A. Introduction - LB 989, passed in 1998, extended and modified a lid on what is defined as restricted funds for most political subdivisions with the authority to levy property taxes. This is the current spending limitation on all local governments except elementary and secondary schools. LB 989 (1998) also modified the lid on general fund expenditures that applies to school districts.

1. Restricted funds are defined to include property taxes, local sales taxes, payments received in lieu of taxes, surpluses generated from a fee-supported activity (like an electric utility) which are budgeted for general uses, and state aid. State aid includes homestead exemption reimbursement, insurance premium tax receipts, street and roads funds, MIRF funds, general personal property tax exemption reimbursement funds, equalizing city and county aid, and state aid to community colleges.

2. The law prohibits adopting a budget which contains restricted funds totaling more than the budgeted restricted funds for the previous year, plus

a. a statutorily set percentage allowable growth rate, currently 2.5 percent,

b. growth in valuation due to improvements to real property between the two most recent available years but only to the extent such growth exceeds the basic allowable growth rate (2.5 percent),

c. any carryover of unused budget authority from previous years, including amounts under previous limitations,

d. one percent if approved by at least a three-fourths majority vote of the governing body,

e. amounts approved by the voters.

Adjustments are to be made if a subdivision annexes property, transfers responsibility for paying for a government service, or changes fiscal years.

3. There are six exceptions to the limitation:

a. expenditures of restricted funds for capital improvements, defined as real property and improvements thereto.

b. expenditures of restricted funds to retire bonded indebtedness,

c. expenditures of restricted funds from a sinking fund set up to fund equipment purchases,

d. expenditures of restricted funds in support of a jointly financed local service,

e. expenditures of restricted funds to repair infrastructure required by a declared natural disaster, and

f. expenditures of restricted funds to satisfy judgments, except judgments of the Commission on Industrial Relations.

B. School districts are allowed growth in general fund expenditures between 2.5 percent and 4.5 percent. The specific limitation is determined district by district based on the spending of the local school system relative to other local systems. Local systems are Class VI or K-12 school districts combined with any Class Is for which the district is the primary high school district. Above average or average spending school systems are limited to 2.5 percent, while below average spending districts may have greater spending increases up to a maximum of 4.5 percent. The law also allows any district to increase spending by 1 percent after a special meeting and a three-fourths vote of the school board, so from a practical standpoint, the limitation is 3.5 percent to 5.5 percent. Cash reserves are limited to between 20 percent and 45 percent of the general fund budget depending on the size of the school. Exceptions to the lid are for:

1. expenditures in support of a service which is the subject of an interlocal agreement or modification of a prior agreement,

2. expenditures to pay for infrastructure damage caused by a natural disaster,

3. judgments, except those issued by the Commission of Industrial Relations,

4. expenditures to pay for voluntary termination of employment by certificated employees, and

5. amounts approved by a vote of the people.