NANCY HICKS / Lincoln Journal Star | Posted: Wednesday, May 25, 2005 7:00 pm
State leaders will not be able to help reduce property taxes in four years as promised because of new business tax breaks, warned Lincoln Sen. Chris Beutler.
State government will not be able to afford the promised property tax breaks about $75 a year for an average home owner and pay for a package of business tax breaks, job training programs and grants, estimated to eventually cost more than $70 million a year.
But senators turned aside Beutler's warning and gave overwhelming final approval Wednesday to a business tax incentive package sought by Gov. Dave Heineman and praised it as a way to build Nebraska's future.
"This comprehensive approach to economic development will set Nebraska on a path for a decade of growth. It is a vital recruitment tool," Heineman has said.
The package is expected to make Nebraska more attractive to business, creating an estimated 2,500 jobs and spurring private investment of $600 million over the next decade.
Beutler outlined how the tax incentive package will affect property taxes in the long run.
The current property tax lid for schools is scheduled to go down five cents in 2008-09, under current state law. That reduction would save $75 a year for the owner of a $150,000 home but would require the state to send about $100 million more a year in state aid to schools to make up the loss of property tax revenue.
Senators will likely have to keep the current school property tax lid ($1.05 per $1,000 in assessed value) in order to avoid an enormous deficit in four years, Beutler said.
Beutler unsuccessfully argued that senators should put off the manufacturing equipment sales tax exemption for two years to save money and reduce that future funding hole.
The exemption Nebraskans will no longer have to pay sales tax on business machinery will mean a loss of an estimated $17 million a year in state tax revenue.
Beutler predicted that the cost of the expanded business tax incentives will also require a future Legislature to raise state tax rates or make severe budget cuts unless the economy keeps booming.
"Not only are you giving up the property tax relief, but you are endangering the farmer and the average taxpayer with the possibility of other types of revenue increases on them," Beutler said.
Sen. Tom Baker opposed postponing the sales tax exemption, noting that just half a dozen states still tax manufacturing equipment. Eliminating that sales tax will help the business climate of the state, said Baker of Trenton.
Heineman is expected to sign the business tax incentive bills and use that package on the campaign trail as he runs for election to a four-year term as governor.
Reach Nancy Hicks at 473-7250 or nhicks@journalstar.com.
Business tax package
The main elements of the business tax package are:
* Tax breaks for businesses that invest or create more jobs in Nebraska. Will eventually cost around $40 million in lost revenue on top of the $140 million a year in current business tax breaks. Expected to bring 2,500 jobs to Nebraska over the next decade and spur private investment of $600 million.
* Exempting manufacturing equipment from sales taxes. Cost: an estimated $17 million a year.
* Provide tax credits for new ethanol plants. Cost: $2.5 million in state tax dollars a year.
* Offer $1 million in grant money each of the next two years to help groups add value to agriculture products.
* Provide $1 million in grant money each of the next two years to help groups add value to agriculture products.
* Provide $250,000 a year to give small communities grants to collaborate and encourage business growth and entrepreneurship.
* Increase the amount first-time farmers could borrow under a Nebraska Investment Finance Authority program and allow more to qualify for it.
* A $15 million program that businesses can use for job training was a part of the appropriations budget.