The writer, of Omaha, is executive director of the OpenSky Policy Institute in Lincoln.
There's a saying, “If you don't like the weather in Nebraska, wait five minutes.” This seems particularly true in the Cornhusker State these days.
The fiscal climate also can change quickly, and the Legislature's Appropriations Committee made prudent recommendations this week that would leave the state better prepared to weather budgetary swings.
The committee suggested that — rather than cutting taxes or enacting more spending measures — an additional $53 million in projected revenue for the 2013-15 biennium go into the state's rainy-day fund. That revenue, combined with a $125 million windfall into the fund thanks to what experts say is a “one-time surge” in capital gains tax receipts, will help push the rainy-day fund balance to $625 million.
This is indeed good news for Nebraskans, but it's important to keep in mind the purpose of the fund — to be there when times get hard. During the Great Recession, Nebraska's relatively robust rainy-day fund helped cushion the blow, making cuts to schools, roads and other vital services less severe.
Even with the new influx of money, the state's rainy-day fund — officially known as the cash reserve — will be only about 15.7 percent of its general-fund budget. That is below the 16.7 percent recommended by the Government Finance Officers Association (GFOA), a nonpartisan organization that helps states develop sound financial policies.
The Appropriations Committee's recommendation to save the revenue would help Nebraska have reserves on hand for the coming years. This is particularly important as federal aid to Nebraska is expected to decline and because the state is seriously considering comprehensive tax reform, which could bring with it fluctuations in revenue as the tax system adjusts.
In 2007, Nebraska's cash reserve sat at 15 percent as the economy started to slide into recession. Even with that balance, the state quickly spent down the reserve as the downturn ate into revenues.
Subsequently, significant cuts were made to such services as education and roads, but the cuts might have been much worse if not for our relatively healthy reserve.
Nebraska's interests would be best served if the state can keep the rainy-day fund at or above the 16.7 percent level. That would help the state stabilize its finances and start to rebuild education and other services crucial to long-term economic growth that were cut significantly in recent years.
As for tax cuts, they should be considered only after the state conducts a thorough review of its tax code, such as that proposed in Legislative Bill 613 — a bill by Sen. Paul Schumacher of Columbus.
The review would let lawmakers see where adjustments to the tax code would be of most benefit and help legislators make informed decisions that would not leave Nebraskans out to dry when the rain comes.