Tune out the “war among the states” regarding business location. Avoid tax incentive “megadeals.” Reform large tax incentive programs. Focus instead on public investments like education and infrastructure, which really matter to the “business basics” — the 98 percent of business costs that are not state and local taxes.
Those were the main messages laid out by Good Jobs First Executive Director Greg LeRoy at OpenSky’ss third-annual Fall Policy Symposium last month.
This is especially true, LeRoy said, at a time when federal support for education, infrastructure and other key factors for economic development is likely to diminish greatly. In this new reality, states should be increasingly selective with how they use their own revenues.
“State and local taxes only make up 2 percent of a company’s cost structure,” said LeRoy, who is one of the nation’s foremost experts on business tax incentives. “If you can help companies with the other 98 percent … that’s what’s going to pay off.”
The “Other 98 percent” includes things like access to a strong workforce, infrastructure, utilities, great schools, safe communities, university partnerships and the ability to cluster with related businesses, LeRoy said.
These larger cost factors drive business location decisions so strongly that the majority of location choices are already known by companies before they even approach states and cities for tax breaks, he said.
LeRoy discussed other aspects of his research and noted that nationally, the average cost per job from tax incentive programs is about $658,000; and that across the country, large corporations receive about 70 percent of the tax incentive deals and about 90 percent of the tax incentive dollars. This runs counter to an argument that incentives help small businesses, he said.
Looming federal changes have potentially large ramifications Nebraska revenues, services
In a presentation regarding potential tax and budget changes at the federal level, OpenSky Executive Director Renee Fry said such changes could come soon as part of Congress’ budget reconciliation process.
Depending on the changes that are made, the tax changes could automatically reduce or increase state revenues, and to pay for those tax cuts, congress could significantly reduce federal funding for Medicaid, K-12 education, farm subsidies and many other programs that are important to Nebraskans, she said.
Therefore, the federal budget and tax policy debates will have a series of implications not only for individual taxpayers, but could put further pressure on state budget and tax policy decision making, forcing state lawmakers to either make further funding cuts to vital state services or raise revenues, Fry said.
Fry’s comments were followed by an update on the state budget by Sen. John Stinner, chair of the Appropriations Committee, who noted that state revenues continue to trail projections and this could lead to more budget cuts when the Legislature convenes in January.
Factors such as changing demographics, untaxed internet sales and previous tax cuts are contributing to Nebraska’s revenue problems, Stinner said.
Planning committee looks to challenges of the future
During a panel discussion on changing demographics and the work of the Legislature’s Planning Committee, Jerry Deichert, Director of the Center for Public Affairs Research at the University of Nebraska Omaha, noted that our population is:
- Becoming more concentrated in its most populous counties;
- Getting older and will continue to age; and
- Becoming more racially and ethnically diverse.
As planning committee members discussed what these demographic changes could mean for state policy, Sen. Tony Vargas said that the growing number of immigrant children in Nebraska increases the need for high quality early childhood education. Meeting this need will be essential in preparing our state’s future workforce for success.
Planning Committee Chair Sen. Paul Schumacher and other panel members referenced a Legislative Fiscal Office list of tax changes passed between 2006 and 2015 as they talked about the possible need to reform tax breaks to meet future challenges.
Kansans pass on lessons and experiences from tax cuts
During a panel discussion on Kansas’ income tax cuts, Rep. Melissa Rooker, a Republican member of the Kansas House of Representatives, described a shift in message among tax cut advocates in the wake of the tax cuts. When the tax cuts passed, Rooker said, advocates promised the state would see a shot of economic adrenaline. Years later, these advocates were begging for more time to let the economic benefits kick in as budget damage mounted.
Devin Wilson of Game On For Kansas Schools — a group that works to protect school funding in Kansas — said Kansans were told that the budget damage would eventually subside and give way to growth, but that never occurred.
In the end, Rooker noted that the budget damage caused by the tax cuts cost lives as the revenue losses ravaged services like corrections, education and roads.
Panel discusses drawbacks and virtues of Nebraska business taxes
During a panel discussion on business taxes in Nebraska, University of Nebraska Law Professor Adam Thimmesch, whose research focuses on tax policy, recounted a time when he brought a business owner to speak to one of his classes.
A student asked the owner why he kept the business in Nebraska. The owner discussed things such as the work ethic and humility of Nebraska workers. Taxes incentives were never mentioned as a factor, Thimmesch said.
Randy Thelen of the Greater Omaha Chamber of Commerce noted that while the chamber doesn’t lead with business incentives when approaching businesses about locating in Nebraska, incentives are important in ultimately getting a business to set up shop in Nebraska.
Thimmesch and former Tax Commissioner Kim Conroy said the tax exemptions the state offers business are eroding the state’s tax base and this has an effect on tax rates.
While discussing the political pressure that often leads to tax breaks becoming law, former Nebraska Tax Commissioner Kim Conroy said, “Good tax policy and good politics are often not the same thing.”
Robert Zahradnik of the Pew Charitable Trusts noted states struggle to tell if business incentives are sound investments because tax breaks aren’t subject to regular review in the same manner regular government spending is by way of the appropriations process. However, Zahradnik said, efforts in Nebraska and other states to improve transparency and review of tax breaks will help states better determine if the tax breaks are worth the investment.
Ballot initiative and school funding the focus of property tax panel
During a panel on previous efforts to lower property taxes, Nebraska Farmers Union President John Hansen gave an overview of various ballot initiative measures in Nebraska that were aimed at lowering property taxes. Most of the measures were voted down by Nebraskans, illustrating the difficulty of passing tax legislation via the ballot. Hansen’s comments came at a time when some in Nebraska are talking of another ballot initiative aimed at lowering property taxes.
Former Sen. Bob Wickersham said the implementation of the state’s school funding formula — the Tax Equity and Educational Opportunities Support Act (TEEOSA) — was initially successful in helping reduce property taxes and this contributed to the state reaching a â€œhigh-water markâ€ for property-tax relief in 1998. TEEOSA, other efforts to increase aid to local governments, caps on property tax levies and local government spending, and improved assessment processes combined to effectively bring down property taxes, Wickersham said. Since then reductions to TEEOSA Aid, elimination of aid to other local governments, steep rises in agricultural land prices and other factors contributed to increased property taxes.
In response to comments about school spending, Wickersham recommended attendees read a 2015 report from the Legislative Fiscal Office. The report found that school spending growth is at its lowest level in 30 years and that issues such as a shift in population from rural to urban areas and fixed costs in districts with declining population are having a major impact on Nebraska’s average per pupil costs.
Legislative candidates urged to learn the committee process, build bridges
During a panel for legislative candidates, former Sens. Annette Dubas and Mike Gloor and current Sens. Roy Baker and Laura Ebke offered insight to candidates about working in the Unicameral. In their comments, they urged candidates to:
- Become familiar with the importance of the committee process and legislative rules;
- Prepare to be publicly questioned on an assortment of issues that you may not know much about presently;
- Work to build bridges with fellow senators; and
- Lean on and value the contributions of legislative staff members as they often have vast experience and expertise that will be essential in one’s success as a lawmaker.
Download symposium documents and materials
More documents from our symposium, including a slide show featuring Jerry Deichertâ€™s demographic changes presentation and Greg LeRoy’s keynote presentation, can be downloaded here.