LINCOLN — With the state's fiscal crisis in the rearview mirror, a longer line of companies and entities is seeking tax cuts and exemptions from the Nebraska Legislature.
Wind farms and sod farms, health clinics and tanning salons, along with nonprofit youth sports groups and historic restoration groups want cuts. Farmers want a break on replacement parts for tractors and combines.
There's a multimillion-dollar tax break proposed for huge data centers — like the billion-dollar facility eyeing Nebraska and Iowa. Cities, counties and other government entities, which typically are tax-exempt, want to make sure that property they lease, such as Omaha's TD Ameritrade Park, remains off the tax rolls.
The sales tax breaks alone amount to about $16 million, which is about how much taxpayer money is spent each year on the state agencies that handle game and parks and libraries.
And that doesn't account for the $130 million-a-year in tax breaks Gov. Dave Heineman is seeking in individual and corporate income taxes.
During the economic downturn of the past three years, few people were asking for tax favors, and the governor was not proposing tax cuts. But the governor and others are seeing an opportunity this year as tax receipts slowly rise.
"The pressure builds up like a dam. Now they're all asking," said State Sen. Abbie Cornett of Bellevue, head of the Revenue Committee, which oversees tax policy.
The requests have left state lawmakers in a quandary: How much money do you give away in tax breaks, and how much do you keep to invest in things like new nursing classrooms and a cancer center for the University of Nebraska or improving the state's troubled child-welfare system?
"To me, it really raises some questions about our tax structure. Where do we draw the line?" said York Sen. Greg Adams.
The Revenue Committee, of which Adams is a member, began wading through more than a dozen tax break bills last week.
One thing members concluded is that they need to meet with the lawmakers who draw up the state budget, the Appropriations Committee, in hopes of discovering how much they propose to spend on things like the university's $91 million request and how much might be left for tax breaks and tax cuts.
Cornett said the two committees plan to get together after the State Economic Forecasting Board meets Feb. 24 to make a new projection on state tax receipts.
"We have to determine if we can afford any tax cut package and what Appropriations determines is important," she said.
Kearney Sen. Galen Hadley said a lot of questions need to be answered.
"There is some extra money, so we're trying to figure out how best to invest that for Nebraska," Hadley said.
Some senators have already said they doubt that the state can afford a major tax cut this year, unless lawmakers are ready to trim spending on K-12 education, roads and social services.
"We all want to go home and say we cut taxes, but we need to be adults and think about our core functions of government," said Omaha Sen. Jeremy Nordquist. The state probably can't afford the governor's entire package, he said, or even the $75 million-a-year tax break he is proposing for retirees.
But what about smaller, more focused tax breaks that help persuade a business to come to Nebraska or stay in the state?
Senators say they have to weigh the costs of such breaks against the expected benefits in job growth and economic activity. Multimillion-dollar tax breaks are harder to grant, they said, than those that cost a few thousand.
"In a textbook world, we wouldn't offer exemptions, but in the real world, we have to offer them to be competitive," said Cornett, who introduced four tax break bills, and is sponsoring the governor's tax cut package.
A recent discussion over a tax exemption sought by GeneSeek, a homegrown high-tech company, illustrates the dilemma.
GeneSeek was launched by two University of Nebraska-Lincoln professors, who worked nights and weekends to develop time- and cost-saving tests to track down genetic problems in cattle, show dogs and other valuable animals.
The company now has an annual economic impact of $42 million a year, and a quarter of their 45 employees hold PhDs or master's degrees. GeneSeek also pays $330,000 a year in royalties to UNL.
This is exactly the kind of company the state wants to see sprout and grow, said Hadley, a retired professor.
But GeneSeek has a tax problem, which, depending on whom you ask, will either force it to leave the state or prevent expansion at its Lincoln facility.
The company must pay $500,000 a year in sales taxes on "biochips," high-tech diagnostic tools the company uses to check out the genes of breeding cattle. In other states where its parent company has outlets, biochips are tax-exempt.
Hadley, who is sponsoring a bill for that would provide GeneSeek a tax exemption, said the benefits outweigh the relatively small exemption sought — $500,000 a year as opposed to millions. "We want to keep that company in Nebraska," he said.
Yahoo, which wants to move a computer-server assembly plant from Oregon to La Vista, makes a similar argument. But the tax exemption it is seeking would amount to $4 million a year.
Cornett, who sponsoring a bill for Yahoo, said the company has the space to expand in La Vista and has established itself as a good employer and partner since moving to Nebraska.
The endless stream of requests is spawning some frustration. At a recent Revenue Committee hearing, Valentine Sen. Deb Fischer asked a university official if all new companies looking at expanding will require a tax break.
Fischer was the sponsor of a law passed last year that earmarks $70 million a year to fund highway construction, an earmark that could be endangered if state tax revenues lag or are cut too much.
Omaha Sen. Rich Pahls has long advocated for a review of all state tax exemptions, pointing out that Nebraska exempts more sales than it taxes. Every year, he said, several more tax breaks are passed, leaving fewer and fewer taxpayers to foot the bill for government services.
Cornett, who along with Pahls will leave the Legislature at the end of the year because of term limits, said she doesn't necessarily disagree but said that overall Nebraska is not as bad as other states in granting tax exemptions.
"Tax policy is a little bit like common law," Cornett said. "It evolves over time."
Contact the writer:
402-473-9584, paul.hammel@owh.com
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