Patching the state's budget hole

LINCOLN — Gov. Dave Heineman said Tuesday that closing Nebraska's $335.5 million budget hole will require shared sacrifice and belt-tightening.

But it will be next week before he recommends who should sacrifice — and how much — in response to a sober new forecast of state tax revenues.

“We're going to develop a very targeted and responsible budget proposal,” Heineman said. “I am confident that we can weather this fiscal storm.”

The governor said he will release his budget plan Monday or Tuesday. The Nebraska Legislature will meet in special session beginning next Wednesday.

The Nebraska Economic Forecasting Advisory Board on Tuesday issued a significantly more pessimistic forecast of state revenues than the Legislature had used in setting the current $6.94 billion, two-year budget.

The board predicted that tax revenues will be $3.28 billion during the fiscal year ending June 30 and $3.37 billion during the following year.

The budget gap is a combination of reduced revenue projections for the future and lower-than-expected tax collections during the 2008-09 budget year.

Added together, the gap amounts to 4.8 percent of the current budget.

State Sen. Lavon Heidemann of Elk Creek, the Appropriations Committee chairman, said the gap was a little larger than he expected.

But he said that won't change his approach to budgeting: All agencies and aid programs will have to be examined.

“Everybody's going to have to be a player. Everybody's going to have to be part of the solution,” Heidemann said. “Nobody likes to hear that, but it's just reality, and sometimes reality bites.”

A few options appear to be off the table, though. The governor said he would oppose any sales or income tax increase and would defend the state property tax credit program.

Heidemann said he hopes to protect the state's cash reserve, as well. The reserve contains nearly $330 million — not enough to fill the budget hole even if the reserve fund were completely drained.

Speaker of the Legislature Mike Flood of Norfolk said he hopes to deal with the whole budget problem during the special session, rather than leaving part of the problem for lawmakers to tackle next year.

Sen. Heath Mello of Omaha, a member of the Appropriations Committee, said the state needs a long-term vision to deal with the budget problem. He said the solution will require changing the way Nebraska does business.

Flood on Monday released a memo predicting that the special session will last at least into the third week of November. The memo said Flood might ask lawmakers to meet on Saturdays, if needed.

Heineman announced plans earlier this month to call a special legislative session because of a “dramatic and sharp downturn” in state tax receipts during September.

Earlier this month, Iowa Gov. Chet Culver announced his intention to cut his state's budget by 10 percent, the second across-the-board reduction in that state in the past year.

Nebraska forecasting board members projected that the state's economic woes would continue at least through the current fiscal year.

The board projected that revenues for the 2009-10 fiscal year will be 1.3 percent less than actual tax collections in 2008-09, which were less than the state collected in 2007-08.

The board projected a rebound in 2010-11, with revenues increasing 4 percent from the previous year. But state revenues would remain below the $3.41 billion collected in 2006-07.

David Dearmont, research administrator for the State Revenue Department, told the board that economic indicators show the “Great Recession of 2007-09” might be over.

Board members, however, said they see few signs of rebound yet in various areas of the state.

“I'm not sure it's a recovery,” said board member Tonn Ostergard of Crete. “It's just bouncing along the bottom, not getting worse.”

Information provided to the board showed that individual income tax receipts have been hit especially hard in recent months.

Dearmont noted that income tax withholding has dropped for the first time in at least three decades. “We've just never seen that,” he said.

Contact the writer:

402-473-9583, martha.stoddard@owh.com