Governor Ricketts' Budget (Part III)

Lincoln -- Nebraska's economic outlook is looking gloomier by the day, which cannot but cast a long shadow on the state budget for the next biennium. The earlier posts of just a few days ago, Part I and Part II, already seem dated. An emergency may be at hand. The state's "rainy day" approach to budgeting may be swept away in a tsunami of catastrophic decisions at the national level.

Suggestion: The Nebraska legislature's Revenue and Appropriations committees should hold a joint hearing on the state's economic outlook, inviting Nebraska's congressional delegation to participate and to testify on actions they intend to take to stop the hemorrhaging of revenues.

Exhibit A would be the Nebraska Farm Bureau's report on what the collapse of trade agreements is costing the Nebraska economy. This needs to be supplemented by expert testimony on the importance of trade generally to the state, to include testimony from those who provide input to the Nebraska Economic Forecasting Advisory Board. A new world order in which America does not lead in free trade may be imminent.

A necessary part of the hearing must be to take testimony on why, for what purpose, and in whose name Nebraska's economy is being sacrificed. Surely Nebraska voters did not wish for the outcomes that are now being forced upon us. Or is that the conclusion of our congressional delegation?

There is irony in the idea of the Nebraska state legislature attempting to get its U.S. senators to act for the benefit of the state and the needs of its economy. Before the adoption of the 17th Amendment to the Constitution, U.S. senators were chosen by, and responsive to, state legislatures. Nebraska's William Jennings Bryan led the effort to elect senators by popular vote, but Bryan – a champion for the Nebraska economy if there ever was one, and a committed worker for international peace – would surely be appalled at the current turn of events.

As I write, spot prices for corn at Nebraska's grain elevators are falling close to two dollar territory; China's leader has just returned home from Davos, where he has been recognized as the new world leader in free trade. America First, or America Last?








Governor Ricketts' Budget (Part II)

Lincoln -- Nebraska has formidable budget challenges in the coming biennium. Many of them are a result of three dollar corn and wheat, and a weak agricultural economy that has no end in sight.

Part I of this post suggested paying for overdue corrections and human services bills, run up by misfeasance in previous administrations, with a new revenue stream from increases in so-called sin taxes. This would take pressure off other areas of the budget. It should include a tax on soft drinks, the reduced consumption of which would help keep Nebraskans healthier (and help hold down future government spending on health care).

Part I of this post also noted structural issues in state higher education spending. Yet cutting such spending without careful thought could be counterproductive to state economic growth. As college and university budgets are trimmed, it would be appropriate to re-invest some of these savings into areas that are closely linked to the well-being of the state's economy. One way to do this – targeting more funds to higher performing institutions – is outlined in the post "New Tool for State Higher Education Budgeting." University research and innovation doubtless need robust support as well.

But more needs to be done immediately to try to turn Nebraska's agricultural economy around. Nebraska political leaders are missing an opportunity by not pressing for soil health and conservation projects to be included in the upcoming national infrastructure rebuilding legislation. See the post "Topsoil as Infrastructure." Other states are putting together lists of projects – high speed rail and the like. Nebraska political leaders should have a long list of NRD, NRCS, Environmental Trust, and other such soil and water conservation efforts ready for inclusion in the infrastruction bill, and be ready to justify them. Such projects would provide more jobs and more lasting benefits than, say, the Keystone XL oil pipeline, yet are getting virtually no attention from Nebraska political leaders.

As for increasing grain prices, the outlook is not good. Export markets are suddenly being jeopardized by political bluster from a new White House occupant who is, at best, inexperienced in such matters and has shown no interest in farm economics. Nebraska leaders have been unwilling to push back.

There are several things Nebraska leaders could do to help grain prices. One would be to recognize that overproduction, encouraged by the current farm bill, must be curtailed. "Got to feed the world" is a slogan of those who profit from overproduction more than from any moral imperative; the damage it does is the opposite of any such imperative. Marginal lands should be taken out of production, with appropriate incentives funded in the farm bill. Grain sorghum should be encouraged as an alternative to corn; it requires fewer costly inputs to raise, requires less water, and has a potential export market to countries that do not want GE corn because of their own environmental and consumer concerns. Nebraska leaders should be working to expand these markets. Unfortunately, it's not happening.

The cold, hard facts point to a difficult biennium for the Nebraska state budget. Past mistakes have put the state in a hole in corrections and human services; the outlook for the agricultural economy is not good given unhelpful farm bills and trade upheavals; there is little sign of insightful and courageous political leadership on the horizon.





New Tool for State Higher Education Budgeting

Lincoln -- A superb new database is now available to show taxpayers how colleges and universities are performing their mission to provide access to higher education, especially to students who have trouble paying for it. Easy to use, the database offers many ways of measuring access and many ways of comparing institutions.

This should be a helpful tool for setting state appropriations for higher education. Institutions doing a good job could be rewarded, incentivizing others where there is room for improvement.

To demonstrate, look at this link for the University of Nebraska. Scroll down to "College by College" and select the column to compare it with other Nebraska institutions. Then look at the indicators and the rankings. NU looks very good on "chance a poor student has to become a rich adult," coming in second only to Creighton University. Conversely, NU does not make it into the top ten in the broader measure "overall mobility index," which looks at the likelihood a student moved up two or more income quartiles as a result of his or her education.

On the overall mobility index, here are the top ten Nebraska institutions:

1. Northeast Community College
2. Midland University
3. Mid-Plains Community College
4. Doane College
5. Western Nebraska Community College
6. Bellevue University
7. Wayne State College
8. Hastings College
9. Central Community College
10. Nebraska Wesleyan University

Note that the top college is a community college, as are four of the top ten, and that five of the top ten are private, non-profit colleges. Note only one is located in Lincoln or Omaha.

If the state is interested not only in providing higher education access, but in wealth-building by taking students from lower income brackets and moving them to higher ones, then this would be a good guide as to where to look in the state appropriations process for good investments.

Note also how these top ten are spread across the state, making for good investments in rural areas and smaller cities.

Unfortunately, the database does not include Chadron or Peru State Colleges, and it does not break down the state university so we can see how UN Kearney or UN Omaha would look if split off from UN Lincoln.

Nor is there any consideration given to in- and out-migration. Some Nebraska colleges do better than others in retaining students in the state. Such ranking are available from the U.S. Census and should be worked into any effort to use this database in making state appropriations.

How would the governor and state legislature go about modifying their current appropriations process to look at these performance and investment measures? A modest percentage of the higher education appropriations would be channeled through students rather than institutions, to favor students from lower income families who are most likely to stay in the state and to build wealth in Nebraska by moving up in the income brackets as a result of their education. Such programs already exist through the Nebraska Coordinating Commission for Higher Education, to include students at non-profit institutions. The appropriations through students must be sufficiently large so as to make all institutions consider them in their own admissions and student financial aid decisions.

The new database, called "Chetty" after its creator, should be used by states across the country as an accountability tool, to make certain taxpayers are getting their money's worth from higher education spending. By the same token, institutions that are doing a good job now have a powerful tool to defend against thoughtless and counterproductive budget cuts.

Governor Ricketts' Budget (Part I)

Lincoln -- Governor Ricketts has offered his state budget recommendations for the coming biennium. Unsurprisingly, there are a lot of detractors. Higher education leaders say it will force up tuition; the Nebraska Farm Bureau says it does not offer enough property tax relief; the Chief Justice of the Nebraska Supreme Court warns that the budget is seriously inadequate for the judiciary and corrections. Those who work in foster care are concerned that the progress of the recent past will be lost and children will suffer badly for it.

Is there anything good about the budget recommendations? Yes, compared to what a Governor Heineman or a Governor Brownback might have offered.

• There are funds at least to start dealing with the corrections mess left over from the Heineman/Bruning years of neglect and misfeasance. Chief Justice Heavican is appropriately engaged.

• The income tax cuts in the budget are subject to a trigger; that is, they don't happen unless revenues meet their targets. Kansas Governor Brownback cut taxes recklessly, based on the theory (with scant empirical evidence to support it) that more, not less revenue would result from state tax cuts. It may take Kansas decades to recover.

• The budget uses the non-political Nebraska Economic Forecasting Advisory Board's revenue assumptions. Nebraska has been wise to create such a body and to set aside "rainy day" funds to establish boundaries for responsible budgeting. The Ricketts budget may dip too far into these funds, but at least what he is doing is transparent.

The discussions around the Governor's budget recommendations also provide an opportunity for serious reflection about Nebraska's cyclical and structural budget issues. Nebraska's economy is heavily dependent on agriculture, so much so that it rises or falls based on what Congress enacts in farm bills and approves in trade treaties. Which means that a Nebraska governor must be active on these issues at the national level to make certain that Nebraska's interests are represented. For example, do farm bills promote consolidation of farms and consequently depopulate Nebraska's rural areas? (Unfortunately, they often have.) This is too complex a subject for this discussion, but it seems like a bad move for U.S. Senator Sasse to give up a seat on the Senate Agriculture Committee. Did Governor Ricketts confer with him about this?

A structural problem in the Nebraska state budget is support for higher education. Per capita, Nebraska ranks among the highest in the nation in higher education spending. To oversimplify using a football analogy: Nebraska wants to play in the Big Ten on a Big Sky population. But it's not so simple to cut higher education spending once started. For my part, I think it is essential for taxpayers to keep up their support, especially for innovation and research in order to be able to guide the direction of these efforts toward ends that pay off for Nebraska and its economy. It is not a given that outside research dollars that might replace state tax dollars will be beneficial. Reseach integrity is even less of a given with outside funding.

So what might the legislature do in response to the Governor's budget recommendations? That could be a subject for subequent blog posts, but here is one suggestion. Deal with the corrections and human services part of the budget with a separate, additional revenue stream for a number of years until the state has recovered from the damage done in these areas by previous administrations (and legislatures). I'd raise so-called "sin taxes" on products that are not good for Nebraskans' health in any case (and where there may be behavioral, causal connections between the products and the issues the state is facing). Obviously this means higher taxes on tobacco and alcohol, on which taxes are currently comparatively low (41st and 35th in the country, respectively). Not so obvious: soft drinks, which research is showing are comparably harmful. Many of us remember the state cigarette tax hike to pay for Game and Parks projects, the Devaney Center, and the Beatrice State Home. It worked.

Such taxes would also be everyday reminders that the salvation of the state is watchfulness in the citizen, and when citizens are not watchful about how their state is being run, as was the case in corrections and human services, there is a price to be paid.



Call It HeritageCare

Washington -- Congress and the country are tied up in knots over what to do with Obamacare, or the Affordable Care Act (ACA). It either needs fixes to help people pay premiums (Democrats' position), or it needs to be repealed and replaced (Republicans' position).

There is great confusion about the underlying issues. An Uber driver in Washington expressed his frustration well when he said he was all in favor of doing away with Obamacare, which he didn't like, but the politicians should be warned to keep their hands off his ACA policy, with which he was very happy.

Not to laugh–he was on to something. Names and appearances are all-important. Obamacare is actually a version of Romneycare in Massachusetts, which in turn was modeled after the health insurance proposal of the Heritage Foundation in 1990. The Heritage Foundation is a right-of-center think tank, perhaps most famous for its policy input into the first Reagan Administration.

The Heritage proposal is well worth reading, and not just to establish paternity. Note the lengthy discussion about the exclusion from taxation of employer contributions for medical insurance and care, and how it distorts health care markets and drives up costs. In 2016, this is by far the largest tax expenditure in the federal government, at $216 billion in 2016. It is a concern across the ideological spectrum.

How about this for a solution: trim back the huge, counterproductive tax expenditure, use the revenues to fix the Obamacare problems, and call it HeritageCare. Coverage is continuous, no one dies in the streets, tax-policy is reformed, and both sides can claim victory.

The vehicle would be Budget Reconciliation, with appropriate instructions to the revenue committees. Of course there would be howls of protest from corporation and unions alike, but now is the time to act. Never let a crisis go to waste.



Unanswered National Security Questions

Washington -- Try as I might to find intelligent commentary on current (and perhaps even urgent) national security issues, there seems to be little public discussion about looming problems as of January, 2017. Who in the U.S. government is working on the following questions?

• Inasmuch as Russia is actively attempting to destabilize Western Europe, what is the U.S. doing to assist our allies such as France and Germany? Hungary, Poland, and the Czech Republic are already under the influence or control of autocrats friendly to Russia. Will U.S. intelligence about Russian covert activities be shared with potentially vulnerable allies, or will the new, incoming U.S. president, an admirer of the Russian leader, instruct the CIA and NSA to stand down from such cooperation? Has the current president anticipated such a possibility and made advance provisions for other Western intelligence agencies such as Britain's GCHQ to be ready to come to the aid of remaining democracies in Europe?•

• Because the incoming U.S. commander-in-chief has unconventional ways of communicating his thoughts and wishes, what is being done to update communication protocols from him so as to prevent the nation's military from committing acts of war (conventional or nuclear) or the breaking of treaties that might be accidental, ill-considered, illegal, or catastrophic? Should procedures be updated to require that a national security briefing of the commander-in-chief must precede any order that would break a treaty or take the nation to war? For decades, it was a given that any U.S. commander-in-chief would be fully briefed before taking national security actions, but this can no longer be taken for granted given the incoming president's stated disdain for such briefings.

• No person in the military can be required to follow an illegal order, but how are those who have taken an oath to protect and defend the country to know the difference between orders that are legal, illegal, or something in between, to carry out a foreign policy of being unpredictable? Whatever the advantages of unpredictability and doing the unexpected to advance U.S. national security, such tactics may confound our own people as much as our adversaries.

Ordinarily, the press would have an opportunity to ask a president-elect such questions in an open press conference, uncomfortable as the questions may be. But these are not ordinary times and there may never be such an opportunity. If I know the war-gamers at DOD and State, they are grappling with these and perhaps even more troubling questions, and likely losing sleep. These are dangerous times.

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• Update: Apparently this was done.