LINCOLN — Gov. Pete Ricketts said Friday that sunny predictions of Nebraska tax revenue this year should pave the way for more property tax relief next year.
The governor commented after a state panel delivered an optimistic projection of state tax collections for the period ending June 30, 2023.
The Nebraska Economic Forecasting Advisory Board boosted its October forecast for that time period by $462 million. The total includes an increase of $204 million for the fiscal year ending June 30, plus increases of $165 million and $93 million in the following years.
“Nebraska’s economy continues to deliver great opportunities in the midst of the pandemic, resulting in strong tax revenues,” Ricketts said. “The increased forecast gives the state the opportunity to continue controlling spending, so we can deliver even more property tax relief on top of what I had already proposed in my budget.”
A law passed in August created a new property tax credit program, under which property owners can receive refundable income tax credits to offset a portion of the school property taxes paid. The credits are starting out at $125 million this year.
The law determines the credit total in future years based on growth in state tax revenue and the size of the state’s cash reserve.
The governor’s budget had called for putting an estimated $298 million toward the program next year. He proposed to do so by transferring money into the cash reserve, a maneuver that would maximize the amount allocated for the credits.
Under the updated forecast, an estimated $313 million would be directed toward those credits without the governor’s maneuver. With the maneuver, the credit total would jump to an estimated $378 million next year.
The amount allocated for the credits will not become final until early July, once the actual tax collections for the year are known.
She noted that state revenue growth this year appears artificially high because the deadline for paying 2019 income taxes was moved back from April to July in response to the pandemic. If those taxes had been paid in April, as in normal times, the updated forecast would show a drop in state revenue for the current fiscal year.
“Looking ahead, state revenues are projected to remain relatively flat in large part because of the increased cost of the credit,” she said, “which could force future lawmakers to have to cut funding for services like schools, roads and health care, which are essential to our state and its economy.”
Nebraska collected $4.939 billion in the year that ended June 30, 2020. The new projections call for the state to end the current fiscal year with $5.49 billion. But the total is forecast to drop to $5.085 billion the next year and $5.368 billion in the year ending June 30, 2023.
State Sen. Anna Wishart of Lincoln, vice chair of the Appropriations Committee, welcomed the new forecast, saying it will make it possible to rebuild the state’s cash reserve. The reserve, also known as the state’s “rainy day fund,” had dropped to $333.5 million in 2019, after a couple of years in which state revenue slowed.
Jessica Shelburn, state director of Americans for Prosperity, said the Legislature’s priority should be ensuring that the state has a healthy cash reserve and reforming the state’s tax code to allow for a stronger economic comeback.
The forecasting board members all expressed optimism about the economy in their areas of the state, despite the pandemic. Richard McGinnis of Kearney said the hospitality industry is struggling but is more than offset by other sectors. He also noted that fewer people are working now than before the pandemic, although the state’s unemployment rate is low.