Smart Choices in Hard Times

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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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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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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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


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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


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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.


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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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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

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Smart Choices in Hard Times