Nebraska forecasting board increases two-year revenue projections
Nebraska’s Economic Forecasting Advisory Board met today to confirm the state’s positive outlook on tax collections. Because the state of Nebraska operates under a biennial, or two-year budget, the forecasting board only holds it April meeting every other year. Their annual meetings occur in October and February.
This meeting was different from most because of all the changes associated with the pandemic. Normally, the April meeting is held two weeks after the April 15 tax filing deadline to provide an update on the state’s income tax collections. However, as with last year, the state and federal government have pushed back the income tax filing deadline. This year it’s in mid-May.
The number of tax returns processed to this point are 232,000 below normal. And, on top of that, the Department of Revenue has only processed 72% of the tax returns submitted because of additional oversight and work related to the LB1107 property tax income credit enacted last year.
This caused the board to spend a significant amount of time talking about the new property tax credit. Members shared stories of tax preparers across the state that do in person returns charging an extra fee to process the property tax credit. In some cases, the cost has been so much that people are choosing not to take the credit because savings from the credit don’t justify the cost. One member said his online platform for tax preparations contained instructions for the LB1107 credit, while others did not.
One interesting point made by legislative staff was that they have seen a higher than usual amount of amended returns this year, partially due to the new property tax credit. They also anticipate seeing more refunds in future months due to the federal change exempting some unemployment from tax if earned during the national emergency. If people filed their taxes prior to the American Rescue Plan Act passage, then they will need to file an amended return to get the taxes paid on unemployment earnings back, which will adjust the state’s final revenue collections.
The state of the economy was another point of discussion. Members of the board are appointed from across the state to represent different geographical areas. However, all of them came to the same conclusion that they are “cautiously optimistic” about the state’s economy. All the economic indicators are coming back positive, but they mentioned the increased cost of goods with inflation. Construction is seeing increased input prices, causing a slowdown of building new and affordable homes. Workforce availability also continues to be an issue across the state.
This all built up to the discussion of the state’s revenue situation. Already in a positive position with a budget surplus, the forecasting board decided to increase the forecast again given the positive economic climate.
The following figures are the fiscal year 2020-21 forecast for the state:
- Sales tax stayed the same at $1.975 billion,
- Personal income tax was increased by $25 million to an estimated collection of $2.885 billion,
- Corporate income taxes were increased $65 million to an estimated $490 million, and
- Miscellaneous taxes were kept the same at $230 million.
The total tax collections for the fiscal year are estimated at $5.580 billion or $90 million (8%) higher than originally anticipated during the February forecast.
The board also discussed the revenue for the next fiscal year, starting July 1, 2021 through June 30, 2022, where the board submitted a reduction in their overall forecast. While this seems to counter their sentiments of a growing economy, all the economic modeling considered indicates a national economic slowdown in 2022. In addition, Nebraska’s Legislative Fiscal Office and the Department of Revenue staff explained that increased amounts paid in business incentives, and the increase in the property tax credit are also to blame for the reduced revenue forecast in the longer term.
The changes made to the next fiscal year’s forecast are:
- Sales and use tax remains the same at $2.005 billion,
- Personal income tax decreased $35 million to $2.480 billion (this was contentious vote and only passed by 5-4 on the committee),
- Corporate income tax was increased $30 million to $400 million, and
- Miscellaneous taxes were kept the same at $195 million (a proposal to reduce this to $191 million was made but failed by a 4-5 vote).
The total for the 2021-2022 fiscal year is $5.080 billion, which is only $5 million (0.9%) less than originally forecast.
Overall, this is a good sign to lawmakers that want to cut taxes and try to modernize the state’s tax code. However, there are several senators that want to spend the budget surplus on various areas of state government. Will they spend or will they cut?
The next forecast board meeting will be October 29 at 1 p.m. at the Nebraska State Capital. The following meeting will be the last Friday in February 2022.