The pay increases negotiated to fill critical state jobs could cost Nebraska about $75 million next year and create pressure for even more spending, according to a report released Tuesday.
But that would still leave the state flush with money, because federal relief dollars continue to flow into Nebraska.
The report, done by the Legislative Fiscal Office, shows projected tax revenues exceeding estimated state spending by $412 million for the two-year budget period ending June 30, 2022. The gap is about $100 million higher than estimates provided at the end of last month, more than enough to cover the cost of the pay increases.
The report also projected that Nebraska would end the budget period with a record $1.47 billion stashed in the "rainy day" fund. In addition, the state is slated to get about $1 billion in federal funds through the American Rescue Plan Act.
"I've never seen anything like 2021 and, frankly, no one else has either," said Tom Bergquist, the fiscal office director.
He presented the report Tuesday to a panel of top lawmakers, who meet twice a year with the state tax commissioner to review the state's fiscal situation. The reviews are required so the panel can spot developing financial problems and set steps in motion to address such problems.
No action was needed this year because of Nebraska's strong financial status.
Sen. Lou Ann Linehan of Elkhorn, the Revenue Committee chairwoman, said the amount of money in state coffers was an argument for more tax cuts. She has been working on proposals addressing income taxes and property taxes, in particular.
But Bergquist cautioned that much of the state's money comes from one-time sources that cannot be counted on to continue.
Looking into the future, he estimated the gap between ongoing state revenues and expenses at about $152 million by June 30, 2025. That means the state could sustain a tax reduction or spending increase of that amount.
The raises negotiated for prison guards, other corrections workers, veterans home employees and other key staff at state institutions would require about half that amount. Through two different agreements reached with two different unions this fall, state officials have agreed to sizable increases in pay for thousands of workers in hopes of filling jobs at the state's 24-hour institutions.
Those facilities, which include nursing homes for veterans, psychiatric hospitals, prisons, juvenile offender centers and the state facility for people with developmental disabilities, have seen an exodus of workers and the need for more overtime.
Bergquist also said the pay increases for state workers could contribute to pressure to raise rates paid to community providers that serve people with developmental disabilities. Each 1% increase in rates would cost $1.6 million annually.
On the plus side of the ledger, he pointed to two major factors that improved the state's financial picture since the end of October.
First, the federal government has provided a higher-than-normal share of Medicaid funding during the pandemic. That step saved the state some $30 million to $50 million a year by reducing the amount that Nebraska has to pay for the joint federal-state program, he said. The federal government has been extending the higher federal share for three months at a time, so it is unknown how long the help will continue.
Secondly, state aid to K-12 schools, the largest single item in the state budget, is remaining relatively flat for the budget period, Bergquist said. New projections of state aid for the upcoming school year are $22.2 million lower than the estimates used when lawmakers set the budget in May.
He said the estimates changed in part because school spending has been lower than expected and in part because property valuations have grown more than expected. Rising property valuations mean that school districts can collect more property taxes with the same tax levy, which, in turn, reduces their need for state aid.