Nebraska’s tax revenues continue to drop, falling below the optimistic projections for the economic future that were used to craft the state’s budget, which anticipated a spending increase.
Specifically, the Nebraska Department of Revenue reported the state’s overall tax collections from October to May are just under 1% lower than what was forecast, amounting to about a $53 million shortfall.
More concerning, the report found that May’s net tax receipts were 8.7% below forecast, including a 226.5% drop in corporate income tax revenue. Nebraska also recorded higher-than-expected tax refunds for May at $197 million, 29.5% more than the $152 million forecast.
Nebraska’s tax revenues have been slowly dropping for the past several months, following a period of high revenues that brought the state’s cash reserve to record-breaking levels.
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Neither Revenue Committee Chair Sen. Lou Ann Linehan of Elkhorn, who guided a series of corporate and income tax cuts for high earners through the just-ended legislative session, nor Appropriations Committee Chair Sen. Rob Clements of Elmwood are concerned about the shortfall, with Clements maintaining that the $53 million could be “easily absorbed” by an estimated $70 million in unspent funds from state departments.
Linehan pointed to predicted incoming revenues that the senators said could stabilize tax receipts for the immediate future. But sales tax revenue from the College World Series, now underway in Omaha, and quarterly tax payments that are due this month, should have been baked into the projections. So those funds at best would hold the state’s revenue at projected levels.
Linehan also maintained that she sees no evidence that the state’s economy is tightening. But the month-over-month drops in projected revenue argue otherwise — that the economy is slowing below the level that, even with some downward revisions, was used to forecast revenue.
If that flattening continues and the shortfall increases beyond the $70 million that could be covered by unspent funds, the state could, or perhaps would have to tap into the rainy day fund that is projected to be about $779 million by June 2025 to meet its budgetary obligations.
Raiding the emergency fund to meet an overly optimistic state budget should be avoided. That cash is there for true emergencies, not as a supplemental fund for appropriated expenditures on multimillion-dollar projects, such as a new prison or the proposed Perkins County Canal.
So in case the revenue does not stop dropping below projections, the Legislature and Gov. Jim Pillen should be identifying projects and tax cuts that can be delayed and areas where spending can be cut in order to, next year, balance its budget without using the emergency fund.
