Legislature Can Help Prevent Local Financial Strain

Nebraska’s state agencies must work to aid local communities in spotting early warning signs of financial distress. This might seem like a tall order, but a state monitoring operation is both necessary and feasible. While a national survey finds only 38% of local elected officials consider themselves “very knowledgeable” about local government finance, a large number of states have a demonstrated track record of success in assisting these local leaders with financial challenges.

As was recently showcased in the city of York, even with the best of intentions, public finances can be mismanaged and represent a major cost to taxpayers. For eight years the city spent more than it received in taxes without ever being warned or alerted to this problem. The accounting methods of the city of York were a primary reason why it was hard to keep track of how much the city was spending. And with sufficient attention raised around this issue in the most recent legislative session, headway is being made in making sure cities are compiling understandable and transparent financial records.

The next step should be for the state government to audit these records with an eye toward informing political subdivisions if they need to course correct on spending or taxation. Establishing such a system, while initially coming at a cost of state time and resources, will in the long run benefit Nebraska. State senators would have to look no farther than the neighboring states of Colorado, Iowa, and South Dakota for proof. All of these states, and nineteen others, have some form of financial monitoring system.

As outlined in a Pew Charitable Trusts report, a multitude of benefits have been recorded as a result of these systems: fiscal transparency, state and local cooperation, improved credit ratings, and financial literacy gains among local elected officials. The goal of these systems is not to call out cities, but to support them before they get financially stuck. Colorado, for instance, has state officials specialized in providing city officials with financial planning services and strategic assistance when they ask for it. Iowa, on the other hand, takes a more hands-off approach by informally discussing uncovered financial complications.

It may appear that designation as a “financially distressed” city would be a problem for future investment and growth, but it’s not. In fact, if a city is aware and actively working with state agencies to reverse these problems it will head off future problems. Even the credit rating agency Moody’s Investors Service says, “All else being equal, we tend to assign higher ratings to troubled local governments in states with strong oversight [and] well-established policies of intervention.” With many methodologies to choose from in the different states already practicing local government monitoring and assistance, Nebraska can carve out its own approach, suited to the state’s unique needs.

While the Nebraska Legislature has explored the possibility of setting up such a system, it has not made significant headway. It should be the goal of the state of Nebraska to provide necessary guidance to local governments so that they can avoid budget shortfalls and long-term economic strain.