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New estimates result in smaller Nebraska budget shortfall

November 15, 2018

LINCOLN, Neb. (AP) — Nebraska’s state revenue shortfall isn’t quite as severe as previously thought, but lawmakers will still face a tight budget that could make it difficult to approve any new spending or tax cuts.

Estimates released Thursday show that lawmakers will have to fill a projected $95.1 million shortfall in the upcoming two-year, $9.5 billion budget. Earlier projections pegged the shortfall at roughly $232.6 million, but legislative leaders cautioned that they will still have to find money to balance the state’s finances when they reconvene in January.

“I still think of it as a meager budget,” said Sen. John Stinner, of Gering, chairman of the budget-writing Appropriations Committee.

Legislative Fiscal Office Director Tom Bergquist said the change was largely driven by the formulas that determine K-12 school aid and federal Medicaid funding. New calculations from both formulas reduced the amount of money the state will have to contribute for schools and Medicaid recipients.

“It’s a significant difference, and that’s what translated into some savings,” Bergquist told members of the Legislature’s Tax Rate Review Committee.

The school aid formula distributes money by determining each district’s needs and subtracting the amount of revenue schools can generate locally, primarily through property taxes. State government makes up the difference.

For Medicaid, Nebraska get federal matching dollars based on how much per-capita incomes have grown compared to the national average. Nebraska has slipped relative to other states, triggering an influx of federal money.

The updated projections also include revenue estimates from online sales taxes, a revenue source the state hasn’t fully tapped until recently, when the U.S. Supreme Court cleared the way for states to tax internet purchases.

The Department of Revenue has given online retailers until 2019 to start collecting taxes on sales within the state.

The taxes are expected to generate $26 million in the next fiscal year, which starts July 1, and $30 million the following year. Nebraska previously required buyers to self-report their purchases on their state income tax forms, but few people complied, and that approach only generated about $1 million annually.

The new estimates also pegged the gross costs of the recently passed Medicaid expansion ballot measure at $21.4 million in the upcoming fiscal year and $51.5 million the following year.

The net costs are less certain, however, because of differing predictions of how much the measure will save the state by tapping into federal money.

Analysts for the Legislature predict a net cost of $14.8 million in the first year and $33.2 million the following year, when all of the savings are counted. Analysts for Republican Gov. Pete Ricketts’ administration say the savings will be less, resulting in a net cost of $18.4 million and $44.7 million, respectively.

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Follow Grant Schulte on Twitter at https://twitter.com/GrantSchulte

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