Nebraska lawmakers look for solutions as tax receipts fall short of projections

Nebraska's budget deficit continues to grow after three consecutive months where net tax receipts fell short of economic projections. Lawmakers are looking for solutions.

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Nebraska lawmakers look for solutions as tax receipts continue falling short of projections

LINCOLN, Neb. —

Nebraska’s budget outlook is facing new pressure as state tax collections in May fell below projections.

Nebraska’s Economic Forecasting Advisory Board projections for a third consecutive month, adding to the challenges lawmakers face in balancing the state’s next two-year spending plan.

A report from the Nebraska Department of Revenue shows net tax receipts coming in below forecasts made earlier this year, contributing to an estimated $172 million additional budget shortfall on top of a $631 million deficit already projected for the next biennium. May showed a 7.8% net loss.

Sen. Robert Clements, chairman of the Appropriations Committee, said the numbers were unexpected and that they present challenges, but also pointed to signs of economic strength.

Clements and Revenue Committee Chairman Sen. Brad von Gillern said the difference between gross and net receipts is a key factor in understanding the state’s financial picture. While they say overall collections have grown, credits have reduced the amount of revenue available to the state.

“Increased refunds mean there’s more money in people’s pockets in Nebraska. Not that there’s a recession, ” Clements said. “We just need to fine-tune the refund expectations with some of these new items.”

Sen. George Dungan said the shortfall reflects what he believes are the consequences of major income tax cuts approved by lawmakers in 2023.

“It’s a simple issue of money in and money out,” Dungan said. “All of the projections over my entire time in the Legislature have showed us being in a structural deficit. And that’s because this Legislature has continued to cut taxes for the wealthy and corporations.”

Von Gillern defended the tax reductions, saying they will spur economic growth later on, even if they create fiscal pinch points now.

“We are not in dire straits, not even approaching dire straits,” von Gillern said. “We have the full belief that these tax cuts are an investment in the economy.”

Nebraska lawmakers are constitutionally required to pass a balanced budget at the beginning of each two-year budget cycle. Any additional decline in revenue means lawmakers will have more work ahead when the Legislature returns in January.

“It’s going to create some hard work on the part of the Legislature, and that’s okay,” von Gillern said. “We’ll come back. We’ll do the hard work.”

Von Gillern said he plans to focus during the interim on improving predictability in state revenue forecasts.

“We need to get the forecasting board, the data that they need to make the best forecasts that they can, so that we can budget accordingly,” von Gillern said.

Von Gillern also said Nebraska has enough cash reserves to manage the current budget challenge.

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