In just a few months’ time we went from having a budget surplus and debating tax cuts to complete uncertainty. All the pressures on Nebraska’s budget are unknown at this time and it would be wise for lawmakers to be prudent of the states’ savings to ensure a state crisis does not evolve out of the national COVID-19 crisis.
Reserve funds are a very important part of the budgeting process. Some in government see a large reserve fund and want to spend it right away, but that is not the best use of these types of funds. States use reserves to manage budget uncertainty during natural disasters or an economic crisis. In addition, bond ratings agencies look at these reserve funds and use this as a factor when issuing a state’s bond rating.
According to Pew Charitable Trusts, “the optimal savings target of state rainy day funds depends on three factors: (1) the defined purpose of funds, (2) the volatility of a state’s tax revenue, and (3) the level of coverage that the state seeks to provide for its budget”. Nebraska has a target of 16% of the General Fund.
According to a PEW research study, Nebraska can operate for almost 28 days using only reserve funds. However, with the COVID-19 emergency response, many of these state figures will change drastically in the upcoming days and weeks. Click on the link for a nationwide map of all the states and the number of days they can operate using their reserve funds.