Testimony for LR178: Nebraska’s Use of American Rescue Plan Act Funds

Members of the Appropriations Committee, my name is Sarah Curry, and I am the policy director at the Platte Institute. I appreciate the invitation to provide comments on LR178.

Overall, the Platte Institute’s philosophy for the use of these funds is not to grow government in a way that will burden future taxpayers or put a strain on the state’s existing revenues.

Principles for using federal money, in our opinion, need to include:

• Spending projects should be temporary with defined projects and end dates.
• Spending should be transparent for taxpayers so that government expenditures can be examined, understood, and their necessity evaluated.

One area of concern for us is the impact on Nebraska’s local governments. Many of our smaller local governments do not have the financial infrastructure or knowledge of how to properly account and handle the large sum of money they received. The U.S. Treasury guidance has specifically stated proper accounting of these funds will be required for all units of government receiving funds.

Last year there was a bill passed that required education and training for clerks and treasurers. After talking with the State Auditor’s office, we believe that providing grant money to local entities that need assistance with specific education for clerks and treasurers on how to handle their financial records, including audits, basic financials, and budgeting, would be a wise use of these funds to avoid future issues.

A second use of these funds which is permitted is to study a change to the state’s education finance formula. The current finance formula, TEEOSA, was created in 1990, over 30 years ago. This interim, LR141 was introduced to conduct an in-depth study of the financing of public elementary and secondary schools in the state. While the study is currently in progress, should future research or a more extensive review be needed, ARPA funding could be used for this purpose.

A third option is to hold onto the second ARPA payment coming in Spring 2022, place it into a special account, and wait for the updated Treasury guidance and the courts to determine whether any additional uses of funds are allowed. There has been a lot of confusion about the impact ARPA funds can have on potential tax or fiscal policy changes at the state level. In total, there have been six lawsuits filed to challenge the ARPA ban on state tax cuts.[i] To date, two judges have invalidated the provision, while two other decisions to uphold the law are being appealed. What this means is that it will ultimately be decided in the courts, and a resolution has not been determined.

Potentially, a future court ruling may enable Nebraska to make more flexible use of the funds, such as putting the remaining money into the rainy-day fund to offset a future recession. That would put Nebraska in a much more secure fiscal position in case commodity prices drop again, inflation continues to increase, or we experience a national recession. Waiting to earmark any additional money allows this committee to make the best decision for Nebraska with all the options on the table.

[i] For more information, visit National Taxpayers Union Foundation and see “Six Lawsuits filed to Challenge ARPA Ban on State Tax Cuts” authored by Joe Bishop-Henchman published on June 3, 2021.