Are Nebraska’s tax incentives worth the cost?


July 31st, 2012

Lincoln, NE – Nebraska will give companies about half a billion dollars in tax incentives under the Nebraska Advantage program over the next decade. Supporters say that’s worth it for the new jobs and investment those companies will create. But the program has also raised questions about whether it’s the best use of resources.

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After taking office in 2005, one of the first major things Gov. Dave Heineman did was urge the Legislature to pass the Nebraska Advantage program, an update of the state’s old LB775 tax incentives. Since then, he’s frequently credited the program with contributing to the state’s economic growth, as he did in this year’s State of the State speech.

Gov. Dave Heineman touts the Nebraska Advantage tax incentives program as a great success for the state. (Photo courtesy State of Nebraska)

“It has been incredibly successful,” he told lawmakers. “Approximately 270 businesses have committed to invest more than $5.9 billion in our economy, and to create more than 19,500 jobs here in Nebraska.”

Nebraska Advantage gives companies tax breaks if they invest and create new jobs within five to seven years of signing an agreement with the state. The governor’s figures reflect what companies say they’ll do in the long run. But there’s still a long way to go before they get there, and some projects have been slowed by the recession.

Burlington Northern Santa Fe used $46 million of the $71 million in tax incentives that were provided, according to Nebraska Dept. of Revenue. (Photo courtesy Wikimedia)

So far, the Nebraska Department of Revenue reported this month, companies that have qualified for credits have invested just under $1.4 billion and created just under 4,100 jobs. And the report said some of those would have been created even without the incentives. In fiscal 2010 to 2011, for example, it estimated that of the 1,585 jobs created, 1,212, or about 75 percent, would have been created even without the incentives.

The report also shows how much in tax incentives individual companies have used over the preceding two years. Burlington Northern Santa Fe used $46 million of the $71 million in tax incentives that were provided, according to the report. The railroad said it’s doing everything from adding a second main line in the Grand Island area and expanding repair shops in Lincoln to maintaining its tracks.

Asked which of these were due to incentives and which would have happened anyway, a spokesman said the incentives weren’t tied to any one project. But he said with traffic volume cut by the recession, the incentives could cause some investments to be made sooner than the marketplace would otherwise justify.

The Revenue Department report also contains future projections. Ten years from now, those projections say, there will be more than 59,000 jobs for which companies get credits. Of those, the report estimates, more than 51,000 jobs wouldn’t have existed without the program.

There will also have been a net loss of $505 million dollars in tax revenue, according to the report. Tax Commissioner Doug Ewald said that cost is well worth it.

“I think this is a great program. I think if you’re going to invest $500 million to continue to have quality jobs for Nebraskans and their children, I think that’s a great investment,” Ewald said. “We spend a lot of money in this state on higher education, state aid to education. And I think this is the next step beyond that of ensuring that those students have those jobs available to them when they graduate.”

Renee Frye of the Lincoln-based Open Sky Policy Institute, which argues for more transparency in Nebraska’s state budgeting, said the Nebraska Advantage program may well be good policy. But the projected $500 million cost should be weighed against other uses for that money, she said.

“This is money that could have been spent on education or other investments in the community,” Frye said. “So I think that’s a much broader discussion that we have to have as a state, about whether investing in Nebraska Advantage Act is that bringing the same sort of jobs and improvement in the economy as would investments in other priorities, such as education and health care, which we also know really creates jobs and a strong economy.”

(To see Open Sky’s recent report on Nebraska budget and tax policy, click here.)

In April, the Pew Center on the States, a Washington, DC-based think tank,compared all 50 states’ tax incentive policies. The report gave Nebraska high marks for evaluating the economic impact of its tax incentives, through reports like the Department of Revenue’s. But it faulted the state for not requiring lawmakers to consider those evaluations in deciding whether to continue, discontinue or change the programs.

Jeff Chapman, one of the Pew report’s co-authors, said only Washington, Oregon, Arizona and Iowa do a good job of that kind of systematic evaluation.

“Those four states have an official process in place where legislators regularly review, as part of a hearing, incentives, and make sure that all the incentives are part of that process,” he said. “So the evaluations, in other states they may catch the eye of policymakers, they may be testified on in a hearing, but that’s not an official part of the process where legislators know they’re going to have to hold a hearing, they’re going to have to review the evidence, and they’re going to have to decide how to move forward.”

The Pew report also touted an Oregon law under which tax incentive programs automatically end, or “sunset,” after six years, unless lawmakers renew them. Ewald said lawmakers do review the Nebraska Advantage program when changes are proposed, like this year, when it was expanded in an attempt to attract a large data center. But he was noncommittal about a scheduled sunset.

“That’s a policy decision for the Legislature, for the governor to decide if that’s a good idea or not a good idea,” he said.

Frye said the Open Sky Institute will push for a complete review of Nebraska’s tax system, including incentives.

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