LINCOLN — An unexpectedly optimistic revenue forecast boosted hopes Thursday for getting property tax relief and business tax incentives passed by the Nebraska Legislature.
The state’s revenue forecasting board lowered projections of state tax revenues by about $50 million for the current fiscal year, around one-quarter of the reduction expected.
The revised forecast would keep the state’s budget in the black, while leaving nearly $90 million for tax measures and other priorities in the year ending June 30. The previous forecast, issued in February before the coronavirus pandemic, would have left about $138 million for such purposes.
Gov. Pete Ricketts hailed the new projections, saying they reflect “the ongoing strength of Nebraska’s economy even in spite of the impacts of the pandemic.”
“Today’s news sets the Legislature up to accomplish key priorities, including property tax relief and business incentives, in the remaining days of the session,” he said.
But State Sen. John Stinner of Gering, the Appropriations Committee chairman, expressed concern about the next two-year budget period, which starts July 1, 2021. He warned against passing legislation that will carry large price tags in the future, saying current estimates show a $500 million shortfall for those years.
“It was an optimistic forecast, and they were much more optimistic certainly than I am,” he said. “The good news is we won’t have to cut the budget.”
Former Sen. John Kuehn of Heartwell, who now sits on the Nebraska Economic Forecasting Advisory Board, shared Stinner’s concern. He said lawmakers should proceed with caution when deciding what to do with the $90 million.
“They should look at this (forecast) with an asterisk,” he said.
Renee Fry, executive director of the Open Sky Policy Institute, a Lincoln-based think tank, urged caution as well. She noted that this year’s income tax totals are inflated by people paying their 2019 taxes later than normal. The tax filing deadline was moved from April 15 to July 15, in light of the coronavirus disruptions.
That meant about $255 million was shifted from the 2019-20 fiscal year to the current fiscal year. But that increase in revenues this year was a one-time event, Fry said.
Economic experts with the Nebraska Department of Revenue and the Legislative Fiscal Office, based on national economic services, had concluded that the state revenue projections should be reduced by nearly $200 million for the fiscal year. That would have meant revamping the state budget plan and, most likely, postponing tax measures.
Instead, Sen. Lou Ann Linehan of Elkhorn, the Revenue Committee chairwoman and chief architect of a property tax relief proposal, said lawmakers should move forward with the plan to reduce property taxes by reworking the state’s school aid formula.
She said the Legislature should look at freeing up more money for property tax reductions by decoupling the state’s income tax code from the federal tax changes included in the coronavirus relief act. Unhitching the two could mean $125 million more for the state this year.
Linehan said lawmakers also should look at whether all of the items in the Appropriations Committee’s budget plan need to stay there. Some entities, such as federally qualified health centers, have gotten federal coronavirus relief aid and may not need the previously planned increase in state support.
Sen. Mark Kolterman of Seward, who introduced a bill replacing the state’s business tax incentives program, was similarly upbeat.
“There’s room for everything now,” he said.
The revised forecast came out of an unusual meeting of the forecasting board. Not only was the board called back to issue a special revenue projection, but members were sharply divided in their views of the economic road ahead.
The majority expressed optimism about the state’s economic stability, the effects of federal stimulus dollars and the likelihood of a coronavirus vaccine being developed. Board member Steve Seline of Omaha said he believes Nebraska will fare better than national economic services have projected.
In support, he cited low interest rates, which are boosting the real estate market, and the effects of the business grants and loans provided through federal relief legislation. He also said he is personally optimistic that a vaccine will allow the economy to get back to normal sooner.
“We’re uniquely better than anyone else,” he said.
Other board members pointed to Nebraska’s relatively low unemployment rate, its agriculture-based economy and its low reliance on the hard-hit tourism and energy sectors.
Member Richard McGinnis of Kearney agreed that Nebraska is doing better than many states but said there are people who are struggling economically because of the coronavirus. He said the state’s fiscal future depends on the course of the pandemic and, to a smaller extent, the outcome of the November election.
But Kuehn questioned why the majority would deviate so much from the state economic experts and national economics services. The board majority predicted that corporate income tax collections would be 26% higher than the average of the experts and economics services.
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