- Associated Press - Friday, October 31, 2014

LINCOLN, Neb. (AP) - Nebraska’s tax revenue will grow at about 5 percent a year over the next few years, but senators will still face a projected $62.6 million shortfall in their next two-year budget, based on legislative estimates updated on Friday.

The Nebraska Economic Forecasting Advisory Board predicted that the 5 percent annual revenue growth would set the state on course to collect about $9 billion in the upcoming budget cycle that ends in June 2017.

The estimates mean lawmakers may have less money at their disposal when next year’s session begins. Nebraska law requires them to balance the budget, and the projections - which can easily change - show the state is on pace to spend slightly more than it collects over the budget cycle.

Yet lawmakers have also worked over the last several years to rebuild the state’s cash reserve. The rainy-day fund was used to cover expenses during the recession. The board projected that revenue in the current fiscal year will be $61.5 million more than initially projected, which will boost the reserve to about $770 million.

Board members said they were optimistic given the state’s low unemployment. Some said unemployment in their area was so low that businesses were struggling to attract the workers they need to expand.

“It’s good for job-seekers, but bad for employers,” said Richard McGinnis, a board member from Kearney.

The new revenue estimates and their impact on the upcoming budget drew mixed reactions from state officials.

Gov. Dave Heineman, a Republican who leaves office in January, said lawmakers should concentrate on additional tax cuts next year. He noted that the state’s economy is holding strong, and tax revenue is still expected to grow. Heineman previously has argued that lawmakers should limit state spending growth.

“In the 2015 legislative session, the new Legislature and the new governor should provide additional property and income tax relief for Nebraskans,” Heineman said in a statement.

Heineman and some Republican senators have previously argued that the state should draw down the state’s cash reserve to pay for tax cuts. Other groups have urged senators not to tap the cash reserve for that purpose, arguing that it’s generally designed for emergencies and one-time expenses.

“It was a strong cash reserve that helped Nebraska weather the great recession better than most other states,” said Renee Fry, executive director of the OpenSky Policy Institute, a Nebraska tax policy think tank.

Lawmakers should take all economic factors into account when making fiscal policy, Fry said. “Doing otherwise could have negative ramifications for our schools, communities and economy,” she said.

Sen. Heath Mello, chairman of the budget-writing Appropriations Committee, said the projections make clear that Nebraska’s economy is growing at a modest pace.

Mello noted that lawmakers may end up spending millions next year on state prison facilities, a water settlement with Kansas and reimbursement to the federal government for child welfare services that weren’t properly documented.

“These and other recent events have reaffirmed the wisdom of the Nebraska Legislature to carefully manage our rainy-day fund through budget uncertainty,” he said.

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