LB 989 (1998) - Budget Limitations for Political Subdivisions and School Districts

For all fiscal years beginning on or after July 1, 1998, LB 989 imposes budget limitations on school districts (other than Class I school districts) and other political subdivisions, except sanitary and improvement districts (SIDs) that have been in existence for five years or less. The budget limitations provided for by current law (Laws 1996, LB 299) expire at the end of FY1997-98. LB 989 retains some of the provisions in the current law, modifies others, and adds some entirely new provisions; thus, there will be local government budget limitations for fiscal years after FY1997-98, but they will be somewhat different than those provided for under current law.

One of the entirely new concepts is the "base limitation," which is used in calculating the budget limitation for school districts and other political subdivisions. LB 989 provides that the base limitation is 2.5 percent, until adjusted by the Legislature. The Legislature may adjust the base limitation annually to "reflect changes in the prices of services and products used by school districts and political subdivisions." The bill defines "base limitation" to mean "the budget limitation rate applicable to school districts and the limitation on growth of restricted funds applicable to other political subdivisions prior to any increases in the rate as a result of special actions taken by a supermajority of any governing board or of any exception allowed by law."

Budget Limitations for Political Subdivisions Other Than School Districts and Certain SIDs

LB 989 prohibits every political subdivision authorized to levy a property tax (or authorized to request property tax levy authority) from "adopting a budget containing a total of budgeted restricted funds more than the last prior year's total of budgeted restricted funds plus allowable growth plus the basic allowable growth percentage of the base limitation... ."

LB 989 expands the definition of "restricted funds" under current law to -include "any funds excluded from restricted funds for the prior year because they were budgeted for capital improvements but which were not spent and are not expected to be spent for capital improvements." The bill also provides that any unused budget authority existing on April 7,1998, by reason of any prior law may be used for increases in restricted funds authority.

For community colleges, the bill defines "allowable growth" to mean "the percentage increase in excess of the base limitation, if any, in full-time equivalent students from the second year to the first year preceding the year for which the budget is being determined." For other "governmental units" (e.g., counties and municipalities), the bill defines "allowable growth" to mean "the percentage increase in the taxable valuation in excess of the base limitation ... due to improvements to real property ... and any increase in valuation due to annexation and any personal property valuation over the prior year."

LB 989 contains a number of exceptions to the budget limitation. For fiscal years beginning on or after July 1, 1998, and before July 1, 1999, a governmental unit may increase its budget of restricted funds up to "four percent to create or increase an existing qualified sinking fund or funds upon the affirmative vote of at least 75 percent of the governing body." But any unused budget authority of that nature may not be carried forward to future fiscal years. (The bill defines "qualified sinking fund" to mean a fund or funds maintained separately from the general fund to pay for acquiring or replacing tangible personal property having a useful life of at least five years and the phrase includes sinking funds under Neb. Rev. Stat. sec. 35-508(13) for firefighting and rescue equipment or apparatus.)

LB 989 also permits a governmental unit to exceed: (1) The budget limitation for a fiscal year "by up to an additional one percent" upon an affirmative vote of at least 75 percent of the governing body; and (2) the applicable allowable growth percentage "by an amount approved by a majority of legal voters voting on the issue at a special election called for such purpose upon the recommendation of the governing body or upon receipt by the county clerk or election commissioner of a petition requesting an election signed by at least five percent of the legal voters of the governmental unit."

LB 989 provides that the budget limitations do not apply to five types of restricted funds, including restricted funds (1) budgeted for capital improvements, (2) expended from a qualified sinking fund, (3) budgeted in support of a service which is the subject of an interlocal cooperation agreement or a modification of an existing agreement (whether operated by one of the parties to the agreement or an independent joint entity), (4) budgeted to pay for repairs to infrastructure damaged by a natural disaster which is declared a disaster emergency pursuant to the Emergency Management Act, and (5) budgeted to pay for judgments-except judgments or orders from the Commission of Industrial Relations-obtained against a governmental unit which require or obligate a governmental unit to pay such judgment (but only to the extent such judgment is not paid by liability insurance coverage of a governmental unit). (LB 989 redefines the phrase "capital improvements" to mean acquiring real property or acquiring, constructing, or extending any improvements on real property)

Budget Limitations for Class II, III, IV, V, and VI School Districts

LB 989 prohibits any Class II, III, IV, V, or VI school district from increasing its "general fund budget of expenditures more than the local system's applicable allowable growth percentage." (The budget of a Class I school district is treated as a part of the budget of the high school district with which it is affiliated or of which it is a part and, therefore, the budget of a Class I school district is not free of limitations)

The bill provides that the "basic allowable growth rate for general fund expenditures other than expenditures for special education" is equal to the base limitation. LB 989 also provides that the "allowable growth range" is a set of figures ranging from the base limitation to two percent above the base limitation. The bill requires the state Department of Education to determine and certify (on or before December 1 each year) to each Class II, III, IV, V, and VI school district an applicable allowable growth percentage for each local system. For each school fiscal year, the department must determine a target budget level for each local system by (1) multiplying the adjusted formula students by the cost grouping per student and (2) adding to such product the local system's transportation and special education allowances.

LB 989 contains a number of exceptions to the budget limitation for Class II, III, IV, V, and VI school districts. Many of the exceptions to the applicable allowable growth rate limitation are the same as those provided for by current law (e.g., a school district may exceed its applicable allowable growth rate by a specific dollar amount if the district projects a qualified increase in formula students in the district over the current school year or if construction, expansion, or alteration of district buildings will cause an increase in building operation and maintenance costs of at least five percent).

LB 989 retains many of the exceptions to the allowable growth rate limitation which are provided for by current law, except that those exceptions will apply to "the local system's" allowable growth rate rather than to the school district's allowable growth rate. Such exceptions are similar to those listed above for political subdivisions other than school districts (e.g., a school district may exceed the local system's allowable growth rate for expenditures in support of a service which is the subject of an interlocal cooperation agreement or to pay for repairs to infrastructure damaged by a natural disaster.) The bill eliminates language in current law authorizing a school district to exceed its allowable growth rate for budgeted expenditures for certain capital improvements financed by the proceeds of a bond issue and to retire bonded indebtedness. (Since the allowable growth rate limitation applies only to a school district's general fund budget of expenditures, expenditures from a school district's capital improvement bond fund or other bond fund would not be subject to the allowable growth rate limitation.) Also, LB 989 adds an exception to the allowable growth rate limitation for expenditures to pay for lease-purchase contracts approved during FY1997-98 (to the extent the lease payments are not budgeted expenditures for FY1997-98).

LB 989 also retains the exception which allows a school district to exceed the applicable allowable growth percentage by an amount approved by a majority of legal voters voting on the issue at a special election called for such purpose. (The bill further provides that the issue may be approved on the same question as a vote to exceed the property tax levy limits) Also, LB 989 provides that a school district may exceed the basic allowable growth rate upon an affirmative vote of at least 75 percent of the school board, but total growth may not exceed the applicable allowable growth percentage certified for the local system plus one percent.

With respect to Class I school districts, the bill retains the provision in current law which permits the school board of a Class I school district to submit, before February 1 each year, "a request to exceed the total allowable general fund budget of expenditures minus the special education budget of expenditures to all the school boards of the high school district or districts with which the Class I district is affiliated or of which it is a part."

Limitation on State Aid to Municipalities

The bill also provides that state aid distributed to a municipality may not exceed the amount which would have been necessary to reduce the municipal tax levy for operational purposes below $0.35 per $100 of taxable valuation in the immediately preceding fiscal year. LB 989 requires the Auditor of Public Accounts to provide to the Department of Revenue-by February 1 each year-a list of the bond and nonbond tax request amounts from the most recent budgets filed by incorporated municipalities. The bill indicates that such information will be used to calculate the bond and nonbond tax levies in connection with determining the amount of state aid to be distributed to a municipality. The provision is operative for all fiscal years beginning on or after July 1, 1998.

LB 989 passed with the emergency clause 39-5 and was approved by the Governor on April 7,1998.