Nebraska schools may shoulder the cost of Medicaid expansion

Nebraska’s Medicaid expansion may negatively impact downstream entities, especially kindergarten through 12^th grade schools, if the state siphons their funding to pay for the expansion, a Moody’s Investors Service report says.

Voters approved the expansion in a referendum Nov. 6.

Jake Daniels

The state has not outlined how it would cover its share of the expansion and Gov. Pete Ricketts, who won re-election Nov. 6 to a second term, has said that the costs will be covered by existing revenue, even it if means less money for K-12 schools, higher education and roads.

Ricketts opposed the expansion. He will unveil his budget proposal for the 2019-21 biennium in January.

Nebraska's Legislative Fiscal Office has estimated that the state's share will cost $39 million annually, or slightly less than 1% of the state’s general revenue fund. State Medicaid officials estimate the cost will be $57 million per year which equals roughly 1.3% of annual revenues, according to Moody’s. The federal government pays 90% of expansion costs.

“This means less money will be available for other state spending priorities if the expansion is funded with existing revenue, a credit negative for downstream entities, especially Nebraska’s school districts,” Moody’s said.

“As of 2016, state revenue was the second-largest revenue stream for K-12 districts in Nebraska, accounting for approximately 33% of funding,” said Moody’s. “Although reductions in aid would be a negative across the board, it would have the largest effect on areas with less property tax wealth where state support can provide nearly half of a district's funding, as it does for Omaha Public Schools.”

For Omaha Public Schools, property taxes and state aid accounted for 51% and 47% of fiscal 2017 operating revenues, respectively. The district's property tax levy for fiscal 2019 is $1.05 per $100 of taxable value, which is the statutory limit for Nebraska school districts.

In May, voters approved a $410 million bond referendum for the district. The district had warned that without the general obligation bonds, it would need to use general fund reserves to keep buildings fully operational as it faces budget cuts.

S&P Global Ratings assigns Nebraska an issuer credit rating of AAA and Moody’s Investors Service rates the state Aa2. The state is not an active debt issuer because the state's constitution prohibits it from issuing general obligation bonds in excess of $100,000.