Nebraska’s budget deficit to grow by roughly $175M after new economic forecast

The Ten Commandments on the Nebraska State Capitol. April 17, 2025. (Juan Salinas II/Nebraska Examiner)

BY:ERIN BAMER, Nebraska Examiner

LINCOLN — A new economic forecast effectively doubled the size of Nebraska’s projected deficit from what state lawmakers had reduced it to so far this legislative session.

Lawmakers entered the session aiming to fix a $471 million budget deficit, based on October projections from Nebraska’s Economic Forecasting Advisory Board. Budget cuts made by the Legislature’s Appropriations Committee through Wednesday had narrowed the projected shortfall to roughly $155 million, according to Legislative Fiscal Analyst Keisha Patent.

But the forecasting board met again Friday and adjusted its projections, reducing expected state tax revenues by another $175 million for the next fiscal year beginning July 1. Patent said this will bring the projected deficit up to about $301 million, which lawmakers are tasked with fixing before the end of March.

State Sen. Rob Clements of Elmwood, chair of the Appropriations Committee, said the new projections were close to what he expected. He said he remains confident that the Legislature can balance the state budget within its deadline, though not without some cost.

“It will require some more belt-tightening,” Clements said.

The biggest contributor to lower revenues was corporate income taxes, which the board expected to drop by $110 million over the next two years. HoaPhu Tran, revenue economist for the Nebraska Department of Revenue, said this was partially due to lower corporate margins statewide.

Tran said he also believes some Nebraska business owners might have been wary of making big moves due to President Donald Trump’s tariffs. Board member Matt Miltenberger asked if the U.S. Supreme Court striking down most of those tariffs last week would have any impact, but Tran said it was too soon to tell.

While corporate tax revenues had been on the decline the past several months, Nebraska’s overall Gross Domestic Product has risen. Tran said advancements in corporate technology like artificial intelligence likely contributed to this, as it aids business efficiencies but doesn’t always correlate to higher corporate tax revenues.

Board members said they observed plenty of “bright spots” in Nebraska’s economy but noted just as many areas of concern. Board member John Bourne said he’s heard grain farmers are scared as crop prices remain low, and cattle farmers are nervous even though the industry appears to be thriving.

Meanwhile, Miltenberger said Omaha’s economy seems to be going strong based on the large amount of construction projects throughout the city.

“If anything, people are complaining there’s too much construction going on. You can’t get around town,” Miltenberger said.

In central Nebraska, however, board chair Richard McGinnis said there are signs that economic growth is slowing. He partially blamed this on the closure of the Tyson Foods beef plant in Lexington, which McGinnis called “a disaster.”

Tran said he agreed with a University of Nebraska-Lincoln analysis of the closure, which predicted the shuttering would lead to the state losing out on approximately $33 million in tax revenue — $23 million from personal income taxes, and $10 million from sales taxes.

McGinnis mentioned a report from the Federal Reserve Bank of Kansas City, which estimated the plant’s closure could bring Dawson County’s unemployment rate from an average of 2.9% in 2025 to more than 27% over the next three years. McGinnis called that increase “unheard of,” and said he expects “a very painful” few years for the surrounding region.

“When you talk about that, you’re talking about the Great Depression of the 1930’s,” McGinnis said of the unemployment estimates. “It’s one county. It’s not a state. But it’s very very significant.”

With the latest projections, both Clements and Revenue Committee Chair State Sen. Brad von Gillern of Elkhorn agreed that “everything has to be on the table” in regards to balancing the state budget. Von Gillern said the larger deficit will require deeper cuts than he wanted going into the session.

In past sessions, lawmakers have mulled freezing the state’s phased income tax rate reductions, which are set for one more decrease before flattening out at 3.99% in 2027. During these reductions, sales and use tax revenues overtook individual income taxes as the top tax revenue generator for Nebraska for fiscal years 2023-24 and 2024-25.

Clements, who has resisted past pressure to freeze the income tax rate reductions, held firm Friday that there were “other options” lawmakers could use to balance the budget, though he declined to specify which he favored.

The latest forecast likely means lawmakers will have to pull some dollars out of the state’s rainy day fund, although Gov. Jim Pillen requested no money be pulled from the cash reserve this session. Current projections put the reserve’s balance at $674 million by the end of the current budget cycle.

Clements indicated he was open to using reserve funds to balance the deficit but declined to say how much he was comfortable pulling.

Pillen’s budget proposal suggested $495 million in spending cuts, mostly through cash fund sweeps, but the Appropriations Committee has only accepted some of his recommendations. The governor’s plan would lead Nebraska to a $125 million budget surplus by the end of FY 2027, according to Pillen’s team.

In a statement from Pillen’s office Friday, the governor called Nebraska’s economy “strong and resilient.” Pillen noted that the latest forecast translates to “only a 1.1% reduction” in revenue projections for the current biennium.

“Today we have a great opportunity to be strong fiscal conservatives,” Pillen said in the statement. “I am looking forward to working with the Legislature to respond to updated projections like all Nebraskans do and tighten our belts to reduce government spending and support more efficient and focused outcome-based approaches to running government.”

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