Tax Rate Review Committee

Tax Rate

Review Committee

¡®

November 16, 2021

Required November Meeting Pursuant to Section 77-2715.01

Speaker of the Legislature

Executive Board Chair

Revenue Committee Chair

Appropriations Committee Chair

Senator Mike Hilgers

Senator Dan Hughes

Senator Lou Ann Linehan

Senator John Stinner

Tax Commissioner Tony Fulton

Prepared by the Legislative Fiscal Office

Statutory Required Meetings

Section 77-2715.01 relates to the Legislature setting the sales and income tax rates and creates

the Tax Rate Review Committee and its duties and responsibilities

¡°(1)(a) Commencing in 1987 the Legislature shall set the rates for the income tax imposed by

section 77-2715 and the rate of the sales tax imposed by subsection (1) of section 77-2703. For

taxable years beginning or deemed to begin before January 1, 2013, the rate of the income tax set

by the Legislature shall be considered the primary rate for establishing the tax rate schedules used

to compute the tax.

(b) The Legislature shall set the rates of the sales tax and income tax so that the estimated funds

available plus estimated receipts from the sales, use, income, and franchise taxes will be not less

than three percent nor more than seven percent in excess of the appropriations and express

obligations for the biennium for which the appropriations are made, except that for the biennium

ending June 30, 2019, the percentage shall not be less than two and one-half percent nor more

than seven percent. The purpose of this subdivision is to insure that there shall be maintained in

the state treasury an adequate General Fund balance, considering cash flow, to meet the

appropriations and express obligations of the state.

(c) For purposes of this section, express obligation shall mean an obligation which has fiscal

impact identifiable by a sum certain or by an established percentage or other determinative factor

or factors.

2) The Speaker of the Legislature and the chairpersons of the Legislature's Executive Board,

Revenue Committee, and Appropriations Committee shall constitute a committee to be known as

the Tax Rate Review Committee. The Tax Rate Review Committee shall meet with the Tax

Commissioner within ten days after July 15 and November 15 of each year and shall determine

whether the rates for sales tax and income tax should be changed. In making such determination

the committee shall recalculate the requirements pursuant to the formula set forth in subsection (1)

of this section, taking into consideration the appropriations and express obligations for any session,

all miscellaneous claims, deficiency bills, and all emergency appropriations. The committee shall

prepare an annual report of its determinations under this section. The committee shall submit such

report electronically to the Legislature and shall append the tax expenditure report required under

section 77-382 and the revenue volatility report required under section 50-419.02.

In the event it is determined by a majority vote of the committee that the rates must be changed as

a result of a regular or special session or as a result of a change in the Internal Revenue Code of

1986 and amendments thereto, other provisions of the laws of the United States relating to federal

income taxes, and the rules and regulations issued under such laws, the committee shall petition

the Governor to call a special session of the Legislature to make whatever rate changes may be

necessary. ¡±

Annual Report

LB962 enacted in the 2012 legislative session included a requirement that the Tax Rate Review

Committee prepare an annual report of its determinations, submit such report electronically to the

Legislature, and append the tax expenditure report required under section 77-382 to such annual

report.

As the Tax Rate Review Committee meets twice each year, for purposes of this provision the

annual report will be prepared after the required November meeting.

Page 1

General Fund Financial Status

Table 1 includes the current projected General Fund Financial Status including, for planning

purposes, an estimated financial status for the following biennium. Assumptions for construction of

the status and estimates for the following biennium are discussed individually later in this report.

Table 1 Projected General Fund Financial Status

November 12, 2021

6

BEGINNING BALANCE

Beginning Cash Balance

Cash Reserve transfers-automatic

Carryover obligations from FY21

Lapse FY21 reapproriations

Allocation for potential deficits

7

Unobligated Beginning Balance

1

2

3

4

5

Actual

FY2020-21

Biennial Budget

FY2021-22

FY2022-23

Following Biennium

FY2023-24

FY2024-25

710,599,887 1,848,977,997 1,000,472,012

728,514,412

850,516,375

(10,655,528) (535,259,365) (475,390,081)

0

0

0 (339,592,954)

0

0

0

0

0

0

0

0

0

0

(5,000,000)

(5,000,000) _____________

(5,000,000)

____________________________________________________

699,944,359

974,125,678

520,081,931

723,514,412

845,516,375

16

REVENUES & TRANSFERS

Net Receipts (NEFAB October 2021 + LFO prelim)

General Fund transfers-out (current law)

General Fund transfers-in (current law)

Cash Reserve transfers (current law)

2022 Cash Reserve transfers (new)

2022 General Fund transfers-out

2022 General Fund transfers-in

2022 Revenue Bills

17

General Fund Net Revenues

____________________________________________________ _____________

5,675,064,939 4,849,670,000 5,169,170,000 5,239,490,000 5,444,590,000

24

APPROPRIATIONS

Expenditures / Appropriations (2021 Session)

Projected budget increase, following biennium

2022 Midbiennium Budget Adjustments

TEEOSA School Aid revisions (Nov 2021)

2022 State Claims (LB xxx)

2022 "A" Bills

4,526,031,301 4,815,373,072 4,976,206,223 4,976,206,223 4,976,206,223

0

0

0

176,582,889

360,136,033

0

7,950,594

7,347,144

7,305,198

7,305,198

0

0

(22,815,848) (47,606,273)

(51,408,243)

0

0

0

0

0

0

0

0

0 _____________

0

____________________________________________________

25

General Fund Appropriations

26

ENDING BALANCE

8

9

10

11

12

13

14

15

18

19

20

21

22

23

27

28

29

30

31

32

$ Ending balance (per Financial Status)

$ Ending balance (at Min. Reserve 3.0%)

Excess (shortfall) from Minimum Reserve

Biennial Reserve (%)

General Fund Appropriations

Annual % Change - Appropriations (w/o deficits)

Two Year Average

35

General Fund Revenues

Est. Revenue Growth (rate/base adjusted)

Two Year Average

Five Year Average

37

On-Going Revenues vs Appropriations

33

34

CASH RESERVE FUND

1

2

3

4

5

6

Beginning Balance

Excess of certified forecasts (line 3 in Status)

To/from Gen Fund per current law

To Nebr Capital Construction Fund (NCCF)

From Gov Emergency Fund (LB1009-2020)

To US Spacecom fund (2021)

Projected Unobligated Ending Balance

5,955,664,939 5,355,000,000 5,555,000,000 5,566,500,000 5,766,600,000

(310,600,000) (455,330,000) (335,830,000) (327,010,000) (322,010,000)

in actual

in forecast

in forecast

0

0

30,000,000

(50,000,000) (50,000,000)

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

4,526,031,301 4,823,323,666 4,960,737,519 5,112,488,037

1,848,977,997 1,000,472,012

316,707,181

-1,532,270,816

-20.5%

728,514,412

316,228,210

412,286,202

7.2%

850,516,375

---

0

5,292,239,211

997,867,164

332,405,662

665,461,502

9.6%

3.4%

3.6%

0.7%

--

3.0%

1.8%

3.1%

--

3.5%

3.3%

14.6%

9.7%

6.7%

2.9%

---

3.2%

3.1%

6.8%

0.7%

---

0.7%

0.7%

4.4%

581,298,041

FY2020-21

84,296,928

FY2021-22

258,432,481

127,001,963

152,350,789

FY2022-23

FY2023-24

FY2024-25

426,307,702

412,263,230

997,522,595 1,472,912,676 1,472,912,676

10,655,528

535,259,365

475,390,081

0

0

(30,000,000)

50,000,000

50,000,000

0

0

(54,700,000)

0

0

0

0

60,000,000

0

0

0

0

0 ____________

0 ____________

(50,000,000) ____________

0 ____________

0

____________

412,263,230

997,522,595 1,472,912,676 1,472,912,676 1,472,912,676

Page 2

Changes to the Financial Status

The General Fund Financial Status for the FY22/FY23 biennium has significantly improved since

the July meeting of the Tax Rate Review Committee as shown below.

Table 2 Chronology of the Financial Status

($ amounts are impact on available funds. Increased expenditures use available funds and

are shown as negatives. Reduced expenditures add to available funds and are shown as positives.)

Current

Following

FY

FY

FY

FY

FY

Biennium

2020-21 2021-22 2022-23

2023-24 2024-25 Biennium

Millions of Dollars

1

Sine Die 2021

2

3

4

5

6

FY21 Actual vs Est General Fund Net Receipts

FY21 Actual vs Est Transfers-In

FY21 Actual vs Est CRF transfers-automatic

FY21 Actual vs Est Accounting adjustment

FY22 Actual vs Est LB1107 credit

Update appropriation estimates

Assumed lapse, FY21 unexpended

Change in Minimum Reserve

7

July 2021 Tax Rate Review Committee

8

10

Revenue Forecasts (revised October 2021)

¡°Above certified" FY22 forecast to CRF

Change in Minimum Reserve

11

Post October 2021 NEFAB forecasts

12

16

Lapse of FY21 unexpended above July TRR est

Exclude allocation for deficits

2022 Midbiennium budget adjustments (estimated)

TEEOSA School Aid revisions (Nov 2021 meeting)

Change in Minimum Reserve

17

November 2021 Tax Rate Review Committee

9

13

14

15

27.3

77.8

379.0

0.0

0.0 379.0

0.0

2.3

0.0

0.0

2.3

0.0

0.0 (189.5)

0.0 (189.5)

0.0

0.0

(3.4)

0.0

(3.4)

0.0

0.0 (189.5) (189.5) (379.0) (156.3)

0.0

0.6

0.0

0.6

(2.2)

0.0

70.0

0.0

70.0

0.0

0.0

0.0

(8.9)

(8.9)

0.0

(101.7)

0.0

0.0

0.0

475.4 427.6 903.0

0.0 (475.4) (475.4)

0.0 (12.5) (12.5)

(195.0)

273.0

0.0

0.0

313.5

0.0

0.0

0.0

0.0

0.0

86.2

5.0

(8.0)

0.0

0.0

0.0

0.0

(7.3)

22.8

0.0

86.2

5.0

(15.3)

22.8

0.0

412.2

0.0 379.0

0.0

2.3

0.0 (189.5)

0.0

(3.4)

0.0 (535.3)

(2.3)

(3.9)

0.0

70.0

17.0

8.0

0.0 1,176.0

0.0 (475.4)

(8.0) (20.4)

485.2

0.0

0.0

(7.3)

47.6

0.0

0.0

86.2

0.0

5.0

(7.3) (29.9)

51.4 121.8

(2.9) (2.9)0.0

665.5

Revenue Forecasts

The FY2020-21 actual receipts were $379.0 million above the April 2021 forecasts of the Nebraska

Economic Forecast Advisory Board (NEFAB). Rate and base adjusted revenue growth was 14.6%

compared to the April forecasted 8.0%. At that time, the FY2021-22 and FY2022-23 forecasts

remained unchanged as the NEFAB was not scheduled to meet until October 2021.

At the October 29, 2021 meeting, the NEFAB significantly increased their forecasts; $475.4 million

in FY2021-22 and $427.6 million in FY2022-23 for a two year total of $903.0 million. Rate and

base adjusted revenue growth for the two year period is an average 3.1%. To a great extent, the

October revisions basically adjusted the next two years based on the FY21 results plus higher

corporate income tax receipts in FY22 based on year to date results.

The following table shows the chronology of rate and base adjusted growth rates over the past

year. Also, at the bottom we¡¯ve included for comparison purposes the estimates from the

Page 3

Congressional Budget Office (CBO) and their projected growth in federal revenues. This is simply

to illustrate that the significant variance in our revenue forecasts as the year progressed was not

unique to Nebraska.

Fiscal Year

FY2020-21

FY2021-22

FY2022-23

FY2023-24

FY2024-25

CBO FY2021

Oct 2020

NEFAB

1.4%

0.7%

6.1%

6.8%

6.8%

-1.2%

Adjusted Revenue Growth

Feb 2021 April 2021 July 2021

NEFAB

NEFAB

TRR

5.7%

8.0%

14.6%

1.7%

1.2%

-4.8%

4.6%

3.9%

4.0%

4.9%

4.9%

4.8%

5.2%

4.3%

4.1%

--

--

12.3%

Oct 2021

NEFAB

14.6%

2.9%

3.2%

0.7%

0.7%

18.3%

Actual FY2020-21 lapsed appropriations

In the July 2021 projected financial status it was estimated conservatively that $70 million of

unexpended General Fund appropriations would expire or lapse. Actual numbers for lapsed

appropriations would not be available until the encumbrance process was completed in

September. The final calculation of FY21 reappropriations and encumbrances resulted in expired

(lapsed) appropriations of $156.1 million versus the $70 million estimate with a like increase in the

unobligated beginning balance for FY21-22. This lapse amount is equal to 1.7% of total

appropriations for the FY20/FY21 biennium.

2022 Session Budget Adjustment Requests (General Funds)

Agencies were required to submit requests for midbiennium budget adjustments by October 24. A

complete list of requested items is shown in Table 3 on the following page sorted by those items

included in the projected financial status and those not included. The included items are those

which generally fall into the more traditional deficit or ¡°have to do¡± category. At this point in the

process, detailed information on the request items is not available as they are currently under

review and analysis by the Legislative Fiscal Office and Governor¡¯s Budget Office.

These requested items will be subject to review and approval or rejection by the Governor and

Legislature during the 2022 Session. The sorting of the included and not included items here is

only made for the purposes of illustrating a potential financial status.

The updated TEEOSA estimate discussed later is not included in this listing and is treated as a

separate item as the revised estimate occurred after the deadline for submittal of budget change

requests. There will also likely be other requests that will subsequently be submitted for things

such as Homestead Exemption and defined benefit retirement plans.

Page 4

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