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Nebraska should look deeper at incentives

July 26, 2014

(AP) — Nebraska needs to look at more than jobs and wages when deciding whether the state's tax incentives actually work, experts from a national research group told state lawmakers Thursday.

Tax policy experts from the Pew Charitable Trusts told a meeting of the Legislature's Performance Audit Committee that tax incentives may help some industries add jobs, but will do little to benefit others. The committee, formed earlier this year amid concerns that state law is too vague in explaining what each tax break should accomplish, is trying to find ways to evaluate whether Nebraska's tax programs are working effectively.

Tax breaks could displace existing workers in certain industries, such as retail, because they aren't likely to attract out-of-state residents, Pew Charitable Trusts policy director Robert Zahradnik said. Businesses also need a strong workforce, which may require job-training programs if the population doesn't match a company's needs, he said.

Zahradnik said lawmakers should also ask whether demand is growing in the targeted industry, whether targeted businesses are likely to export their goods and services and whether they truly need the incentive to expand. In some cases, he said, it takes years before states reap the benefits of a business tax incentive.

"An incentive basically reduces business costs," Zahradnik said. "This cost reduction provides an opportunity for companies to maximize their profit by increasing their output without increasing their business costs. When companies increase their output, they usually hire more people."

Committee chairman Sen. John Harms, of Scottsbluff, said he believes the tax incentives are creating jobs in Nebraska. But Harms said the state needs a more thorough way to evaluate the programs to make sure they're worth the investment.

Measuring the impact of individual businesses may not be realistic, but lawmakers should be able to gauge broadly whether the programs have created jobs, said Zahradnik and Pew policy expert Josh Goodman.

A report released in September by the committee found that state officials don't have enough information to measure how well Nebraska's tax incentives stack up against other states because programs and economies vary so widely.

In February, the committee reported that Nebraska has no way to judge whether its tax incentives have succeeded in attracting businesses. The report concluded that the state was spending $43,000 to $235,000 for each job created by the Nebraska Advantage Act, the state's largest tax-incentive program.

Lawmakers plan to hold public input hearings on Aug. 27 in Kearney and Aug. 28 in Lincoln. The committee's report must be finished by Dec. 15.

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