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In Lewis Carroll’s novel “Through the Looking Glass”, Alice, of Wonderland fame, encounters the character of the Red Queen. Alice runs next to the Queen who exclaims ““Now, here, you see, it takes all the running you can do, to keep in the same place.” Known as the Red Queen’s Race, the characters represent an arms race of sorts, were no matter how fast one competitor runs, the other matches speed. The net result is neither gets anywhere.
Many state economic development programs intended to recruit and retain businesses to Nebraska remind me of Alice racing the Red Queen. No matter how extensive the package of incentives and tax breaks, another state is willing to up the ante to lure the company away. What ensues is a vicious cycle of incentives paid for by all Nebraska taxpayers. When large companies leave Nebraska, such as ConAgra and Cabela’s have, a new, more aggressive cycle begins again to retrain workers and recruit new businesses to fill the vacant space.
The argument in favor of economic development incentive programs is that they create economic activity that ultimately produces more in tax revenue in the form of jobs and investment than the cost associated with the incentives. While the argument sounds logical, supporting evidence is scarce. Ironically, the companies that profit from incentive programs provide the greatest political obstacle to obtain data needed to valid their benefits.
For the last four years I have served on the Legislative Performance Audit Committee, serving as chair for the past two. Since 2015 the Legislative Performance Audit Office has been required by state law to conduct evaluations of Nebraska’s tax incentive programs, the largest of which is the Nebraska Advantage Act. The overall goal of the performance audits is to objectively evaluate the outcomes of the taxpayer investment in the companies that receive benefits under the program. The financial benefits include income tax credits, sales tax refunds, and personal property tax exemptions.
According to Department of Revenue data, participating companies have qualified for over $842 million of income tax credits, $158 million of sales tax refunds, and over $5 billion of personal property value exempted from paying local property taxes. Despite the large financial cost of these programs, data to support the policy outcomes of the incentives is not readily available. Questions as basic as where are the incentivized jobs located in the state are not easily answered. These outcomes are important when determining the impact of the taxpayer investment.
Evidence does not exist to support claims that the Nebraska Advantage act provides returns greater than the investment Nebraska taxpayers have made. The companies do not report data that is useful in answering that question. However, I can say with certainty that participating companies, and the Chambers of Commerce that represent them, aggressively oppose any effort to obtain data to evaluate the incentive programs. With hundreds of millions of dollars invested by Nebraska taxpayers in these companies, having accurate and complete information about the impacts is simply good government.
In some cases, a few individual companies have been very forthright and willing to provide all information they can to support the economic impact of the incentive programs. However, the opposition to transparency by some of the largest companies receiving Nebraska Advantage Act benefits is concerning. It creates doubt about the true result of the programs. Are they actually creating new and critical economic activity in the form of better jobs and new investments, or are they little more than corporate welfare?
This past session the Performance Audit Committee introduced and prioritized LB 935 in an attempt to obtain the information needed to thoroughly evaluate the outcomes of Nebraska’s incentive programs. Opposition from Advantage Act beneficiary companies was strong. The bill advanced to Select File where it stalled due to costs requested by the Department of Revenue, claiming the need for a full time IT specialist to include an additional data field in the reports filed by recipient companies.
Without more and better information about the jobs and investments paid for by taxpayers, it is difficult to understand the full opportunity cost of the programs. While it may not be feasible to end the Red Queen’s Race of incentives, Nebraska taxpayers should know with clarity what the cost of the race is. Nebraskans deserve more than investing and investing without getting anywhere.