Business Recruitment Tax Incentives Don’t Ensure Jobs in Nebraska

Union Pacific Corp.’s plan to cut between 300 and 400 jobs in Omaha this year has employees asking a question.

How can the railroad trim workers at the same time it seeks state tax incentives for building a new headquarters in Omaha and bringing nearly 600 St. Louis workers to the city next year?

By:
Grace Shim, and Steve Jordon
Omaha World Herald

"We’re furious," said Larry Jensen of Omaha, a 32-year U.P. employee and union officer who was moved to the U.P. mailroom when his crew management job was eliminated.

John Lydon, general chairman of the Transportation Communications International Union in Omaha, said: "A lot of people think U.P. uses the (state laws) to get tax incentives but doesn’t give the State of Nebraska what it thinks it will get."

Quite the contrary, Union Pacific spokesman Bob Turner said.

With Union Pacific’s use of incentives, Turner said, the state gets exactly what it wanted – "good jobs, good investment." He said the railroad’s annual pay averages $61,000 in Nebraska and $71,000 in Omaha.

He said Union Pacific invested $1.75 billion in Nebraska from 1987 to 2001 and has expanded its Nebraska work force by 1,734 people, including 232 more in Omaha and Council Bluffs.

Union Pacific’s simultaneous headquarters-building and job-cutting illustrate the occasional disconnect between government efforts to encourage new jobs and business demands for efficiency and profit.

Nebraska law allows companies to keep their tax incentives as long as they meet the conditions of each development project. That’s true even if they cut workers in other operations – and even if the company ends up with fewer total workers.

According to a World-Herald examination of Union Pacific’s use of the state’s tax incentive laws:

• Union Pacific’s seven development projects created more than $240 million in tax incentives from 1987 to 1996.

• The planned $260 million headquarters building and related jobs would create another $82 million in tax incentives.

Turner said Union Pacific has used less than half of its incentives because it didn’t earn enough income in Nebraska to owe that much in taxes. That suggests the company has paid little or no state income tax since the late 1980s, although Turner declined to discuss the company’s income taxes.

Union Pacific might not be alone. The State Economic Development Department touts the tax-eliminating possibilities of the incentive programs.

Turner said the railroad benefits the state in many other ways. He estimated that the 1,734 additional employees pay $11 million in state and local taxes a year, and the railroad itself has paid $220 million in property taxes and nonincome state taxes since 1987.

The railroad had 4,021 employees in the Omaha area and 6,934 in Nebraska at the end of 2002, Turner said. News stories in recent years listed the railroad’s Nebraska employment as high as 7,650 in October 2000. He said the number of jobs fluctuates based on business needs.

"When the headquarters building opens in 2004, we’ll bring another 600 workers," he said. "The trend line is a huge advantage for the state and city."

Even so, Union Pacific is cutting 400 administrative jobs this year, more than 300 of them in Omaha, he said. Union Pacific will provide about $40 million in severance pay to the workers. The company is cutting the jobs to reduce costs for what executives predict will be a difficult economic environment.

In addition to those cuts, the railroad will eliminate another 600 jobs across the company, mostly by converting to remote-controlled locomotives in switching yards. He said most of those displaced workers will shift to longer haul trains, replacing engineers who retire.

Natalie Peetz, a lobbyist for the Greater Omaha Chamber of Commerce, said the state’s incentive laws aren’t intended to prevent economy-related job cuts.

"It was our intent to not only get them to set down deep roots here but also to make it very difficult for them to leave," Peetz said.

Without the new headquarters jobs resulting from the tax incentives, she said, the job cuts for economic reasons would result in a net job loss for Omaha.

This year, the Nebraska Legislature is considering 15 bills that would amend the state’s basic economic incentive law, the Employment and Investment Growth Act, also known as Legislative Bill 775.

Seven of the bills were introduced by State Sen. David Landis of Lincoln, who has pointed out that the Goodyear Tire & Rubber Co. received tax incentives for its hose plant in Lincoln and then last year announced it would cut 480 jobs and shift that work to Mexico.

He said senators didn’t consider the possibility of simultaneous job cuts and job creation when they enacted LB 775 in 1987. But that problem became apparent soon after the bill took effect.

In 1988, Union Pacific qualified for incentives by promising to hire at least 400 people and open a new train dispatching center in downtown Omaha. At the same time, it closed nearby rail car repair shops and took 810 jobs out of the city.

"It’s not new, and it has been a source of concern and sort of a sheepish irony," Landis said. "But it is consistent with the law and I think was simply a lack of foresight on our part."

Even so, he said, the Legislature has never taken steps to change the situation. Landis said he thinks such a proposal would fail.

Lydon, of the rail workers union, said workers see a correlation between today and 1988.

"I think most of the (U.P. workers), just talking with them, are upset," Lydon said. "They’re concerned about jobs here and in St. Louis. Nebraska residents should be greatly concerned."

U.P. state tax incentives

Nebraska has had three incentive laws. LB 775, the state’s most basic, is still in effect. LB 829 expired, but LB 620 replaced it to add incentives for larger projects. Incentives include sales-tax refunds and income-tax credits for investments and salaries for new employees.

Once a company qualifies for incentives, it can make additional investments and add more jobs beyond its initial agreement with the state. This increases the tax credits and refunds a company can receive. If terms of the agreement are met, the company qualifies for tax benefits, even if it cuts jobs elsewhere in its Nebraska operations.

Union Pacific invested $1.75 billion from 1987 to 2001, much more than required under its agreements. The investments created an estimated $240 million in tax benefits. The railroad has used less than half of those tax credits because it didn’t earn enough money in Nebraska to owe that much income tax.

Year (applied)
Bill
Agreement
Jobs
Project

1987 775 $51.1 million project none Track maintenance

1988 775 $14.4 million project 332 Expansion by subsidiary Automated Monitoring & Control Inc. (now called Nextema)

1988 775 $55 million project 30* Harriman train dispatching center in Omaha

1988 775 $3 million project 30* Systemwide telemarketing center

1991 775 $3 million project 30* Coal line expansion across Nebraska

1996 775 $3 million project 30* Coal line expansion across Nebraska

1996 775, 829 $100 million project 250* Upgrades to headquarters and dispatching buildings following Southern Pacific Rail Corp. and Chicago & North Western Transportation Co. mergers

2002 775, 620 $260 million project 500* New headquarters in downtown Omaha and transfer of St. Louis employees

http://www.omaha.com