Nebraska Governor unveils budget proposal with spending cuts across departments

Nebraska Gov. Jim Pillen unveiled his executive budget proposal on Thursday, encouraging legislators to embrace “spending restraint and fiscal conservatism” as the state navigates a budget shortfall.

Nebraska is facing a $471 million budget deficit, which ballooned late last year after the state’s economic forecasting board lowered projected revenues for the coming fiscal years.

To close the shortfall, Pillen is proposing to reduce the state’s two-year average spending growth from an increase of 1.1% to a decrease of 1.1%. That includes a 0.4% spending reduction for the 2025-2026 fiscal year and a 1.8% reduction for 2026-2027.

“This Legislature has the opportunity to lead reform efforts and join me in passing a budget that delivers lasting and transformative tax relief to Nebraskans,” Pillen said during his address. “We are delving into parts of the state’s budget and shining the light in unprecedented ways. The result of this budget will mean a $500 million improvement to the state’s bottom line in this biennium.”

The proposal includes a transfer of $192.6 million over two years from cash funds into the state’s general fund. The state budget office reviewed over 900 existing funds to identify excess balances. Under the proposal, 39 inactive funds – including some that the budget office said have not been utilized in decades – would be repealed and lapsed, or returned to the state’s general fund.

According to the budget office, the 2025-2026 adjustment would include a reduction of $94 million in state spending and a transfer from cash funds equaling $125.2 million. In the 2026-2027 fiscal year, Pillen proposed a spending reduction of $208.6 million and cash fund transfers of $67.4 million.

The most significant spending reductions would impact the Department of Health and Human Services, with a proposed $22 million reduction for the current fiscal year and $130.4 million in 2026-2027.

Some of that reduction would be achieved through using various cash funds to fund programs that are currently financed through the general fund. It would also move a number of contracted positions, like IT and epidemiology staff, to in-house positions, which would result in an annual $5.5 million savings to the general fund when complete, according to the budget office.

About $18 million in reductions would come from eliminating retroactive Medicaid eligibility. Currently, a person approved for Medicaid coverage may have any medical expenses from the three months preceding their approval covered by the state program. The state budget office said eliminating retroactive coverage would align “medical cost reimbursement with normal insurance coverage policies.”

Those cuts would be partially offset by a number of funding increases, like $44.4 million over two years for the Department of Children and Family Services and a $76.1 million increase over two years to cover the higher than expected number of Medicaid-eligible individuals.

Other significant proposals in the budget bill include:

• Appropriating $7 million through the Department of Labor to fund scholarships for K-12 students to attend private or parochial schools. The Department of Labor would be responsible for establishing criteria for the scholarships, like income eligibility and expenditure limits per awardee.
• Eliminating vacant positions across departments, from a trade representative position at the Department of Agriculture to three deputy director roles at the Department of Water, Environment and Energy.
• Repurposing the Nebraska Correctional Youth Facility (NCYF), a state prison located in Omaha for those aged 21 and younger, to a Youth Reception and Treatment Center (YRTC) run by the Department of Health and Human Services. The adolescent population currently at the Kearney YRTC would move to the Omaha facility, and the small population – about 15 people – of NCYF would primarily be moved to a secure, separate youth wing at the Reception and Treatment Center in Lincoln. The bill includes a $2 million increase in general funds to the Department of Corrections this year to facilitate the transition, and a $6 million decrease for fiscal year 2026-2027.
• Establishing the Medical Cannabis Cash Fund, which would consist of fees, gifts, grants and other money collected by the Nebraska Medical Cannabis Commission, with the intent of reducing the commission’s reliance on general fund dollars.

By way of full disclosure, Nebraska Public Media receives some of its funding from the state.

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