State lawmakers now tasked with filling larger shortfall than they just filled earlier this year
By Erin Bamer | Nebraska Examiner
LINCOLN — Nebraska lawmakers will begin their 60-day legislative session in January with a larger projected deficit than the hole they just filled during the 90-day session this year.
The new projected deficit stands at roughly $471 million, as confirmed by Legislative Fiscal Analyst Keisha Patent during a meeting Thursday of the Nebraska Legislature’s Tax Rate Review Committee.
“I wish it was rosier, but we’ll figure it out,” said State Sen. Ben Hansen of Blair, the committee’s chair, at the end of the meeting.
Lawmakers this spring grappled with a fluctuating deficit that at one point grew to $432 million. After some cuts, they ended the session with a projected surplus of about $4 million by the end of the biennium in 2027.
However, state senators left a structural deficit that would have grown to about $129 million by the end of the following biennium in 2029.
Shortly after the session ended, new estimates and revenue numbers pushed the current two-year budget back into a projected shortfall of about $95 million at the previous Tax Rate Review Committee meeting in July. That meeting also grew the next biennium’s projected deficit to $218 million.
Then, at Nebraska’s Economic Forecasting Advisory Board’s latest meeting Oct. 31, board members lowered predictions for expected state revenues by roughly $367 million over the next two fiscal years.
Those adjustments alone grew the shortfall to about $451 million. In addition, higher-than-expected obligations for community college aid and special education reimbursements brought the projected deficit to $471 million.
The next biennium’s projected deficit grew to at least $690 million, but Patent said it could be up to $1 billion more based on the forecasting board’s latest projections. She said she calculated the out-year deficit based on Nebraska’s historical revenue growth, which typically ebbs and flows every few years.
The state’s monthly tax receipts for 2025 have been a mixed bag, but overall monthly revenues have fallen below past forecasts. The latest receipts for October show a net gain of $311 million, which Patent said was modestly above the projections for that month.
Speaker of the Legislature John Arch of La Vista, who serves on the committee, noted that the state’s current trend of lower revenues can be explained in part by the Legislature’s decision in 2023 to gradually lower individual and corporate income tax rates, which subsequently lowered the state’s annual revenues. These reductions are slated to halt at 3.99% in 2027, at which point Arch said he expects to see more growth in Nebraska’s economy.
“It’s kind of a reset over a period of years as you lower the rates,” Patent said. “So that’s anticipated that we’d get back on trend with the economy.”
Another contributor to the deficit is the “One Big Beautiful Bill” Congress passed this summer. Nebraska’s Department of Revenue released a report in September estimating that the bill would cost Nebraska’s state government about $216 million over the next two fiscal years, which was factored into the latest forecast.
Patent’s report outlined an avenue for lawmakers to potentially lower the projected shortfall to about $311 million, based on state agencies’ mid-biennium budget requests. A majority of agencies requested budget reductions, which would total roughly $160 million in additional general fund dollars over both years, if lawmakers approve the requests as written.
Typically, Patent said she calculates for an extra $5 million in general fund spending through mid-biennium adjustments.
Appropriations Committee Chair State Sen. Rob Clements of Elmwood, said he was surprised by a few of the budget requests asking for higher appropriations. The largest of these would cover the state’s Medicaid shortfall, with the Department of Health and Human Services requesting an extra $56.5 million for the current fiscal year, and $77.1 million for fiscal year 2026-27. Patent said the increase is linked to higher-than-expected utilization of the service.