Nebraska senators bracing for possibility that state's $110M budget shortfall could grow

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LINCOLN, Nebraska — Is it a blip, or the tip of the iceberg?

Nebraska lawmakers are preparing for a tight budget in next year's session, but they won't know until February whether the recent slowdown in state revenue is an anomaly or the beginning of a larger downturn.

The state faces a $110 million projected revenue shortfall that lawmakers and Gov. Pete Ricketts must resolve, according to estimates released last week by the Legislature's Fiscal Office. Revenue is expected to grow at an average of 3.9 percent per year, slower than the historic 5 percent average.

The budget gap could shrink or widen in February, when the Nebraska Economic Forecasting Advisory Board meets to update its revenue projections. Last month, the board lowered its estimates amid concerns about the global economy.

"I am worried about whether this is the tip of the iceberg," said Speaker of the Legislature Galen Hadley. "Is it just a blip, or the start of some serious revenue problems?"

If the gap grows, lawmakers could be forced to cut more from the budget or tap the state's rainy-day fund. They also would have a tougher time passing new tax cuts or boosting state aid for schools, prison reforms and other priorities.

Sen. Heath Mello of Omaha, chairman of the budget-writing Appropriations Committee, said he's confident lawmakers will balance the budget in a "thoughtful, pragmatic manner." But he acknowledged that a sharp downturn in revenue could create problems during the short, 60-day legislative session that begins on Jan. 6.

"It's tough to say what we may do without seeing what the forecasting board does in February," Mello said. "If the forecast throws us a curveball, it could really change things."

A $334 million budget shortfall was enough to trigger a special session in 2009, forcing lawmakers and then-Gov. Dave Heineman to come together to balance their books as the state constitution requires. They avoided a tax increase but had to approve a 5 percent across-the-board cut to state agencies.

If the current shortfall holds, senators will still have to find a way to balance revenue and spending while fielding new requests for money. State agencies have asked for more than $22 million to cover expenses that weren't included in the $8.7 billion, two-year budget approved earlier this year.

The state's problem-plagued corrections department requested the most by far, seeking $18.1 million to fight overcrowding, pay for utilities, cover inmate health care costs and repair damage from the May 10 Tecumseh prison riot that wasn't covered by insurance.

A spokesman for Ricketts reiterated the governor's promise to work with lawmakers.

"The governor is considering a variety of options to address the budget shortfall and looks forward to working with the Legislature on an approach that best benefits the people of Nebraska," said public relations director Taylor Gage.

Hadley said he considers the state's $729 million cash reserve the best option to fill the gap without cutting state government services or raising taxes. He noted that the reserve was created as a short-term safety net for economic downturns that reduce state revenue.

Sen. Bill Kintner of Papillion said lawmakers should balance the budget with a combination of money from the cash reserve and spending cuts. If state revenue keeps declining, he said, lawmakers may have to dig into the reserve again. Kintner said he has some ideas for places to cut but declined to elaborate.

"This is a great opportunity to trim government down," said Kintner, an Appropriations Committee member who frequently rails against state spending.

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