Influx of federal money eases Nebraska state budget woes

January 20, 2019

LINCOLN, Neb. (AP) — Nebraska lawmakers getting to work on a new budget won’t face as much pressure to cut as they previously thought, thanks to an influx of federal dollars, but some still worry the state’s financial challenges aren’t over.

Nebraska is on pace to get an extra $92.1 million from the Federal Medical Assistance Program over the next two fiscal years, according to documents released last week in Gov. Pete Ricketts’ proposed budget.

The federal funding boost frees up state money that would otherwise go to recipients of Medicaid and other government assistance programs.

“It’s a more significant improvement than we’ve experienced in a number of years,” said Nebraska State Budget Administrator Gerry Oligmueller.

The extra money is a good-news, bad-news situation for Nebraska.

Federal aid is distributed based on each state’s per-capita income and population, relative to other states. Nebraska’s once-booming agricultural economy helped lift the state above many of its counterparts for several years, resulting in a lower federal match rate and less money. Lawmakers made up the difference with state tax dollars.

But now that farm incomes have fallen sharply, Nebraska is faring worse than many other states and is entitled to a larger federal payout.

Agriculture is Nebraska’s largest industry, accounting for about 20 percent of its overall gross domestic product, according to the state Department of Agriculture. Because farm incomes can swing so wildly from year to year, the industry has a strong influence on Nebraska’s overall tax collections, said Tom Bergquist, director of the Legislative Fiscal Office.

“Omaha and Lincoln could be doing fine, but that big fluctuation (in farm income) changes everything,” Bergquist said. “If you have a 50 percent change in an industry that accounts for 10 percent of your total economy, that’s a 5 percent change of the total.”

Nebraska is among a handful of Midwestern states gaining federal aid. Kansas, Iowa, South Dakota and Missouri are all seeing their federal contributions increase in the coming U.S. fiscal year, according to Federal Funds Information for States, which tracks the effects of federal policy decisions on states.

Despite the boost in federal aid, the chairman of the Legislature’s budget-writing Appropriations Committee said he still plans to take a cautious approach after confronting several years of revenue shortfalls.

“This is kind of a fluid situation,” said Sen. John Stinner, of Gering.

Stinner said he has told fellow lawmakers not to expect much money for new spending this year. He noted that Nebraska’s cash reserve is still well below $500 million, a threshold some senators have identified as a comfortable amount to protect the state in tight budget times.

Stinner and Speaker of the Legislature Jim Scheer have both voiced concerns about a dip in the state’s tax collections over the last few months.

The state’s financial outlook might also worsen in February, when the Nebraska Economic Forecasting Advisory Board sets new revenue projections.

“There’s still a lot of work to do,” Stinner said.

Nebraska still faces a projected $95 million revenue shortfall, but Bergquist said it would have been worse with a lower contribution from the federal government. Ricketts’ proposed budget fills that gap in Nebraska’s general fund by drawing money from other state accounts, as lawmakers routinely do to balance the budget.


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