Nebraska’s state government is in a curious budget situation, with major negatives but also major pluses.
The government is going through a troubling financial pinch at present, with revenues falling short of projections. The state closed out its fiscal year on June 30 with $34 million less in tax revenue than projected, stemming from ongoing challenges in the agricultural economy. In the past two years, the state forecasting board reduced its forecasts five times. This year the board lowered its tax revenue projections twice, by $80 million in February and then by $15 million in April.
State leaders have a supremely difficult challenge. On the one hand, lawmakers and the Ricketts administration need to try to hold off on increasing the tax burden at a time when the farm and ranch sectors are stressed and as lawmakers are hearing loud complaints about the property tax burden.
At the same time, the state must fund a range of important public needs, including schools, prisons, child welfare and the University of Nebraska.
In terms of the big picture, Nebraska is getting a lot of the budget fundamentals right — a comprehensive new report on the 50 states ranks Nebraska No. 6 for overall state fiscal management.
In addition, the report — by the Mercatus Center, a free-market think tank with George Mason University in Arlington, Virginia — ranks Nebraska No. 1 in long-run solvency (ability to meet its long-term financial obligations) and No. 3 in trust fund solvency. Those scores are in line with Nebraska’s rankings in past years by the Mercatus Center.
“Nebraska’s long-term position is especially favorable,” the report concluded after studying how all states handled their budgets for fiscal year 2015.
Nebraska’s state pensions are 90 percent funded overall, compared with a 50-state average of 74 percent. Financial experts recommend funding of at least 80 percent to be fiscally sound.
Nebraska’s unfunded state pension obligations are 18 percent of total personal income in the state, well below the 50-state average of 35 percent. The unfunded pension liability figures for some states with the most severe problems: New Mexico, 64 percent of total personal income; Ohio, 62 percent; Mississippi, 58 percent; Illinois, 54 percent.
The state Constitution requires Nebraska to hold its state government debt to a modest level. That gives it a boost in the Mercatus Center rankings. Nebraska has a debt per capita of $8, compared with the 50-state per-capita average of $1,804.
Total annual expenditures by Nebraska’s state government are 9 percent of residents’ total personal income. For the average U.S. state, the figure is 13 percent. The figures for some other states: 19 percent in Vermont, 14 percent in New York, 11 percent in Colorado, 10 percent in both Kansas and South Dakota.
As for Nebraska’s neighbor to the east: Iowa ranked 28th overall. The state’s long-run solvency ranking was high (No. 10) and its trust fund solvency was judged average (No. 25).
Iowa’s state pensions are 83 percent funded, compared with the 50-state average of 74 percent.
Iowa’s government spends above the 50-state average when matched against residents’ total personal income: 15 percent in Iowa, compared with 13 percent for the average state.
As the new report shows, Nebraska benefits from important budget advantages, long term. Pensions are well managed. Debt is low. The state’s ability to meet its long-term obligations is high.
In addressing the short-term budget challenges, Nebraska leaders need to maintain that strength, keeping the state on a positive long-term course.