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Nebraska begins budget period with a $101 million deficit. Why officials aren't worried

Nebraska begins budget period with a $101 million deficit. Why officials aren't worried

An in-depth look at the proposed 2022 budget for the City of Omaha.

LINCOLN — Despite coming off a year of record tax revenue, Nebraska looks to be starting its current two-year budget period in the red, according to a report released Thursday.

The report from the Legislative Fiscal Office points to the state’s new property tax relief program, along with other tax cuts and a drop in federal coronavirus relief, as the reasons for a newly opened $101 million budget gap.

But a key state lawmaker expressed confidence about closing that gap without cutting the state’s $9.8 billion budget for the two-year period ending June 30, 2023.

“There’s a good betting chance” that revenue projections will improve when the numbers are reviewed again, said State Sen. John Stinner of Gering, the Appropriations Committee chairman. The state’s economic forecasting board will meet to update those projections in October.

“I will almost guarantee the forecasting board will take care of the deficit,” he said.

Legislative Fiscal Analyst Tom Bergquist sounded a similarly optimistic note in delivering the report to the Tax Rate Review Committee, a group that includes four top legislative leaders and State Tax Commissioner Tony Fulton. The group meets between legislative sessions to review the state’s fiscal status.

“Long story short, we’re in very good shape still,” he said.

Bergquist told the committee that Nebraska experienced a “very extraordinary” jump in tax collections during the year that ended June 30, driven in large part by the federal pandemic relief programs.

Even after adjusting for changes in state laws and for moving the deadline to file 2019 income taxes to July 2020, the report shows that revenue collected in fiscal year 2020-21 increased 14.6% from the previous year. He said that was the largest increase in his almost three decades working for the state.

He and Stinner estimated that federal relief is responsible for about half the increase, which is expected to create a “cliff effect” in tax collections as relief dollars taper off this year.

The other major factor is the state’s new property tax program, which will bring down tax revenue by $548 million a year during the two-year budget period, Bergquist said. The program provides income tax credits to Nebraska property owners to offset a portion of their school property tax bills.

State law determines the amount of the credits based on the growth of tax revenue. The credit total remains flat when revenue grows at 3.5% or less. Half of the increase above 3.5% goes toward increasing the credits, with the other half is directed to the cash reserve.

The record revenue growth means that the program is more than quadrupling in size, growing from $125 million in the just-ended fiscal year to $548 million this year.

Through the program, property taxpayers got back about 6% of their school tax bill when they filed their 2020 income taxes. The year-end state revenue figure means that those same property owners will get credits equal to about a quarter of school property taxes when they file their 2021 income taxes.

Lawmakers created the property tax relief program last year. This year, they passed other tax cuts, including a phase-out of taxes on Social Security income, full tax exemption for military retirement benefits, a reduction in corporate income tax rates and sales tax exemptions for residential drinking water and additional agricultural machinery.

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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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