Nebraska budget deficit to grow by nearly $175M after new economic conditions • Nebraska Examiner

LINCOLN – A new economic proposal has doubled the size of Nebraska’s deficit from what state lawmakers have cut it so far.

Lawmakers entered the session seeking to address a $471,000 budget shortfall, based on an October forecast from Nebraska’s Economic Forecasting Advisory Board. The budget cuts made by the House Appropriations Committee through Wednesday reduced the projected shortfall to $155,000, according to financial analyst Keisha Patent.

But the forecasting committee met again on Friday and adjusted its opinion, reducing the expected income of state taxes by another 175 million dollars for the next financial year starting July 1. Patent said that this will bring an estimated loss of up to 301 million dollars, which the legislators are responsible for fixing before the end of March.

State Sen. Rob Clements of Elmwood, chairman of the Appropriations Committee, said the new estimates were close to what he expected. He said he remains confident that the Parliament can balance the country’s budget within its time limit, even if there is no cost.

“It takes some belt-tightening,” Clements said.

The biggest contributor to reducing earnings was corporate taxes, which the board expected to drop by $100,000 over the next two years. Hoa Phu Tran, an economist at the Nebraska Department of Revenue, said this was due to the decline of companies in the country.

Tran said he also believes some Nebraska business owners may be wary of making big moves because of President Donald Trump’s tax cuts. Board member Matt Miltenberger questioned whether the US Supreme Court’s strike on many of the tariffs last week would have any effect, but Tran said that was too much to say.

While corporate tax revenues have been declining for the past several months, Nebraska’s Gross Domestic Product is up. Tran said advances in corporate technology such as artificial intelligence may have contributed to this, as it helps business efficiency but is not always matched by higher corporate tax rates.

Board members said they saw “bright spots” in Nebraska’s economy but also noted many areas of concern. Board member, Mr. John Bourne, says he heard grain farmers are scared as crop prices continue to be low, and cattle farmers are scared even though the industry seems to be thriving.

Meanwhile, Miltenberger said Omaha’s economy appears to be strong based on the number of construction projects throughout the city.

“If anything, people are complaining that there’s too much construction going on. You can’t walk downtown,” Miltenberger said.

In central Nebraska, however, board chairman Richard McGinnis said there are signs that economic growth is slowing. He blamed this on the closing of the Tyson Foods beef plant in Lexington, which McGinnis called “a disaster.”

Tran said he agrees with a University of Nebraska-Lincoln study on the shutdown, which predicted the shutdown would cost the state about $33 million in tax revenue — $23 million from personal taxes, and $10 million from sales taxes.

McGinnis cited a report from the Federal Reserve Bank of Kansas City, which estimates the closure of the plant could bring the Dawson County unemployment rate from an average of 2.9% in 2025 to more than 27% in the next three years. McGinnis called the increase “unheard of,” and said he expects a “very painful” few years for the surrounding area.

“When you talk about it, you’re talking about the Great Depression of the 1930s,” McGinnis said of unemployment estimates. “It’s one region, it’s not a country, but it’s very important.”

With recent developments, both Clements and the Chairman of the Committee on Revenue State Sen. Brad von Gillern of Elkhorn agreed that “everything has to be on the table” regarding balancing the state budget. Von Gillern said a large deficit would require deeper cuts than he wanted to go into the sector.

In previous sessions, lawmakers considered a reduction in the federal income tax rate, which is set for another reduction before reaching 3.99% in 2027. During this reduction, the sales and use tax revenue overcame the federal income tax rate as Nebraska’s highest tax rate for the fiscal years 2023-2024-2024-2024.

Clements, who refused to be pressured to stop the income tax cuts, stressed on Friday that there are “other options” that lawmakers could use to balance the budget, but declined to name what he wanted.

The current outlook may mean lawmakers will have to withdraw more dollars from the state’s rainy day fund, although Gov. Jim Pillen has requested that no money be taken from this section. Current projections put the surplus at $674 million at the end of the current budget cycle.

Clements indicated he was open to using savings to control the deficit but declined to say how open he is to the drawdown.

Pillen’s budget proposal recommended $495 million in spending cuts, mostly through general fund sweeping, but the Appropriations Committee only accepted some of his proposals. The governor’s plan would lead Nebraska to about $125 million in funding by the end of FY 2027, according to Pillen’s team.

In a statement from Pillen’s office on Friday, the governor called Nebraska’s economy “strong and robust.” Pillen noted that the current estimate translates to “only a 1.1% reduction” in the budget estimate for the current biennium.

“Today we have a great opportunity to be a strong investor,” Pillen said in a statement. “I look forward to working with the Legislature to respond to the reform demands of Nebraskans and tighten our belts to reduce government spending and support stronger and more focused ways to manage government.”