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Fiscal-cliff fears create Neb. budget windfall

Caution urged as fiscal-cliff fears create one-time surge in Nebraska state government revenue

Associated Press

LINCOLN, Neb. (AP) -- Investors who were spooked by Washington's fiscal-cliff showdown have created an unusual, $125 million cash windfall for Nebraska state government, budget officials said Thursday.

The board that estimates state-government revenue predicted that Nebraska will receive the additional money from personal-income taxpayers, who sold their investments last year and paid capital gains taxes amid fears that federal rates might increase.

By law, all of that projected revenue will flow into Nebraska's cash reserve — leaving the state with about $571 million in its rainy-day fund this year. The fund serves as a savings account to help the state pay its bills when the economy slows.

Lawmakers also are expected to see a net increase of $51.4 million, beyond what they have planned for the state's upcoming two-year budget. The new projections were released as lawmakers plod through often-testy floor debates over priority bills and what the state can afford.

Sen. Heath Mello, the Appropriations Committee chairman, sounded a note of caution after he learned about the new projections. Mello said he will recommend that lawmakers move the $51.4 million to cash reserve, along with the $125 million.

"I'm going to take a more conservative approach in regards to today's forecasting board," Mello said. "I think the Appropriations Committee will be there as well. The senior members of the committee have been through a rough four years, and have seen what having a healthy cash-reserve does in regards to going through a very difficult economic cycle."

Mello stressed that the $125 million was a one-time occurrence, and said the state can't count on it in the future.

"The reality is, that's not sustained economic growth," Mello said. "That's why we need to be conservative, in regards to taking that money and putting it in the cash reserve. It's a one-time amount of money."

Gov. Dave Heineman said in a press release Thursday that lawmakers should focus first on lowering taxes for Nebraska families.

The OpenSky Policy Institute, a Nebraska tax-policy think tank, recommended that lawmakers keep the additional money inside the state's cash reserve.

The group pointed to recommendations by the Government Finance Officers Association, which urge states to keep a reserve balance equal to at least two months— or 16.7 percent — of their General Fund budgets in cash reserves.

Nebraska's cash reserve reached 15 percent in 2007, according to the OpenSky Policy Institute. The balance allowed lawmakers to tap into the reserves when the economy tanked, which kept cuts smaller than they otherwise would have been.

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