Pillen directed agencies to make ‘unprecedented’ cuts ahead of special session

Days after signing an updated budget that he described as “fiscally sound,” Gov. Jim Pillen’s office quietly directed state agencies to slash $280 million. The goal: Help pay for a massive property tax cut he publicly unveiled a week before the expected start of a special legislative session Thursday.

The directive, which state lawmakers were not informed of, was sent in April to 14 state agencies responsible for everything from child welfare to patrolling Nebraska’s highways, according to emails obtained by the Flatwater Free Press.

The news shocked longtime state budget leaders, including the former director of the Legislature’s fiscal office. “Everything about this is totally unprecedented,” said Tom Bergquist, who analyzed finances, forecasts and budgets for the Legislature for 46 years before retiring in 2022.

Lee Will, director of the state’s budget division, said that while restricting spending is usually reserved for times of economic peril, like a recession, reforming property taxes requires it.

“We’re committed to this thing, even if it’s unprecedented in good times,” he said. 

Lawmakers of both parties said they weren’t told of the Pillen-led cuts.

Some, like Sen. Rob Clements, cheered the budget tightening. Clements, a Republican from Elmwood who chairs the Appropriations Committee, said high property taxes demand swift action. The governor and the state should always be looking to save money, he said. 

“Why would we complain about that?” Clements said of departments spending less than their allocation.

Sen. Danielle Conrad, a Democrat from Lincoln, was infuriated when shown evidence of the cuts, believing it proves that the Pillen administration was hiding the information while trampling on fundamental checks and balances. 

“If the governor has the courage of his convictions, he should be very clear with the other branches of government and with the citizens about what he is doing and why he is doing it,” she said. “He is not a king.”

Pillen, whose previous property tax relief proposal died in the Legislature earlier this year, plans to call lawmakers back to Lincoln for a special session beginning July 25. Requests for comment from Gov. Pillen sent to his spokesperson were not returned.

The governor’s office will present an updated budget reflecting a $200 million reduction in state spending, Will said. That, along with $200 million from cash funds, could pay for a third of the property tax plan, he added.

On April 6, Will emailed the agencies “framing the Governor’s goals” of cutting spending 3% in fiscal year 2023-24, then another 6% in fiscal year 2024-25.  

In an email, Will wrote that the analysis started by looking for spots where agencies already weren’t spending all the money budgeted. It then shifted to “system improvements” and locating federal funding, he wrote.

The governor’s office aimed to save $525 million between the two fiscal years and reduce ongoing spending $350 million, Will said.

Some state agencies met the goals for the fiscal year that ended June 30 – in some cases cutting their budgets sharply in the process. 

It’s unclear what all was cut. Will said the special session will provide more insight into the reductions.

The Department of Correctional Services, which runs the state’s long-overcrowded and understaffed prisons, cut $10 million. It utilized more federal Medicaid funds, bought more food in bulk and shared resources between facilities, said Dayne Urbanovsky, department spokesperson. No programs were adversely impacted, she said.

The Crime Commission cut $7.5 million – more than a third of the state-funded part of its budget, said Bryan Tuma, commission executive director, in part because it had so many unfilled vacant positions. The commission directs an assistance fund that Flatwater found was failing victims of violent crime. It has since hired two employees to help with that program, Tuma said.

The Nebraska State Patrol also had unfilled vacant positions, its spokesperson said. Of its allocated 482 trooper positions, 65 are currently vacant. Ten spots will be filled after recruits finish training and the next hiring process starts in a few weeks, the spokesperson said.

The Department of Environment and Energy, which helps oversee the state’s water quality, suspended a program related to the federal Clean Water Act last year, a spokesperson said. 

The State’s Fire Marshal found savings through unspent money for the state’s planned broadband office and a statewide radio program meant to update first responders’ communication technology.

The Department of Agriculture eliminated a grant that funded the riparian vegetation management program, according to a June letter obtained by Flatwater. The news came as a shock to Mike Reed, the chair of the program’s task force.

For years, he and others built a statewide coalition to keep Nebraska’s waterways free of noxious weeds. Since 2007 the work has maintained wildlife habitats, assisted agriculture and mitigated flooding, he said. It also helped fulfill Nebraska’s legal obligation to keep the Republican River flowing into Kansas.

Will said work was underway to secure other funding for that program. But task force members said they’re unsure of the program’s future.

“When the water stops flowing down the river system then they’ll come back again to have us try to catch back up and clear the channels,” said Brent Meyer, a task force member in Lancaster County. “We were in maintenance mode, and it won’t take long for us to slip backward.”

Since he became a candidate for governor, Pillen, a businessman who founded and grew one of the country’s largest hog producers, has made spending cuts and property tax relief central to his political identity. 

“When we talk about running government like a business, this is integral to the goal,” Pillen said in a statement following the release of his tax plan. “Money saved can be directed to providing property tax reform, which is necessary to making us more competitive and ultimately, to growing Nebraska.”

But the governor’s office in this case ignored the normal budget processes of state government, Bergquist said, a cycle that includes fiscal analyses, committee hearings, votes by lawmakers and vetoes from the governor.

Past governors have asked departments to reduce spending after a budget allocation in times of financial crisis, he said — but never this much, never this quickly and never without at least some help from the Legislature.

“It seems like they were more cooperative,” Bergquist said of the past governors. “We knew where they were going or what their plan was.”

Will, the state budget director, said that part of the reason the cuts weren’t requested until April is because it took the state six months to do a deep analysis. It would shock Nebraskans to know how much the state paid contractors with few results and little accountability, he said. 

“I’ll just be completely honest with you, it’s easier just to renew a contract again and just keep the status quo,” Will said. “It’s much harder to start asking questions.”

Lawmakers contacted by Flatwater Free Press had not heard details on the cuts, including one serving on a task force that spent months workshopping Pillen’s tax proposal.

“There has been mention of reducing the cost of Government in the committee meetings,” State Sen. Steve Erdman, a Republican from Bayard who serves on the Appropriations Committee, wrote in an email. “There has not been details as to what they would be.” 

In his April emails Will said the Budget Division would partner with “code agencies” – agencies led by gubernatorial appointees – to make the cuts. 

Also helping would be Epiphany Associates, a contractor that last year won a $10 million no-bid emergency contract to identify spending cuts. The firm recently released its first-year findings, identifying $531 million in potential cuts.

But some state agencies contacted by the Flatwater Free Press, including the Nebraska Department of Environment and Energy and the State Fire Marshal, said they had received little or no guidance from Epiphany. 

The State Patrol met with Epiphany and discussed the agency’s vacant trooper positions, its spokesperson said.

The Nebraska Department of Health and Human Services is tasked with the largest cut by far – $200 million during the fiscal year that began July 1. As it puts together its next budget, “Epiphany has been instrumental in identifying areas for improvement,” said its spokesperson. The department’s CEO is Steve Corsi, who left a job at Epiphany Associates to take over the agency last year. 

Sen. Machaela Cavanaugh, a Democrat from Omaha, called the planned cuts “irresponsible and reckless,” particularly reductions to DHHS.

The Epiphany report proposed cutting $44 million from the state’s Medicaid program, $12.6 from a mental health center in Lincoln and nearly $54 million from child welfare. It listed each “system improvement project” as “in-progress.” 

A recent Flatwater Free Press investigation found the department continued violating state law by assigning workers too many cases after years of turbulence in the child welfare system.

“Every time we have made cuts to child welfare,” Cavanaugh said, “children have suffered.”

The emails obtained by Flatwater show that state agency cuts would not be enough to reach the Pillen administration’s $525 million goal and  suggest that non-code agencies like the University of Nebraska and the state’s colleges could face potential cuts as well. Last year, the University of Nebraska system received a fifth of its budget, more than $667 million, from the state. 

The conversations about university funding and other non-code agency cuts haven’t happened yet, Will said. “There’s gonna have to be a conversation at some point,” he said.

Jim Vokal with the Platte Institute said the cuts appear to be a good sign. Per-capita state spending, adjusted for inflation, has increased dramatically in the last half-century, a Platte Institute study found in 2018. 

“You can’t sustain tax reforms if you don’t look for these opportunities,” Vokal said. “So the overall process we certainly endorse and support.”

But Rebecca Firestone, executive director of OpenSky, said there’s been too little public discussion about what would be a major shift in state funding. Furthermore, she worries about the guiding principle behind the cuts.

“Are you going through this process because you’re trying to improve … government services, or are you doing this just to cut budget?” Firestone asked.

Bergquist, the former Legislative Fiscal Office director, expressed disbelief and anger over the cuts. Nebraska has a long track record of responsible spending and measured reform, he said. The proposed cuts, the fast-approaching special session and the swirling questions, don’t feel to him like the right way to handle the state’s business. 

“Some of the guys I worked with a long time ago are turning over in their graves,” he said.