Economic growth is driven by the old real estate adage: The top three reasons real property sells are “location, location, location!” Union Pacific’s rail yard is in North Platte because it sits on the Platte River’s natural transportation route and lies at the midpoint of the United States; its national location is the paramount reason. Regionally, location again is the reason the Walmart Distribution Center is in North Platte and, on a smaller scale, why North Platte is considered a natural place for medical and lodging facilities.
In a perfect world, the economy moves smoothly and government concentrates its efforts on providing public safety, streets and utilities. Problems start to arise when government tries to become more than the supplier and conduit needed to deliver public services to citizens and businesses. When government expands into areas of public wants such as entertainment, tourism and attempts at job creation, taxes must go up to pay for those activities. High taxes then in turn create a barrier to economic development that would naturally occur. For businesses, location now becomes secondary to simply being able to make a profit.
A recent example is a company’s interest in building large-space warehousing facilities in North Platte. Due to the growth of the marijuana industry in Colorado, the cost of warehousing has tripled there. The natural response is for warehousing services to expand to nearby locations in states where marijuana is not legal. In these states, the marijuana industry cannot compete for space with construction material and other commodity sellers who rely on reasonable storage cost in order to be profitable. North Platte’s location fits that description, but apparently our high state and local taxes have raised a barrier to the warehouse investor’s ability to profit from their investment. Even North Platte’s ideal location can’t overcome burdensome taxation. Thus starts the vicious cycle of tax abatement for new commercial projects and tax increases for existing residents to fund the additional city infrastructure needed for the project. As taxes go up, a city becomes more desperate and the cycle grows in magnitude.
The use of $1 million of Quality Growth Funds and up to 15 years of lost property tax revenues from TIF probably will not be the final tally for North Platte taxpayers. The company in question is well-known for accessing Nebraska’s Advantage Act, and if it does, the city will lose thousands more in sales tax receipts on the project’s materials cost.
The above scenario is why next year I will hesitate to support the present form of LB 720, Nebraska’s newly proposed economic development plan. The new legislation has been given the name the “ImagiNE Nebraska Act” and would replace the existing “Advantage Act.”
Last year, the Advantage Act refunded $152 million in sales and corporate income taxes as incentives for business growth in Nebraska. You would think that the purpose of an economic development plan would be long-term job growth, but in fact, sales tax refunds amounted to approximately $109 million and income tax refunds amounted to the remaining $43 million. Only 2,489 new jobs were reportedly created from the taxpayer investment. I have a philosophical distaste for sales tax abatements on products not produced in Nebraska. For example, windmills for wind energy projects have received millions in sales tax refunds on materials built in other states that created no jobs in Nebraska.
I am also concerned with language added to LB 720 that, for an unexplained reason, added new construction for commercial banks as qualifying for incentives. With the exception of businesses doing 75% of their sales outside of Nebraska, no other retail businesses qualify. Why do banks?
Politics, political donations and lobbyists play a part in economic incentives, making their cost higher than necessary. The reality is that incentives of some sort have become part of our state’s tax policy. I will vote for a version of LB 720, but first I must be assured that property tax relief is achieved with the passage of a version of LB 289. I firmly believe property tax relief for the average citizen will do more for our economy than all the tax giveaways combined.
Contact Sen. Mike Groene: email@example.com or 402-471-2729.