BAD CONNECTION: Verizon is one of 33 businesses that have used state economic development incentives analyzed in a new audit report. Verizon received incentives to build a call center in Lincoln. File photo

By Deena Winter | Nebraska Watchdog

Updated 2:09 p.m.
LINCOLN —  The cost of each job created with Nebraska Advantage Act economic development incentives in 2011 ranged from about $43,000 to nearly $235,000, a performance audit released Monday says.

The audit also found 70 percent of projects getting a state subsidy are in urban areas of Nebraska, and that BNSF Railway was the biggest beneficiary of tax credits and refunds from 2008 to 2011, receiving $46 million in subsidies — or 61 percent of the total.

Auditors estimated the cost of the 373 jobs created or subsidized by the state in 2010-11 at $43,000, if looking at compensation credits alone, and nearly $235,000 in all benefits except property tax exemptions, which only a small number of businesses used.

The jobs those incentives created in 2011 had salaries ranging from about $22,000 to $55,000 — or an average of nearly $40,000. In other words, the state of Nebraska paid the equivalent of one year to more than five years’ salaries for each job created by incentives.

The auditors could not say whether the incentive programs are “working,” largely because state lawmakers didn’t set specific goals or expected costs for the programs and because it’s difficult to say whether investments and jobs would have occurred without incentives.

The Legislative Audit Office was directed last year to determine whether Nebraska’s economic development incentives were matching  goals set by state lawmakers when they were created. The auditors found those goals “too general to permit a meaningful evaluation.”

Sen. John Harms, chairman of the Performance Audit Committee, said his
committee wants to work with the Revenue Committee to do an in-depth review of
the programs to determine their value to the state.

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

It’s the same conclusion reached in an October Nebraska Watchdog special report.

The incentives were intended to stimulate business activity and expand the state’s tax base, but the Legislature set no limits on the cost of two of the programs — in terms of lost revenue — so “by these standards, any activity could be deemed success and any cost acceptable,” the audit report said.

The audit was designed to review the performance of four economic development programs in Nebraska — the Nebraska Advantage Act, Nebraska Advantage Rural Development Act, Nebraska Advantage Microenterprise Act and Nebraska Advantage Research and Development Act.

The audit found ample data for the largest and most-used incentive program — the Nebraska Advantage Act, passed by lawmakers in 2005 as an update to the original 1987 law — but little performance data for the other three programs. While those three programs are much less costly than the Advantage Act, auditors said lawmakers may want to require the state to report more about who’s using the programs.

Among the challenges for auditors in evaluating the programs was determining which business activity resulted from the incentives and which would have occurred without incentives, the lack of clear programs goals and the need to consider indirect impacts.

The audit report said the best evaluations of incentive programs take into account both direct and indirect factors, and that Nebraska’s evaluation of its incentives “are not as effective as they could be.”

Auditors also found that although the state Department of Revenue is required by law to report to lawmakers which incentive programs should be eliminated or scaled back, the department always reports “no recommendation.”

The Nebraska Advantage Act allows companies that invest or create jobs in Nebraska to get refunds of sales and use taxes, personal property tax exemptions and tax credits to reduce payroll taxes, personal or corporate income taxes, sales and use taxes and real estate taxes. The bigger the investment or number of jobs created, the bigger the benefits they can get over the course of 10 to 15 years. State law requires all information in applications be kept confidential except the name of the business, the location of the project and the amount of increased employment and investment.

From 2008 to 2011, 33 businesses used nearly $101 million in Advantage Act incentives, plus nearly $104 million in unused tax credits — all of which may not be used — while investing about $1.4 billion and creating 4,079 jobs. But the auditors noted that research shows it’s difficult to determine whether the investment and jobs are the result of the incentives or would have occurred without them.

The report shows most of the projects getting incentives are in urban areas. Of 216 proposed project locations, 150 — or 69 percent — are in urban counties and 65 (31 percent) are in rural counties, except for a BNSF Railway project that runs statewide.

Three counties — Douglas, Lancaster and Sarpy — were home to almost half the total proposed project locations. Douglas County was home to one-third of all projects.

From 2008 to 2011, TD Ameritrade was the second biggest beneficiary of tax credits and refunds, receiving $6.8 million worth — or 9 percent of the total — for its Douglas/Sarpy County project.

The audit also found that the Department of Revenue’s projections were not particularly accurate, especially in the long-term. The department — which told auditors its projections weren’t intended to forecast the cost of the program — was off by more than 20 percent in six areas and off by more than 50 percent in four areas in which it made projections in 2007 for 2010-11.

But the department was way, way off when it projected the net gain (or loss) of the program — by more than 5,000 percent.

Tax Commissioner Doug Ewald said as projections go out 10 years, their reliability drops and if the Legislature wants his department to do its projections differently, it will.

“That’s why we say it’s an estimate,” he said. “They’re not right on. You do the best you can given current economic conditions.”

As for incentives in general, Ewald said his department just administers the programs and is not the policy-making branch of government. And he doesn’t weigh in on programs that should be ended because the governor sets tax policy, not him.

“If the Legislature wants us to do things a little bit differently I don’t have a problem with that,” Ewald said. “It’s a good report, it’s a fair report, it definitely gives the Legislature something fair to read.”

A spokesman for a good government watchdog group, Common Cause Nebraska, wants to see more information released about incentives.

“The public deserves to see the full effect (of incentives) yet the protection provided to the businesses involved creates a huge mystery that should be solved,” Jack Gould said. “Until all the files are open and a complete study is done the public will remain in the dark hoping that they are not being taken advantage of.”

Contact Deena Winter at deena@nebraskawatchdog.org. Follow Deena on Twitter at @DeenaNEWatchdog

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