Proposal slammed to transfer $14 million from Environmental Trust to water fund

LINCOLN — Deep inside Gov. Jim Pillen’s budget proposal is a plan to divert $14 million from the Nebraska Environmental Trust to a state agency’s water resources fund, a transfer condemned as a “mockery” of the intent of the Trust.

W. Don Nelson, a former official who served three Nebraska governors, said Thursday that the Trust was created to aid environmental projects, not as the “governor’s piggy bank.”

“It wasn’t intend to be an ATM for a legislative committee. It wasn’t created to take pressure off the general fund or allow a governor to cut taxes,” Nelson said.

Officials with the Friends of the Environmental Trust and the Sierra Club of Nebraska also slammed the idea, questioning whether the recent disapproval of several grant requests by the Trust cleared the way for the transfer, and if the fund shift was legal.

“There were a lot of proposals this year that deserved the Trust’s funds and didn’t get a fair shake,” said Sandy Scofield, a former state senator now with the Friends group. Scofield said that while funds have been questionably “siphoned” from the Trust in the past, this proposal was “more brazen.”

No ‘conspiracy’

Lee Will, the state budget administrator under Gov. Jim Pillen, rejected the idea that any “conspiracy” to deny grants so that Trust funds — which come from the state lottery — could be used to finance tax cuts proposed by the governor.

Will pointed out that the state has a $1.9 billion fund surplus that is allowing the tax reductions, so the $14 million being transferred from the Trust was inconsequential.

He said that with more than $19 million in unexpended funds held by the Trust, it seemed like a “good fit” to transfer the money to the State Water Resources Cash fund, which has a similar goal as the Trust to help natural resources.

The transfer is the latest in a string of controversies involving the Trust, which was created three decades ago to grant out about half of the proceeds of the Nebraska Lottery.

The Trust board, consisting almost entirely of gubernatorial appointees, distributes about $20 million a year in grants to organizations for wildlife habitat, recycling programs, conservation efforts and environmental-related research.

More grants rejected, deemed ineligible

But in the past two years, the Trust board has declined to grant out all of its funds, breaking with past practices that saw almost all of its lottery allocation handed out each year.

The Trust board also began deeming dozens of grant requests ineligible, including grants that had been found “eligible” and had been awarded funds in the past.

Earlier this month, the Trust board rejected about half of the 2022 grant requests that had been determined to be eligible for funds, approving only $11.3 million in grants out of the $20 million it had to expend.

Al Davis, a former state senator and a lobbyist for the Sierra Club of Nebraska, questioned whether the board has been building up a surplus of money so it could be transferred and used for a big water project, such as the Perkins County Canal or the big sandpit lake proposed between Omaha and Lincoln.

 “That’s just inappropriate,” Davis said.

Karl Elmshaeuser, the executive director of the Environmental Trust since December 2021, rejected the idea that grant money was being purposely withheld so it could be shifted.

A spokesman for the Nebraska Department of Natural Resources, which administers the water cash fund, said Friday there were “no plans” to use the funds for the canal.

Jesse Bradley, the DNR’s deputy director, said the Water Resources Cash Fund currently holds about $28 million but has $39 million in “current or planned commitments,” meaning it needs more money.

Mark Quandahl of Omaha, the current chairman of the 14-member Trust board, did not return messages seeking comment Friday about why so many Trust grants have been rejected in recent years.

‘Dotting our I’s’

At the board’s meeting earlier this month, Quandahl said the best grant proposals were funded. Another board member, Rod Christen of Steinauer, said one grant request of $70,000 was nearly rejected over the definition of the term “regulatory,” saying that grants were reviewed keenly over whether board members were “crossing our T’s, dotting our I’s.”

Critics of the Trust board’s recent actions question whether funds granted to a constitutionally created entity can be transferred to a state agency.

Nelson, the former gubernatorial aide who was involved in setting up the Trust, said he is considering a lawsuit against the Trust for this “legislative meddling.”

“It really makes a mockery of the term ‘trust,’ ” he said. The term, Nelson said, means that funds in a trust are “hands off” to others.

“I think it’s time to gin up some more litigation to see if we can settle the Legislature and the governor down, and get back to the true intent of when the Trust was created 30 years ago,” he said.

Nelson has successfully sued the Trust before. In 2020, he and another critic of the Trust board went to court to block a controversial grant swap that took funds from conservation projects and gave them to an ethanol pump project. The ethanol grant was later withdrawn, and a judge agreed that the Trust had not followed proper procedures in its vote.

Only NRDs could access transferred funds

This isn’t the first time the Environmental Trust’s funds have been tapped by state agencies. Over the past decade, $3.3 million a year has been allocated to the Water Resources Cash Fund. But that was after the Department of Natural Resources applied for grants that were approved by the Trust. The State Legislature, which created the cash fund, also allocated a matching amount of state general funds.

Critics of the current fund transfer maintain that the DNR should continue to apply, and compete, for grant funds, not sidestep that process by taking the funds directly through the state budget.

The intent of the cash fund, according to state statutes, is to “enhance streamflows, to recharge ground water, or to support wildlife habitat” in certain river basins. The Trust was created to “conserve, enhance and restore the natural environments of Nebraska.”

One big difference, however, is that only the state’s natural resources districts can obtain funds from the DNR’s Water Resources Cash Fund, while Environmental Trust grants can be given to nonprofits and all sorts of governmental entities, including NRDs.

According to DNR’s 2022 annual report on the water fund, about $4.4 million was spent during 2021-22 for NRD projects concerning groundwater recharge, streamflow augmentation and improving irrigation canals.