Lawmakers seek action on state tax incentives — here’s what you need to know

The state’s current incentive workhorse, the 14-year-old Advantage Act, sunsets at the end of 2020, and the state’s first stab at business incentives, Legislative Bill 775, was adopted 32 years ago.

A panel of state lawmakers, citing concerns about the Advantage Act, recommended action now, during the 2019 session, to adopt a new, simpler batch of incentives that would target higher-paying jobs and emerging industries. That would put the Advantage Act out to pasture a year earlier, at the end of this year.

The incentive issue joins an already long list of big issues before the Nebraska Legislature, and it might become a bargaining chip as rural senators seek their highest priority, property tax relief.

A Nebraska Chamber of Commerce official said the state can’t wait until next year to adopt a new economic incentive program.

“If we let this thing go into next year, we’re essentially putting up a ‘Closed for business’ sign at a time when Nebraska is battling for talent and new jobs with other states,” said Jamie Karl, a vice president at the Nebraska Chamber of Commerce and Industry.

State Sen. Mark Kolterman of Seward, who has been deeply involved in economic development work in his hometown, has introduced Legislative Bill 720, known as ImagiNE Nebraska, to replace the Advantage Act.

While it’s clear that the state has a property tax problem, Kolterman said, Nebraska also needs economic growth. The growth, as measured by the state’s gross domestic product, has ranked no better than the middle of the road (25th and 41st, respectively) in the nation the past two years.

“We won’t be able to provide property tax relief if we don’t have growth in other sectors of the economy (besides agriculture),” said Kolterman, who already has an impressive 23 co-sponsors for the bill.

On Wednesday, ImaginNE Nebraska will be the subject of a public hearing before the Legislature’s tax panel, the Revenue Committee.

The committee will also take testimony on a competing proposal, LB 419, which Sen. Kate Bolz of Lincoln says better addresses concerns expressed by consultants that Nebraska’s current tax incentives create unanticipated budget problems and don’t target high-enough-paying jobs.

Bolz said that the short-term urgency to replace the Advantage Act should not trump a deliberate debate about the best long-term policy for attracting new, and better, jobs.

“Let’s be smart about this,” said Bolz, who isn’t sure that a bill needs to be passed this year.

Let the debate begin. Here’s how ImagiNE Nebraska differs from the Advantage Act, and why lawmakers are seeking a new economic incentive program:

What are the concerns about the Advantage Act?

Increasingly in recent years, state lawmakers have raised questions about whether Nebraska is getting an adequate bang for its buck. In 2017, $144 million was diverted from state coffers for tax breaks provided by the act. A 2016 legislative audit estimated that each full-time-equivalent job created under the law cost between $24,500 and $320,000 in tax breaks. That same study said only nine businesses were inspired to relocate to Nebraska from 2006 through 2014 because of the Advantage Act.

A big gripe: The act hasn’t led to high-wage jobs. Companies that pay as little as $12.36 an hour can now qualify for credits, compared with the minimum in ImagiNE Nebraska, which is $19.53.

“It’s not produced what it was hyped up to produce,” said former State Sen. Paul Schumacher of Columbus, who was among the legislators who studied the state’s economic incentives.

Businesses also complained that it was too difficult, at times, to understand all the different requirements and that the application process was complicated.

Does the state really need such tax incentives?

Chamber of Commerce officials answer with an emphatic “yes.” Nebraska competes against 2,000 other state and local incentive programs across the U.S., and they say Nebraska invests the second-lowest amount in tax credits among its neighboring states. Nebraska needs to remain competitive, they say, and the tax breaks offset the higher overall tax rates businesses have to pay in the state.

More than 400 agreements have been signed with the state to increase jobs and investment, and more than 16,000 jobs have been created, according to the latest state figures. Data centers and wind energy farms have been among recent beneficiaries. Some of the state’s biggest companies have qualified, including Union Pacific and Mutual of Omaha, but so have lesser-known firms, such as Tyco Healthcare Group in Norfolk and Xylemer BioProducts of Kearney. The chamber has maps showing how all 93 counties in Nebraska have benefited.

But some rural senators aren’t convinced. Sen. Steve Erdman of Bayard said he has seen little benefit in his Panhandle district, and he thinks that economic growth would happen if government reduced its spending and lowered property taxes.

“If we fix our tax system, people will want to move here,” Erdman said.

So how is ImagiNE Nebraska different/better?

The higher wage requirements to qualify for tax breaks is the biggie. But LB 720 also has a “pre-qualification” step that is designed to make the process easier and quicker. Companies would apply with the Department of Economic Development, which is viewed as a friendlier bunch than the current application processor, the Department of Revenue.

Revenue will still determine whether companies reach their investment and job-creation goals — you don’t get tax breaks in Nebraska unless you prove that you earned them, which is an acknowledged strength of the state’s incentive programs.

ImagiNE Nebraska also allows credits for companies that add employees but don’t make a huge investment, which would tend to help high-tech firms that need only modest workspaces but hire plenty of bodies. LB 720 also allows credits to be used for workforce training and recruitment, a big deal in Nebraska, where there’s a labor shortage.

But some argue that ImagiNE Nebraska doesn’t go far enough. One complaint is that companies could still “pool” employees — giving part-timers more hours, for instance — to reach “full-time-equivalent” job-creation thresholds, rather than create new jobs. Also, the new bill targets high-wage jobs but not certain industries that fit best in Nebraska. And, some lawmakers point out, most of the jobs are created by small businesses that can’t qualify for these credits.

Isn’t this a lot of money to give away when the state has budget woes?

Senators worry about that. Companies have earned about $905 million in tax credits, and while Chamber of Commerce officials say only about 50 percent of the “earned” credits are ever cashed in, that’s potentially a lot of money in upcoming years. State tax revenues are lagging, and budgets this year will have to be trimmed. And the timing of when companies cash in their tax credits is unpredictable, creating big dips in tax receipts.

“I know we need an incentive program, and I think everybody does. But the (state) budget is part of it,” said Sen. John Stinner of Gering, the Legislature’s top budget watcher as chairman of the Appropriations Committee.

Bolz, who is also on that committee, wants legislators to discuss putting caps on how many tax credits can be redeemed in a year, or how much one company can redeem, to reduce the budget anxiety.

But chamber officials maintain that ImagiNE Nebraska will consume an average of $150 million a year, the same as current incentive programs, and will allow companies fewer years to redeem credits. The qualification and redemption period would be 15 years; now it’s up to 26 years. That will improve budgetary predictability, they say. The $150 million a year, they argue, is a small amount, only about 3 percent of the state’s overall annual budget.

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