Treasurer, auditor seek statutory sync on withholding of state aid for noncompliant municipalities

Senator Rita Sanders introduced LB 123 on behalf of the State Treasurer's Office and the State Auditor's Office, saying the bill would synchronize withholding and redistribution procedures across statutes that govern state aid when a city or village is out of compliance with audit or budget requirements.

Heidi Wallace, Deputy Director of Treasury Management for the State Treasurer's Office, testified in support and gave the most detailed practical rationale. She explained that under current practice forfeited state aid is sometimes redistributed to every city and village in the state, producing de minimis payments, and that LB 123 would align statutes so that forfeited funds are redistributed only to other cities and villages in the same county (matching the procedure in one statute). Wallace also described a proposal to add a provision across the statutes to remove a city or village from distributions if it remains noncompliant 12 months after receiving notice; the municipality would be added back if it subsequently becomes compliant.

Wallace described a long‑running withholding case involving the Village of South Bend, which has been delinquent for roughly five years; since 2019, the treasurer's office has redistributed an amount totaling just over $81,000 that otherwise would have gone to South Bend. She said the change would reduce repeated withholding/redistribution cycles and administrative burden for the treasurer's office.

Jeff Schreier, an audit manager for the Auditor of Public Accounts, testified in support on behalf of the auditor, calling the bill a "good clarification, harmonization and clear direction" for both offices about withholding procedures when audits are not filed or political subdivisions are out of budget compliance. He added that school districts are not encompassed by this bill; municipalities are the primary focus.

The Nebraska Association of County Officials participated in a neutral capacity and pointed out that counties receive a portion of some restricted funds and asked the committee to note that context; Wallace acknowledged an amendment under consideration to address related statutory references.

Committee members asked clarifying questions about which entities are covered and the annual nature of audit obligations; witnesses confirmed audits or waiver requests are annual and that school districts are not part of the proposed withholding provisions. No committee vote was recorded. The hearing record included a small number of online position comments.