April 20, 2014

Audit: goals of business tax breaks too vague to measure

A legislative performance audit has found that four tax incentive programs aimed at attracting business to Nebraska have goals that are too vague to evaluate their effectiveness.

Sen. John Harms of Scottsbluff, chairman of the Legislative Performance Audit Committee, says the audit attempted to gauge the effectiveness of the major economic development program: The Nebraska Advantage Act.

“We just don’t have enough benchmarks or goals that we can actually measure to see whether or not it’s accomplishing what the legislature has asked,” Harms tells Nebraska Radio Network. “I’m sure that it probably is, but it’s really hard to measure and we’ve put a lot of money into this program and we’re not sure whether or not it’s accomplishing what we hoped that it would accomplish.”

Much is at stake.

The Nebraska Advantage Act alone handed out $101 million in tax breaks to businesses between 2008 and 2011.

The audit concludes that whether the business incentives are doing “enough” or are “appropriate” cannot be judged, because the goals of the incentives are too vague and they lack adequate benchmarks by which to measure their effectiveness.

The other programs reviewed in the performance audit were the Nebraska Advantage Rural Development Act; the Nebraska Advantage Microenterprise Act; and the Nebraska Advantage Research and Development Act. The Legislature created or modified all four acts in 2005.

Other findings of the audit:

• The estimated cost-per-job for jobs created under the Nebraska Advantage Act ranged from $42,747, considering only compensation tax credits, to $234,568 considering all earned benefits except the property tax exemption.

• That while the modeling software the Revenue Department uses to project future state revenue gains and losses compares favorably to best practices for economic modeling, it fails to provide adequate forecasts of the programs’ effect on the state budget.

Harms says the legislature needs to be able to evaluate whether incentives work.

“And I know when you have economic development, you have to be fairly flexible and you have to be able to be competitive and we still want to do that, but there has to be a way that we can measure to understand and to know that we’re accomplishing exactly what we hope to accomplish with this project,” according to Harms. “And when our auditors went in they found that they just couldn’t measure it to determine that.”

Harms says the legislature needs reliable information on whether a tax break actually attracted a company to Nebraska or kept it from leaving the state.

“We’ve got to find a way to determine, if we’re going to put this kind of money like millions of dollars into a program, is it actually being effective or not being effective and is it a way that we can measure against those kind of incentive programs? I think that is what this is all about.”

The audit report is available on the Legislature’s Web site by clicking here. Hard copies are available in the Legislative Audit Office on the 11th Floor of the State Capitol.