Why It Matters
Nebraska’s tax collections have fallen significantly short of state projections for four consecutive months, widening the projected budget deficit to $223 million and forcing the governor to order immediate spending cuts across state agencies. The revenue shortfall threatens funding for core state services as lawmakers prepare for the 2027 legislative session.
What Happened
The Nebraska Department of Revenue reported that June tax receipts came in 7 percent below the forecasts issued by the state’s Economic Forecasting Advisory Board in February. The shortfall totaled $51 million for the month alone, driven primarily by weakness in individual income tax collections.
Individual income taxes underperformed expectations by 10.6 percent in June, generating a $30.9 million loss compared to forecast. Sales and use taxes, by contrast, exceeded projections by 10 percent, bringing in $22.1 million above expectations—a sign that consumer spending remains relatively resilient even as wage income lags.
This marks the fourth consecutive month—March through June—in which actual tax receipts fell short of state economic forecasts. Governor Jim Pillen responded by issuing a memo ordering all state agencies to implement a 5 percent spending reduction effective immediately, a move designed to help narrow the widening gap between revenues and obligations.
By the Numbers
$223 million — projected budget deficit for the current fiscal period
7% — June tax receipts below February forecast
$51 million — total revenue shortfall in June
10.6% — individual income taxes below forecast in June
10% — sales and use taxes above forecast in June
$646 million — peak deficit addressed in 2026 legislative session
$631 million — projected deficit for the 2027-2029 biennium
3.99% — scheduled top income tax rate in 2027
5% — agency spending cut ordered by Gov. Pillen
Zoom Out
Nebraska’s revenue challenges reflect broader state-level budget pressures across the country as tax forecasting models struggle to keep pace with economic volatility. Many states implemented significant tax cuts in recent years, and Nebraska has continued on a path to reduce income tax rates. The state’s top income tax rate is scheduled to decline further to 3.99 percent in 2027, a measure lawmakers passed as part of longer-term tax policy.
State legislators have grappled with the tension between tax relief and budget stability. One senator, Jim Vokal, has argued that Nebraska remains “woefully uncompetitive” with other states on income taxes, reflecting the push for continued reductions despite budget constraints. Others, like budget analyst Kathleen Kauth, have emphasized the basic arithmetic of state finances: “The state does not make money. The state takes money, and then spends it for the citizens.”
What’s Next
The Economic Forecasting Advisory Board is scheduled to issue its next round of revenue projections in October, which will provide an updated picture of the state’s fiscal outlook. The 2027 legislative session, scheduled as a 90-day session, will develop the budget for the biennium running from July 1, 2027 to June 30, 2029. Lawmakers will need to address a projected deficit of $631 million for that period while navigating the scheduled income tax rate reduction and the ongoing demand for state services.