A study of state finances by George Mason University describes Nebraska as the nation’s best-prepared state to pay its financial commitments.
Responsible management of state dollars is a Nebraska tradition, which officials have enhanced since the dark days that followed the 9/11 attacks.
Then, even pay-as-you-go Nebraska was ill-prepared for the sharp economic downturn that followed. State leaders raised taxes and cut government spending. The books stayed balanced.
As things stabilized, leaders and lawmakers placed a new emphasis on building and maintaining a sensible cash reserve. They did so largely by restraining the pace at which state spending grew.
More recently, the tax dollars the state squirreled away — and a resurgent farm economy — helped Nebraska survive the Great Recession better than most states, without unnecessarily destabilizing either tax rates or spending.
Such restraint remains a sound guiding principle. Most job creators, when asked, say they prefer tax predictability to splashy tax cuts that prove unreliable or temporary. Business owners know the importance of being able to plan.
This year, though, Nebraska’s cash reserve is expected to grow beyond what even the most conservative estimates show the state needs, to $726 million by June 30. That’s why Gov. Dave Heineman and legislative leaders are right to discuss tax cuts aimed at economic growth.
But they should only make changes the state, with its long-term needs, can afford to maintain.
At first blush, it will be up to the governor and supporters of his three-year, $500 million tax cut proposal to show taxpayers how the cuts would be sustained over time. The long-term spending implications need to be fully analyzed.
The debate will consider tax cuts as part of the state’s mix of competing needs. The key will be to make responsible budget judgments that allow the state to meet its ongoing obligations, such as school funding and child welfare, even as lawmakers debate new spending for such items as prisons and Medicaid expansion.
The right kinds of tax cuts can spur economic growth. So there is merit in the governor’s proposed income tax rate cuts for those in Nebraska’s top tax bracket. In Nebraska, that’s not the “1 percent.” The top tax bracket kicks in at $29,000 for individuals, not exactly high-rollers.
Many Nebraskans work for small businesses, and many business owners pay their business taxes through the income tax, at the top rate. These are the Main Street businesses from McCook to South Sioux City that employ thousands.
Getting more money into the hands of employees and entrepreneurs should be the goal of tax changes. The goal is similar with adjustments to state programs that shift the burden of local property taxes onto state sales and income taxpayers.
The governor’s support for cutting the property valuations of agricultural land to 65 percent from 75 percent of full value would benefit the vital economic engines of rural communities, farmers and ranchers. That’s a good thing.
But it also would pull the windfall of increased land valuations away from schools and local governments, which must provide needed services to often-shrinking communities.
Local spending on schools, roads, law enforcement and fire protection drives property taxes, which rose by more than 5 percent in 70 counties last year. The only lasting way to restrain property taxes is to restrain local government spending.
The proposed ag-land valuation change could wind up being a tax shift, not a cut. And it could commit state taxpayers to increased state aid to education for some land-rich, people-poor rural school districts.
In the end, local governments would have to live within their means or raise property tax rates. So there is a chance this change could wind up increasing property taxes on some homeowners.
And what if land values level out or drop?
Still, it is hard to imagine tax relief of any kind passing the Legislature without some sort of property tax offset. The Tax Modernization Committee heard how strongly Nebraskans feel about that.
But senators will need to make sure any tax changes outweigh the potential consequences.
Nebraska already has the nation’s third-lowest unemployment rate, and it weathered the Great Recession better than most. While sustainable tax cuts are welcome, there is no shame in standing pat if the alternative is adopting changes that would be jettisoned in the next downturn.