Nebraska’s tax receipts come in below projections for fourth month in a row

Tax receipts for June have once again come in lower than expected. The state received 7% less than the forecast $725 million, collecting only $674 million for the month.

This is the fourth month in a row that receipts have come in lower than predicted by the Nebraska Economic Forecasting Advisory Board, which last met in February.

While the Nebraska Legislature attempted to balance a budget that was, in January, about $471 million short, senators were dealt a late-session blow when March receipts came in nearly 15% below forecast. That forced them to fill a hole that suddenly grew even deeper.

After senators adjourned on April 17, tax receipts continued to plunge and pull the budget back into a deficit. According to data released May 15 for the month of April, receipts were just over 8% less than expected. In May, receipts were again falling short at nearly 8% below forecast. This brought the balanced budget with a $6.2 million surplus back into a deficit of $172 million.

Since then, Gov. Jim Pillen has asked state agencies to freeze any hiring and reduce their monthly allocations by 5%. He wrote in a memo to department heads that the state handed out $307 million more in tax refunds than anticipated.

Pillen addressed the lower June receipts by saying the state’s economy “continues to demonstrate vitality and growth.”

The governor pointed to higher-than-expected gross tax receipts for the entire fiscal year, despite lower net receipts. But he said those losses are driven by “strong” tax refunds, which he said is a good thing.

“On top of historic state tax cuts and additional tax cuts championed by the One Big Beautiful Bill, we are getting even more money back into people’s pockets. Government must live within its means though, and we must make further progress in reducing government spending. It’s what Nebraskans expect,” Pillen said in a statement.

Senator Merv Riepe, who represents parts of Omaha, called the state’s ever-decreasing receipts concerning, adding that he is disappointed but not surprised by the latest tax receipt report. On top of inflation pressures, Riepe said the state will have to get creative when solving the projected $631 million deficit over the next biennium, which begins July 1, 2027 and ends June 30, 2029.

“We have a constitutional requirement to balance the budget,” Riepe said. “Failure is not an option. This will make it very challenging to say, ‘what can we do?’”

In 2023, the state lowered individual and corporate income tax rates, which decreased revenue. Several lawmakers and financial experts said that has continued to create holes in Nebraska’s budget. Riepe said the state should have replaced that revenue with an alternative source.

“Obviously, you don’t have to have a major in economics to figure out that that doesn’t work, not over the long run,” Riepe said.

Pillen has pushed policies to cut state spending and shrink the size of government. While the individual and corporate income tax rates were cut, left-leaning Sen. Machaela Cavanaugh wonders if Nebraskans have felt the difference.

“Is your life better because of these tax cuts?” Cavanaugh said. “Are you getting ahead? Because that's what people in positions of power would like you to believe, and I think the answer is no. We're not addressing affordability. We’re not addressing healthcare deserts. People’s lives are harder.”

Cavanaugh also doubts if Pillen has the authority to call on state departments to reduce their budgets, noting that the Legislature has appropriation power. She said the most responsible way Pillen can address the dwindling revenue is to call the Legislature back for a special session to address the deficit.

“We have a constitutional requirement to balance the budget,” Riepe said. “Failure is not an option. This will make it very challenging to say, ‘what can we do?’”

In 2023, the state lowered individual and corporate income tax rates, which decreased revenue. Several lawmakers and financial experts said that has continued to create holes in Nebraska’s budget. Riepe said the state should have replaced that revenue with an alternative source.

“Obviously, you don’t have to have a major in economics to figure out that that doesn’t work, not over the long run,” Riepe said.