Bridging the state budget gap

LINCOLN — A national analysis of state budgets indicates that Nebraska might require bigger budget cuts and deeper dips into rainy day funds than a number of other states when federal stimulus funds run out.

But at least two state fiscal authorities downplayed the analysis, saying it's nearly impossible to compare states' budget situations because each state's fiscal status and use of stimulus money are so individual.

One thing is clear: When the money from the American Recovery and Reinvestment Act of 2009 runs out in 2011 and 2012, all states will face problems of varying magnitude in replacing the one-time funds.

“There continue to be some difficult budget decisions ahead for the state,” said Gerry Olig- mueller, state budget director for Gov. Dave Heineman.

Oligmueller, though, added that Nebraska continues to be in better shape than many states because of Nebraska's frugal budgeting. He, along with Mike Calvert, head of the Legislature's Fiscal Office, downplayed the recent national analysis that found Nebraska used its stimulus dollars more heavily for ongoing expenses rather than one-time projects.

“When you get into these broad-brush kind of comparisons, it gets into one of those hokey-pokey kinds of things,” Oligmueller said.

A recent analysis of federal stimulus spending among 33 states by the National Conference of State Legislatures found that only Texas relied on a higher percentage of its stimulus funds than Nebraska to close the gap between spending requirements and declining tax revenues.

Texas used 92 percent of its stimulus funds to bridge the gap between its spending needs and tax income. Nebraska used 88 percent of its stimulus funds for that purpose.

By contrast, Iowa ranked No. 8, using 57.3 percent of its stimulus funds to close its budget gap. It relied on other measures, including a 1.5-percent across-the-board state budget cut, to close the rest of its gap.

If stimulus funds are used more heavily to resolve continuing budget problems, there's a greater chance that tax increases, deeper cuts in services and deeper dips into reserve funds will be required to balance state budgets after the federal stimulus funds run out.

At least one state senator on the budget-writing Appropriations Committee, Jeremy Nordquist of Omaha, said the analysis makes him wonder if Nebraska lawmakers missed an opportunity to make deeper budget cuts this year to prepare for the “cliff” when federal funds run out.

“Looking back, we didn't do enough. I should have done more, as well,” Nordquist said. “We probably didn't know it was as bad as it was.”

He said the state could have considered freezing wages, eliminating more vacant positions and taking other steps to reduce its continuing budget expenses. Stimulus funds, in retrospect, could have been funneled to more one-time investments, like constructing a new nursing school building in Lincoln, Nordquist said.

State Sen. Lavon Heidemann of Elk Creek, appropriations chairman, said the state struck a “good balance” in its use of stimulus funds and in dipping into state reserve funds.

The state avoided large cuts in services, he said, while funding some needed improvements in mental health services for troubled teens and upgrading care for the developmentally disabled.

The recession has led to historic drops in tax revenue for states, creating a gap between the tax revenue collected to finance state services and the funds needed to finance those services, which include universities, social programs, road-building and state aid to local schools.

The stimulus program provided $275 billion to states to weather the fiscal storm. States used the money in a variety of ways, some opting to plug the budget gap with it, while others used the money for one-time investments and employed other measures, such as tax increases, budget cuts and rainy-day funds, to handle their continuing budget needs and gaps.

An article about how states handled their budget gaps by stateline.org, a nonprofit group that monitors state policy issues, indicated many states are dreading the fiscal decisions ahead after the stimulus funds provide a two-year breather.

Oligmueller said it's nearly impossible to compare Nebraska's use of stimulus funds with other states because of differing definitions of budget gaps and other unique circumstances.

He said he looks at it this way: About 7 percent, or $256 million, of the current fiscal year's budget came from federal stimulus funds. In the next fiscal year, 2010-11, about 6.2 percent, or $234 million, is stimulus money.

That's a cliff the state will have to deal with when the stimulus funds run out, but it's impossible to say now whether tax revenues will rebound to cover the cliff or not, Oligmueller said.

“Time will tell,” he said. “I think the challenges for several other states are much greater than for Nebraska.”

Calvert, the Legislature's fiscal office director, said all states will face challenges in replacing the one-time stimulus funds, and the size of the challenge will depend on how quickly tax revenue rebounds from the recession.

Many forecasts, Nordquist said, show that the recovery will be slow and gradual. That's not good news for closing future budget gaps with existing tax revenue, which he said appears to be the state's “exit strategy” for surviving without stimulus funds.

Lawmakers, Nordquist said, might have to consider budget cuts next spring so the budget is in better shape to weather the loss of stimulus funds in 2012.

“The hard work hasn't even started yet,” he said.

Contact the writer:

402-473-9584, paul.hammel@owh.com

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