The Nebraska Economic Forecasting Advisory Board met on Monday, February 27 to update the projections for General Fund revenue for the remainder of this fiscal year and into the next two years. Known as the NEFAB, the forecast made by this group determines amount the Appropriations Committee uses when developing the biennial budget and the dollars appropriated by the Legislature for state government spending. Based on revenues that have lagged below projections made when the NEFAB met last in October and using ongoing economic modelling, the board decreased its revenue projection for the current year and next two years of the biennium.
It is critical to recognize that although the revenue forecast was decreased, state revenues are still expected to increase under current tax law. According to the NEFAB projections, the state of Nebraska will collect $420 million more in sales and income tax revenue in fiscal year 2018-2019 than this year. That represents an increase in sales and income taxes collected by 9.7% compared to the revised revenue amount of $4,315,000,000 for the current fiscal year.
Most of the coverage and discussion about state spending has focussed upon cuts and reductions in spending on certain programs. The term “revenue shortfall” reflects the difference between the growth in state revenue previously predicted to occur and current growth. Taxes collected continue to increase, as does state spending, despite reductions in the revenue projections made by the NEFAB.
The dollars of the projected decrease in revenue are large, but not that dramatic when put in the perspective of the overall General Fund collections that are over $4.3 billion. The $91 million decrease in the current fiscal year is 2.1% of the total sales and income taxes projected to be collected. Of the $13.5 billion in General Fund revenue that will be collected in the next three years, the revenue reduced in the forecast constitutes 1.2% of the total.
In addition to the Constitutional requirement for a balanced budget, Nebraska statute requires a minimum reserve of 3% of the General Fund be maintained for cash flow and emergency use purposes. That amount is approximately $129 million. The balance between revenue, expenses, and the required minimum reserve is reflected in the General Fund Financial Status. The website of the Nebraska Legislature provides a link for taxpayers to see and examine the most current available numbers on the Financial Status at any time.
State spending is not based upon a zero-base budget that prioritizes programs and spending needs. Rather, the budget is based upon the previous year’s appropriations and presumes to spend all revenue collected by the state. Dollars appropriated to a budget but not spent are not automatically removed from an agency’s budget, nor is the next year’s budget reduced to reflect those unspent funds as a matter of routine practice. Agencies expect to receive the same amount of dollars appropriated the previous year, along with automatic increases for salary and benefit increases of employees, even if they did not spend all of the previous year’s funds.
The decreased Revenue Forecast complicates spending decisions by the Legislature. However, is also presents a valuable reminder about the variability of sales and income tax collections. These are dollars directly from the pockets of Nebraska families and businesses. They reflect the spending and fiscal status of taxpayers. They should not be taken for granted, nor treated as property of the state or state agencies. As the financial conditions of Nebraska families change, so must the spending of the state.