Gov. Pete Ricketts and the Legislature will have a task in coming months: Finding how to make up for an approximate $195 million drop in available funds for the 2017-19 budget.
The Nebraska Economic Forecasting Advisory Board lowered its estimate Friday for how much the state will collect in taxes this fiscal year by about $100 million, and $123 million in 2018-19, compared to its April estimate. Those numbers erased the previously projected surplus and left $195 million for state lawmakers to make up in the legislative session that begins in January.
The two-year spending for the state, approved at the end of the 2017 legislative session, totals $8.9 billion.
With the current forecast in hand, Ricketts issued a new directive to state agencies, boards and commissions ordering continued budget restraint.
Even with the dour forecast, eight forecasting board members took turns describing the economy in their areas as looking up.
Thomas Henning of Kearney said there's been a spike in spending that started toward summer's end, the unemployment rate is the lowest it's ever been, farmers are raising bumper crops, the cattle market has improved substantially and he's seen a lot of housing and commercial construction.
"We've seen a lot of improvement, and I think there's a lot of optimism out there," he said.
Richard McGinnis of Kearney said he just wished all the positive trends would result in more tax receipts to the state.
Even with the lowered forecast, the state will still see year-over-year revenue growth, said Tonn Ostergard of Lincoln, even though it looks like the state is in decline.
"The reality is we're still growing, and we're still growing I think commensurate with (gross domestic product) or maybe even slightly ahead of that," he said.
Legislative Appropriations Chairman John Stinner said the coming session will be another one in which senators, working with Ricketts, will have to set spending priorities to determine how to balance the two-year budget that covers July 2017 to June 2019.
They will look at all options, including a rainy day fund with $369 million, unspent funds in agency budgets, and other areas to make up the estimated loss in tax revenue, Stinner said.
"And always being mindful that we don't want to make short-term decisions that are going to have some really adverse long-term implications," he said.
Another member of the Appropriations Committee, a former senator who served as Appropriations chairman when he was in office, and a local budget policy think tank weighed in quickly with precautions on the forecast.
Appropriations member Sen. Kate Bolz of Lincoln said it was essential that, even amid budget challenges, the Legislature protect Nebraskans' priorities of education, public safety, health care and retirement funds.
The governor and Legislature need to look at all cost savings, she said.
"Those savings may come from sale of state assets, looking at agencies that were not cut in the previous session, or doing away with special projects," Bolz said.
Bolz said she will call together experts in the coming weeks to work with the Legislature to explore the forces behind the state's revenue shortfall.
Former Sen. Heath Mello, now the Holland Children's Movement chief operating officer, said Nebraskans expect a state budget that prioritizes and protects opportunity and investing in the future, from early childhood education to children's health.
Renee Fry of the OpenSky Policy Institute, a Nebraska think tank that follows state budget issues, said the revenue system is not keeping up with the needs of the state and further reductions could hurt schools, public safety programs and other services vital to the state.
"It would be prudent for lawmakers to wait until after the February forecast at the earliest to make any significant budget changes so that we can (have) a clearer understanding of our true revenue situation," she said.
The wild card in the budget situation is what the federal government might do with tax reform between now and February, when the forecasting board meets again.