Do state tax credits pay off?

Tax-subsidy report findings reveal opportunities for needed changes

Those concerned with how Nebraska spends money should look at a report issued Monday by the Legislative Audit Performance Committee about some of Nebraska's business tax subsidy programs.

The report found that the state spends up to $234,568 to create a single job under a tax subsidy offered to businesses. By anyone's standard that's a lot of money.

The report went on to say that it's impossible to figure out whether this is money well spent because: "The audit's overarching finding is that the program goals expressed by the Legislature ... are too general to permit a meaningful evaluation of whether the programs are, in fact, accomplishing what the Legislature hoped they would accomplish."

This illustrates what The New York Times reported in December, that Nebraska -- along with Alaska and West Virginia -- gives up more money per resident in business subsidies than any other state.

Nebraska is not unique. Twenty-four other states have previously conducted audits and found similar issues with their subsidy programs. Nebraska can use the experience of these other states to help form its own policies and responses to tax-subsidy reform.

Tax subsidies work just like government spending in that they take money from the state's coffers that could be used for something else. Where they differ from other forms of spending is in the lack of scrutiny. Government appropriations in Nebraska are reviewed by the legislature every two years when the new budget is drawn up. This helps prevent spending measures from outliving their usefulness to the state.

But business tax subsidies get on the books by way of legislation that is passed apart from the budget. And, regardless of how much they cost, these subsidies usually are never reviewed again. They become permanent fixtures to the state's tax code -- for better or worse.

Subsidies are supposed to make up for their costs as they help companies create new jobs and grow the economy. But when they don't work as intended, they become liabilities that drain the state of needed revenue.

The audit points to the obvious need for Nebraska to change how it evaluates subsidies.

Several states have regular review of subsidies as part of their legislative processes. For example:

In Florida, all bills and subsidy programs undergo a data-based evaluation by several experts who determine, in public hearings, the estimated costs of these bills and programs. Business subsidies are reviewed annually to determine whether they meet their intended objectives and to ensure their costs don't exceed forecasted amounts. Results are posted online so lawmakers have current and reliable information to use in policy discussions.

In Washington, major tax subsidies must be evaluated by trained, non-partisan analysts at least once every 10 years to see if the subsidies should continue.

Vermont requires that the governor's budget addresses the most recent tax subsidy evaluations and provides specific recommendations about whether to continue, modify or terminate the subsidies. When the governor's recommendation differs from the evaluations, the budget must explain the governor's reasons.

Arizona mandates that the legislature's tax-writing committees hold public hearings after the release of tax-subsidy evaluations in order to determine whether the credit should be amended, repealed or retained.

Talk of tax reform is rampant in Nebraska these days and that is a good sign. Our state tax code hasn't undergone serious changes in more than half a century.

Legislation proposed by Sen. Paul Schumacher would establish a commission to take a hard look at Nebraska's state tax code. The measure, LB613, would be a great way to address issues with Nebraska's aging tax code and the topic of subsidy review should be a major part of this commission's discussion.

Sen. John Harms and the Legislative Audit Performance Committee deserve credit for their efforts to look at Nebraska's subsidies and for their calls for better review of these tax credits.

If we heed their calls and then follow the lead of other states that have already traveled this road, we could feel more confident that Nebraska gets its money's worth in terms of subsidies.