "To me, I interpret that as directly opposite of honest," said Raikes.⁴³  "That is doing something to try to make a political or other point, but not one that represents good fiscal management," he added.⁴⁴

The discussion evolved into a course on the mechanics of the school spending limitation.  Senator Raikes explained to his colleagues that, even under the existing 2.5% base spending lid, school district spending increased about 5.5%.  The individual growth rates certified to each school district by the Department of Education ranged between 2.5% and 4.5%.  School districts were the only political subdivisions that had such a statutory range of spending growth.  However, in addition to the statutory lid range, school boards may exceed their applicable growth rate by another 1% with a supermajority (3/4s) affirmative vote.  In addition, there were various factors that might increase spending authority such as increases in enrollment.  Raikes also noted that school districts, like other political subdivisions, are authorized to use interlocal agreements with other entities to procure services.  The amounts expended by virtue of interlocal agreements are excluded from the spending limitations.

Therefore, Raikes argued, the proposed zero percent base spending lid under LB 540 would not necessarily create a zero percent growth in spending.  In fact, the legislation increases the lid range from 2% to 3% so that the applicable allowable growth rate of each district would be set at between 0% and 3%.  School boards would retain the authority to exceed the allowable growth rate by 1% by a supermajority vote, enrollment increases would continue to be addressed, and interlocal agreements remained an available option.  The temporary decrease in the spending limitation was necessary, Raikes believed, in relation to the temporary increase in levy authority.  The chair of the Education Committee wanted to help schools by offering a higher maximum levy, but he did not want to hand out blank checks for unbridled growth in spending.

The Bourne amendment, Raikes concluded, "definitely weakens our effort to make the signal to schools that that is what we need to do, plus I would argue that it definitely fiscally impacts school aid in the future."⁴⁵ In truth, the Bourne amendment would have merely added to what was expected to be a tremendous increase in state aid at the conclusion of the 2003-05 biennium, assuming LB 540 was passed into law.  Estimates ranged between $140 and $160 million in additional state aid following the two-year period wherein schools would be subjected to the lower spending lid and higher property tax levy.  The need side of the formula would continue to rise during this two-year period.  Just as Senators Bourne and Maxwell alleged, the necessary spending of schools would not stop or otherwise be suspended just because the Legislature imposed a zero percent lid.  Teachers were not about to abide a freeze on salaries for two years, maintenance costs would exist no matter what the Legislature did, vendors were not about to hold off price increases to accommodate schools, utility costs would continue to be dictated by supply and demand, etc.

The floor discussion on the Bourne amendment primarily focused on the viewpoints of four members of the Education Committee, Senators Bourne and Maxwell on one side and Senators Raikes and Stuhr on the other.  "We on the Education Committee are a tight group," Senator Raikes joked, "We hardly ever disagree, as you can see."⁴⁶  But the amendment did produce a good examination of the spending limitation and how it works.  It also heightened the Legislature's awareness that LB 540 would have fiscal consequences after the 2003-05 biennium.  The second Bourne amendment to LB 540 failed on a relatively close 18-26 vote.⁴⁷

The second Bourne proposal would be the last amendment debated on LB 540 during Select File consideration.  The Legislature voted to advance the legislation to the third and final round of debate on a 46-1 vote.⁴⁸

Another Penny

By mid May, the Legislature was close to meeting the $761 million budget shortfall.  Roughly half the amount would be met through state spending reductions in the mainline budget bill, LB 407, and other companion bills.  And roughly half the amount would derive from various tax increases and tax policy changes under LB 759.  By May 14th, the Legislature was down to about a $16 million gap standing in the way of a balanced budget proposal.  Some final decisions had to be made.

The Legislature voted to further reduce state aid to education by $16 million for the biennium.  Although no overt deal was made on the floor of the Legislature, the behind-the-scenes negotiations involved an understanding that an amendment would be offered to LB 540 in order to recapture the additional lost state aid.  The chosen method was to increase the maximum levy from $1.04, as prescribed in the bill, to $1.05 for each year of the 2003-05 biennium.

On May 15, 2003, the Legislature took up final-round consideration of LB 540.  As expected, Senator Raikes had filed a motion the day before to pull the measure back to Select File for specific amendment in order to adjust the maximum levy provision.⁴⁹  This important move would mark the last major piece of the biennium budget package.  "This is obviously an important and difficult decision," Senator Raikes said of his amendment.⁵⁰ He explained that each penny added to the maximum levy would account for about $8 to $10 million in state aid to education.  This would correlate with the action of the Legislature the day before with regard to LB 407 in which state aid was reduced by $8 million for each year of the biennium.

The response by his fellow legislators was mixed, but generally supportive.  Senator Jim Cudaback of Riverdale represented the typical view in that he vowed not to raise property taxes any further, but the need to protect K-12 education weighed heavier in his mind.  "I guess only a fool never eats his crow when he's starved, and I guess we're starved here on this issue," Senator Cudaback said, "So I'm going to eat some crow here."⁵¹  Speaker Curt Bromm of Wahoo had a similar view.  "[T]he changes that we made to LB 407 to reduce the state aid to our K-12 schools really only works if we do this," he said, "Unless someone has a better plan."⁵²

And there were some policymakers who thought they had a better plan, although perhaps not to the immediate problem.  Senator Chip Maxwell used the occasion of the Raikes amendment to once again label the current school finance formula a broken system.  Said Maxwell:

K-12 got jerked around last year.  K-12 is getting jerked around in a big way this year, including another little jerk yesterday.  K-12 is going to get jerked around every year that we continue using an unrealistic formula that produces unrealistic numbers.  K-12ers, when you're ready to break out of this mess and get into your own state variable tax that provides you stable, solid, increasing revenue, please talk to me.⁵³

The "K-12ers" to whom he referred were apparently the education groups and individual school districts comprising the K-12 education community.  "Until then, I wish you good luck thrashing around in the current dysfunctional system," Maxwell said.⁵⁴  The Omaha legislator would introduce his own comprehensive school finance reform bill during the 2004 Session, but the measure would never emerge from committee.⁵⁵ Senator Maxwell said he would not support the additional penny on the maximum levy, but that he would support passage of the legislation.  And he kept his word.

Senator Raikes closed on the motion to return the bill to Select File with the caution that, "If we don't do this, our budget bill does not match our funding formula."⁵⁶  It was that simple.  The Legislature had but nine days remaining in the session, which would make it difficult to go back to the drawing board in order to investigate new options.  The Legislature accepted Senator Raikes' proposal to increase the maximum levy by a 27-8 vote.⁵⁷

"This critical spending issue"

A showdown between the Legislature and Governor Johanns was relatively certain going into final-round consideration of the biennium budget package.  The Governor had threatened to veto the entire budget if lawmakers took action to close the Lincoln Correctional Center.  And such a plan was, in fact, incorporated into the budget package.  Therefore, political insiders and lawmakers alike were carefully watching the vote tallies on May 20, 2003 to determine whether the various bills that comprised the budget package were "veto-proof."  A motion to override a veto requires 30 affirmative votes, but it first takes a solid vote on Final Reading to determine what kind of strength a measure has overall.  For supporters of the budget package, the news would be good.

The Legislature voted to pass LB 407, the mainline budget bill, by a 37-11 vote.⁵⁸  LB 540, the school finance bill, was passed by a solid 42-6 vote.⁵⁹  The revenue measure, LB 759, was passed by a 36-13 vote.⁶⁰  The package would produce a $5.4 billion biennium budget with tax increases to generate some $343 million in new revenue.  The package would allow schools to raise their property tax levies to offset lost state aid.  Total state spending would continue to grow under the proposal.  In 2003-04, spending would increase by 1.3%, and in 2004-05 spending would increase by 3.6%.⁶¹

Governor Johanns had intimated that he would likely take the allotted five days to consider any veto actions, and he would hold true to his word.  On May 26, 2003, the Legislature was officially told of the Governor's action to veto the entire budget package, a somewhat unusual move, but not entirely unexpected.  The Legislature had all but abandoned the Governor's initial budget recommendations early in the legislative process.  Many believed the Governor had offered an unworkable if not unconscionable budget plan at the outset of the session, especially as it related to public education.  Johanns had proposed to cut state aid to education and special education funding by 10% and then freeze the appropriation for the second year of the biennium.  He did not seem to care what impact this would have on school districts, parents, and, most especially, students.  In fact, for some policymakers it was relatively easy to take the high road with regard to supporting tax increases given the Governor's attitude about public education.

In separate letters for each vetoed measure, Governor Johanns outlined his objections and reasons for returning the bills without his signature.  "Legislative Bill 407 and certain other budget-related legislation you have presented me are in conflict with the basis of my original budget recommendations and my continuing position about the size of state spending that can be afforded by the citizens of Nebraska during these difficult economic times," Johanns wrote about the budget bill.⁶²  "Once again, the Legislature is balancing the State's budget by asking Nebraskans to pay more taxes from their already limited resources," the Governor wrote with regard to the tax bill (LB 759).⁶³

Governor Johanns' veto message concerning LB 540 was much shorter and to the point.  He acknowledged and appreciated the cuts to state aid, something he advocated himself, but he could not abide any effort by the Legislature to make schools whole.  Johanns wrote:

I appreciate the difficult decision that the Legislature has made to address our State's current budget shortfall by including a reduction in public school aid and community college aid funding for the next two fiscal years.  I cannot, however, support the provisions of the bill that raise the maximum allowable levy from $1.00 to $1.05 without a vote of the people.  I firmly believe that Nebraskans are asking for greater spending restraint at all levels of government.  That is not the approach taken by this legislation.  Rather, if the full authority granted by LB 540 were exercised by schools and community colleges, property taxes levied statewide in the next fiscal year, alone, could be increased by $63 million dollars.

LB 540 provides a two-year approach to the direction that our State is heading with respect to our school aid formula.  The bill fails to address the anticipated growth that the current formula will generate in the out-biennium and into the future.  I believe that, collectively, we need to address this critical spending issue.⁶⁴

The so-called "critical spending issue" would, in fact, be something for future Legislature's to wrangle over.  In the ultimate irony, Governor Johanns would, in 2004, develop an appreciation for the work of the Legislature in 2003.

On May 27, 2003, one day after the veto actions, the Legislature convened to deliberate a list of motions to override vetoes.  The motions were filed by the respective chairs of the standing committees from which the various components of the budget package derived.  All motions would meet with success.  When it came time to consider Senator Raikes' motion to override the veto of LB 540, various members of the body rose to voice their support for the effort.  Perhaps no one captured the moment better than Senator Ed Schrock of Elm Creek.  "[A]s a farmer, if you eat your seed corn, you don't harvest much," he said, "And if we don't fund our education, we're not going to harvest a very good crop of students."⁶⁵  LB 540 was passed into law over the Governor's objections by a 44-4 vote.⁶⁶  The measure actually gained two affirmative votes in the vote to override Governor Johanns' veto.

At the public hearing for LB 67 on January 21, 2003, Tammy Barry, Legal Counsel for the Education Committee, introduced the bill as a technical cleanup bill on behalf of the Department of Education.  "And for those of you that are new to the committee, this will be the most boring bill that you hear this session," she said jokingly.⁶⁷ She was not too far off the mark, although the legislation would carry several important provisions before it was all said and done.  In fact, the measure was placed on the legislative fast track in order to fix a component of the school finance formula in time for the February certification of state aid.

The issue arose after the hearing.  It was discovered that an error existed in one of the sections of the TEEOSA, which, if left uncorrected, would cause a miscalculation of the cost growth factor.  The cost growth factor is used within one of the more intricate sub-formulas.  It is used to calculate the average formula cost per student in each of the three cost groupings (standard, sparse, and very sparse).  And this is how it works.

Each year the Department of Education calculates the average formula cost per student in each cost grouping by dividing the total estimated general fund operating expenditures (GFOE) for the cost grouping by the total adjusted formula students for all local systems in the cost grouping, as follows:

This calculation is performed for each of the three cost groupings.  However, in order to arrive at the total estimated GFOE for each cost grouping, the department must multiply the total adjusted GFOE for all local systems in the cost grouping by a cost growth factor.

The cost growth factor for each cost grouping is equal to the sum of:

1. One; plus
   
   
2. the product of two times the ratio of the difference between the formula students attributable to the cost grouping without weighting or adjustment and the average daily membership attributable to the cost grouping for the most recently available complete data year divided by the average daily membership attributable to the cost grouping for the most recently available complete data year (however, the ratio may not be less than zero); plus
   
   
3. the basic allowable growth rate for the school fiscal year in which the aid is to be distributed; plus
   
   
4. the basic allowable growth rate for the school fiscal year immediately preceding the school fiscal year in which the aid is to be distributed; plus
   
   
5. one-half of any additional growth rate allowed by special action of school boards for the school fiscal year in which the aid is to be distributed as determined for the school fiscal year immediately preceding the school fiscal year when aid is to be distributed; plus
   
   
6. one-half of any additional growth rate allowed by special action of the school boards for the school fiscal year immediately preceding the school fiscal year when the aid is to be distributed.⁶⁹

Naturally, one of the important elements of the cost growth factor is the proper calculation of formula students.  And this is where the error in the formula was discovered.

As it turned out, the existing cost growth factor did not account for "tuitioned students."  Tuition students, as one might suspect, are students in kindergarten through grade twelve of the district whose tuition is paid by the district to some other district or education agency.⁷⁰ These students needed to be accounted for in the state aid formula in order to produce an accurate cost growth factor, which ultimately produces an accurate average formula cost per student in each of the three cost groupings.

This may seem like a rather prolonged and overly detailed explanation of one change in one component of one sub-calculation within the state aid formula.  And indeed it is.  But it serves to illustrate the intricate nature of the formula and the extent to which those monitoring the formula perform their duties.  And, given the complexity of some portions of the formula, it is not difficult to envision how mistakes can be made, no matter how diligent the effort.

If left unchecked, the error most likely would not have produced wild aberrations in the calculation of state aid, but it would have meant that a few individual districts would not have received the full allotment of financial assistance from the State.  It would have meant that some districts would have received slightly more assistance than deserved.  In short, it would not have been accurate.

Accordingly, Senator Raikes filed an amendment to LB 67 on the day it was taken up for first-round consideration.  The amendment corrected the language in existing law relevant to the cost growth factor.  It also delayed the date for certification of the 2003-04 state aid from the usual February 1 to February 5.⁷¹ This would buy time, so to speak, for the department to rerun the state aid computation with the proper data elements.  The trick, of course, would be to pass LB 67 into law as quick as possible since the department cannot perform a rerun unless the applicable statute is first corrected.

The legislation was advanced from committee on January 21st and passed on January 30th.⁷²  The bill was signed into law on January 30th, which made it operative on February 1, 2003.⁷³ The department reran the state aid computation and certified the proper amounts to each school district by February 5th.  And for all the work of all concerned, the effort was largely in vain.  LB 540 (2003) would become a major part of the budget fix package of 2003 and would void the February 5th certification of state aid.  A new state aid certification would be issued on June 15, 2003.

Naturally, no one knew what lay ahead when Senator Raikes was asking for a fast track process on LB 67.  In the absence of a crystal ball, the Legislature had to deal with each issue or each emergency as they arose.  For the Education Committee, the first emergency was correcting a mistake in the state aid formula and moving it forward as fast as possible in order to meet the requirements of existing law.

There were other provisions of LB 67 that still had significance.  For instance, the measure outright repealed laws pertaining to the payment of state aid for the cost of reorganization studies by school districts.⁷⁴  In 2002-03, there was $18,400 of general funds appropriated for the reimbursement of school districts for reorganization studies.  Schools were eligible to receive up to $2,500 for the cost of one-fourth of a reorganization study.  Upon approval of a reorganization plan by the school boards and legal voters of the participating districts, the school districts would receive an additional one-fourth of the cost of the study, up to $2,500.  During the public hearing for LB 67, Russ Inbody of the Department of Education explained the elimination of this provision:

[T]he budget was cut in one of the Special Sessions.  And the past two years it's been less than $20,000 that we've had requested for payments.  So in helping the fiscal crisis, we thought this would be a good idea, because it wasn't being used fully.⁷⁵

The idea to offer financial assistance for reorganization studies originated under LB 1050, the comprehensive school finance bill of 1996.  The legislation mandated such studies in order to apply for other reorganization incentives contained in the bill, so the Legislature opted to provide limited financial assistance to prepare the studies.

LB 67 also extended the time period for judicial review proceedings of special education placements from 30 days to two years.  Under prior law, proceedings for judicial review had to be instituted by filing a petition in the district court of the county in which the main administrative offices of the school district were located within 30 days after service of the final decision and order on the party seeking the review.⁷⁶  The provision in LB 67 was an obvious attempt to benefit those who might choose to initiate such proceedings.