Audit: No clear way to judge Neb. tax incentives

Audit: No clear way to measure whether Nebraska tax incentive programs have succeeded

Associated Press

LINCOLN, Neb. (AP) -- Nebraska has no clear way to measure whether its major tax incentive programs have succeeded in attracting new businesses and whether they're worth the cost, according to a legislative audit released Monday.

The report by the Performance Audit Committee concluded that the goals outlined in state law were too vague to evaluate whether the four incentive programs — created or modified in 2005 —were working as intended.

The committee found that that the state's largest incentive program, the Nebraska Advantage Act, allowed businesses to collect nearly $101 million in tax refunds and credits between 2008 and 2011.

The state spent between $42,747 and $234,568 for every job created under the program in 2011, according to the report. It also pointed to a lack of cost controls within the Nebraska Advantage Act and the Nebraska Advantage Research and Development Act. The tax incentives represent revenue that the state otherwise would have collected.

"(T)he Legislature set no limit on the programs' cost, in terms of foregone state revenue," the committee said in its report. "By those standards, any activity could be deemed a success and any cost successful."

Committee chairman Sen. John Harms, of Scottsbluff, said he wants to work with the tax-focused Revenue Committee on a deeper review of the incentives. He said though it's difficult to measure the incentives' exact impact, Nebraska has collected several years' worth of data to help determine whether the costs are justified.

"We know the businesses that used these incentive programs have invested millions of dollars in the state and have created new jobs," Harms said in a statement. "What is not clear is how much of that activity may have occurred without the tax incentives."

The Nebraska Advantage Act is the state's most-used incentive program. It has received 339 applications since it went into effect in 2006, and 143 have led to signed agreements. The three largest recipients from the act in 2011 were BNSF Railway, which claimed $46 million in tax credits and incentives; TD Ameritrade Holding Co., which received $6.8 million; and Advanced BioEnergy LLC, which used $4.4.million. The smallest was $175,200 to CAMACO LLC, a company that makes car-seat components.

Auditors also reviewed the Nebraska Advantage Rural Development Act, the Nebraska Advantage Microenterprise Act and the Nebraska Advantage Research and Development Act. Auditors found "ample performance data" about the Nebraska Advantage Act, but a lack of specific data for the other three programs.

The audit found that modeling software used by the Nebraska Department of Revenue to project gains and losses from the incentives compares favorably to best practices for economic modeling. But auditors said the software isn't useful in forecasting the actual costs that hit the state budget. Auditors questioned whether the department should continue to include long-term projections in its annual report of Nebraska's tax incentives.

Auditors also took issue with the Revenue Department's decision to always make "no recommendation" in its mandatory report on whether Nebraska should eliminate a tax incentive program. The report found that the department is following the letter of the law, but may not be complying with the law's intent.

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