LINCOLN, Neb. (AP) — Local governments saddled with costly pension obligations, state mandates and aging roads could face tough financial times over the next few decades, and some Nebraska lawmakers want to make sure they’re ready for it.
Sen. John Stinner of Gering, chairman of the budget-writing Appropriations Committee, is looking to create a state-run “early warning system” to let state officials know when city and county budgets are at risk. Lawmakers will convene a hearing at the Capitol on Thursday to consider the issue, and Stinner said he may introduce a bill in the legislative session that begins next month.
“If there are patterns or trends that show a town is suffering from financial stress, we should be aware of them,” Stinner said. “We need an early warning system so we can be proactive in terms of planning.”
The hearing comes as the city of York struggles with a financial crisis that forced City Council members to cut $4 million from their budget in September, lay off employees and raise property and hotel-occupation taxes. Current and former York officials have accused each other of mismanaging the city’s money.
Stinner said he proposed the idea out of concern for towns like Sidney, which lost the corporate office of outdoor retailer Cabela’s, and Gage County, which owes a more than $28 million legal judgment to six people who were wrongfully convicted of murder.
As a western Nebraska banker, Stinner said he sees many small towns struggling to maintain their tax bases because of population declines as well as state and federal mandates. Towns like Minatare and Morrill face large expenses to preserve water quality, while cities such as Omaha are confronting major problems with outdated storm sewers, he said.
An early warning system could help local governments cut their spending or generate new revenue before the problems become too severe, said Larry Dix, executive director of the Nebraska Association of County Officials. Dix said his group supports the idea.
“If we see the trend, we can start to make adjustments,” he said. “It’s going to provide the information needed to make better decisions.”
Lynn Rex, executive director of the League of Nebraska Municipalities, said the idea is well-intended but raised concerns that identifying cities as “financially distressed” would hurt their efforts to recruit new businesses. She also questioned what assistance, if any, the state might provide to towns on the list considering that lawmakers are confronting their own budget problems.
“At this time, we just don’t see the positives outweighing the negatives of having a published list,” Rex said.
Rex said Stinner has listened to her group’s concerns and is trying to reach a compromise. She said state-mandated restrictions on tax levies prevent many cities and villages from generating the revenue that might improve their financial situations.
“Many of those city councils and village boards are struggling right now, and they’re doing everything they can,” she said.
If the idea wins approval, Nebraska would become the 24th state with a system in place to monitor the financial health of towns and villages, according to The Pew Charitable Trusts, a nonprofit that works with states on policy issues.
The most recent was Virginia, which adopted its warning system last year after the city of Petersburg spent more than it had, took out too many loans and nearly went bankrupt. News of the troubles came as a shock to state officials known for their fiscal conservatism.
“They didn’t think it could happen in their state,” said Adrienne Lu, associate manager for The Pew Charitable Trusts. “Even in the most well-run states, local governments can fall into distress.”
Lu said early warnings can also help states prevent the problem from spreading to other towns or counties in areas that are economically depressed. Smaller communities that fly below the radar often lack the resources to address the problems, and “they’re often the ones that need a little more help,” Lu said.
Lu pointed to Licking County, Ohio, which the state flagged as having a high amount of debt and interest that needed to be paid relative to the county’s tax collections. The warning prompted the local county auditor to say that he would consider rejecting new borrowing over the next two years.
“If they hadn’t gotten that heads-up, it might have gotten worse,” Lu said.