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New Nebraska tax revenue forecast could make tax cuts, restoration of services harder to do

New Nebraska tax revenue forecast could make tax cuts, restoration of services harder to do

LINCOLN — A Nebraska tax revenue forecast issued Friday could dampen hopes for cutting property taxes and restoring services in the next state budget.

The new forecast leaves the state with a $232 million shortfall between projected revenues and estimated expenses through June 30, 2021.

But State Sen. John Stinner of Gering, the Appropriations Committee chairman, said he remains “cautiously optimistic” about the state’s fiscal picture.

He said the shortfall is based on estimates that state spending will grow at 4.8 percent during the two-year budget cycle ending June 30, 2021.

Stinner said he expects lawmakers to hold that growth to a “more reasonable level” when they craft the state budget. Lawmakers will undertake that duty during the 2019 legislative session, which begins in January.

The new revenue projections issued by the Nebraska Economic Forecasting Advisory Board represent a key step in the budget process. The governor and State Legislature use the board’s revenue projections to develop a budget.

For the current fiscal year, which ends June 30, 2019, the board predicted that state tax revenues would come in $69 million higher than expected. Under state law, that money will be automatically transferred to the state’s cash reserve .

For the following year, the first of the new budget biennium, the board predicted that revenues would reach $4.89 billion.

Revenues are projected to hit $5 billion — for the first time ever — the fiscal year after that.

Those figures reflect a slowing economy and lower-than-average growth in revenues. Forecasting board members said they believe that the economy is strong but likely has peaked and will head into a recession in 2020 or 2021.

“It’s still good, but it’s inevitable” that a downturn is coming, board member Tonn Ostergard of Lincoln said.

Several said they expect the shortage of qualified workers in Nebraska to hamper economic growth. They also expressed concern about the effect of agricultural tariffs resulting from trade wars with China and other traditional importers.

In a statement, Gov. Pete Ricketts focused on the current fiscal year. He said the $69 million increase in the forecast underscores Nebraska’s growing economy.

But he also said the revenue growth would not be enough to pay for Medicaid expansion. Initiative 427, which will appear on the Nov. 6 ballot, would extend Medicaid coverage to an estimated 90,000 more low-income Nebraskans.

The state budget picture will become clearer over the next several months. The forecasting board will review and revise its revenue projections in February and April.

Updated estimates of state spending growth will be presented to a committee of legislative leaders and the state tax commissioner on Nov. 15.

The spending update will include revised figures for state aid to schools. Current estimates show state school aid increasing by 7.4 percent during the next budget period, a level that Stinner said lawmakers will seek to rein in.

State school aid is projected to grow largely because temporary budget-balancing measures passed in 2017 and 2018 are slated to end.

Lawmakers passed the measures to help close major budget gaps in those two years. They also tapped cash funds, cut some state programs and services, restrained the growth of others and dipped into the state’s rainy day fund.

Tom Bergquist, director of the Legislative Fiscal Office, noted that the forecasting board projections incorporated the new sales tax revenues expected from online retailers.

State tax officials will require online sellers with significant business in Nebraska to start collecting sales taxes from their Nebraska customers on Jan. 1.

Ricketts and others have said they want to earmark online sales tax revenue for property tax relief. If state policymakers do so, the projected budget shortfall would grow.

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Martha Stoddard keeps legislators honest from The World-Herald's Lincoln bureau, where she covers news from the State Capitol. Follow her on Twitter @StoddardOWH. Phone: 402-670-2402

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