LINCOLN, Neb. — Nebraska Gov. Pete Ricketts ordered state agencies Friday to continue their clampdown on spending after new revenue estimates suggested that lawmakers will face more budget problems next year.
Ricketts issued the directive after the Nebraska Economic Forecasting Advisory Board revised its revenue forecast downward by $217.2 million, essentially lowering the amount of money available for the 2018 session.
“When revenues fall short of forecasts, Nebraskans expect state government to exhibit the same fiscal restraint as they do in their own households,” Ricketts said in a written statement.
The directive keeps in place a hiring freeze for state employees, a ban on non-essential travel, a reduction in money available for grants and restrictions on equipment purchases. Agencies were also warned to prepare for budget cuts and told they will see a 1 percent reduction in funding during the third and fourth quarters of the current fiscal year.
Under the new estimates, lawmakers will face a projected shortfall of roughly $195 million in the current two-year budget cycle. The board’s changes follow a contentious budget debate this year, when a shortfall forced lawmakers to dip into their cash reserve and take unspent money back from state agencies.
“This is obviously going to be another session where we set priorities,” said Sen. John Stinner of Gering, chairman of the budget-writing Appropriations Committee.
Stinner said lawmakers may consider taking even more money out of the cash reserve, which had been on pace to reach a record-high $729 million in June 2016, but has since been reduced to $369 million.
Another committee member, Sen. Kate Bolz of Lincoln, said she was also open to using the cash reserve. Bolz said she plans to convene a group of economic and fiscal experts to dig deeper into why the state has been struggling with revenue shortfalls.
Some forecasting board members said a struggling farm industry appears to have offset the vibrant economies in Omaha and Lincoln, even though agriculture is showing signs of improvement.
“I think things have improved dramatically, and we’re on track for further improvements,” said board member Thomas Henning, of Kearney.
Henning pointed to high crop yields for farmers, which softened the impact of low commodity prices, as well as increased local spending and Nebraska’s low unemployment rate.
State officials cautioned that the revenue estimates could change, especially if President Donald Trump and Congress pass a major tax overhaul. Nebraska’s tax system is closely linked to the federal system, so changes at the federal level can influence the state’s numbers.
Guessing the impact on the state’s finances could be even more difficult if any federal changes are made in January, just a month before the forecasting board is scheduled to update its projections.
“It’s going to be insanity to try to figure out what that consequence is,” said Michael Calvert, director of the Legislative Fiscal Office.
A Nebraska tax policy think tank said projections show that state revenue isn’t keeping pace with the state’s needs. Renee Fry, executive director of the Lincoln-based OpenSky Policy Institute, said lawmakers should wait until after the next scheduled forecast in February before making any major budget changes.
“Today’s forecast underscores that Nebraska faces tremendous uncertainty regarding our revenues as we don’t have a full understanding how federal tax changes could impact us,” said Fry, whose group advocates against budget cuts for K-12 schools and public safety programs.
Based on the board’s latest estimates, the state will collect around $4.5 billion in the current fiscal year and nearly $4.7 billion in the next fiscal year that starts on July 1, 2018.
Follow Grant Schulte on Twitter at https://twitter.com/GrantSchulte