Nebraska should invest in its accounting infrastructure
The news of the latest federal infrastructure bill, which follows the CARES Act and the American Rescue Plan Act, has some people worried about the amount of debt and spending our country is taking on. And while that is happening far away from Nebraska, many of us don’t think about the impact these spending plans have on the governance of states.
For example, let’s take a look at Nebraska’s state budget. The total budget is around $11 billion, yet the General Fund is a little less than $5 billion. Where does the rest of the money come from? For the fiscal year ending June 30, 2020, Nebraska spent $3 billion in federal grants, which makes up 28% of the state’s total spending.
On average, around 30% of Nebraska’s overall budget consists of federal grants. However, the federal government’s grants also ties the state’s purse strings with unfunded mandates across multiple agencies and departments.
For example, federal funds make up 90% of the Nebraska Department of Labor’s budget, and 21% of the total budget for the University of Nebraska comes from the feds.
And let’s not forget all the money that came to the state because of the COVID-19 pandemic. The CARES Act sent $1.25 billion to Nebraska and then sent an additional $2.3 billion to the state and local governments in the American Rescue Plan Act.
These pieces of spending legislation went so far as to interfere with state fiscal policy by prohibiting a state tax cut if this money was used a certain way, causing legal battles over state sovereignty.
Some might think the strings attached to federal funds are just an issue for states, but local taxpayers also must worry about federal interference. Federal aid supports schoolteachers, police officers, firefighters, public health workers and many other local employees. Specifically here in Nebraska, federal funds have been tied to crosswalks in Omaha and how farmers and ranchers can use their land. In fact, in 2015, Nebraska had the 5th highest impact of federal regulations nationwide.
The pending infrastructure bill and proposed $3.5 trillion budget resolution will send even more federal money to states and municipalities which will directly impact many other items such as roads, bridges, and broadband installations.
Therefore, it’s important for states and local governments to have clear accounting of these federal funds, so taxpayers and regulators alike know how the money is being spent. In a recent article in Fortune, the Volcker Alliance, a nonprofit founded by former Federal Reserve Chairman Paul Volcker, shows how states and cities frequently jeopardize their long-term fiscal health by refusing to use Generally Accepted Accounting Principles (GAAP), which is the standard for the private sector.
This situation played out in York, Nebraska not long ago. Due to its hard-to-follow budget, the city of York had spent more money than it had available to operate over many years, unbeknownst to local officials—including the city administrator, mayor, and city council members. As a result, the city’s property tax rate went from one of the lowest to one of the highest in the state overnight, and that still wasn’t enough.
Often, local budgets are too convoluted and difficult for the public and policymakers to understand. It’s because of situations like this that the Platte Institute has called upon state and local leaders to update and modernize their accounting standards for more transparency.
Unfortunately, neither the state of Nebraska nor its local counterparts have succeeded in having a clear accounting of federal funds. It would be wise to use some of these federal dollars to create an inventory of federal funds and to update or streamline accounting software so all government entities in the state comply with GAAP accounting.
Good accounting and record keeping is not only a wise policy in the wake of unprecedent federal spending, but would also help keep track of growing property taxes at the local level.