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LINCOLN — For the first time since its 1998 inception, Nebraska lawmakers are slated to remove state tax dollars from a unique endowment fund that supports arts and humanities across the state.
The Nebraska Legislature’s Appropriations Committee voted 5-2-1 Thursday to advance a proposed $5 million cut from the $15 million Nebraska Cultural Preservation Endowment Fund. Gov. Jim Pillen initially proposed eliminating the fund entirely to put the existing dollars toward filling a projected $471 million budget deficit.
The endowment is a unique, public-private partnership in which the state pledges to match private donations, dollar-for-dollar. It has created nearly $37 million in two funds — one consisting of state allocations and the other private dollars — from which investment income is generated, and then granted out for arts and cultural programs.
Currently, the fund spends about $550,000 per year through investment earnings to support such programs. In place of the eliminated endowment, Pillen’s team has proposed a $600,000-a-year allocation from general funds to replace lost investment earnings from the endowment.
The proposal drew heavy opposition from supporters of the endowment fund at a committee hearing earlier this month. While $600,000 per year would be more than the fund currently spends, critics argued it’s a less reliable promise than the interest earnings the fund utilities each year.
“You don’t go into your savings and wipe out your whole savings on one expense,” said L. James Wright, board member for the Nebraska Arts Council. “You try to live off of the interest or the investment that that makes. Right now, that cultural endowment is working for Nebraskans to provide sustainability for programs.”
It’s unclear whether the $600,000-a-year allocation — or a scaled version of it — would still happen under the latest proposal to cut $5 million from the endowment.
State Sen. Rob Clements of Elmwood, chair of the Appropriations Committee, proposed the idea Thursday, saying he wasn’t comfortable with eliminating the fund entirely. He viewed the $5 million cut as a compromise, noting that the endowment was recently capped at $10 million and received the added $5 million within the last five years.
State Sen. Machaela Cavanaugh of Omaha, an Appropriations member who voted against Clements’ motion, said regardless of how much the state cuts, it would still destroy the fund because the decision’s ripple effects would damage the fund’s future sustainability.
Maggie Smith, executive director of the Nebraska Cultural Endowment, said cutting $5 million from the state’s contribution to the endowment would result in roughly $300,000 less in interest earnings generated each year.
The state had never reduced its contributions to the fund in the 27 years since it was created, Smith said. There have been years — including last session — when lawmakers voted to temporarily pause the $1 million annual transfers to the endowment.
While Smith didn’t actively support those pauses, she said the endowment group accepted the moves, because members believed the existing funds would still be safe. She said the endowment has seen “bipartisan, unanimous support” since its inception, and Pillen’s proposal to eliminate the fund came as a “gut-wrenching” shock.
The biggest concern in cutting funding from the endowment is that it would erode trust from private donors and discourage them from continuing to give. Smith said she knows of people who have pledged millions of dollars to the endowment in their wills that she fears would be removed.
“Whether it’s $5 million or $15 million, it destroys the trust that was built, the promises that were made to those donors,” said Mike Markey, executive director of the Nebraska Arts Council.
State Sen. Christy Armendariz of Omaha, an Appropriations member who supported the $5 million transfer, said she didn’t fully understand why transferring funds out of the endowment would erode trust from private donors.
She argued that if supporting arts and humanities was truly important to them, they would continue donating to those causes.
The difference is the matching program set into the endowment, explained State Sen. Rob Dover of Norfolk, who was present-not-voting on the smaller transfer. Donors had known that each contribution they made is effectively doubled through the state’s match, he said.
Markey said another factor is that private donors usually focus their donations in their local areas, but the endowment distributes funds throughout the state.
Smith added that programs in more populous areas like Lincoln and Omaha will likely still be able to continue operating if the endowment is depleted, but smaller rural-based programs might be at risk of shutting down if funds are transferred.
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Dover said he’s seen the positive impact of the endowment in his district and argued against the proposed transfer. He agreed with the argument that doing so would damage private donors’ trust in the state’s continued support of the fund.
“We struck this deal with the arts. They’ve been contributing, and they contribute more than we have,” Dover said. “This is what we said we would do, and now we’re going to go back on our deal.”
Armendariz said she understood why people want to preserve the fund, but she argued that the transfer might be needed while the state is in difficult financial straits. She said if the state doesn’t take funds from the endowment, the dollars would need to come from somewhere else that would likely draw opposition, too.
“We have a responsibility to what’s important to all taxpayers,” Armendariz said.
State Sen. Paul Strommen of Sydney, a committee member who also supported the transfer, said he expects the proposal will draw substantial opposition and likely an attempt to restore it when it reaches floor debate. Smith noted that her group is currently working with lawmakers to negotiate a possible alternative.
Strommen acknowledged that the endowment does a lot of good in western Nebraska, where he represents, but said tough calls are necessary when the state budget gets tight.
“The challenge with appropriations is that we’re looking at a lot of really good programs and have to decide where the money should come from,” Strommen said. “Sadly, we’re not going to be able to make everyone happy.”
Senior Contributor Paul Hammel contributed to this report.
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