Great Plains Government Finance Officers Association – 15 May 2014

Roadmap Greater Omaha Economic Development Partnership Nebraska Advantage Tax Incentive Program Incentive Calculation – Tier 1 Project, Metal Fab Sales Tax Refund Economic and Fiscal Impact – Tier 1 Project, Metal Fab Raising their own funds can be a problem for each Partner, more so for Sarpy County which is the contiguous urban county to Omaha. Less so for the counties that are more physically separated.

Greater Omaha Economic Development Partnership

Advance Southwest Iowa Who Are the Partners? Advance Southwest Iowa Mike Dellinger Executive Director Randy Thelen Senior Vice President Economic Development Lisa Scheve Executive Director Sean Johnson Executive Director Toby Churchill Executive Director Cecilia Harry Economic Development Manager

Greater Omaha Combined Statistical Area Nine-county combined statistical area – 925,709 Projected population in 2018 – 984,634 Nearly 1.3 million people within a 60-minute drive 5

Partnership History Funding Sarpy County Co-Located – 1991 (pop. 165,853) Washington County/Gateway Co-Located – 2002 (pop. 20,252) Cass County EDC Co-Located – 2008 (pop. 25,133) Greater Fremont Development Council – 2013 (pop. 36,427) Advance Southwest Omaha --Council Bluffs/Pottawattamie County (pop. 92,913) --Other Iowa Counties Expressing Interest Target Omaha (Phase I & II) 1994 – 2003 GO! Phase I & II 2004 – 2013 Prosper Omaha Phase I 2014 - 2018

How Does the Partnership Operate? Each partner: – Retains its own board of directors – Maintains their own annual program of work priorities (in addition to Partnership POW) – Raise their own funds for staff and operations Each partner board chairman holds a position on the Partnership’s Economic Development Council and an ex-officio position on the Greater Omaha Chamber’s board of directors. Raising their own funds can be a problem for each Partner, more so for Sarpy County which is the contiguous urban county to Omaha. Less so for the counties that are more physically separated.

Partnership Funding and Successes Greater Omaha Economic Development Partnership operations funded by the fundraising arm - GO! Since 2004, contributions from more than 300 businesses, foundations and City of Omaha Landed 391 projects Created or retained 22,235 jobs More than $4.1 billion in capital investment

Nebraska Advantage Program

Nebraska Advantage Program Rewards companies through performance based short and long-term benefits Flexible, six-tier investment and job creation schedule Compensation credits reduce or eliminate employee withholding tax liability Investment credits reduce or eliminate both sales and income tax liability Level of benefits increases with increasing employment and investment

Nebraska Advantage Program Companies have 5 to 7 years to attain necessary job and investment creation levels Credits can be used through entitlement (earn and use) and carry- over periods for up to a total of 10 - 15 years Program can reduce or eliminate a company’s income, sales, payroll, withholding and certain classes of personal property taxes for up to 10 - 15 years

Nebraska Advantage Program Six Tier Performance Thresholds Tier 1: $1 million of new investment and 10 new jobs Tier 2: $3 million of new investment and 30 new jobs Large Data Center = $201 million of new investment and 30 new jobs Tier 3: New job creation only - 30 new jobs Tier 4: $12 million of new investment and 100 new jobs Tier 5: New investment only - $37 million Tier5: Renewable Energy - $20 million Tier 6: $11 million investment with 75 new high paying jobs or $110 million investment and 50 new high paying jobs

Nebraska Advantage Program Qualified types of businesses: R & D (1) Data processing Telecommunications Insurance Financial services Manufacturing (1) Distribution Headquarters (2) Exportable services (1)(3) Internet Access Cloud Computing Customer Service Centers Data Centers Satellite Group Centers Financial services Telemarketing Web Portals Retail Sales of Tangible Personal Property (4) “Telecommunications services” was expanded to include: 800 and 900 service; Coin-operated telephone services; Conference bridging; fixed and Mobile Wireless; Paging; Prepaid Wireless services; Residential Businesses that qualify for incentives under LB 312 would be expanded to include: Internet access Satellite ground centers Data centers Customer Service Centers Telemarketing (1) Tier one (2) Administrative operations (3) Software development, computer systems design, product testing guidance or surveillance systems design and technology licensing). (4) If 20 percent is at wholesale, manufactured or to another qualified business.

Nebraska Advantage Program Tier 1 Project Potential Benefits Tier 1: $1 million of new investment and 10 new Jobs Sliding scale compensation tax credit each year for 7 years 3% investment tax credit for 7 years 50% sales & use tax refunds on depreciable property

Nebraska Advantage Program Tier 2 Project Potential Benefits Tier 2: $3 million of new investment and 30 new jobs Sliding scale compensation tax credit each year for 7 years 10% investment tax credit for 7 years 100% sales & use tax refunds on capital purchases Personal property tax exemption up to 10 years for the following: Computer systems and certain peripherals – data center Tier 2 Large Data Center: $201 million and 30 new jobs 10 year exemption on all personal property on site Use credits for real property tax rebates from state Sign sequential Tier 5 application at same time

Nebraska Advantage Program Tier 3 Project Potential Benefits Tier 3: 30 new jobs and no new investment Sliding scale compensation tax credit each year for 7 years

Nebraska Advantage Program Tier 4 Project Potential Benefits Tier 4: $12 million of new investment and 100 new Jobs Sliding scale compensation tax credit each year for 7 years 10% investment tax credit for 7 years 100% sales & use tax refunds on depreciable property Personal property tax exemption up to 10 years for the following: Turbine powered aircraft Computer systems and certain peripherals Agricultural processing machinery Personal property used in distribution facilities

Nebraska Advantage Program Tier 5 Project Potential Benefits Tier 5: $37 million of new investment and maintain jobs 100% sales & use tax refunds on project’s capital purchases Personal property tax exemption up to 10 years for the following: Computer systems and peripherals

Nebraska Advantage Program Tier 6 Project Potential Benefits Tier 6: $11 million of new investment and 75 new jobs or $110 million of new investment and 50 new jobs 10% compensation tax credit each year for 10 years* 15% investment tax credit for 10 years 100% sales & use tax refunds on depreciable property Personal property tax exemption up to 10 years for all taxable personal property Ability to use credits for Real Property Tax * If wage is either 200% of the average county wage or 150% of the average state wage (whichever is higher).

Nebraska Advantage Program Compensation Credit Scale Job Tax Credit Percentage of Nebraska Average Wage* Threshold (per hour) Threshold (annual salary) 3% 60% $11.33 $23,561 4% 75% $14.16 $29,451 5% 100% $18.88 $39,268 6% 125% $23.60 $49,085 10% 200% $28.32** $58,902** * Nebraska average wage fixed by date of application. ** State-wide average hourly and annual wage thresholds for Tier 6.

Nebraska Advantage Program Use of Compensation Credits Use of Credits Credit Use Compensation Credit Employee Withholding Income Tax Sales Tax Real Property Tax (Tier 6 only) Investment Credits

Nebraska Advantage Program Incentive Calculation

Nebraska Advantage Program Useful Sites for Incentive Calculation Nebraska Department of Revenue: http://www.revenue.nebraska.gov/incentiv/neb_adv/312_info.html List of Nebraska Advantage Act Applications Wage Requirements; Statutes and Rulings; Application Guide Effective Income Tax Rates Nebraska Department of Economic Development: http://neded.org/business/tax-incentives Incentive Calculator U.S. Bureau of Labor Statistics: http://www.bls.gov/bls/blswage.htm Wage estimates Nebraska Department of Labor: http://neworks.nebraska.gov/analyzer/default.asp Or Call Me at 402.978.7903

Nebraska Advantage Program Tier 1 Example Location: Omaha CSA Inside City Limits: Yes, combined state and local sales tax - 7% Model Geography: Omaha CSA Industry: Manufacturing – Metal Fabrication Investment: $1.5 million Employment: 10 U.S. BLS median wage production occupations: $14.38/hour (initial 4% compensation credit)

Nebraska Advantage Program Tier 1 Example Compensation Credit Compensation Credit - 4% of annual compensation. Potential Credits A. Assumptions are as follows - Number of New Employees in Year 1: 10 Average Annual Salary (year 1): $29,910 Assumes initial payroll of : Also assumes 3% COLA increases each year thereafter. Employees Payroll Average Wage Year 1 $299,104 Entitlement Year 2 $308,077 $30,808 Year 3 $317,319 $31,732 Year 4 $326,839 $32,684 Year 5 $336,644 $33,664 Year 6 $346,744 $34,674 Year 7 $357,146 $35,715 Total $2,291,873 B. Calculation of Compensation Credit*: Total Compensation Credit = x 0.04 = $91,675

Nebraska Advantage Program Tier 1 Example Sales Tax Refund Sales Tax Refund - Based on purchases of materials Potential going into project. (50% of purchase price of new Credits building and building improvements X sales tax rate. Combined state and local sales tax equals 7.0%) 1. Building $500,000 x 0.07 x 0.5 x 0.5 = $8,750 2. Non-Manufacturing Furniture, Fixtures and Equipment $100,000 x 0.07 x 0.5 = $3,500 3. Additional Investment (estimate) TBD Total Sales Tax Refund: $12,250

Nebraska Advantage Program Tier 1 Example Investment Tax Credit Investment Credit: 3% of investment in qualified property during 6-7 year entitlement period. Includes all investment in building, equipment and components. For leased space, investment is equal to annual lease rate times term of lease for up to 10 years. This credit may be applied to state corporate income tax liability or sales and use tax liabilities. $1,500,000 x 0.03 = $45,000

Nebraska Advantage Program Tier 1 Example Total Tax Refunds and Credits Compensation Credit: $91,675 Sales Tax Refund: $12,250 Investment Tax Credit: $45,000 TOTAL: $148,925 (about $21,275 per entitlement year)

Nebraska Advantage Program Key Features Apply by the project and not by the company Under contract with the state Used equipment brought into Nebraska at original purchase price 1/2 contract price of building considered components Ability to use F.T.E. for new employment counts* Credits earned may be used for refunds of sales tax paid on consumables * F.T.E. is based on 2,080 hours (40 hours per week x 52 weeks)

Nebraska Advantage Program Sales Tax Refund

Nebraska Advantage Program Sales Tax Refunds Issues and Ideas Compensation Credit and Investment Tax Credit Effective rate versus earned compensation credit ITC leftover Identify when irregular expenditure occurs X12 Seasonal Adjustment Techniques Nebraska Advantage List and Company Relationships

Nebraska Advantage Program Sales Tax Refunds Issues and Ideas

Nebraska Advantage Program Economic and Fiscal Impact Metal Fab Project (tier 1)

Support the activities of an additional 13 workers Nebraska Advantage Program Tier 1 Example Regional Economic Impact – Annual Estimate Using IMPLAN 10 Metal Fab Jobs Support the activities of an additional 13 workers Provides a $2.3 million incremental boost to the regional economy Top Sectors with an Increase in Output: Wholesale Trade Real Estate (owner-occupied dwellings) Management of Companies and Enterprises Food and Drinking Places Hospitals and Physicians Insurance Carriers Financial Activities (credit intermediation) Plus 18k to 20k per year property tax 62,250 personal 7-year schedule

(Direct + Indirect + Induced) Annual Economic/Fiscal Impact Summary Metal Fab Project Based on Jobs/Payroll Only (Excludes property, income and sales taxes paid by company itself, and taxes paid by trailing suppliers, etc.) Total* (Direct + Indirect + Induced) Total Annual Payroll $746,088 Total Annual Taxable Retail Sales $221,961 Total Annual State and Local Tax Revenue: $72,935 Sales Tax: $11,063 @5.5% state sales tax $8,692 @1.5% local option sales tax $2,371 Property Tax: $35,759 Individual Income Tax $26,113 Nebraska Advantage Program Tier 1 Example State and Local Fiscal Impact – Annual Estimate Using IMPLAN Plus 18k to 20k per year property tax 62,250 personal 7-year schedule

Q&A Scott Strain, Senior Director – Research; Economist in Residence Greater Omaha Chamber 402.978.7903 sstrain@omahachamber.org 36 36