History shows if you don’t learn from the past, you will repeat it. This idea came to mind when examining LB 720, also known as “ImagiNE Nebraska” -- a bill to create a new state business tax incentive program that looks a lot like Nebraska’s current incentive program, the Nebraska Advantage Act.
As past chairs of the Legislature’s Performance Audit Committee, we learned there are a lot of problems with Nebraska Advantage. As former members of the Legislature’s Appropriations Committee, a major concern for us has been the impact of our tax incentive programs on the state’s budget.
When it was launched in 2005, Nebraska Advantage was projected to reduce revenue by $24 million to $60 million per year. In FY18, a legislative study found it reduced state revenue by $154 million. And, unlike regular appropriations, tax incentives aren’t reviewed annually as part of the budget process. This makes it hard to determine how important they are in relation to other state priorities, such as funding for higher education, which has been cut in recent years.
So as cries for property tax relief have grown louder, we have had less revenue to fund priorities such as the property tax credit fund and education.
Though the expense of incentives has grown, according to the Nebraska Department of Revenue, Nebraska Advantage does not pay for itself. Furthermore, the Performance Audit Committee found it cost as much as $208,559 to create a single job under Nebraska Advantage.
While the Legislature would not likely be willing to appropriate such a large amount, funding incentives through the tax code rather than the budget process makes it possible for incentives to continuously drain revenue, whether they are good investments or not.
The quality of jobs purported to be created under Nebraska Advantage fail the high quality jobs test as well. It allows companies to pool multiple part-time employees to qualify as a full-time equivalent. This means they can require part-time workers to work extra hours and count them as a full-time job. Furthermore, they don’t have to offer health insurance and other benefits, and the wage requirements are low enough that workers may still be eligible for other types of state benefits.
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LB720 has made some improvements in terms of wage requirements, although a family of four would still be eligible for reduced lunch and the State Children's Health Insurance Program at minimum-wage levels in LB720. And while it requires participating companies to offer full-time employee health benefits, health benefits for part-time employees isn’t required, and pooling is still allowed.
Creating high-wage, high-quality jobs should be a priority in LB720, but it falls short.
As for fiscal protections, LB 720 fails. If LB 720 is enacted, Nebraska would be paying out benefits on three incentive programs. The state is still on the hook for incentives passed as part of the LB775 package, which was passed in 1987. Our commitments under Nebraska Advantage extend out for decades, and we would be offering incentives under LB720 even longer should it pass.
The combined revenue reductions caused by the programs would have an increasingly large impact on our state fiscal situation for many years to come. How is that fiscally conservative or responsible?
There are better ways for the state to focus its resources in terms of economic development. Rather than put more resources toward questionable incentive programs, Nebraska could invest in targeted workforce training programs that are tailored to the economic needs of our state, or we could work to expand high-speed broadband coverage throughout Nebraska to ensure businesses around the state have access to this critical service.
Tax incentives play a role in our economic development efforts, but it’s important for Nebraska to be very strategic and thoughtful in how we administer these incentives. LB720 in its current form repeats history, and the mistakes we have made.
We urge the Legislature to learn from what the Performance Audit Committee has found. Doing so would help keep us from enacting another shaky incentive program and by extension help ensure a better future for our state and its economy.