A Southeast Nebraska farmer who is also a school board member says the Legislature needs to take a hard look at tax credits which have been on the books for years – specifically the now infamous LB775 which was passed in 1988 and the more recent (2005) Nebraska Advantage Act.
Dennis Schuster of rural Steinauer is among a host of rural people who want to see property tax relief – especially in light of declining commodity prices which have caused many to blame underperformance of the agriculture sector for a nearly $1 billion shortfall between projected and actual revenues. With little or no profit, Nebraska farmers and ranchers are paying less in state income taxes and simply not buying things that generate sales tax.
He said the USDA reported that annual net farm income in 2013 was at an all-time high of $123.7 billion. However, since that time, grain and livestock prices plummeted, and the agency now predicts national net farm income for 2017 to be only $62.3 billion, almost 50 percent less.
But he is quick to add that it’s not all the farmers’ fault. He said it’s past time for the Legislature to look at the “money pit” of tax credits given to big business. Starting with LB775 of 1988, there have been a number of economic development programs enacted to excuse the payments of income, sales and property taxes if a company is large enough to make promises of investment, expansion and job creation.
Relying on reports that are readily available online from the Legislature and the Nebraska Department of Revenue, Schuster calculated that from 1988 to 2015, state sales and use tax refunds approved “net of recapture” totaled $1,870,326,578 for companies reporting the intention to create 90,967 jobs. That comes to $20,560 per job paid to companies by the state if the promised jobs are newly created.
In addition, nearly $10.4 billion of estimated personal property assessed value was exempted by class in 32 Nebraska counties. In Nebraska, 459 companies have received both property tax credits and investment growth act tax credits under LB775.
Then, the Nebraska Advantage Act (LB312) was passed to provide income, sales and property tax credits. Recently, the Legislature requested a study of 79 companies. An audit report indicated that 68 companies were estimated to have created 2,968 net additional full-time equivalent jobs. The cost to the state ranged from $24,500 to $320,000 per FTE job over the six years of the study.
Between 2008 and 2014, 17 companies in seven counties claimed a property tax exemption totaling approximately $57.6 million. The estimated reduction in property tax collection by government subdivisions, between 2008 and 2014, was $57.5 million. School districts in those subdivisions lost nearly $34.3 million in revenue, which could have reduced the taxes levied on district home, agricultural and business property owners.
In addition, Schuster said that between 2008 and 2014, 59 companies received local sales tax refunds resulting in a loss of $14.5 million to 142 Nebraska cities where sales occurred. Some 64 companies that received more than $500 million thanks to LB775 also applied for Advantage Act credits totaling more than $42 million before 2015. A total of 310 companies applied under the Advantage Act, and credits totaling over $676.7 million were authorized, Schuster said.
The Department of Revenue estimates in its 2015 Annual Report on Tax Incentives that “by 2025, the cumulative amount of forgone state revenue will be more than $925 million. That estimate factors in new projects being approved between 2015 and 2025. If there were no additional projects other than the 79 projects in our population, the 2025 cumulative forgone state revenue estimate is $473 million."
Those figures are only for credits under the Nebraska Advantage Act. The fiscal analysis for LB775 from 2015-2025 projects another $311 million of lost revenue.
Schuster makes a logical conclusion. That’s $784 million in lost revenue by 2025. With revenue projections for 2018 alone down by $1.5 billion, Nebraska can no longer afford to give these tax credits away. Without the credits granted to date, the state could have a nearly balanced budget.
Halting the tax credits from these two programs is a much higher priority than the governor’s recommended income tax reduction for higher-bracket taxpayers and corporations.
That’s an important step toward tax relief.
J.L. Schmidt is the Statehouse Correspondent for the Nebraska Press Association has been covering Nebraska government and politics since 1979. He has been a registered independent for 18 years.