Nebraska Takes 2 Major Steps to Improve Long-Term Fiscal and Economic Health

Nebraska Governor Pete Ricketts (R) recently signed into law two bills to strengthen the state’s long-term fiscal and economic health and ensure that policy decisions are rooted in the best available data and evidence.  

Studying volatility

The first bill, L.B. 33, was signed April 13 and mandates that the state periodically study volatility in its revenue, a critical first step to improving the state’s rainy day funds. Sponsored by Senator Heath Mello and passed unanimously in the Legislature, the law requires the Nebraska Legislative Fiscal Office to prepare a revenue volatility report in November 2016 and every two years thereafter.

Research from Pew has shown that periodic studies to identify major sources of volatility help states better understand and harness unpredictable tax revenue to more effectively build savings. Although rainy day funds are intended to smooth state budgets over the ups and downs of the business cycle, most states do not connect savings to observed volatility. By forgoing this connection, states are missing an opportunity to build a cushion they can rely on in hard economic times.

Pew recommends that states conduct such regular studies and use the findings to determine the best way to tap into volatile revenue streams. There is no one-size-fits-all approach to savings, and these studies help each state identify the most appropriate policy solutions for its needs. With the passage of L.B. 33, Nebraska has committed to follow this best practice.

As Sen. Mello explained in a news release, “Creating the new planning instrument will assist the Legislature in both preparing for the next economic downturn and for strengthening the state’s fiscal policy.” He added, “This best practice fiscal policy, promoted by The Pew Charitable Trust[s], will serve future Legislatures in both crafting state budgets and understanding the volatility of our tax system.”

Tax incentive evaluation

The second law, L.B. 538, was signed on May 27 and sponsored by the Legislative Performance Audit Committee, which includes Speaker Galen Hadley, Chairman Dan Watermeier, and Senators Bob Krist and Mello. It requires evaluations of all major tax incentives to measure each program’s economic and fiscal results.

According to the legislation, the nonpartisan Office of Legislative Audit will evaluate each tax incentive program at least once every three years, focusing on the extent to which each achieves Nebraska’s specific objectives, including creating jobs, revitalizing rural and distressed areas, and diversifying the economy. Further, program outcomes will be compared with the results of other strategies for achieving the same goals, helping policymakers identify the most-effective economic development strategies.

The bill follows Pew’s recommendations that states: 1) make a plan to determine when and how programs will be evaluated and by whom; 2) measure the impact of each incentive to assess results for the state’s economy and budget; and 3) build evaluations into policy and budget deliberations. Nebraska joins a growing list of states that have recognized the power of regular and rigorous incentive evaluations to help them obtain the best possible results for their taxpayers and economies.

Together, these two actions are a clear indication of Nebraska’s dedication to strong fiscal and economic policy.