Para la versión en español, haga clic aquí. | Jessie Eby contributed to this story.
Economic development lays the foundation for strong towns, but it takes more than good intentions to make it happen. Communities have to be intentional about planning, finding resources, and investing strategically to attract and retain businesses. In Nebraska, the Local Option Municipal Economic Development Act, LB 840 for short, is a powerful tool to help cities and villages leverage local tax dollars to support initiatives that will make the greatest impact in their communities.
If your community is looking for ways to support business growth, invest in infrastructure, or spark revitalization, LB 840 is worth considering. Here’s what you need to know.
What is LB 840?
LB 840 is a local option tax that allows Nebraska cities and villages to create locally controlled economic development funds from taxes collected within their communities. These funds can be used for economic development projects including, but not limited to, recruiting new businesses, improving public infrastructure, and providing funding for local businesses.
This program is especially beneficial for businesses and activities that may not qualify for other funding options. Retail and service businesses are often ineligible for state or federal programs, but they provide necessary services for small towns.
Locally funded
This program gives local voters the power to decide how the funds are used and where they come from. LB 840 funds are collected from sales tax, property tax, or tax on municipally owned utilities. Sales tax is the most popular option as it collects not only from property owners, but all residents and visitors who make purchases within the community.
A 7.5% limit is placed on sales tax for Nebraska cities and villages. Of that, 5.5% goes to the state, leaving up to 2% for local sales tax initiatives. Not all purchases are subject to sales tax (food, medication and medical supplies, many agricultural supplies, etc.) and not all sales tax collected may be used for an economic development fund. Fund use is determined by the ballot language as approved by the voters—it must be specified on the ballot to be an approved use of funds. Sales tax collections can also be used for property tax relief, public infrastructure projects, and more.
Locally controlled
LB 840 is an attractive funding option for many communities because it is entirely planned and executed at a local level, placing the power in the hands of voters and their elected representatives. Communities can prioritize the initiatives that will make the biggest impact for them. Although there are many eligible businesses and activities allowed under the act, each community will decide for themselves what to include in their plan.
Eligible activities
LB 840 funds may be used for any project or program that provides direct or indirect financial assistance to a qualifying business, as well as for covering associated costs and expenses. A few examples include:
- Direct loans or grants to qualifying businesses for fixed assets and/or working capital.
- The purchase of real estate, options for such purchases, and renewals or extensions.
- Grants or loans to businesses to provide relocation incentives for new residents.
- Payments for salaries and support of city staff or the contracting of an outside entity to implement the economic development program.
- Grants or loans for the construction or rehabilitation for sale or lease of housing for persons of low or moderate income.
Eligible businesses
Any corporation, partnership, LLC, or sole proprietorship that earns its main source of income from one of the following activities is considered a qualifying business. From manufacturing to tourism-related activities, LB 840 can fund a wide range of businesses.
You can find an extensive list of qualifying programs and businesses along with restrictions here. Communities with populations of 2,500 will encounter some restrictions regarding fund use for retail trade businesses. In cities with a population of 2,500 or less, any activities may qualify.
How does LB 840 work?
Implementing LB 840 is a community-driven process that involves local leadership and public support. Here’s how it works.
Assess community needs
First, the community’s current position and goals must be determined. A public meeting should be set to allow community members to give their input. From there, local leaders can determine development needs, the types of businesses or industries that should be targeted for growth, and the type of assistance that would be most impactful.
Create an economic development plan
Once the community’s needs are clear, local officials and stakeholders should draft an economic development plan. This plan should outline the types of projects and activities that will be funded, the duration of the program, the amount of tax to be collected and where it comes from, and how the funds will be administered. Each community’s economic plan is uniquely based on the priorities and opportunities of location. No two economic plans are the same.
Community engagement
Because LB 840 requires a public vote for approval, leaders must educate the public about how the funds will benefit the community. It’s not uncommon to have backlash against local tax increases, but breaking down the math on proposed increases can go a long way.
Often, people believe a tax increase may be a larger burden than it really is. Town hall meetings, public forums, and information campaigns can help build understanding and support. Getting the community on board is essential. If a sales tax initiative fails, a community must wait 23 months before they can put it on the ballot again.
Place the plan on the ballot
Once the plan is finalized, it must be placed on a local election ballot for a vote. Voters will determine the source and amount of tax collected and whether to approve the economic development plan.
Administer the program
If both ballot issues are approved, the community can begin collecting tax revenues as outlined and implement the program. An economic development board or citizen advisory review committee executes fund allocation and monitors how funds are used.
Find out if your community has LB 840.
Many communities across Nebraska have used LB 840 to spur economic growth. To learn more about LB 840 or other small business financing options, please reach out to me at [email protected].
Here are a few businesses that have worked with the Center and benefited from LB 840 funds:
