Key budget figures

2013-14

Net revenues: $3.80 billion

Expenses: $3.87 billion

2014-15

Net revenues: $3.96 billion

Expenses: $4.05 billion

All figures estimated. Source: Legislative Fiscal Office

LINCOLN — Nebraska lawmakers will return to a cheerier budget picture Wednesday than they faced two years ago.

Then, they had a nearly $1billion shortfall to tackle.

Now, the gap between projected revenues and estimated expenses is less than $200 million.

Veteran members of the Appropriations Committee say they don't foresee too much difficulty closing the gap.

But they warn that lawmakers will need to exercise restraint in undertaking major tax cut or spending measures during the coming budget period.

“The picture is rosier, but it certainly isn't all roses,” said State Sen. Jeremy Nordquist of Omaha, who has helped craft two previous two-year state budgets.

That doesn't mean there will be any shortage of ideas for either tax cuts or spending.

Gov. Dave Heineman has floated various ideas in recent months for replacing some or all of the individual and corporate income taxes by broadening the state sales tax.

What he finally proposes may result in less money for the state coffers.

On the other side of the ledger, the Legislature is expected to see efforts to expand or create new state programs.

Among likely proposals are ones to expand Medicaid; increase payment rates for doctors, therapists and other health and human services providers; boost support for juvenile justice and child behavioral health services; and fund more early childhood programs.

Sen. Tom Hansen of North Platte, who is running for Appropriations Committee chairman, said senators should not move hastily to adopt any of the ideas.

“We ought to make very careful spending decisions, especially on things that carry on” into future years, he said.

Nordquist and others point to reasons for caution during the two-year budget period beginning July 1.

While state tax revenues have rebounded from their low point in the 2009-10 fiscal year, they have been growing more slowly than is typical.

The state forecasting board projects average revenue growth of 4.7 percent in the current budget period and 4.5 percent in the coming one. The historical average is 5 percent.

The nation's slow recovery from recession, uncertainty about the federal budget and drought in Nebraska all are contributing to lower growth.

In addition, two laws passed in previous years take effect during the new budget period.

One earmarks a quarter-cent of state sales tax revenues for road-building and maintenance. The law means about $73 million less per year going into the state's general fund.

The other cuts income taxes. Those tax cuts, which are phased in, will reduce state tax collections by about $56 million per year when fully implemented in the 2014-15 fiscal year.

Sen. Heath Mello of Omaha, who also is running for the Appropriations Committee chairmanship, said lawmakers must make sure the state can fulfill those obligations and close the budget gap before undertaking other ideas.

“Those are commitments the Legislature has made with regard to this budget cycle,” he said. “We have a lot of ground to make up before we can embark on new tax reform and large-scale new spending proposals.”

Lawmakers should be able to eliminate the $200 million shortfall without drastic measures, said Sen. John Wightman of Lexington, an Appropriations Committee member.

Reining in the growth of state school aid could go a long way toward closing the gap.

Under current law, the funding formula calls for a $227million increase in aid to K-12 schools over the two-year period.

The governor and Sen. Greg Adams of York, who has been Education Committee chairman, want to change the formula so it produces an increase about half that size.

They face a fight from education officials, who are gearing up to defend the current formula.

Meanwhile, Nordquist, the chairman of the Nebraska Retirement Systems Committee, said he is working with school employees, judges and state troopers on ways to keep their retirement plans healthy without an infusion of state dollars.

An actuarial report in November said about $120 million more would be needed to keep the plans on solid ground.

Once the shortfall is taken care of, lawmakers will have to weigh the state's priorities in deciding what else they want to fit into the budget, Mello said.

One wild card along the way will be the revenue projections used in crafting the state budget.

The state economic forecasting board will meet twice to update their projections before the session is scheduled to end in June. The new projections could ease or increase budget pressures.

Either way, the state's cash reserve fund offers some budget flexibility. The fund is expected to reach $442 million in the fiscal year starting July 1.

Hansen said he believes lawmakers will have to dip into the cash reserve to take care of the competing budget demands.

“At the end of the session, we have to have a balanced budget,” he said.

Contact the writer: 402-473-9583, martha.stoddard@owh.com

Budget timeline

Wednesday: Legislature convenes

2013 session

Jan. 15: Deadline for Gov. Dave Heineman to submit his budget recommendations

Late February: Forecasting board meets to revise tax revenue projections

Late April: Forecasting board

meets again

May 1: Appropriations Committee budget plan due to full Legislature

May 20: Deadline for the Legislature to approve a state budget for fiscal years 2014 and 2015; other bills affecting the budget can be passed later

June 5: Legislature scheduled to end

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