Nebraska state tax revenue drops

2010-07-17T17:38:00Z 2010-07-17T17:39:21Z Nebraska state tax revenue dropsBy NANCY HICKS / Lincoln Journal Star JournalStar.com

The state of the economy can be seen in state tax revenues.

After years of almost steady growth, Nebraska tax revenue dropped two years in a row, something that hasn't happened in modern times.

The state collected about $3.2 billion this fiscal year, 4.6 percent less than the previous year.

In fact, fiscal year 2010 tax revenue is $147 million below annual tax revenue four years ago.

"If the line graph for revenue were a heart monitor, we'd be in cardiac arrest," one legislative staff member joked.

State tax revenue, primarily state income and sales tax, reflects the impact of the national recession -- layoffs, stock market crash and restrained spending.

The good news? After a two-year drop, there will likely be revenue growth next year, said Lavon Heidemann, chairman of the Legislature's Appropriations Committee.

"I don't think you will see three years of declining revenue," he predicted.

Tax revenues tend to lag behind economic conditions, said Gerry Oligmueller, budget director for the governor.

So even though the economy appears to be improving, don't expect state tax revenues to bounce up immediately, he said.

Senators often talk about revenue forecasts, predictions of future tax revenue. And there is angst during those periods when the actual tax receipts are less than the protections.

But a decline in actual tax revenue collected during a fiscal year is rare.

State tax revenue has dropped only one other time in the past three decades.

In fiscal year 2002, the state collected 3.7 percent less than in 2001.

But state tax revenue rebounded the next year, in part because the recession was ending, but it also was aided by tax rate hikes.

In the 2002 legislative session, senators cut spending and temporarily raised several taxes -- income tax rates, the sales tax to 5.5 percent and the cigarette tax.

They made those tax hikes permanent the next year, plus they raised liquor taxes and added sales tax to additional services, such as dog grooming.

But no senators seem interested in considering tax hikes next session.

And Gov. Dave Heineman has adamantly opposed tax increases.

So legislative committees will begin looking for spending cuts this summer and fall in anticipation of tough budget decisions next winter.

One Appropriations Committee member thinks this crisis is the perfect time to look beyond cuts to redesigning state government.

About 14 states are now doing comprehensive redesigns of state government, said Omaha Sen. Heath Mello.

Without redesigning government, "all we are doing is rearranging the deck chairs on the Titanic," Mello said.

Reach Nancy Hicks at 402-473-7250 or nhicks@journalstar.com.

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