Omnibus tax credit bill advances after $81 million in incentives were pared back

Editors’s note: story has been updated to reflect new information about fiscal impact.

LINCOLN — An omnibus tax credit bill that offers breaks for everything from biodiesel to huge waste incinerators to airport improvements to expansion of the Nebraska Crossing shopping mall marched forward Tuesday night after incentives were trimmed.

The bill also opens the door to bond financing of state freeway projects — upending years of a “pay as you go” philosophy — and ends a practice known as “home equity theft.”

Legislative Bill 727, which combined upwards of 30 bills, advanced from second-round debate on a voice vote after about $81 million in expected credits over four years were trimmed out of the measure.

State Sen. Lou Ann Linehan, who led the packaging of the bills, said the trims were necessary to fit the bill within the projected state budget.

“Everyone had to give a little bit,” Linehan said.

She called the bill a “negotiated, bipartisan tax measure that will benefit Nebraska statewide.”

Lee Will, the governor’s budget director, said that the total fiscal impact of the bill is about $55 million over the next four years in reduced state tax revenue.

One change in the bill was that an expansion of turnback tax collections from retailers near convention centers in Omaha and downtown Lincoln  would only go into effect if those projects moved forward. That reduced the fiscal impact of the bill by nearly $18 million over four years. A proposed turnback tax near Omaha’s new Steelhouse concert hall remains in the bill, It is expected, under the bill, to bring in about $1.5 million a year to help pay off that facility.

The breaks would be offset somewhat by an aspect of the bill that would impose a first-ever tax on vaping products, sponsored by Sen. Jana Hughes of Seward. Will projected that the new tax would bring $12 million in additional revenue over the next four years.

The biggest beneficiary in the bill stands to be Nebraska Crossing, which would get about $5 million a year in tax breaks if it qualified as a “Good Life Transformational Project.”

Half of state sales tax

It would qualify as a Good Life project and receive half of the state’s 5.5% sales tax if it:

• Invested at least $500 million in an expansion.
• Created at least 250 new jobs.
• Attracted new-to-Nebraska retailers, such as Crate and Barrel and IKEA.
• Attracted at least 600,000 visitors a year.
• Drew at least 20% of its sales from out-of-state shoppers.

Providing state tax incentives for retail development is new. It has been eschewed in the past as simply shifting retail sales to a new location and not generating well-paying jobs.

But Linehan and other supporters have said Nebraska isn’t risking anything, and the generous tax break would help transform Nebraska Crossing into a tourist destination of shops, youth sports fields and hotels.

‘Flyover state’

“This could change Nebraska’s image as a flyover state,” said Gretna Mayor Mike Evans at a legislative hearing in March.

Some former lawmakers and the OpenSky Policy Institute have cautioned that this year’s tax cuts aren’t fiscally responsible and cut too deeply. They say it raises the prospect of the state running short of revenue and forcing cuts in services in a few years.

State lawmakers are poised to give final approval in the upcoming days to more than $6 billion worth of income tax cuts, property tax credits and increases in state aid to K-12 schools over six years. That would be on top of tax breaks for donations to private school scholarships that could grow to $100 million a year and the breaks granted in LB 727.

But there was little discussion about costs of the tax breaks during a four-hour debate Tuesday might.

Instead, there was praise for extending the state’s tax credit on historic restoration projects, even though that tax break was capped at $2 million a year as part of the trims to LB 727.

Other tax breaks capped were one for rural livestock projects ($2 million a year) and one for retailers of biodiesel ($1 million). A proposed tax break for grocers who donate food to food banks was included in the bill but wasn’t given any funding.

There was some disagreement over who should get credit for an aspect of LB 727 that ends “home equity theft,” the practice of private firms obtaining title to homes whose buyers neglected to pay their property taxes, then selling the property and reaping the equity.

Omaha Sen. Machaela Cavanaugh condemned as “petty” and “disrespectful” a decision by the Legislature’s Revenue Committee to “steal” the provisions of a home equity theft prohibition bill introduced by her brother, Sen. John Cavanaugh, and then add it under a different senator’s bill to became part of LB 727.

‘Tyranny’ of the majority

Machaela Cavanaugh said it was indicative of the entire session, in which the accomplishments of “minority party” — the Democrats — had been diminished and quashed by the “tyranny” of the majority, the Republicans. (The GOP holds a 32-16 majority in the 49-seat, one-house, nonpartisan Legislature. There is one registered nonpartisan, Omaha Sen. Megan Hunt.)

John Cavanaugh, however, said he was glad the provisions of his bill made it into LB 727, even if he didn’t get credit for it.

“I think we’d all be better served if we didn’t care who got credit,” he said. “The credit can be helpful, but it’s not the most important thing.”