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Economic forecast encouraging, or is it?

Economic forecast encouraging, or is it?

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A revised economic forecast has given the Governor and at least two state senators optimism that there’s money to spend on initiatives they favor.

But a member of the Nebraska Economic Forecasting Advisory Board says the forecast should be looked at with an asterisk. That asterisk is as big as the ongoing pandemic, jobs lost and businesses closed, says board member and former state Sen. John Kuehn of Heartwell.

Kuehn, a member of the Legislature’s Appropriations Committee during his four-year-term in Lincoln, said the Legislature should be cautious about making plans for the $90 million the board says is available to spend.

The Governor says the revised forecast means Nebraska’s economy is on solid footing with news that final state general fund tax receipts will not be as heavily impacted as predicted. He says the news puts the state in a strong position to work on a few key initiatives, including property tax relief, in the remaining days of the legislative session.

Revenue Committee Chair Lou Ann Linehan of Elkhorn says she’s optimistic the money could go toward property tax relief even though a committee bill to address that has stalled on first-round debate.

Likewise, Senator Mark Kolterman of Seward thinks it bodes well for his attempt to create a new business incentive tax to replace one that expires at the end of the year. That proposal, too, is stalled. The Governor supports both proposals.

OpenSky Executive Director Renee Fry says given tremendous uncertainty about the pandemic’s impact on the state and its economy, legislators should be leery of passing new measures that increase the state’s spending obligations for non-pandemic related purposes.

Appropriations Committee Chairman John Stinner of Gering agrees. He warns against passing legislation that will carry large price tags in the future as current estimates show a $500 million shortfall for those years.

Kuehn, admittedly an outlier on the board who does his own research which often differs from the nationally recognized economic models, says the income tax totals considered by the board are inflated by people paying their 2019 taxes later than normal because the filing deadline was moved from April 15 to July 15 in light of coronavirus disruptions. That means about $255 million was shifted to the current fiscal year, Fry says.

The board considers receipts for sales tax, individual and corporate income tax and miscellaneous taxes in its deliberations. Some board members also disagreed as to whether the national economics organizations – HIS Economics and Moody’s Analytics -- sufficiently accounted for the impact of the Paycheck Protection Program stimulus and to what extent it might offset other pandemic damage. That’s part of Kuehn’s asterisk. Their overcorrection to compensate resulted in the board’s 20 percent higher corporate receipts projection than those national models.

Stinner says the forecasting board, normally scheduled to meet in February and October, agreed to the July meeting to give some clarity to the pandemic impacts as we now understand them. He remains concerned that the state’s rainy day fund (cash reserve) is down to $388 million. As did his predecessors, the Appropriations Committee chair says he would prefer to see that fund at $500 million and would like to put the projected $90 million to that use.

We are in uncharted territory. The bridge money (federal stimulus funds) will run out and we’ll have to figure out where we are when the real economy has to take over, Stinner says. He is optimistic that Nebraska’s primarily ag-related economy will recover quickly, but that’s still an unknown.

The new Legislature in January will have a huge task before them, Kuehn and Stinner agree, because the pandemic recovery is anticipated to take two or three years. It’s going to be a slow, long haul.

But, Stinner admits, we have to work with the forecasting board reports because that’s the system we use.

Kuehn says it’s the way the sausage is made, a reference to a quote often attributed to Otto von Bismarck in a 1933 textbook: “A man who wishes to keep his respect for sausages and laws should not see how either is made.”

That understanding is really important for the policy decisions of this Legislature into the future. It’s not likely that 2020 will soon be an asterisk in the history of the world.

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