LINCOLN — It’s crunch time for state lawmakers to rightsize Nebraska’s budget, by no later than May 15. Senators since November are considering a nearly $850 million combined in new revenue streams, cuts to state spending and scrounging for loose cash funds in the state’s couch cushions.

Those figures appear to represent senators’ goals to close the state’s budget gap, with about $710 million of the changes coming from the Appropriations Committee’s decisions on spending and cash transfers, the final scope of which remains a moving target with future amendments planned.

Lawmakers will head to the floor Tuesday saying they still need to close a $262 million projected budget deficit for the next two years. But the real figure is likely much larger.

In January, when the state faced an initial $433 million projected budget deficit, Speaker John Arch of La Vista said solving the state’s budget woes would “without a doubt” be the defining issue of 2025.

Lawmakers must maintain a minimum reserve based on the beginning cash balance for the biennium and estimated net receipts for the two-year period, which is accounted for in the budget bills.

Getting To Zero

A significant portion of the projected deficit is a result of Nebraska taking on more of the Medicaid costs that the federal government previously picked up — the Federal Medical Assistance Percentage, or FMAP — which is based on a state’s average per capita income compared to the national average.

The Medicaid changes left Nebraska on the hook for nearly $300 million more over the next two years, and $55 million for the remaining part of the current fiscal year. The reductions would have been worse if not for a federal “disaster-recovery adjustment” following a string of Arbor Day tornadoes last year.

The state’s increased share of Medicaid funding is unrelated to budget talks in Congress, including potential cuts to Medicaid. And it is only part of the story of Nebraska’s budget deficit.

The other part comes from revenue projections, as the state faced two revised economic forecasts since the deficit was identified in November. In that time, the state now projects to collect a net $215 million in less revenue than anticipated from this fiscal year through June 30, 2027.

Members of the Appropriations Committee and legislative fiscal staff have largely declined to say what the starting point for the current deficit is before the proposed budget bills or other bills that have already passed this session.

If the budget bills — Legislative Bills 260-264 — are passed with an expected amendment during second-round debate to fill the remaining budget hole, lawmakers anticipate having about $5 million left to spend.

About $2 million of that wiggle room has been eyed to raise judges’ salaries by 1.5% each of the next two years, as provided in LB 513, and roughly $2 million is being eyed to cover approved state claims in LB 534.

The Appropriations Committee

State Sen. Rob Clements of Elmwood, chair of the Appropriations Committee, said he felt good overall about the budget and praised his committee for what he said was a “fair job” of not “lashing anybody severely.” He said many state agency budgets were left flat instead of being cut. However, state employees still got negotiated salary and health insurance increases.

“I’m a little bit amazed at how well they did,” Clements said, noting the increased Medicaid costs. “I’m pleased with what we were able to get done without doing anything drastic.”

However, not all members of the committee were impressed.

State Sen. Machaela Cavanaugh of Omaha, a first-time Appropriations Committee member, said she had trouble finding the right words to describe the process. She said instead of finding creative solutions, the committee stuck close to proposals from the governor. Cavanaugh has suggested closing the deficit, at least in part, by looking at what the state spends on property tax relief or how much revenue the state is losing via income tax rate reductions for top earners.

“It has been a much more limiting process than I thought, not very flexible,” Cavanaugh said. “I thought that we would do more work as a committee to create a budget that we felt represented Nebraska values.”

The budget as advanced by the Appropriations Committee two weeks ago has the following major changes compared to November:

• $193.6 million less spending than originally projected.
• $160.4 million in sweeps of various cash funds or other transfers to the state’s main pocketbook (such as $27.7 million from the Water Recreation Enhancement Fund, $20.5 million from the Economic Development Cash Fund, $15 million from the Economic Recovery Contingency Fund, $13.5 million from the Site and Building Development Fund, $12 million from the Intern Nebraska Cash Fund, $10.2 million from the Youth Outdoor Recreation Fund, $8.6 million from the Health and Human Services Cash Fund, $7 million from the Vehicle Title & Registration System Replacement Fund, $4.4 million from the Jobs and Economic Development Initiative (JEDI) Fund and $4 million from the Lead Service Line Fund).
• $50.3 million in investment earnings (such as from the Perkins County Canal Fund, Inland Port Authority Fund, 911 Service System Fund, Economic Recovery Contingency Fund and the Nebraska Capital Construction Fund).
• $39.6 million in fewer transfers to existing cash funds ($22 million less to the Water Sustainability Fund, $16 million less to the Education Future Fund and $5 million less to the Property Tax Credit Fund, but $2 million more to the Public Advocacy Cash Fund).

Other Bills And A Future Amendment

Four additional bills lawmakers passed this session have already helped shrink the deficit. The two main ones are Legislative Bill 645 from State Sen. Beau Ballard of Lincoln and LB 650 from State Sen. Brad von Gillern, which together save the state an additional $136 million.

Ballard, chair of the Nebraska Retirement Systems Committee, brought LB 645 to lower annual state contributions to the school retirement plan for most school employees when the plan nears full funding. It is expected to lead to about $84 million in savings over the next two years, if the pension plan remains at more than 98% funded for the first year and is 100% funded in the second, as currently anticipated.

Von Gillern, chair of the Revenue Committee, brought LB 650 to reduce or defund recently passed tax incentives, including some supported by Gov. Jim Pillen, to the tune of about $52 million in savings.

Taken together, that left lawmakers grappling with a gap of $262 million to close, which the Appropriations Committee met last Thursday to brainstorm ways to narrow. Those final deliberations will be discussed during the second round of debate on the budget.

The largest change made Thursday is $135 million in more cash fund sweeps or reduced spending, notably $3 million less spent on the Nebraska Supreme Court and $4.4 million less on the University of Nebraska than the committee previously approved.

An additional $132 million will also be transferred out of the cash reserves to help balance the budget. After the changes, about $689 million would be left in that “rainy day” fund.

Legislative leadership has already rebuffed ideas to take funds away from the pending Perkins County Canal in western Nebraska or to “pause” the lowering of income tax rates.

Plymouth State Sen. Tom Brandt’s LB 171 would pause the already approved income tax rate reductions for two years “to allow the state to catch its breath.”

But Pillen, von Gillern and Clements all argued that doing so could hurt rather than help the state.

University Of Nebraska Budget Woes Exemplify Challenging Budget Environment

The University of Nebraska has faced a whirlwind with its budget, first requesting a 3% increase for both of the next two years, which was rejected by the Appropriations Committee in its preliminary budget report this February.

Instead, the committee adopted the suggestion of Gov. Jim Pillen to cut NU’s state-aided budget by 2% cut in the first year and kept NU at the lower level in the second year.

The committee revised the NU budget last month, giving the university a 1.25% increase next year and keeping the NU budget flat in the following year. With the committee’s changes, the Appropriations Committee spent $46 million more than Pillen’s budget after NU President Jeffrey Gold and Pillen negotiated. Part of what led to the change was uncertainty about federal funding.

The committee again reconsidered NU’s budget last week — with a suggestion from the Legislative Fiscal Office to possibly hold NU flat in the first year and give the university a bump in the second.

An effort to maintain the previously approved increase failed, but in a last-minute negotiation, senators agreed to halve next year’s increase. Instead of an agreed $17.4 million bump over the next two years, NU would get about $13.1 million more the next two years than it currently does.

Gold has said that the less-than-anticipated state dollars could lead to tuition increases and additional hardships as officials weigh a path forward later this year. He said last month the change would “unfortunately, force us to have some very serious discussions regarding tuition in each year at the upcoming biennium and, thereafter, some very serious discussions about belt-tightening and further budgetary reduction across all of the campuses, colleges and institutes in the state.”

Pillen, who last week told the Examiner he respects “the heck” of Gold and is a “Dr. Gold fan,” said the two have had conversations of a needed strategic reimagination at the university, such as eliminating duplicative programs or reviewing programs with more instructors than students.

Before becoming governor in 2023, Pillen served 10 years on the NU Board of Regents.

“If you’re in education and your solution is more money, more people, I’m not on your team,” Pillen said, repeating efforts to end unfunded mandates for schools. “I’m 100% on education.”

This story was published by Nebraska Examiner, an editorially independent newsroom providing a hard-hitting, daily flow of news. Read the original article: https://nebraskaexaminer.com/2025/05/06/what-to-expect-as-debate-on-nebr...