Nebraska Gov. Dave Heineman last week signed into a law a two-year, $7 billion general fund budget that closed an estimated $1 billion shortfall with cuts and no new taxes.

As part of the budget, lawmakers passed a controversial measure that allows the state to divert a piece of the sales tax to back bonds to finance highway construction.

Legislative Bill 84, which the governor signed into law May 17, will divert 0.25% of the state’s 5.5% sales tax to raise an estimated $70 million annually for highway projects. The budget also raises spending on education to $822 million in fiscal 2012 and $880 million in 2013 from $810 million in 2011.

The increase follows recent higher-than-expected revenue projections for the upcoming two-year period starting July 1. 

 Nebraska does not issue general obligation debt.

“It was critical that we solved revenue shortfalls by remaining committed to reducing spending and preventing tax increases in order to continue Nebraska’s economic progress,” Heineman said. “It required us to make difficult choices and required that we prioritize our investments during the next two years.”

The state won a coveted triple-A rating from Standard & Poor’s two weeks ago. Moody’s Investors Service does not maintain an issuer rating on Nebraska and assigns its Aa2 rating to its senior tax-backed debt. Fitch Ratings does not rate the state.

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