Testimony for LB337: Require report of federal receipts with the annual state budget report

Good afternoon, members of the Government, Military and Veterans Affairs Committee.  My name is Sarah Curry, and I am the Policy Director for the Platte Institute.  I am here today to testify in support of this bill.
 

As you are all well aware, Nebraska is not in the best situation when it comes to its budget or revenues, and I believe this bill requiring an inventory of federal funds will help prepare Nebraska for what might be a much bigger fiscal problem in the future.
 

Much of the federal government’s budget is comprised of grants that go to the states.  It is very likely in the near future the feds may decide to reduce the amount of money they send to the states in general, and Nebraska needs to be prepared. 
 

Less than a month ago, we saw what the government shutdown meant to states.    But the scary part is that state government officials didn’t know the details of the federal funding, so it was very difficult to prepare.  States cannot clearly see where federal money is going in their state, and Nebraska is no exception.
 

For the fiscal year ending June 30, 2018, Nebraska budgeted $3.3 billion in federal grants, which is a slight decrease from the state’s all-time high in 2011 as a result of the Federal stimulus package.  In addition to nearly 30 percent of the state’s overall budget consisting of federal grants, the federal government also ties Nebraska’s purse strings with unfunded mandates across multiple agencies and departments. (See growth chart)
 

Nebraska, along with other states, has become increasingly dependent on federal funds, and if these funds were to be drastically reduced or stopped, the state would be unprepared to provide the essential government services these funds provide for Nebraskans.
 

Nebraska is in a better situation than most states because federal funds are appropriated through the budget process, but there is still a lack of information when it comes to the details of those grants.  Nebraska needs to measure the federal funds coming into the state in order to have a clear picture of what effect they are having on state government.

According to the last Annual Budgetary Summary, there are 33 agencies or programs in Nebraska that are funded with federal money.  Eight of these agencies have over 50 percent of their budget coming from the federal government. (see chart for more detailed information)
 

• Department of Labor – 90%
• Energy Agency – 89%
• Department of Military – 80%
• Commission for the Blind and Visually Impaired – 78%
• Commission on Criminal Justice – 58%
• Department of Veterans’ Affairs – 51%
• Equal Opportunity Commission – 51%
• Health and Human Services – 51%

This bill creates an inventory of all these funds – essentially an audit that includes how long the grant lasts, if there are any state matching dollars required or if there are any maintenance of effort/requirements attached to the grant.  Then, the inventory will ask state agencies receiving federal funds to create a contingency plan in the case of a hypothetical 10 and 25 percent reduction.  (See handout of Utah’s report as an example)
 

Other states have implemented similar inventories and some have already seen benefits from the information provided through the inventory.
 

Utah was the first state to enact legislation[1] to address the growing problem of federal funds.  Idaho’s Governor Butch Otter enacted an Executive Order[2] that established annual reporting requirements for state agencies receiving federal funds in 2014.  The following year, the executive order was codified into statue[3].
 

Most recently in 2015, Mississippi passed[4] a similar law that requires state agencies to not only report their federal funds, but also calculate the effort required to maintain those grants.
 

Indiana took a different approach, and in 2013, former Governor Mike Pence signed an executive order[5] into effect that created the Office of State Based Initiatives.  This office employs someone to inventory and perform a cost-benefit analysis of the grants as they are requested from state agencies. 
 

I have examples from some of these states that I’m happy to share, if time permits.
 

We know where our state taxes go, but nobody knows where all the federal dollars go that come into our state, their true costs, or all the strings that are attached to them.  Those federal dollars are not “free;” they come with current and future commitments.  This bill will require an agency-by-agency inventory of all federal funds coming into Nebraska and the strings attached to them.
 

Measuring the impact of the federal funds and the impact of a coming spending crisis is possible only with the information this inventory will give us.  Today, we simply do not know the impacts of future federal funding cuts.  We do know that Washington will not cut funds with our state’s prosperity in mind; across-the-board cuts will hurt everyone.  This legislation will provide a risk assessment so that state and local officials can see those impacts and make smart decisions in the event of federal spending cuts.
 

And finally, this legislation makes it possible for all of you to act in the best interest of your constituents.  Imagine this year, amidst our current budget situation, that the next recession hits and the federal government enacts another sequestration.  Many Nebraskans would be left without services and jobs they have come to depend on.  What can Nebraska do and how can we ensure our citizens are safe and spending is prioritized for those who really need it?  This bill will enable each of you to create a plan and act on the information you have to make the best decision for all Nebraskans.
 

Thank you and I’m happy to take any questions.