State revenues for Nebraska are exceeding projections, but state officials shouldn’t make overly optimistic assumptions about any overall trend. Caution should be the watchword on the budget front for Nebraska leaders.
The state collected $76.5 million more in taxes than forecast for July 1 through Sept. 30, the Nebraska Department of Revenue reports. That’s 6.3% higher than the Nebraska Economic Forecasting Advisory Board had projected for the first quarter of the budgetary fiscal year. Corporate income tax revenues provided more than half the increase.
The entirety of the $76.5 million could go into the cash reserve fund, but that’s not a certainty. Why? Because above-projected revenues are placed in the cash reserve only at the end of the fiscal year, which for the current budget will be June 2020. State leaders won’t actually know what extra revenues will be added to the cash reserve, if any, until the remaining three quarters of the budget year have transpired.
If the $76.5 million were added to the cash reserve, the fund’s unobligated total would be $531 million. That’s an improvement over the current $455 million. But a cash reserve of $531 million is still considerably short of the $800 million that fiscal experts recommend, relative to the size of Nebraska’s overall budget. As past experience with recessions and revenue downturns has clearly shown, maintaining a healthy cash reserve is a vital obligation for Nebraska state government.
Perhaps the revenue numbers indicate a continuing positive trend, but a host of question marks hang over Nebraska’s economy and, so, the state budget. The state unfortunately could well see a return of catastrophic flooding next year, given current weather forecasts, with possible negative effects on the economy. The agricultural sector faces considerable challenges, including low commodity prices and the ongoing trade uncertainties. Ethanol, the third-largest segment of the state’s ag economy, received a bit of relief from federal authorities, but the sector is still digging out from challenging market conditions. The state forecasting board meets in October, and its analysis should provide some clarity on general conditions.
Nebraska leaders and constituents can legitimately disagree over how any unexpected revenues should be allocated — for tax relief, spending, building up the cash reserve. But officials should be straightforward with the public. They shouldn’t exaggerate the size of possible tax relief or act as if the state’s budget challenges are magically solved. Nor should they count any additional cash reserve chickens before the actual hatching at the end of the fiscal year. Lawmakers also have a duty to get a new business incentives law in place, since the Nebraska Advantage Act sunsets at the end of 2020.
Responsible budget management requires ongoing discipline and difficult choices. Higher revenues help, but they don’t eliminate the hard work that lies ahead.