New Nebraska revenue predictions point to tougher budget, tax decisions next year
LINCOLN — Nebraska lawmakers could have a tough job balancing the state budget or providing more property tax relief next year, based on new projections of state tax revenues.
At a meeting Thursday, the Nebraska Economic Forecasting Advisory Board projected minimal growth in revenues during the period ending June 30, 2027, which includes the next two-year state budget period.
The board forecast state tax revenues of $6.95 billion for the first year of the budget period and $6.965 billion for the second year, amounting to growth of 0.2% between the two years. For the current fiscal year, which ends June 30, 2025, it forecast revenues would come in $141 million less than previously expected.
State Sen. Rob Clements of Elmwood, the Appropriations Committee chairman, said the new revenue projections, combined with estimates of state spending, would put the state about $226 million into the red by the end of the period.
"The budget's going to be tight based on this forecast we have to use," he said. "Additional tax reduction or property tax relief is going to be minimal unless something changes."
Clements said he thought board members were "somewhat steady to a little bit optimistic" in their outlook on Nebraska's economy. Each member had a chance to talk about economic factors in their field of expertise and their part of the state.
Gov. Jim Pillen's spokesperson said, however, that his drive for more property tax relief is unabated.
"This adjustment does not deter Governor Pillen's priority of delivering property tax relief to Nebraskans," Laura Strimple, the governor's spokesperson, said in a statement. "He remains committed to reducing state spending, increasing efficiencies in agency operations, utilizing federal funds where appropriate and ensuring the state budget is one that is fiscally conservative and prioritizes needs over wants."
Sen. Lou Ann Linehan of the Omaha area, the Revenue Committee chairwoman and the architect of several tax reduction packages, said she thought the forecast was too pessimistic.
"I don't believe their numbers," she said, while noting that the state has resources to weather a slowdown. She said Nebraska has a sizable cash reserve fund and money set aside in the Education Future Fund, which would allow the state to meet its obligations for funding schools and taking care of other expenses.
Lawmakers will not have to take action to keep the current fiscal year in balance, according to Keisha Patent, the legislative fiscal analyst. The current budget left more than twice the 3% unspent cushion required under state law. The state can maintain that cushion even with less revenue.
The board projected state tax revenues of $6.335 billion for the current fiscal year, down from $6.476 billion projected at the end of the special session. The state collected $7.156 billion during the fiscal year that ended June 30.
State officials have attributed most of the difference between the two years to a state law that allows some types of Nebraska businesses to change how they pay income taxes, retroactive to 2018. The "pass-through entities tax" provides a way for partnerships and S-corporations to reduce federal income tax liability. It does not change state income tax totals, although it has meant an increase in payments at first, followed by an increase in refunds later.
Under Nebraska law, both the governor and the Legislature use the forecasting board's revenue projections in setting budgets and crafting fiscal policy. The board will meet again in February and April to revisit the forecasts, while lawmakers are working on setting the new budget.
On Thursday, several board members noted strong economic activity in their areas, but also pointed to signs of economic cooling. Among them, board member Chad Meisgeier noted that worker shortages no longer seem as dire and inflation is approaching normal.
Others noted that the agricultural economy is a mixed bag, with beef prices high but farmers being hurt by the drought and prices not as good as previously. Board member John Kuehn called the outlook "beige."
"It wasn't good, it wasn't bad, it wasn't exciting, it's just beige," he said. "It's really just steady as she goes."
