Nebraska’s main business incentives law, the Nebraska Advantage Act, sunsets at the end of 2020. The Legislature has important reasons to approve a new, revamped incentives law as proposed in a current measure, Legislative Bill 720. The bill removes overly complicated procedures in the current law, for example, and incentivizes higher-wage jobs.

Budget news from the City of Omaha last week provided another practical reason for passing the legislation next year: It’s difficult for a city to estimate how it much it will need to refund businesses each year in sales tax refunds under Nebraska Advantage and other business incentive programs. Refunds often exceed the projections. LB 720 would lessen the problem for cities.

For this year, the Omaha city government budgeted $8.5 million in sales tax refunds to qualifying businesses. But the city so far this year has already paid out $12.4 million.

Sales tax receipts are the City of Omaha’s largest general fund revenue source, accounting for more than 42% of total general fund revenues. Those funds pay for a wide range of day-to-day costs across city departments.

Difficulties in projecting the tax refunds routinely complicate Omaha’s budgeting. In 2013, the city budgeted $7.6 million for refunds; the amount required was $12.5 million. In 2018, the budgeted amount was $9 million; the required refunds were $440,000 higher.

Although the Nebraska Advantage Act is set to expire at the end of 2020, successful applicants can continue to claim sales tax credit under it for up to 20 years or more.

Donna Waller, the Omaha city treasurer, described the city’s revenue-projection problem in testimony before the Legislature’s Revenue Committee in March. “Without an accurate budget,” she said, “that could lead to delays in police and fire recruit classes, layoffs of civilian personnel and diminish other city services as well.”

LB 720 would require the state to provide notice to cities about companies that plan to apply for refunds from all tax incentive programs in the upcoming calendar year. That proposal was originally contained in a bill by State Sen. John McCollister of Omaha and is now included in LB 720, sponsored by State Sen. Mark Kolterman of Seward.

“When a company decides to ask for these credits in the form of refunds,” McCollister told the Revenue Committee, “cities do not have enough time to budget for them. … The bill will allow Lincoln and Omaha to have a one-year cushion in order to budget and, therefore, pay for their local sales tax refunds over the course of one year if those refunds are over $1 million on an annual basis. Nebraska allows this type of protection for smaller cities and villages if more than 25% of the local option sales tax is refunded in a prior year.”

Such a change is needed, Omaha Finance Director Steve Curtiss said in the letter released Monday as part of the city’s quarterly financial report. “A process to appropriately plan and budget provides more certainty for taxpayers,” he said.

LB 720 deserves passage next year. It not only can improve the state’s incentives policy. It also can provide Nebraska cities some common-sense help with budget predictability.

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