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In a fierce competition characterized as an “incentives arms race”, states aggressively compete against each other to recruit new companies. Companies considering expansion will pit states in a bidding war against each other, with larger and more attractive incentive packages offered to outbid other states. Among states in the Great Plains, both Iowa and Kansas are known for their aggressive recruiting offers, and South Dakota has been recognized internationally for its state support of biotechnology companies. The competition from border states ups the ante for Nebraska when attempting to attract new businesses.
I am opposed to government selectively favoring one business over another by creating inequitable tax policy. The state should not provide financial advantages to specific businesses that are not available to all. However, I also understand that Nebraska would be at a significant disadvantage compared to its neighboring states when recruiting new companies if state economic development incentives are abandoned altogether.
In my last two columns, I have discussed the complexity and challenges of Nebraska’s tax incentive programs, the largest of which is the Nebraska Advantage Act. There are practical statutory changes that can be made to help taxpayers understand what benefits they are providing to companies and their impact. Revisions to Nebraska’s suite of tax incentive programs should include simplification of the number of different programs, clarification of the intended goals of each program, collection of data that specifically addresses the intended outcomes, and creation of enrollment limits for fiscal protection.
First, Nebraska’s complex system of “advantage acts” needs to be simplified. Trying to succinctly describe Nebraska’s tax incentive programs is impossible given the diverse series of tiers, subprograms, and variations of the Advantage Act. For businesses considering growth in Nebraska this complicated system can be a deterrent. For taxpayers it is nearly impossible to see where those foregone tax dollars are going and their impact on the local economy. Collapsing the tiers into a few basic programs that meet well defined goals will be more transparent for prospective businesses and taxpayers alike.
Second, the purpose and intended outcomes of economic development incentive programs need to be clearly delineated in statute. Differences of opinion in the actual objective of Nebraska’s current programs still remain over a decade later. Specifically detailing if the tax incentives are intended to create new jobs, attract new businesses to Nebraska, encourage capital investment, promote business expansion in rural or economically distressed areas is necessary. Each of these has been cited as an outcome, but are not specified in statute. All stakeholders must be on the same page regarding the purpose of the incentive programs for them to be successful.
Third, it is imperative that the reporting requirements for companies participating in the tax incentive programs include data that is useful in evaluating them against their stated goals. As was identified in the Legislative Performance Audit of the Nebraska Advantage Act, many of the questions of importance to lawmakers, taxpayers, and business interests were unable to be answered because of lack of available data. This is a common challenge for incentive programs across the nation. Nebraska has been nationally recognized for its efforts in quantitative evaluation of the costs and impacts of its tax incentive programs. The Pew Charitable Trusts have referred to Nebraska as a “leader” in evaluation of tax incentives. We can build upon that strong foundation, especially if clearly articulated objectives are provided by the Nebraska Legislature.
Finally, establishing upper limits on the annual growth of the total tax incentives program can provide important fiscal protections for the state of Nebraska. With better data collected about the costs and benefits of the incentives, state lawmakers can set manageable, predictable upper limits regarding the size of these programs while taking into account all of the other complexities of Nebraska’s revenue and budget picture. The fiscal protections would not be used to restrict economic development, but rather to provide regular and comprehensive oversight of the net value of Nebraska’s economic development efforts.
Economic development tax incentive programs elicit strong passions among supporters and opponents alike. Regardless of current opinions about the Nebraska Advantage Act and its spinoffs, the potential value of these economic development tools cannot be dismissed. Through straightforward and practical statutory changes, Nebraska’s tax incentives can work for taxpayers and new businesses alike.