State to have largest cash reserve in history

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By NANCY HICKS / Lincoln Journal Star

If nothing changes, state government will be sitting on the largest cash reserve in history at the end of the fiscal year.

A whopping $542.1  million, or 15.7  percent of the state’s annual tax revenue, will be there in late June 2008.

The cash reserve fund, begun in 1983, was around $516 million this summer, almost double the $273.6 million it held one year earlier.

And six weeks before the 2008 Legislative session begins, the tension over that accumulation of cash is building. 

It's a reasonable reserve, a responsible savings account for the next recessionary period, says Gov. Dave Heineman and Appropriation Committee Chairman Lavon Heidemann.

It's too much, says Omaha Sen. Tom White. Some of that money should go back to Nebraskans as property tax relief.

Keep the cash reserve at a prudent level — $250 to $300 million, White suggested in a telephone interview Friday.

Send the rest back to citizens in the form of property tax relief, said White, who in the last legislative session unsuccessfully pushed a property tax rebate for homeowners using an income tax credit.

White’s rebate plan is just one of many spending ideas.  

Others include:

* Additional aid to schools for new buildings

* State and local road construction and maintenance

* State Fair Park

* Special education needs

* Curbing the wait list for adults with developmental disabilities

* Increasing pay to group home employees

* Expanding Medicaid to cover autism

Save the cash reserve

Gov. Heineman, whose mantra has been to reduce taxes, believes Nebraska will be better off in the long run with a robust cash reserve, closer to the $540 million level. 

“We will have a downturn in the economy sometime in the next five or six years,” a time when state tax revenues will be flat or even decline, Heineman warns.

Then the state can use some of the cash reserve to “sustain the top spending priorities” without raising tax rates.

“We all know it (a downturn) will come,” he says. “We need to save that cash reserve.

“That $400 million sounds like a lot of money, but it represents only  45 days of state spending,” Heineman points out.

Like the governor, Sen. Heidemann is also adamant senators hang on to the money.

“ The reason there is an unprecedented amount of money in the cash reserve is because we were very responsible with the cash reserve last year,” says the head of the Appropriation Committee.

Though senators cut tax rates in the last two years, they still left money in the cash reserve, he points out.

Like the governor, Heidemann believes the cash reserve should remain high to help during the next recession, which he says could be just around the corner.

“We are starting to see some slowdown in the economy,” said Heidemann.

Over the past two decades, the state has had four- or five-year cycles in which revenues came in above projections, followed by a slowdown in revenue growth.

Nebraska now is in the fourth year of the upswing  — likely heading into the down cycle, he said.

Historically, senators have spent liberally from the cash reserve fund during the more prosperous years, only to hit troubled waters without a good safety net, he said

“It’s hard to plan for tough times in good times, but we have to do that,” said the senator.

He wants enough money in the cash reserve to continue operating state government without cutting anything and without raising taxes.

“I am going to be very adamant that it (spending from the cash reserve) has to be something special or we will leave it alone,” Heidemann said in a Friday telephone interview.

 Under state law, tax revenue that comes in above the official projection and thus above the budgeted level automatically goes into the cash reserve fund.

Senators can, and usually do, spend from the cash reserve. 

In 2005,  for example, senators spent about $146 million to pay off the settlement on the low-level radioactive waste lawsuit.

 Senators earmarked about  $153.4 million from the cash reserve in this two-year budget cycle for spending,  much of it to pay for tax cuts and new buildings.

But even with the spending, the cash reserve is expected to beat $540.1 million in June, 2009, the end of the two-year budget cycle.

Reach Nancy Hicks at 473-7250 or nhicks@journalstar.com