Erdman Edition: Dollars and Sense: Fiscal Responsibility Needed in State Budget

This week the Appropriations Committee made their recommended adjustments to the current two-year or biennial state budget adopted last session. The Legislature will begin debate on those recommendations on Monday, March 17.

This year's budget discussions will occur as signs point to a slowing national economy, which may mean less revenue will be available than projected when the budget was passed last year. Lower revenue projections also impact the ability to balance budgets in the coming years. Now more than ever, it is essential to prioritize spending.

The biennial budget was set during the "long" legislative session with budget adjustments commonly made in the "short" session. The Legislature is required to maintain a balanced budget with a minimum of 3% reserve. It is based on projected program costs and anticipated state revenues. If costs exceed projections, or revenues are less than anticipated, adjustments must be made to balance the budget.

This session, there are a couple of items complicating the task of balancing the budget. Lower revenue projections suggest that actual revenues for this budget will fall about $125 million short of what was predicted last session; and the costs of state aid to public schools will be $53 million more than what the current budget estimated. Aside from these two major issues, cost increases in the Medicaid program, behavioral health, higher education and health insurance premiums are also putting additional pressure on the budget.

Addressing the additional $53 million in state aid will be done with legislation not included in the main budget bill. However, whatever is done will have an impact on the budget. The Appropriations Committee has recommended revisions to the school aid formula in LB 249 and the Education Committee advanced LB 988 with their revisions to the formula to help balance the budget. LB 249 would limit the growth in state aid by reducing the cost growth factor and redefining general fund operating expenditures. Both of these provisions are contained in LB 988, but LB 988 also includes additional adjustments. Still, there are continued efforts to amend LB 988 so it is difficult to describe the anticipated impact of the bill. As currently drafted, many sparse and very sparse school districts face a reduction in their current state aid rather than just slowing the rate of increase. These impacts will be strongly debated as ensuring funding for rural schools must be a priority. Even with these proposed changes in the state aid formula, aid statewide is projected to increase 9% over last year.

Fortunately, the state has a healthy cash reserve to help weather tight fiscal situations. If the Legislature avoids using much of the cash reserve fund this year, future Legislatures may use some of those reserves in order to avoid making either drastic cuts in essential programs or increasing taxes. However, it will take both careful planning and spending restraint to enable the state to maintain a healthy budget outlook in the months ahead. We cannot avoid future budget problems by simply saving money in the cash reserve. The state and federal government must adopt proactive policies to stimulate the slowing economy such as lowering taxes, as the Legislature did last year.

If you would like more information on the budget or the budget recommendations of the Appropriations Committee go to: www.nebraskalegislature.gov. This report outlines the recommended adjustments to the biennial budget passed last year.

Your input on the budget is important to me. Please contact me at my Lincoln office either by mail: Sen. Philip Erdman, District 47, P.O. Box 94604, Lincoln, NE 68509-4604; by email: perdman@leg.ne.gov; or by phone: (866) 800-7445.