Open Sky Institute advises caution with forecasted state financial surplus

Editors Note: Corrections were made to the article to more accurately reflect information the Open Sky Institute has presented.

LEXINGTON — Property taxes are the issue of the hour in Nebraska and there is pressure on lawmakers to find a solution, sooner rather than later. There is a state non-profit which is advising caution when it comes to how this problem is dealt with and how it could affect Nebraskans.

The Open Sky Policy Institute is a non-profit, non-partisan organization which advocates for policies based on clear fiscal research, data and analysis. Open Sky was founded in 2008 after several organizations saw the need for such a group, it was incorporated as a legal non-profit in 2011.

Renee Fry is the founding executive director of Open Sky and sat down with the Lexington Clipper-Herald on Tuesday to discuss property taxes and Nebraska’s tax incentives.

After a state forecasting board meeting, a financial surplus was projected for fiscal year 2019. Some are already eying this projected surplus and wanting to use it to alleviate property taxes.

Open Sky would caution against rushing into this as a solution. Fry said the problem with the projected forecast is it is just that, a projection, not reality yet.

There is no guarantee the money will be there. Moreover, the projection is failing to take into account a possible recession, which some have also been forecasting to occur in 2020, Fry said.

Open Sky advocates this money should not be used to try to fix the ongoing tax issue, but be placed in the cash reserve, which itself needs to be built up and is well below levels it should be at.

Open Sky points out Nebraska tax structure is a “three legged stool,” each leg being, property taxes, personal income taxes and general sales taxes. These round out to be,

Property taxes: 37.53 percent

Personal income taxes: 23.13 percent

General sales tax: $22.39 percent

Nebraska has been reliant on property taxes since the 1960s, the growing need for public services has prompted the legislature to attempt to relieve property taxes and find new sources of revenue over the years.

Open Sky advocates for broadening the sales tax base, upping the cigarette tax, Nebraska’s is lower than other states and have a high income earner tax by eliminating income tax loopholes. The organization also wants to see more funding go to Nebraska K-12 public education system.

Open Sky says the old method of funding K-12 education in the state worked until the 2008 recession. Now with shortfalls in funding, the K-12 funding formula gets tweaked to ensure money for other services.

Put simply, when there is a reduced tax base, public services are cut or underfunded. Fry said the tax base was reduced $900 million the last fiscal year. This was due to tax changes made since 2006.

When it comes to property taxes and the forecasted surplus, Open Sky advocates putting any surplus monies into the cash reserve, to ensure the legislature can maintain its commitments.

Nebraska also faces a question when it comes to tax incentives, the current system, Nebraska Advantage, is sun setting in 2020, Fry said. LB 720 is a proposed replacement.

The issue with the tax incentive programs, they are expensive and have cost Nebraska in the past. Historical foregone revenue from 1987 to 2018 from past tax incentive programs has been $4,104,580,611.

The projected foregone revenue from LB 720 from 2019 to 2028 is $2,614,234,884.

Here is a number which is closer to home, projected incentive spending cost per household over the next decade is $3,093.

Open Sky wants a flexible cap on these incentives, similar to what Iowa has in place, and for there to be sticker limit on which businesses have access to such incentives.

Fry said a year ago Senator Paul Schumacher, representing the 22nd district, asked which companies had access to tax credits, the response was over half are owned by the top five companies in Nebraska.

“It is not LB 720 or nothing,” Fry said, “We can have a better program.”

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