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Budget briefing slides available for download, LB 461 on Tuesday’s agenda

Slides from this week’s OpenSky budget briefings can be downloaded here and videos from the briefings can be viewed on our Facebook page.

We also wanted to note that LB 461, the Revenue Committee tax package is back on the Legislature’s agenda on for Tuesday afternoon.

The bill will provide large income tax reductions for wealthy Nebraskans while doing little to address property tax relief. Learn more about LB 461 in our recent policy brief and also see our recent infographic about how the bill would affect real Nebraska taxpayers.

Debate on LB 331 and LB 332, which are part of the Appropriations Committee budget proposal, also is on Tuesday’sagenda. LB 331 relates to cash fund transfers and LB 332 relates to cash reserve fund provisions. Second-round debate on LB 327, the mainline budget bill, is tentatively scheduled for Wednesday.

OpenSky statement on the latest forecasting board projections

For immediate release – April 26, 2017

LINCOLN — The following is a statement from OpenSky Policy Institute Executive Director Renee Fry regarding the projections made Wednesday by the Nebraska Economic Forecasting Advisory Board:

“Today’s forecast underscores how irresponsible it is to be discussing further revenue reductions in the face of a growing budget shortfall that has already forced cuts to higher education, health and human services and other services that Nebraskans need. Rather than making additional cuts to these critical services, we hope lawmakers will look at freezing or reversing special tax breaks that are reducing revenue by hundreds of millions of dollars each year.”

Contact Chuck Brown at 402-610-1522 or cbrown@openskypolicy.org for more information.

A status update and some opinion pieces on the LB 461 tax package

Nebraska lawmakers debated on LB 461 – the revenue committee’s tax-cut package – for three hours on Friday without voting on moving the bill to second-round debate.

The bill –- which has several amendments pending — may return to the floor for further debate after this week’s discussion about the Appropriations Committee budget proposal.

Before debate began on LB 461 on Friday, OpenSky Executive Director Renee Fry wrote about the bill in the Omaha World-Herald, noting that, “Nebraskans we have talked to lately have been shocked when they learn legislators are considering tax cuts for the wealthy in the face of a large budget gap that is forcing funding reductions for higher education, health programs and other services middle-class Nebraskans need.”

On Thursday morning, the World-Herald’s editorial board wrote that LB 461 raises serious concerns, particularly regarding the complexity of its proposed property-tax changes, the budget impact of revenue losses and potential negative effects on education funding. The World-Herald editorial follows a Lincoln Journal Star piece from earlier this month that raised concerns about the lack of information about the impact of LB 461.

In an op-ed that appeared in multiple outlets across the state, former Sens. John Harms, Kathy Campbell and Don Pederson wrote that with lawmakers facing a large budget gap and other important challenges, this is not a good time to be considering the tax cuts proposed in LB 461.

The former senators also noted that it’s important that any talk of tax cuts be offset with talk of what services will need to be reduced to fund the tax cuts. “Unfortunately, such a discussion is not being held in relation to LB 461,” the former senators wrote.

Harms and Campbell are both members of OpenSky’s Board of Directors and Legislative Alumni Advisory Committee. Harms and Pederson both served on the Legislature’s Appropriations Committee with Pederson serving as the committee’s chair from 2005 to 2007.

OpenSky will continue to provide information and analysis of LB 461 while it remains under consideration by the Legislature.

The Real Taxpayers of Nebraska

 

Real Taxpayers of NE RevDownload a printable PDF of this graphic.

Big week of tax and school finance debate starts this morning

Tax and school finance discussions will dominate the Legislative agenda this week starting with this morning’s discussion of LB 640, a measure that would direct new state aid to school districts that rely on property taxes for more than 55 percent of their general fund revenue.

The aid would be paid for by the Property Tax Credit Program, and school districts would need to offset their property tax requests with aid received from this program. LB 640 also affects other aspects of school funding by lowering the maximum property tax rate school districts can levy and adjusting reimbursement for students who option into different districts. Property taxpayers in many of the school districts that are highly reliant on property taxes and receive this new aid would see tax reductions. Taxpayers in other school districts that don’t receive enough or any of the new aid — including most larger, more populous school districts and some more rural districts — would see property tax increases relative to what they receive under the existing Property Tax Credit Program.

The school finance discussions will continue on Wednesday morning when the Legislature begins debate on LB 409. The bill is the mechanism lawmakers propose to use to achieve the 2.1 percent growth in state K-12 funding called for in the state budget proposal. LB 409 will not result in a uniform 2.1 percent increase for all school districts. Some districts will see more funding growth than that and others will see less. In fact, 20 districts would see outright cuts in state school funding in FY18 compared to what they received in FY17. Districts that are already taxing at their maximum property tax level would not be able to raise more revenue to make up for their reduced state support without a vote of the people.

Tax debate continues Friday morning when lawmakers begin debate on LB 461, a tax package put forth by the Revenue Committee. Read our full analysis of LB 461. The fiscal discussion continues next week as lawmakers are expected to begin floor debate on the state biennial budget.

A quick look at the Revenue Committee tax plan

On Wednesday, the Revenue Committee advanced LB 461, a tax package that would start by cutting the top corporate income tax rate and collapse the first two personal income tax brackets. It also phases out the personal exemption credit for high income earners, slightly increases the earned income tax credit, eliminates the Nebraska Job Creation and Mainstreet Revitalization tax credit and suspends the New Markets Job Growth tax credit.461 pie chart 4.7

Starting in 2020, it phases-in cuts to the top personal and corporate income tax rates when projected revenue growth exceeds 3.5 percent and 4 percent respectively. The bill also replaces the assessment method of agricultural land from market value to income-capacity, caps the annual aggregate growth of agricultural land valuation and dictates that agricultural use value must fall between 55 percent and 65 percent of market value.

According to the Legislative Fiscal Office, the bill will reduce revenue by over $458 million by FY28 if tax rate reductions occur every year.

“A fundamental flaw with LB 461 is that it increases demand on state aid to K-12, while reducing state revenue,” said Renee Fry, executive director of OpenSky Policy Institute. “The two are not compatible. As a result, the bill will result in higher property taxes and/or significant cuts to K-12 funding.”

Furthermore, LB 461 would use revenue triggers that are based on projected revenue growth, Fry said, noting that had the bill’s triggers been in place since 2001, they would have caused income tax cuts twice during recessions and another last year that would have significantly exacerbated our current budgetary woes.

“This tax package is irresponsible policy. It does little to help the middle class or reduce pressure on property taxes. The real winners under LB 461 are those with very high incomes,” Fry said. (See image above.)

OpenSky will soon release a more complete analysis of LB 461.

Rules ‘truce’ allows flow to return to the Unicameral debate

In a column that appeared in Friday’s Lincoln Journal Star, former lawmakers Galen Hadley, John Harms and Kathy Campbell encouraged current senators to hold on to the spirit of debate that has permeated the Unicameral in recent weeks.

A truce that halted a contentious debate over filibuster rules has allowed to Unicameral to engage in a more characteristic flow, the former senators wrote, one they hope will continue after the truce period ends on Day 50 of the session (March 20).

The former senators wrote, “With the rules debate temporarily addressed, spirits lifted among the body as senators, including 18 freshman members, were able to experience what makes the Unicameral experience so rewarding as the body went to work on the business of the state.

“We hope their time operating under the temporary rules allowed our lawmakers to further appreciate the unique experience that is serving in the nonpartisan Unicameral, particularly because they have already seen firsthand the effects that divisive politics will have on the body.”

Hadley is former Speaker of the Legislature and Harms and Campbell each were two-term senators from Scottsbluff and Lincoln respectively. Harms and Campbell also are members of OpenSky’s Board of Directors and Legislative Alumni Advisory Committee. Read the full column online.

Upjohn Institute: Business incentives cost states millions, don’t do enough to foster job and wage growth

KALAMAZOO, Mich.—Between 1990 and 2015, state and local governments more than tripled the incentives—mostly tax credits—they offered businesses in hopes of spurring economic growth. By 2015, those incentives totaled $45 billion. But a new, comprehensive database on incentives suggests these policies are not as effective as they could be.

The new database and accompanying report, compiled by Upjohn Institute senior economist Timothy Bartik, provides the most comprehensive look to date at state and local incentives to attract new business locations or expansions.

“These findings suggest that incentives should be better evaluated to rein in costs and improve targeting,” Bartik said. “For example, greater targeting on high-wage businesses will not only offer higher wages to state residents, but the greater purchasing power of workers will result in a greater multiplier boost to state employment.”

In Nebraska, incentives showed the following pattern:

· Nebraska’s incentives as of 2015 are 79 percent greater than the average state.

· For adjacent states with incentive data, compared to Nebraska, incentives are higher by 3 percent in Iowa. Compared to Nebraska, incentives are lower by 69 percent in Missouri, and by 73 percent in Colorado.

· Nebraska’s incentives were already high in 1990, but increased by 23 percent from 1990 to 2015. The biggest one-year increase in incentives was in 2006.

· Nebraska’s incentives are moderately positively related to an industry’s wages, with an industry paying 10 percent higher wages receiving 5 percent higher incentives.

· Nebraska’s incentives are significantly negatively related to an industry’s research and development spending.

The Nebraska Legislature’s Revenue Committee will hold a hearing Wednesday on LB 557 – which relates to a new business tax incentive program. The hearing starts at 1:30 p.m. in the State Capitol, Room 1524.

“Dr. Bartik’s research shows Nebraska’s incentives are 79 percent greater than the average state,” said Renee Fry, executive director of OpenSky Policy Institute. “As we look at ways to address our budget shortfall, reforming our state’s business incentives should be part of the discussion.”

Nationally, the database shows:

· Incentives are large and growing. From 1990 to 2015, state and local incentives to export-based businesses grew from 9 percent of state and local business taxes to 30 percent.

· Incentives are a significant investment. In 2015, the average incentive package had an annual value of over $2,400 per job.

· Incentives are not sufficiently targeted towards the industries that could provide the strongest returns, such as those that pay high wages and that spend more on research and development. Industries that paid 10 percent higher wages received only a 3 percent greater amount of incentives than other industries.

· Incentives vary widely across states. In many cases, neighboring states offer significantly different incentives even though their economic conditions and gross business taxes are similar. The use of economic incentives is not correlated with a state’s unemployment rate.

· Industry-specific incentives don’t always yield industry growth. Larger incentives in a state for a particular industry do not appear to have any strong effect on that industry’s growth rate in the state.

The Upjohn database covers 33 states and 45 industries during the period of 1990–2015, and tracks job creation tax credits, property tax abatements, investment tax credits, research and development tax credits, and customized job training. The states included comprise over 90 percent of U.S. output, and the 45 industries are responsible for over 90 percent of U.S. employment. The scope of this database allows users to not only explore incentives across states, industries, and time—but also allows policymakers to investigate the efficiency and efficacy of the incentives they offer.
“For too long, researchers and policymakers have lacked reliable information on how much incentives cost and how their usage varies from place to place. This important database helps fill that information gap,” says Josh Goodman, an expert on tax incentives at The Pew Charitable Trusts, which helped fund this work. “This research identifies potential ways to improve the effectiveness of incentives, and also highlights the need for states to regularly analyze the results of these programs.”

OpenSky’s LB 484 testimony and charts

Below you can access PDF’s of:

LB 484 presents opportunity to bring balance to K-12 finance, tax systems

An Education Committee hearing will be held today on LB 484 – which provides an opportunity to re-evaluate Nebraska’s system of school finance in a comprehensive way.

The bill would serve a similar purpose to the School Finance Review Commission, which was created in the late 1980s to examine the state’s school funding system and our reliance on property taxes to fund K-12 education.

The commission paved the way for the Tax Equity and Educational Opportunities Support Act – or TEEOSA – our current school finance system. TEEOSA initially made significant progress in balancing K-12 funding and reducing property taxes as a share of the economy. In the years since, however, several tweaks have been made to the TEEOSA formula, which combined with other factors including a surge in agricultural land values, have negated some of the progress we made in balancing our tax code and reducing reliance on property taxes to fund K-12 education.

The School Finance Review Commission helped Nebraska address imbalances in its school finance and tax system before and such a process can once again help our state find comprehensive solutions to complicated and yet vital issues.

The hearing on LB 484 starts at 1:30 p.m. in the State Capitol, Room 1524. NET Nebraska will stream the hearing live.