Cindy Gonzalez
LINCOLN — An updated Nebraska economic forecast on Friday offered the Legislature up to $165 million in potential new revenue to help shrink the state’s anticipated budget shortfall.
Roughly $65 million of that additional revenue would be generated over the next two fiscal years, largely from projected increases in corporate tax collections. Those funds, plus recent budget tweaks recommended by the Legislature’s Appropriations Committee, have narrowed the state’s formerly $432 million budget shortfall to just under $200 million.
The Nebraska Economic Forecasting Advisory Board also increased, for the current fiscal year, how much it expects the state to collect in tax receipts by another $100 million.
If the Legislature pulls that money from the cash reserve, the remaining budget hole for the state to plug would fall to roughly $100 million.
That matters because the Legislature still has to close any gap to balance the biennial budget by its mid-May deadline.
Wrangling ahead
Gov. Jim Pillen, in a statement, called the update good news: “A sign of Nebraska’s strong and resilient economy.”
He said the increases could help deliver “critical investments in education and property tax relief.”
Pillen and others noted, however, that months of wrangling still lie ahead as lawmakers and the Pillen administration seek to balance the budget while retaining funds for various agencies and operations affecting Nebraskans.
State Sen. Machaela Cavanaugh, a member of the Appropriations Committee, said she remains worried about Pillen’s efforts to shift dollars from cash funds and slash other programs — including several the state had already directed funding toward.
“I’m glad the deficit is smaller today than yesterday,” said the Omaha legislator. “I still think we’re not approaching the budget in a thoughtful manner.”
Cavanaugh said she remains concerned with the apparent “singular focus” by the Pillen administration on property tax relief, when, she said, the state doesn’t even set property taxes.
She sees current budget difficulties as a result of Pillen administration-led reductions in income and corporate taxes passed two years ago but that won’t be completely implemented for two more years.
Rebecca Firestone, executive director of OpenSky Policy Institute, attended Friday’s meeting of the forecasting board and reacted with cautious optimism.
“We are pleased with positive developments, but advise caution as the budget process continues since we can’t rely on economic growth alone to resolve state budget challenges,” she said.
The watchdog organization said Nebraska’s budget needs to withstand “unprecedented pressure” as the federal government considers cuts, including to Medicaid and the Supplemental Nutrition Assistance Program known as SNAP, which comprise a sizable portion of the state budget.
“Economic opportunity for all Nebraskans depends on sustainable revenue for things like health care, food security, education and housing,” Firestone said. “We are concerned that a revenue shortfall will make it difficult for working families to make ends meet, especially with the looming threat of deep cuts to the federal contribution.”
Forecast breakdown
The bump in revenue projections announced Friday in the Capitol were largely due to corporate income tax revenues coming in higher than expected.
I'm glad the deficit is smaller today than yesterday. I still think we’re not approaching the budget in a thoughtful manner.
– State Sen. Machaela Cavanaugh of Omaha, member of Legislature's Appropriations Committee
The Nebraska Legislature’s Fiscal Office helped prepare the latest state economic data for the board and helped break down the current budget situation:
Pillen’s biennial proposal, which he released in January, was built off the previous forecasting board projections from October, which showed a $432 million shortfall for the two fiscal years through 2027.
The Appropriations Committee earlier this month, as part of the lengthy budget-making process, took a stab at closing the hole — releasing the committee’s preliminary biennial budget recommendations that reduced the shortfall to about $262 million.
Friday’s economic forecast updated tax revenues for the next two fiscal years, increasing them by about $65 million (though about 3% of that would go to cash reserves). This updates the budget’s yet-to-be-filled hole to about $198.8 million.
The forecasting board also increased its estimate for how much tax revenue the state would collect in the current fiscal year by $100 million. The Fiscal Office notes that state law requires excess revenue to be sent to the cash reserve, boosting the state’s rainy day fund. The Legislature, however, could vote to move the money back into the general fund.
Board discusses local economies
Members of the Nebraska Economic Forecasting Advisory Board offered a few thoughts Friday on local economic conditions:
Leslie Andersen, president and CEO of Bennington Bank, said the Omaha area continues to grow, with commercial construction bustling, buoyed by what appear to be more available workers. But she said a challenge is a shortage of housing that is affordable to lower- and middle-income “workforce” residents.
Chad Meisgeier, chief financial officer with Millard Public Schools, said he hasn’t “yet” seen an economic slowdown. “You are hearing a little more concern, maybe, on the capital side of where things are going with tariffs on steel and things like that.”
According to Thomas Henning, a Kearney-based food industry executive: “As far as development is concerned up the Platte Valley, I think it’s good.” He said the area is excited about the University of Nebraska Medical Center medical school soon to open in Kearney. ”We’re going to be teaching doctors here next year. We’ll have a program for physicians.”
Richard McGinnis, a Kearney banker, said the housing shortage remains an issue in the area. “It’s not that Kearney is experiencing a downside economically right now. I would say its growth has slowed down.”
John Kuehn, of Sand Creek Strategy Group in Heartwell, said he is concerned about rural and smaller communities getting closer to a “tipping point.” “It’s like a rubber band and it has been stretched by high interest prices and consumer prices,” he said. “We’re at a point where for many communities a singular event can cause that to snap and (prompt) a series of downstream effects.”