Lawmakers dealt an additional $175 million blow after revised forecasts

The Nebraska Legislature, once again, has a growing financial gap as it tries to piece together the second-half of its biennium budget this year. The Nebraska Economic Forecasting Advisory Board on Friday added $20 million in revenue gains for fiscal year 2025-26 but decreased state revenue projections by $175 million for the 2026-27 fiscal year – adding $155 million to shore up before this legislative session ends.

The forecasts help lawmakers predict how much money will be coming into the state’s General Fund to allocate to state agencies and programs. Friday’s projections were revised higher to $6.97 billion for 2025-26, which is $20 million more than its projections last October of $6.95 billion. However, that windfall will be transferred to the state’s School Property Tax Relief Fund instead of getting routed to the General Fund, according to the Legislative Fiscal Office.

The board is estimating revenues will be around $6.625 billion for the 2026-27 fiscal year, which is $175 million lower than the $6.8 billion the board projected in October.

Altogether, the Legislature will now be working with $155 million less in its budget as it starts to craft its appropriation bills. The new projection erases the good news lawmakers received just a few weeks ago when January’s tax receipts came in about $35 million higher than forecast.

The Legislature began the session in January with a $471.5 million budget shortfall. Gov. Jim Pillen’s budget proposals ask the Legislature to, again, consider sweeping funds from state agencies and programs. He proposed transferring $192.6 million over two years from cash funds into the state’s general fund. The Department of Health and Human Services faces the largest budget cuts, with a proposed $2 million reduction for the current fiscal year and $130.4 million in 2026-27. Pillen said on Friday that lawmakers will have to consider more cuts to keep the state’s budget in line.

“Today we have a great opportunity to be strong fiscal conservatives. 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,” Pillen said in a statement.

Several senators have argued that the state can’t cut its way out of the recurring budget constraints. They have proposed revisiting sharp income and corporate tax cuts that the Legislature passed in 2023.

Rebecca Firestone, the executive director of OpenSky Policy Institute, a fiscal analysis organization, said concerns remain surrounding policy decisions and the impacts they will continue to accumulate for the state.

“The legislature would be wise to think long term and give serious consideration to proposals to raise revenue by balancing the tax code instead of sweeping the state's fiscal reserves and cash funds, which are finite sources of funds,” Firestone said in a statement.

Lexington plant closure

The impact of the Tyson plant closure in Lexington loomed large over the forecasting board’s meeting. The south-central Nebraska plant, which employed around 3,200 employees in Dawson County, shut down in January. It was the primary employer of a city that’s estimated to be home to around 11,000 people.

The University of Nebraska-Lincoln estimates the closure won’t only be devastating for Lexington but for the state as a whole, creating nearly a $3.3 billion economic hole, annually, for Nebraska.

The Tyson closure was included in the forecasting board’s February forecast, since it was a major economic impact to the state’s tax revenues. Board chair Rich McGinnis said he’s seen things “slow down a little bit,” and he said that’s an indication of Tyson’s closure settling in throughout the area.

“Retail sales are down. New car sales are down. We’re still growing, but I believe it’s at a slower pace than before. I don’t think that’s going to change,” McGinnis told the board.

He said a bright spot there is travel and tourism, which is starting to welcome more visitors near the North Platte River for the annual Sandhill Crane migration. But the next few years will be tough to weather given the large plant closure. He referenced a recent report from the Kansas City Federal Reserve that said Dawson County’s unemployment rate could balloon from a 2.9% average to 27% over the next three years.

“That's unheard of,” McGinnis said. “You're talking about the Great Depression of the 1930s. It's one county. It's not the state, but it's very, very significant, and really to me, highlights the crisis that that county is going through. They're going to try hard, obviously, to work their way through this, but it's going to be very painful for the next two or three years, not just for Dawson County, but to a lesser extent, Buffalo County, and other surrounding areas as well.”

Board member Steve Seline from Omaha said he’s heard from Omaha charities who are helping relocate Dawson County families to Omaha and find work at factories there. Several board members painted a rosy picture of the economic engine, saying the city is benefitting from lower home valuations and business investments.

“We’re having a good time in Omaha, and I think the state is worried about Lexington. I really feel for the people there. I think those folks will find work in Omaha. Maybe not the Kellogg’s plant, but hopefully the Kellogg’s plant.”

John Kuehn said the closure has reminded him of the vulnerability some Nebraska communities have.

“They are one large employer away from a catastrophe,” Kuehn said. “While the Lexington situation is certainly an extreme event because it was such a large employer relative to the size of the county, look at a lot of our counties in Nebraska, where in a town of 4,000, an employer of 600-700 people cutting down a shift due to accommodate for insurance costs or others, has a ripple effect that proportionally is equally as devastating.”

Supreme Court ruling on tariffs could boost business

Several board members said the recent U.S. Supreme Court decision on President Trump’s tariffs could create a new economic boost for Nebraska businesses.

The court ruled last week that the administration’s tariff policies imposed under the International Emergency Economic Powers Act were unconstitutional. Since the ruling, some businesses have lined up to request refunds from the federal government.

The Department of Revenue’s economist HoaPhu Tran said it’s difficult to project how the change in tariffs will impact Nebraska, but given 2025’s “weak” employment market and tightening labor force due to decreased immigration, it could be something to watch.

“That’s actually the issue with the tariffs. It’s the uncertainty of tariffs, not the tariffs itself, right? So if a company or a retailer knows the tariff is going to be staying, they would likely increase prices to cover the tariff, but with the uncertainty of it, they might not know what to do.”

Several board members from Omaha said businesses there are welcoming the news of tariffs being repealed. Keuhn, from rural Nebraska, said businesses he works with haven’t discussed tariffs as being large issues, since businesses are tending to pass along those increases to consumers. He said other costs like labor and insurance are keeping shops from expanding.

“Tariffs doesn’t seem to be the issue,” Keuhn said. “It really does come down to insurance costs and fixed costs if they don’t know how to accommodate their business models. So lots of good things happening, but we’re one or two trip and falls away from a real vulnerability and kind of collapse in some areas. It’s really important that I think we continue to focus on how to build strong communities across the state, and again, Dawson County demonstrated the value of anchoring the entire state together, as opposed to just focusing on one or two urban areas as the bellwether for the state.”