The Nebraska Economic Forecasting Board (NEFAB) on Oct. 27 adjusted its state revenue forecasts downward resulting in a budget shortfall of roughly $195 million for the current budget biennium. NEFAB revenue forecasts are used by state senators to set the state spending. Senators adopted a biennial budget earlier this year, but because they are required by the constitution to balance the budget, the decrease in forecast revenue means budget adjustments will be necessary during the 2018 legislative session in order to balance.
NEFAB revenue forecasts declined $100 million for the current fiscal year and $123 million for fiscal year 2018-19. NEFAB projects revenues to grow, but at a slower rate than it forecast in April when it last met. In April, it projected revenues to grow 5.6 percent in FY2017-18, and 5.4 percent in FY2018-19. Most of the slowdown in revenues is due to lower individual income tax revenues. Actual revenue growth averaged 0.3 percent over the last two fiscal years. Historically, state tax revenues have grown at an average rate of 4.7 percent. The chart below shows the state’s percentage revenue growth since 1982. Note, the chart still reflects the NEFAB forecasts made in April.
The state’s revenue growth is generally thought to be a good reflection of economic activity in the state. The Legislative Fiscal Office said in its August budget report, “Beside inflation, this revenue growth over time reflects the ebb and flow of economic activity and economic cycles. It reflects new businesses created and existing businesses that close. It reflects new products and services added to the tax base and existing products and services that are eliminate or expire. The key is the net impact. The new or expanded businesses, products or services more than offsets those that decline or disappear.” In looking at the chart, it’s easy to spot the economic downturns which have occurred in the past, 1986, 2002-03, and 2009-10. The most recent decline in revenue growth, though, is different in that it has occurred while the state’s overall economy continues to grow.
So how does the latest NEFAB forecasts reflect on the Nebraska economy? First, it’s probably reflective of the ongoing struggles in agriculture, which accounts for over one-fourth of the state’s gross domestic product. While there are signs farm income may have hit a bottom, nobody is forecasting robust growth in near future for agriculture. Second, it’s probably a reflection that the Nebraska’s economy is like the overall U.S. economy. Economic growth is expected to continue, but at sluggish pace. Thus, the projections of revenue growth greater than 5 percent like those made by NEFAB in April just isn’t in the cards.
Jay Rempe is the senior economist for Nebraska Farm Bureau. Rempe’s background in agricultural economics, years of experience in advocating at the state capitol, and firm grasp of issues allow him to quantify the fiscal impact of a regulatory proposal, and provide in-depth examination of key issues affecting Nebraska’s farmers and ranchers.