State’s short-term economic health improves, but slowdown predicted

October 27, 2018 GMT

The Nebraska Economic Forecasting Advisory Board improved its revenue estimate for this fiscal year on Friday, projecting the state will collect $69 million more in revenue than it identified in its February forecast.

But the forecasters also predicted slower growth in state tax revenue over the next two years, leaving Nebraska with a projected $232 million budget shortfall in 2020-21.

The advisory board adjusted its 2018-19 prediction made in February for sales tax collections from $1.685 billion to $1.7 billion; individual income from $2.471 billion to $2.495 billion; and its corporate income tax from $308 million to $335 million.

While the state is experiencing low unemployment and high production in agriculture and other fields, forecasting board members said they sense Nebraska’s economy will contract in coming years.

Tonn Ostergard told the board while the state’s economy is “still strong,” Nebraska has passed its economic peak in the decade-long recovery since the Great Recession.

Board member Richard McGinnis said even as the agricultural sector faces retaliatory tariffs from China and other countries, farmers are reporting “enormous” yields that may help most profit or break even this year.

Other board members said a lack of qualified workers has slowed production in some industries throughout the state, which combined with low unemployment has caused production to stagnate.

Looking ahead, the board projected slowing revenue growth in both the 2019-20 and 2020-21 fiscal years of 3.3 percent and 2.8 percent, respectively -- rates that fall short of the historical average growth of 4.7 percent.

That slowing growth, and the accompanying $232 million revenue shortfall projected by the end of the 2020-21 fiscal year, would hit just as the overall economy begins to retract.

State Sen. John Stinner of Gering, chairman of the Appropriations Committee, said Friday he was still poring over the numbers, but said the adjusted numbers created “a doable budget” next year.

Stinner said his priority will be to replenish the state’s cash reserve -- “the rainy day fund” -- and create room for the potential Medicaid expansion that Nebraska voters are to decide on next month.

“It doesn’t leave anything on the floor for a new spend,” he said, “and we need to repair some of the things that happened over the last biennium, like restoring spending levels to some agencies and provider rates.”

Gov. Pete Ricketts said the forecasting board’s decision to raise its revenue projection “underscores our state’s growing economy,” but he also said the potential for Medicaid expansion would likely negate any growth.

“Even with projected growth in revenue, Medicaid expansion for able-bodied adults would make property tax relief nearly impossible and cut funding for education,” Ricketts said in a statement.

Insure the Good Life, which is leading the campaign supporting Initiative 427, said expanding Medicaid would return millions of federal tax dollars back to the state to create health care plans for 90,000 low-income people who currently earn too much to qualify for Medicaid, but not enough to qualify for other health-care subsidies.

A Lincoln think-tank warned the forecasting board’s future projections show changes enacted to Nebraska’s tax structure “are continuing to weaken” the state’s ability to generate revenue heading into an economic downturn.

“This highlights the importance of bolstering the cash reserve and examining our revenue system to make sure we can sustain investments in education, health care and other services essential to a strong economy,” said Renee Fry, executive director of the OpenSky Policy Institute.

But the upward revision of this year’s tax collections is welcome news for University of Nebraska students.

Earlier this year, the NU Board of Regents authorized President Hank Bounds to implement a midyear tuition increase if Ricketts chose to withhold the university’s appropriation in order to rein in spending.

It would have marked the second tuition increase for the 2018-19 school year, after a 3.2 percent increase took effect this summer.

According to an agreement described by Bounds, the governor would let NU know whether he intended to withhold their appropriations following the October meeting of the forecasting board.

On Friday, Bounds said Ricketts told NU “in light of the positive fiscal news for the state, there are no plans to hold back appropriations to the university in 2018-19.”

“Therefore, a midyear tuition increase will not be necessary -- good news for our students and families,” Bounds said.