The unpleasant fiscal surprise the city of Lincoln received this year is part of a statewide problem that should be addressed in the proposed review of Nebraska's tax structure.
Lincoln officials learned that net sales tax receipts were about $1.2 million less than expected for the first seven months of the fiscal year.
The reason for the shortfall was due to unexpectedly large refunds for business incentives.
Under state law, companies have the option of applying for the refunds for as long as 14 years after qualifying. The business incentive program also is shrouded by confidentiality provisions.
The upshot is that city officials are unable to predict with much accuracy when corporations might dip into their revenue stream. The choice is entirely in the hands of company officials, who time the refunds for maximum business advantage. (As a point of disclosure, the Lincoln Journal Star and its parent company, Lee Enterprises, have received tax benefits under state law.)
The city of Lincoln, which has a sizable reserve, usually is able to cope with ordinary fluctuations, according to city Finance Director Steve Hubka, because the refunds tend to average out over time.
This year, however, the city might have to adjust its two-year budget if the trend continues, Hubka said.
Smaller communities can be hammered if a sizable refund comes in. For example, Tecumseh was hit several years ago by a refund that amounted to 30 percent of the city's tax revenue for the year.
More than 180 Nebraska towns and cities have a local option sales tax, so the problem is pervasive.
Over the years, the Legislature has tweaked the business incentive laws a bit to help smaller communities. Now, if a smaller city is hit by a bill that amounts to more than 25 percent of total tax revenue, the city is allowed a year to pay it off.
But surely more can be done to provide stability for city governments across the state.
An analysis by the New York Times last year showed that Nebraska grants about $1.39 billion per year for business incentives, ranking it among the most generous in the country on a per-resident basis.
The potential for business refunds to disrupt local government operations could grow larger over time with the 14-year window for companies to apply.
The Tax Modernization Committee, which moved a step closer to reality when it received first-round approval last month, is intended to provide a thorough review of state tax laws. Senators should make sure that its purview will include the refund problem that plagues the state's cities and towns.