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This new report identifies best practices for addressing state budget shortfalls.
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Smart Choices in Hard Times: Best Practices for State Budgets
Nebraska’s budget should reflect our state’s priori-
ties. Family, community, and work ethic are deeply
rooted Nebraska values and our people are our great-
est asset. Nebraskans want our shared resources to
be directed at priorities that are grounded in those
values and which strengthen our
economy, create opportunity for our
families and workers, and build
a better future in rural and urban
communities.
To do that, smart choices must be
made to protect families in the
economic downturn and position
Nebraska to recover as quickly as
possible. The best course of action
is a balanced approach that examines
the budget as a whole and considers a variety of
options to draw in more revenue and create
cost-savings in our budget.
Nebraska faces a significant budget shortfall,
and the choices we make today will have
serious short and long-term implications.
A balanced approach to closing deficits helps to
assure that no one segment in our state, neither
residents nor businesses, unduly bears the brunt
of recession-induced deficits. Nobel Prize winner
Joseph Stiglitz of Columbia University, and Peter
Orszag, Director of the Federal Office of Manage-
ment and Budget, argue that the best way to address
budget shortfalls is to take actions that maximize
a state’s ability to create demand in the economy –
such as using federal funding at the
state level.1
Nebraska can contribute to our state’s long-term
fiscal health by sustaining commitments to
programs that work: ones that generate revenue,
maintain family and community stability, create
good jobs and good workers, support entrepreneur-
ship and self-employment and ultimately build up
our tax base. With a balanced approach, we can
build a budget that reflects our priorities
and ensures that state government has
the resources needed to contribute to
long-term stability for our state and
its residents.
Overview
The best course of action is a balanced approach that examines the budget as a whole and considers a variety of options to draw in more revenue and create cost-savings in our budget.
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Smart Choices in Hard Times: Best Practices for State Budgets
Nebraska faces a difficult budget scenario, where in-
creased demand for services and decreased revenues
have created a significant budget gap. Nebraska has
taken steps to prepare for the development of the
2011-2012 state budget by implementing an interim
study process to review potential options. It is
important that we begin this conversation now. But,
one of the drawbacks of the current approach is that
legislators have been asked to focus on eliminating
programs to close the budget gap. This takes a
number of important tools off the table that may
lead to more creative solutions – like restructuring or
finding efficiencies in current programs – which may
better serve Nebraskans. In 2011, it is important to
take a different approach and instead, analyze all
Best practices for state budget solutions being
utilized across the nation fall into three categories:
improving current government practices, maximizing
revenue potential, and developing shared priorities.
Best Practices: Improve current government practices
1. Improve tax collection efforts. Allow consum-
ers and businesses a time-limited opportunity to pay
delinquent sales and use, corporate income, and a
options to balance the budget in a manner that
protects Nebraska families and priorities over the
long-term. This report analyzes best practices from
other states and identifies ways in which alternatives
to cutting programs can be considered.
States nationwide are addressing budget shortfalls
using a variety of approaches. In analyzing the
actions taken by other states, it is important to assess
which approaches best protect our priorities while
also solving budget shortfalls. Therefore, the follow-
ing guidelines were used in identifying best prac-
tices: consideration of economic demand, protection
of Nebraska priorities and families, and assessment of
the long-term impact on revenues and services.
variety of other taxes with no penalties or criminal
prosecution. Such initiatives move revenue into
state budgets during a time of immediate need with-
out implementing any new taxes or fees.
State Example: Florida has offered consumers and
businesses a chance to pay delinquent sales and use,
corporate income, and a variety of other taxes with
no penalties or criminal prosecution and required
only half of the owed interest. Similar legislation
has also been enacted in Georgia and New Mexico.2
Considerations for Best Practices
Best Practices
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Smart Choices in Hard Times: Best Practices for State Budgets
In Georgia, the House Ways & Means Chairman has
estimated the measure could bring the state $100
million or more. In 2004, Nebraska implemented
a tax amnesty program3 for sales, corporate, and
individual taxes in which interest and penalties were
waived, but does not currently implement such a
program.4 The 2004 program ran from August 1,
2004 to October 31, 2004. During that three-month
period, Nebraska drew in $8,587,063.5 A portion of
these funds were used to improve enforcement. The
enforcement efforts are still in effect and continue to
draw in Nebraska tax dollars.6
2. Increase efficiencies. Improving efficiencies
by combining administrative services and reduc-
ing paperwork can create cost savings in multiple
program areas. One effective strategy for increas-
ing efficiency is streamlining paperwork processes
needed to determine eligibility for state services.
Done effectively, such approaches benefit both state
administrative offices and clients.7
State Example: Ohio has streamlined paperwork
requirements in public benefits programs. Public
benefits programs, such as the Supplemental Nu-
trition Assistance Program (SNAP, formerly Food
Stamps) provide federally funded benefits to families
and are administered at the state level. Streamlining
paperwork processes can save administrative resourc-
es while also assuring that families receive assistance.
Ohio has reduced the number of eligibility factors
that must be verified and now allows families to self-
declare some information.8 Follow up studies have
shown positive accuracy rates with this approach.
Other states have reduced the extent to which a
family must re-verify circumstances that have not
changed or have not changed significantly. This
makes it easier for families and caseworkers to satisfy
verification requirements. One example is sharing
verification information across programs.9 Nebraska
could, for example, align asset limit requirements
so that they are the same for multiple public benefit
programs, thereby simplifying eligibility verifications
and saving administrative processing time.
3. Use available resources. Given the recent
revenue declines and increased need for services
during the economic downturn, it makes sense for
Nebraska to use “rainy day” funds, as we have done
in the past, to continue programs and services,
particularly those that contribute to an increase in
economic activity. According to the Center on
Budget and Policy Priorities, “Use of reserves is one
of the best strategies from the standpoint of the
impact on a state’s economy. Budget cuts reduce
overall economic activity by removing demand
because when public employees lose their jobs
or income, or a contract with a private entity is
cancelled, those people have less money to spend.
But the draw-down of reserves adds demand to
the state economy by injecting into it money that
essentially was sitting in a ‘savings account.’ 10
Best Practices (continued)
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Smart Choices in Hard Times: Best Practices for State Budgets
State Example: In the 2002 downturn, Kentucky used
half of their “rainy day” fund ($120 million) to pre-
vent budget cuts.11 Post-recession, Kentucky built
the reserve back up to $232 million.12 According to
the National Association of State Budget Offices, at
least 16 states have used “rainy day” funds to balance
budgets in response to the current downturn.13 The
Nebraska Legislature established the forward-look-
ing policy to establish a “rainy day” or cash reserve
fund intended to contribute to meeting state obliga-
tions when necessary.14 The cash reserve fund still
holds over $300 million.15
Maximize revenue potential
4. Embrace “multiplier” initiatives to achieve employment goals. Strategic choices in govern-
ment programs and initiatives can multiply the im-
pact of public spending and create economic growth
through employment. Federal funds can promote
state economies, because federal funds contribute to
jobs, such as when federal matching funds for Med-
icaid support jobs like home health aides, or when
federal funding for Title 1 educational programs
support teacher salaries. Such opportunities fall into
two categories: increasing job opportunities through
public spending and drawing down federal dollars to
create economic demand.
State Example (Job Opportunities): State capital
budgets support construction and rehabilitation of
public hospitals, schools, universities, jails, govern-
mental buildings, and other public development
projects. Job opportunities can be created through
existing public spending on public works and eco-
nomic development initiatives – thereby achieving
multiple goals with state investments. For example,
Connecticut has invested $2.7 million in a skills
development program to help Hartford residents get
construction jobs created through the state’s $335
million effort to redevelop downtown Hartford.16
The National Governor’s Association points out that
developing additional requirements for social service
programs (such as child care assistance) to closely
coordinate with workforce training and job place-
ment services can better assure that state programs
are efficient and that individuals have opportunities
to transition into new employment and have the
supports they need to succeed.17
State Example (Federal Funding): Massachusetts and
many other states draw down significant federal
funds from the Supplemental Nutrition Assistance
Program (SNAP, formerly Food Stamps) Employ-
ment and Training fund.18 The United States
Department of Agriculture will reimburse states for
50 percent of administrative costs, dependent care
costs, and transportation and other participant ex-
penses that are related to SNAP participants fulfilling
work requirements.19 Nebraska draws down only a
small portion of these funds, even though the match
funding does not have a cap.20 Identifying additional
Best Practices (continued)
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Smart Choices in Hard Times: Best Practices for State Budgets
current expenditures that could be used as a match
to draw down more funds to serve students could
draw more resources into our state.
5. Implement creative revenue generating efforts. Initiatives that generate revenue through creative means can achieve multiple goals. For example, lifting the tax exemption
on sugared beverages can be used to fund child
nutrition programs – at once disincentivizing un-
healthy consumption and funding child nutrition
programs, which in turn draw in federal dollars.
Other states have also considered creative revenue
generating proposals such as selling advertising on
license plates.
State Example: Rhode Island utilizes an excise tax ap-
plying to regular and diet soda, isotonics, and sweet-
ened tea. The Yale Rudd Center for Food Policy
and Obesity estimates that Nebraska could generate
$86,127,158 in 2011 by implementing a one cent
per ounce tax on regular soft drinks.21 Nebraska
could also increase revenues by simply removing the
tax-exempt status from such products. For a list of
revenue measures considered by states nationwide
accumulated by the National Council of State Legis-
latures access http://www.ncsl.org/?tabid=19656.
6. Update the tax structure to reflect the changing economy. The focus of our national
economy has changed over the last few decades to
focus more on services than manufacturing. Our
tax structure, however, does not reflect this change.
Updating our tax structure to reflect the new econ-
omy by including more services in the sales tax base
will increase state revenue. This approach can be
implemented strategically to maximize revenue and
minimize any impact on vulnerable populations and
businesses contributing to the economy. Focusing
on taxation of optional services can distribute taxa-
tion across multiple constituencies.
State Example: The Center on Budget and Policy
Priorities identifies over 200 services available for
taxation, and estimates the maximum revenue avail-
able from such taxation in Nebraska at $493 million
(“Expanding Sales Taxation of Services: Options and
Issues” http://www.cbpp.org/files/8-10-09sfp.pdf).
For example, New York added an auto rental excise
tax, which will generate up to $8 million in fiscal
year 2010.22 Other states tax services ranging from
water well drilling to packing and crating services.
Develop Shared Priorities
7. Prioritize programs and services. Smart
choices must be made today to protect Nebraska’s
families and the state’s economic well-being.
Economists Stiglitz and Orszag argue that ill-advised
spending cuts could actually be more harmful for a
state’s economy during a recession than targeted
tax increases because cuts have the potential to
Best Practices (continued)
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Smart Choices in Hard Times: Best Practices for State Budgets
Ultimately, a balanced approach is the best ap-
proach. States have a wide range of policy options
for balancing state budgets. Nebraskans want to
close our budget gap in a responsible manner that
protects families, avoids further damage to the
economy, and in some cases, contributes to the
long-term economy stability of the state. Simply
put, we can make smart choices in tough times to
ensure a strong future for everyone in our state.
Nebraska should act to address the budget gap in a
manner consistent with our values and priorities of
family and economy stability.
Summary
eliminate jobs and thereby decrease overall
demand.23 Therefore, cuts must be carefully con-
sidered and used only as a part of a comprehensive
approach using multiple strategies to balance the
budget. Revenue decisions must also be made in
an equitable manner that protects the interests of
workers and families. Further, states must make
decisions in an open and accountable manner to
assure that the public can have input into decisions
about our state’s priorities.
State Examples: Washington State developed a
“Governor’s Committee on Transforming Washing-
ton’s Budget” involving leaders from all walks of life
(including business leaders, policy experts, family
advocates, and community leaders) and conducted a
series of budget hearings across the state.24 Similarly,
in Nebraska during the 2009 Special Session dedi-
cated to budget issues, several State Senators in the
Lincoln area held a successful town hall meeting and
received input from a variety of stakeholders.
Best Practices (continued)
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Smart Choices in Hard Times: Best Practices for State Budgets
1 Orszag, Peter and Stiglitz, Joseph, “Budget Cuts vs. Tax Increases at the State Level: Is one more counter productive than the other during a recession?” Center on Budget and Policy Priorities, 2001 http://www.cbpp.org/cms/index.cfm?fa=view&id=1346
2 National Conference of State Legislatures, “Actions and Proposals to Balance FY 2011 Budgets: Other Revenue Actions, Taxes/Fees,” http://www.ncsl.org/?tabid=19656
3 LB 1019 established a tax amnesty program from August 1, 2004 to October 31, 2004. Proceeds from the program were used to employ additional Nebraska Department of Revenue staff members who, through investigation and other strategies, have drawn in ad-ditional dollars past the amnesty period.
4 Nebraska Department of Revenue, “Annual Report” 2004, http://www.revenue.ne.gov/ann_rept/04an_rep/04report.pdf. Also, via phone 8/17/10, Also, Nebraska Revised Statute 77-5601 http://nebraskaleg-islature.gov/laws/statutes.php?statute=s7756001000 *note: Nebraska does participate in a streamlined sales tax program that simplifies sales tax for businesses working in multiple states
5 Nebraska Department of Revenue, “Nebraska Depart-ment of Revenue Report of the Results of the Tax Amnesty Program,” 2005 http://www.revenue.ne.gov/research/amnesty_results_2-05.html
6 Subsequent Tax Amnesty reports reflect the impact of increased staff and technological enforcement, rather than the actual implementation of an amnesty period.
7 Streamlining provision of public benefits should be approached carefully. Attempts to modernize and streamline systems in Indiana resulted in lack of access to services and a costly lawsuit (see: Austin Considine, The Perils of Privatization, NUVO Newsweekly, http://www.nuvo.net/indianapolis/the-perils-of-privatization/
Content?oid=1364772 ) such efforts should be carefully calibrated to meet federal requirements, serve clients, and create efficiencies.
8 Schott, Liz and Parrot, Sharon, The Center on Bud-get and Policy Priorities, “Easing Benefit Enrollment and Retention by Reducing the Burden of Requiring Verification,” 2005 http://www.cbpp.org/files/12-13-05prosim.pdf
9 Schott, Liz and Parrot, Sharon, The Center on Bud-get and Policy Priorities, “Easing Benefit Enrollment and Retention by Reducing the Burden of Requiring Verification,” 2005 http://www.cbpp.org/files/12-13-05prosim.pdf
10 Lav, Iris J., Center on Budget and Policy Priorities, “A Balanced Approach to Closing State Deficits,” 2010 http://www.cbpp.org/cms/index.cfm?fa=view&id=3084
11 Johnson, Nick, Center on Budget and Policy Priorities, “What to do when it rains,” 2002 http://www.cbpp.org/cms/index.cfm?fa=view&id=1539
12 McNichol, Elizabeth, “Is it Raining Yet? Yes, and it’s time for Many States to Use their Rainy Day Funds,” 2008 http://www.cbpp.org/cms/index.cfm?fa=view&id=1094
13 National Association of State Budget Offices, “Summa-ry: Spring 2010 Fiscal Survey of States,” 2010 http://www.nasbo.org/LinkClick.aspx?fileticket=2oDrzrruzuQ%3d&tabid=38 and Prah, Pamela, “Is it raining hard enough?” Stateline, 2010 http://www.stateline.org/live/details/story?contentId=462179
14 Nebraska Revised Statue 84-612. Cash Reserve Fund; created; transfers; receipt of federal funds.
15 The State of Nebraska, “Cash Reserve Fund Status,” http://budget.ne.gov/das_budget/budget09/cfstatus.pdf
References
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Smart Choices in Hard Times: Best Practices for State Budgets
References (continued)
16 Alstadt, David, Working Poor Families Project, “Build-ing Opportunity,” 2010 http://www.workingpoorfami-lies.org/pdfs/Building_Opportunity.pdf
17 National Governor’s Association, “State Governments After the Great Recession,” http://www.nga.org/Files/ pdf/1002STATEGOVTAFTERGREATRECESSION.PDF
18 Seattle Jobs Initiative, “Food Stamp Employment and Training: Lessons from Massachusetts, Texas, San Francison and Wisconsin,” 2007 http://www.seattle-jobsinitiative.com/policy/publications/documents/FSETLessonsLearnedfromMassachusettsTexasSanFran-ciscoandWisconsin.pdf
19 Seattle Jobs Initiative, “Food Stamp Employment and Training: Lessons from Massachusetts, Texas, San Francison and Wisconsin,” 2007 http://www.seattle-jobsinitiative.com/policy/publications/documents/FSETLessonsLearnedfromMassachusettsTexasSanFran-ciscoandWisconsin.pdf
20 United States Department of Agriculture, Food and Nutrition Service, “NE ET 2009 Grant and Spending,” According to FNS, Nebraska identified $35,817 in match spending.
21 Rudd Center for Food Policy and Obesity, Revenue Calculator for Soft Drink Taxes, http://yaleruddcenter.org/sodatax.aspx
22 Johnson, Nichols, and Pennington, Center on Bud-get and Policy Priorities, “Tax Measures help Balance State Budgets,” 2009 http://www.cbpp.org/cms/index.cfm?fa=view&id=2815
23 Johnson, Nicholas, Center on Budget and Policy Priorities, ‘Budget Cuts or Tax Increases at the State Level Which Is Preferable When the Economy Is Weak? 2010, http://www.cbpp.org/cms/index.cfm?fa=view&id=1032
24 Governor Chris Gregoire, “Transforming Washington’s Budget,” http://www.governor.wa.gov/priorities/bud-get/default.asp
Nebraska Appleseed Center for Law in the Public Interest
941 O Street, Suite 920 Lincoln, NE 68508
402.438.8853 402.438.0263 Fax
info@neappleseed.orgwww.NeAppleseed.org
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