Latest Numbers Leave Nebraska Struggling to Craft a 2-Year Budget

CHICAGO - With its latest revenue estimates in hand, Nebraska lawmakers find themselves grappling with a slew of fiscal and economic pressures and uncertainties as they craft a new two-year budget.

"In terms of depth and breadth, I can't say I've seen anything like this," said Michael Calvert, director of Nebraska's Legislative Fiscal Office for the last 25 years. "Building a budget is tough enough, and in very difficult financial times it's tougher, then throw on top of it all the pressures to figure out [the American Recovery and Reinvestment Act of 2009] and how it interrelates, it's almost like another budget process."

As the state heads into a new biennium, new estimates suggest revenues will bring in $362 million less than originally expected, according to the Nebraska Economic Forecasting Advisory Board, which released its latest revenue figures Friday. The declines are due to a myriad of factors - few unique to Nebraska - including rising unemployment, the slowed housing market, and declining grain prices.

The state's revenues were tracking relatively close to expectations through November, according to Calvert. "But they started to slip in December, and the economic data we use just really started dropping like a stone after that," he said.

The revenue estimates come after Gov. Dave Heineman and the Legislative Appropriations Committee released separate, $7 billion two-year budget proposals. Lawmakers will use the new revenue figures to continue to refine the budget, which the full Legislature is expected to pass around May 8.

The state is currently operating under a roughly $6.8 billion biennial budget for fiscal 2007-2009.

Individual income taxes are expected to take the biggest hit over the next three years, according to Friday's revenue forecast. Income tax revenue is expected to bring in $280 million less than originally expected through 2011. Sales tax, the state's other main revenue source, is not expected to decline far below previous relatively pessimistic estimates, Calvert said.

"Our original forecast in October [for sales tax revenue] was already pretty low," he said. "We're talking virtually flat sales tax growth in the current year, and very, very low growth in the second year."

Under Heineman's budget proposal, the state would spend $200 million from its reserve fund, which is expected to reach a record high of $593 million by the end of the current fiscal year on June 30. His budget includes no tax increases, $100 million in additional funding for K-12 schools, and an additional $25.6 million for the University of Nebraska.

The budget released last week by the appropriations committee is largely similar, with some additional spending for some health care and higher education programs.

In addition to new revenue estimates, upcoming budget adjustments will reflect an expected $1 billion in federal stimulus funds, much of which will be earmarked for specific programs.

Meanwhile, lawmakers will also need to figure out how to adjust for a recent $2 billion - nearly 28% - loss in its three retirement plans. An analysis of the state's long-term benefits strategy is pending, said Calvert.

Credit analysts have praised the state for having fully funded its three pension plans as of the end of 2006. Nebraska, which does not issue general obligation bonds, carries an issuer credit rating of AA-plus from Standard & Poor's.

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