Nebraska capitol

The Nebraska State Capitol building in Lincoln.

(The Center Square) – Even with record revenues, Nebraska is starting its two-year budget cycle $101 million in the red, in part because of a new property tax relief program, according to a report by the Legislative Fiscal Office.

But the chair of the Appropriations Committee and others say the state is still in good financial shape and won’t have to cut the budget.

"Long story short, we're in very good shape still," Legislative Fiscal Analyst Tom Bergquist said, according to the Omaha World-Herald.

Sarah Curry, policy director of the nonprofit Platte Institute, agrees.

“I think the state is still in good shape,” she told The Center Square.

The property tax relief program, LB 1107, increases any time state tax receipts jump by more than 3.5% from one year to the next. It is delivered as an income tax credit to offset local school taxes.

As a tax credit, the money comes right off the top of the budget, Curry said.

“Never before have we had a property tax program that essentially takes away available revenue before the state has an opportunity to appropriate the money,” Curry said. “In years past, property tax relief has been a budgeted item. It could be adjusted based on the state’s needs. Because LB 1107 provides a credit; they can’t do that. The state kind of unintentionally tied its hands.”

The LB 1107 credit will reduce state revenue by $508 million during the current two-year budget period, state officials said.

When LB 1107 was enacted with triggers that raised the tax credit when revenue is up, few predicted that revenues would rise during the pandemic, fueled in part by massive federal COVID-19 stimulus funds, Curry said.

“The lawmakers never anticipated getting this much revenue,” she said. “They really were thinking about how to protect themselves in a down economy. They never thought about how to protect themselves if we were in a good economy. It doesn’t look like Nebraska has ever had a really big jump in revenue like this before.”