LINCOLN — A state business incentive bill — blocked last year by defiant senators seeking property tax reform — has been amended again in hopes of passing during the Nebraska Legislature’s session, which resumes Monday.
The state’s business community suffered a rare setback in the Legislature in 2019 when the ImagiNE Act, the multimillion-dollar replacement of the state’s economic development workhorse, the Advantage Act, failed to pass.
Now, there’s even more pressure to pass a bill that provides tax cuts in exchange for job growth and facility expansion because the Advantage Act expires at the end of the year.
Defeat, again, would be unacceptable, said State Sen. Mark Kolterman of Seward, the main sponsor of the act, Legislative Bill 720.
“At the end of the day, we have to grow our state and have to have that little bit of fertilizer to convince businesses to expand,” he said.
Nebraska, like more than 40 other states, provides an array of tax breaks to lure businesses to the state, or to convince businesses already here to expand.
A recent state report said the Advantage Act has inspired the creation of more than 22,000 full-time-equivalent jobs and $12 billion in investment since it went into effect in 2006.
In exchange, the act provided about $1 billion in tax breaks, of which $595 million have been cashed in.
The state’s first business incentive program, LB 775, was passed in 1987 to avoid the exodus of ConAgra and Union Pacific from downtown Omaha.
If you combine LB 775 with the Advantage Act, the state has handed out almost $4 billion in tax breaks in exchange for the creation of 113,000 jobs and investments topping $37 billion over the past 32 years.
While Kolterman said the tax breaks are a necessary state expense to keep the economy humming, other lawmakers have questioned the high cost of such tax incentives — which have exceeded projections in the past — and say there’s no proof that businesses would not have expanded “but for” the tax breaks.
“There’s no way to measure the effectiveness of them,” said Sen. Steve Erdman of Bayard, a leading opponent of such tax breaks. He said programs like the Advantage Act allow government to pick “winners and losers” rather than letting the free market dictate business expansion.
Last week, backers of LB 720 distributed a 134-page amendment that they hope will push the ImagiNE Act over the finish line. It promises to inspire a hot debate during the rare summer session, forced when lawmakers suspended the session in March because of the COVID-19 pandemic.
The new version of the ImagiNE Act:
» Reduces the projected cost of the incentives and phases in the expense over several years. A year ago, LB 720 was projected to hand out $125 million a year in tax breaks; now the program will begin at $100 million a year for the first two years, then ramp up to $150 million a year after five years. Finally, the program would be capped at 3% of the state’s net tax receipts (if measured in last year’s tax receipts, that would be $147 million).
» Makes the governor, rather than the Legislature’s Executive Board, the decider of whether the yearly cap on tax breaks should be exceeded in case of an excess of applicants. In February, the Nebraska Attorney General’s Office issued an opinion stating that it was an unconstitutional delegation of power to allow the legislative branch to make what is an executive branch decision.
» Includes an offer to provide $300 million in matching state funds for a massive proposal to create a $2.6 billion national center for responding to pandemics, natural disasters and other calamities at the University of Nebraska Medical Center. The NExT Project would have to come up with at least $1 billion from the federal government and $300 million from private donors before the Legislature would provide its match. Med center officials have billed it as a game-changer that would provide 8,700 permanent, high-paying jobs.
» Clarifies that companies could not take advantage of the COVID-19 downturn by obtaining incentives for rehiring workers laid off this year.
» Includes, for the first time, financial incentives to keep jobs from leaving the state. This clause is aimed at helping convince Milwaukee-based Fiserv, which recently purchased Omaha-born First Data Resources, to retain some of the 5,500 jobs still in Nebraska. It would provide up to $40 million over 10 years if a company retained 90% of its workforce.
LB 720, which is expected to be debated this week, had been amended previously to bring in money for job training and to help the production of renewable chemicals, such as fuel additives, livestock feed and food. And it has new tax incentives for rural job and manufacturing expansion.
But all the amendments haven’t convinced opponents like the Open Sky Policy Institute. Its director, Renee Fry, said the new version of the bill still provides tax incentives for jobs paying too little — as low as $15.09 per hour — that would qualify workers for food stamps and other government welfare programs.
She added that putting the governor in charge of whether to exceed the caps on incentives has reduced the transparency of LB 720, by eliminating a report to the Legislature and a public hearing on the issue.
Whether the ImagiNE Act has the 33 votes necessary to fend off a filibuster and pass remains a big question mark. And the fate of LB 720 once again appears tied to the passage — or failure — of a proposal to reduce property taxes.
At least two rural senators who helped to block LB 720 last year, Mike Groene of North Platte and Curt Friesen of Henderson, said a property tax bill must pass first before they would support the ImagiNE Act.
“They’ve addressed some of our concerns (in the amendment), but we have to have property tax relief first,” Friesen said.