The Revenue Committee will hold hearings on several tax credits this week that, if passed, would provide Nebraskans with tax breaks for a wide range of reasons. They also would deplete the state of a considerable amount of revenue.

Tax credits — a type of tax expenditure — are funded by reducing the amount of tax revenue that the state collects, meaning they sidestep the appropriations process. Many tax credits do not sunset, so once they become law, they continue until the Legislature takes further action on them, which could take years or never happen at all. This means tax credits can run on autopilot, with many having no formal review mechanism to ensure they’re still working toward their stated goals. If such measures were proposed as appropriations, they would be reviewed biennially and adjusted to ensure funding for such initiatives is a good investment of Nebraska tax dollars.

And while it is difficult to gauge the return on investment for tax credits, the revenue losses they create make it harder for lawmakers to fund key services like K-12 education, which contributes to Nebraska’s high reliance on property taxes to fund schools and other vital local services.

Some of the credits proposed this session would incentivize solid economic development activities such as employer student loan repayment, apprenticeship training, workforce participation and contributions to early childhood education. Bills included in this category include LB 69, which the committee heard last week, as well as LB 272, LB 318 and LB 531.

Other proposals this session would change or continue ongoing credits and incentives that have questionable return on investment for the state. Additionally, there are several measures that propose the creation of new tax credits that could have questionable return on investment.

The surge in proposed tax credits, as well as the recent passage of the ImagiNE Nebraska Act tax incentive package, highlight the need for transparency around tax expenditures to help ensure they are a good investment for the state. Another current proposal, LB 434, is concerning in this regard as it could reduce transparency. LB 434 calls for public hearings about tax incentives and other tax expenditures, which are presently required annually, to be completed every other year. This could reduce the ability of lawmakers to monitor the impact and return on investment of the many tax breaks granted by the state.

Another proposal, LB 134, however, would increase transparency regarding tax incentives by requiring the reporting of certain information relating to job creation, tax credits received and the business activity that generated the credits. Proposals like LB 134 make it easier for policymakers to assess the effectiveness of tax expenditures and can help them determine if they are a good investment for the state.