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ANALYSIS AND

RECOMMENDATIONS

NEBRASKA’S NEXT ECONOMY

SRI International * 1100 Wilson Boulevard, Suite 2800 * Arlington, VA 22209-2204 * 703.524.2053 * www.sri.com

CLIENT CONTACTCourtney Dentlinger, DirectorNebraska Department of Economic Development301 Centennial Mall South, 4th FloorLincoln, NE 68509-4666402.471.3746 [email protected] #: 5077Z1

POINTS OF CONTACT FOR SRIRoland Stephen, DirectorCenter for Innovation Strategy & PolicySRI International703.247.2053 [email protected]

Peter Kant, Executive DirectorCenter for Innovation Strategy & PolicySRI International703.247.8424 [email protected]

Nebraska’s Next Economy

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ThisreportwasauthoredbyRolandStephen,JenniferOzawa,SteveDeitz,DanielQuerejazu,andJessicaAvery,fromtheCenterforInnovationStrategyandPolicy,SRIInternational,inresponsetotherequestbyNebraska’sDepartmentofEconomicDevelopment foranEconomicEcosystemAssessment,under thetermsofContractNo:16-01-082.TheauthorswouldliketothankthestaffoftheDepartment,includingEricZeece,DavidDearmont,andJoeFox,fortheirhelpandguidance,aswellasRandyThelen,OmahaChamberofCommerce,KenPoole,Center forRegionalEconomicCompetitiveness,andJeffChapman,PewCharitableTrusts.Whiletheyhaveallmadeveryvaluablecontributions,anyerrorsthatremainarewhollytheresponsibilityoftheSRIteam.


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Nebraska’s Next Economy Analysis and Recommendations for the Economic Development Ecosystem

ExecutiveSummary................................................................................................................4Clusters...........................................................................................................................................................................................4Workforce.....................................................................................................................................................................................5Infrastructure,HousingandCommunityDevelopment...........................................................................................5BusinessAttraction&Development.................................................................................................................................5ApproachandActivities..........................................................................................................................................................6ANewDirectionfortheNextEconomy..................................................................................7Workforceandwages..............................................................................................................................................................8Summary....................................................................................................................................................................................11VisionfortheFuture.............................................................................................................................................................12TargetedBusiness.................................................................................................................14ClusterDetails..........................................................................................................................................................................18BusinessAttractionandDevelopment...................................................................................25Complexcriteria......................................................................................................................................................................26Bestpractice..............................................................................................................................................................................28Goals,practicesandmetrics...............................................................................................................................................31Trainingandsites&buildings..........................................................................................................................................32Workforce.............................................................................................................................34PopulationTrends..................................................................................................................................................................34EducationalAttainment.......................................................................................................................................................35OccupationalAnalysis...........................................................................................................................................................40Portfolioofresponses...........................................................................................................................................................43Infrastructure,Housing&CommunityDevelopment.............................................................45Infrastructure...........................................................................................................................................................................45Housing.......................................................................................................................................................................................46CommunityDevelopment...................................................................................................................................................49Summary....................................................................................................................................................................................51GoalsandMetrics..................................................................................................................52

AppendixA:SelectBibliography............................................................................................53

AppendixB:HigherEducationFundingFormulas...................................................................56Tennessee..................................................................................................................................................................................56Iowa..............................................................................................................................................................................................57Washington...............................................................................................................................................................................57


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Executive Summary Nebraska’seconomyhasenjoyedaperiodofcontinuousgrowth,evenduringthegreatrecession.Asaresultofthissuccess,Nebraska’seconomicdevelopmentisataturningpoint.Ithastheopportunitytopursuehigh-qualityeconomicgrowthconsistentwiththehighqualityoflifethestate’scitizensalreadyenjoy.Thispath,towardsNebraska’snexteconomy,willhelpresolvesomeof its itspresenteconomicchallengesAtthemoment,unemploymentisatverylow-levels,withlaborforceparticipationratesthataretheenvyofthecountryasawhole.Nebraskaisajobmachine,withsignificantshortagesofworkersinmanykeyareas.However,wagesarestillwellbelowthenationalaverage.Thismakesithardtokeepthebestandbrightestfromleavingthestate,andhardtorecruitworkersfromelsewhere.ThereportthatfollowscontainsanalysisandrecommendationsaimedathelpingNebraska’sleadersastheyacceleratetheshifttowardsanewequilibriuminwhichNebraskaishometotechnology-intensive,well-paidjobsservedbyareliable,highlyskilledworkforcepipeline.

Clusters Cluster analysis reveals that Nebraska will continue to enjoy enduring strengths in agriculture, foodprocessingandagriculturalmachinery.Nebraska’surbanareasenjoysignificantprospectsinskillintensiveandtechnologyintensiveservicesandresearch,inadditiontostrengthsinmaterialsandnon-agriculturalmachinery,andautomotiveandtransportationequipment.Businessesthatrequirehigherskills,payhigherwages,andwithahistoryofemploymentgrowth,willbeattheheartofthestate’sfuture.Forexample:

• Large clusters and/or established strengths in Nebraska, including Agribusiness (includingmachinery)&FoodProcessing,FinancialServices,E-Commerce,Transportation&Logistics

• Smallerclusterswithemergingstrengths&goodgrowthtrendsincludingBiosciences,RenewableEnergy,AdvancedManufacturing,IT&DataServices

• LargeclusterswithadevelopingvaluepropositionincludingHealth&MedicalServices,BusinessServicesandTourism

GoalsThisreportidentifiesfourinterrelated,strategicobjectivesthatshouldbepursuedthroughavarietyofmeansinordertomakethetransitiontowardsahigh-quality/high-valueeconomy

• Highskill,highwagejobs• Technologyintensiveinvestment• Innovation• Highqualitycommunities


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Workforce Nebraskafacesthefollowingworkforcechallenges:

• Generalshortageinallregionsgivenverylowunemployment;• AcuteshortageofITandotherSTEMgraduatesinhighpay,fastgrowingoccupations;• Acuteshortageofworkerswithqualificationsinthebuildingtrades;• Failuretointegrateunderservedandnon-Englishspeakingpopulationsintothepipeline;• AboveaveragetimetodegreeintheUniversityofNebraskasystem;and• Lossofteachersthroughthecredentialingpipeline.

Workforceresponsescouldincludethefollowing:

Ø Anincreaseinsupportforgraduateswhostayinthestate,andvariouskindsofinternshipsandshortcourses

Ø Increasestudentsinthepipelinethroughoutofstaterecruitmentandhighschoolprogramswithwidestakeholderengagement

Ø DesignandimplementationofafundingformulaforfouryearinstitutionsthatrewardsuccessinfastergraduationratesandincreasedSTEMgraduates

Infrastructure, Housing and Community Development Nebraska’schallengesintheareasofinfrastructure,housingandcommunitydevelopmentarechallengesbroughtonbysuccess.Inadditiontoconstraintsintheareaofmunicipalinfrastructure,therearechangesthat can be made to align the state more closely with a skill-intensive, technology-intensive future.Meeting these challenges and making these changes will require some money and a great deal ofimagination.

Business Attraction & Development NebraskaAdvantageAct(NAA)taxcreditstargetalmostanykindofjobatpresent,reflectingNebraska’sneedsinyearsgoneby.Furthermore,asresultofprogramdesignandimplementationrequirements,theprogramisbestsuitedtotheneedsofestablished,largerfirmsonasteadypathtoexpansion.ThereareplentyoffirmsinNebraskalikethatwhoaregladforthissupport.However,thisdesigntendsnottohelphigh-technology,high-skill,fast-growingfirmswithmodestcapitalneeds.ThetaxcreditsattheheartoftheNAAcouldbechangedinthefollowingwayssothattheybetterservetheneedsofthosebusinessesNebraskaistargetingforthefuture:

Ø Creditsshouldbedistributedonapay-as-you-performbasis.Ø Performancemeasuresshouldrelyonindependent,lowcostsourcesofdata.Ø NebraskashouldoperateadiscretionaryfundbasedonrigorousROIestimates.Ø Taxcreditsshouldonlybeavailablefornewjobsatorabovecountymedianwages.Ø Comparablecashincentivesshouldbeavailablefornewjobsatmorethan200%ofcounty

medianwages.Ø Taxcreditsshouldbeavailablefornewinvestmentsthatyieldincreasedpay,sales,and

income.


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Approach and Activities TheCenterforInnovationStrategyandPolicy(CISP),atSRIinternational,beganworkonthisprojectonOctober19,2015.

• BasedonthecounselandguidanceoftheleadershipandstaffatNDED,theSRIteamidentifiedand reviewed a wide range of supporting materials including studies, reports and otherdocumentsthataddresseddifferentaspectsoftheeconomicandpolicyenvironmentinthestate.

• The teamsalsodevelopeda listof stakeholders for interviews, includingDED staff, staff fromotherstateagencies,representativesofhighereducation,andbusinessrepresentativesfromallkeysectorsinNebraska.Over45Interviewswereconducted,eachlastingbetween45minutesandanhour.

• The SRI team also reviewed an earlier study of target industries by Battelle, and an updatecompletedbyDED.BasedinpartonthisworkandonSRI’sowncustomclusteranalysis,theSRIteamdevelopedanewandcomprehensivemapof target industries for thestate,highlightingexistingstrengthsandpotentialopportunitiesforthefuture.

• AttheendofJanuary,ateamfromSRIwenttoNebraskaandconductedaseriesofstakeholderfocusgroupsinfourlocationsacrossthestate:Scottsbluff,Kearney,Lincoln,andOmaha.Eachfocus group was attended by more than two dozen participants including business people,economicdevelopmentpractitioners,andothercommunityleaders.

• The chapter on innovation was the result of a separate, parallel set of activities, includingadditionalinterviews.


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A New Direction for the Next Economy Nebraska’s economy is, by any measure, the envy of many other states. It has enjoyed a period ofcontinuousgrowth,evenduringthegreatrecession.Partofthisgrowthisrelatedtostrongagriculturalcommodityprices(whichturneddownin2014),butthiseconomicsuccessisbroadlybasedandreflectsfundamentalstrengthsincludingaskilledworkforce,excellentinfrastructureandahighqualityoflife.

Asaresultofthesesuccesses,Nebraska’seconomicdevelopmentisnowataturningpoint.Thisperiodofsteadygrowthhasledtoconditionsofverylowunemploymentandveryhighlaborforceparticipationcompared to the rest of the country.While the people and stakeholders interviewed for this projectinvariablycommentedfavorablyonthehigh-qualityoftheworkforceinNebraska,andonhighqualityofworkforceinstitutions,theyalsoobservedthatemployeesofallkindswereinshortsupply.

Figure2

Figure1


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Workforce and wages Interviewswithemployersofallkindsacrossdifferentregionsindicatethatfindingandkeepingstaffisaconstant concern. This single factor was reported to have capped expansion plans in some cases.Furthermore,thedataalsoindicatethatwagesinNebraskaarerelativelylow,eventhoughhousingpricesarecomparable toother states in theMidwest.1Whilewagegrowth rates inNebraskahavemirrorednationalgrowthrates,outsidetheurbanareaofOmaha,wagesandincomeremainsignificantlybelowthestateaverage,whichisitselfbelowthenationalaverage.AverageannualpayinNebraskais21%belowthenationallevel,andthatgaphasbeenconsistentoverthelast10years.Nebraskans compensate, inpart, for lowwagesbyworkingharderatmore thanone job.Asa result,householdincomesinNebraskaaremuchclosertothenationalaverage.

1AveragepercapitaincomeinNebraskacompareswellwiththenationalaverage,howeverweviewaveragepayasabettermeasureoftherelativeprosperityofworkingNebraskans.

58.0%

60.0%

62.0%

64.0%

66.0%

68.0%

70.0%

72.0%

74.0%

Lincoln,NEMetroArea

Omaha-CouncilBluffs,NE-IAMetro

Area

Nebraska MidwestRegion UnitedStates

LaborForceParNcipaNonRate(2014)

Figure3

$40,476

$44,679

$36,748

$41,185

$51,364

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

Lincoln,NEMetroArea

Omaha-CouncilBluffs,NE-IAMetro

Area

RestofNebraska(non-MSA)

Nebraska UnitedStates

AverageAnnualPay(2014)

Figure4


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Highwage,highskilljobsThe straightforward implication is thatNebraska’s economic development future cannot bebasedongrowththatgeneratesjobsofanykind,butrathergrowththatemphasizeshigh-qualityjobs.Ahighqualityjobtendstobetechnologyintensive,skillintensive,andpayaboveaveragewages.Asithappens,thejobsNebraskashouldtargethavealreadybeendefinedbytheNebraskaDepartmentofLabor:Highwage,highdemand,highskill,orH3.Simplystated,Nebraska’snexteconomyshouldrepresentashifttowardsqualityoverquantity.This is not to say that the challenges facing the state are the sameeverywhere. There are importantdifferences,especiallybetweentheprincipalurbanareasandruralNebraska.InFigure5belowtheurbancoreishighlighted,superimposedonamapofthestateasawhole.Morethan60%ofthepopulationofthestateliveintheOmahaandLincolnmetropolitanareas.Thisistheurbancore,hometodiverse,technology-intensivebusinesses(aswellasaresearchmedicalcenter,two large state universities and state government). These two Metro areas have been growing inpopulationatabout13%ayearforthelastdecade,significantlyabovethestateandnationalaverage.TothewestistheGrandIslandMSA(newlydefined).AddingKearneyandHastingstotheformalMSA,thisareacouldbecharacterizedasatownandcountrymix,withrelativelyvibranttowns(Kearney,GrandIsland,andHastings)characterizedbyhighqualityoflifeinaruralsetting.Ithasbeengrowingatthesamerateasthestateandnationalaverage.FurtherwestandtothenorthisruralNebraska,withimportanttownsintheNortheast likeColumbusandNorfolkgrowingslightly,whileruralareasandthetownsofNorthPlatteonthePlatteRiver,andScottsbluffinthePanhandle,experiencingpopulationdecline.

Figure5


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Whatconstitutesahighwage,highskilljobvariesacrosstheseregions,evenifthebroadgoalremainsconstant.Forexample,aswillbeseeninthediscussionbelowoftargetclusters, foodwholesaling isarelativelyhighpayingsectorinmoreruralareasofthestate,whileagriculturalandmedicalbiosciencesofferrelativelyhighpayingjobsfortheOmaha/Lincolnmetroareas.Policyinstrumentsaimedatfosteringthesekindsofjobsshouldbedesignedinwaysconsistentwiththeseregionaldifferences.

TechnologyintensiveinvestmentHigh skill and high technology jobs are generally associated with capital intensive activities. Capitalintensive investments are an important goal inorder tomake the transition towardsNebraska’snexteconomy.Technologyintensiveandcapitalintensiveinvestmentsmaynotalwayshaveadirectimpacton jobs,buttheyareassociatedwithhigherwages,andmakean important long-termcontributiontooverallgrowth(suchinvestmentstendtogeneratesignificantproductivityspilloversintotherestoftheregionaleconomy).Whereemploymentofanykindisnolongerthepriority,policyinstrumentscanbealignedwithtechnology-andcapital-intensiveinvestmentswithlessregardtoanimmediateimpactonnewjobs,butratherwithaviewtofastergrowththatbuildsthetaxbaseandhaspowerfulindirect,long-termeffectsonthequalityofjobs.

InnovationAturntowardsqualityalsorequiresaturntowardsinnovationbasedeconomicdevelopment,inwhichNebraska’seconomyfostersstart-upsandrapidlygrowingsmall-andmedium-sizedbusinesses.Farmerswerealwaysinnovatorsandentrepreneurs,ingeniouswhenimprovingtheirequipment,andimprovisingsolutionstochallengestheyencounteredonaregularbasis.Asaresult,Nebraskahasseveralsuccessfulhomegrownfarmequipmentbusinesses,inadditiontoservingasadestinationforinvestmentbymulti-nationalproducers.Nebraska’sotherassets,includingoutstandinguniversitiesandcollegesandamedicalcenterinOmahawithagrowingreputation,arealsobuildingblocksfortheinnovationeconomy.Here,qualitymeansnotonly high wages and high technology, but variety in investment opportunities and employment.Nebraska’s talent and innovation initiative, launched in 2011, is aimed squarely at this piece of theeconomicdevelopmentpuzzle,andthereportbelowincludesasectionreviewingitsinitialsuccess.

Figure6



QualityofPlaceFinally,aturntowardsqualityofplaceisanimportantgoal,inadditiontohighskilledjobs,capital-andtechnology-intensiveinvestment,andinnovation.ThecostoflivingintheOmaha/LincolnmetroareashascaughtupwiththerestoftheMidWest(someintervieweescommentedthathousinginLincolnwasmoreexpensiveandinlimitedsupplycomparedto,forexample,KansasCityorSt.Louis).Thisreflectseconomicsuccess.TheU.S.economyisincreasinglydividedbetweenregionsthatarehometotalentandtechnology,thatenjoyin-migration,andthataregrowingfasterthanthenationalaverage,ascomparedtoregionswithless talent and technology, outward migration and low population growth, and lackluster economicgrowth.TheOmaha/Lincolnmetroareasarefirmlyontherightsideofthisdivide.However,inordertosustainthissuccess,thesemetroscan’texpecttocompeteonpriceinthefuture,butrathermustcompetebasedonqualityofplace.Thekeytothiscompetitionistalent.Ina20thcenturyeconomy,economicdevelopmentmeantbuildingexistingbusinessesandattractingnewbusiness.Workersthenfollow.Inthe21stcenturythishasbeenturnedonitshead.Ifyoukeeporattracttherighttalent,establishedbusinessesandoutsiderswillinvestmore,andnewbusinesseswillbelaunched.BothOmahaandLincolnhavehighqualityoflife,asreportedinnumerousinterviews,butthereisalwaysmoretodoandpoliciesalignedaroundbuildingcommunityassetsarecriticalforthelong-run.Otherregionsofthestateofferbothalowercostoflivingandtheparticularattractionsofsmalltownlife(numerous intervieweeswere Nebraskanswho had grown up in the state, left, and returned in partbecauseofthefamily-friendlyqualitiestheyrecalledwell).Further,thenatureofworkischangingsothatworkingathomefromlocationsoutsideurbanareas ismuchmorepractical,as longasconnectivity isgood.Forexample,itisimportantthatdownloadspeedsof10–25MbpsareavailableintheOmahaandLincolnmetroareas,intownsintheNortheast,andintownsalongI-80andthePlatteRiver.Accesstothiskeyinfrastructureiscomparabletoproximitytotherailroadinthe19thcentury(however,tariffsareveryhighinsomeplaces).Thefactthatcell-phoneserviceisweakinmoreruralareasisanotherinfrastructuregap.

Summary Nebraska is making the transition towards a high-quality/high-value economy, as defined by fourstrategicgoals:

1. Highskill,highwagejobs2. Technologyintensiveinvestment3. Innovation4. Highqualitycommunities

These goals need to be integrated into a compelling, inclusive vision of the future that serves tocoordinatetheactionsofleaders,stakeholders,businessesandcitizens.



Vision for the Future TheSRIteamconductedalisteningtourinJanuaryinNebraska,wheretheyheardagreatdealofdetailedideasregardingthefutureforthestate.Theseideasweregeneratedbydozensofparticipantsfromacrossthe state, attending meetings in four communities: Scottsbluff, Kearney, Lincoln and Omaha. Theparticipants,inviteesoftheDepartmentofEconomicDevelopment,werenotarepresentativegroupinanyformalsense,howevertakenasawholetheyrepresentedadiversecross-sectionofbackgrounds.Theyreflectedontheirvisionofthefutureofthestatefromthreedifferentpointsofview:Newcollegegraduates,small-ormedium-sizedbusinesses,andayoungfamily.Althoughmanythingswerementioned,areviewofthewrittennotesrevealedrecurringkeythemes(asdepictedinFigure7below).Affordablehousingwasmentionedbyalmosteverybody,qualityofplaceandqualityoflifewerealsoseentobeasharedaspirationforthefuture.Finally,fromthepointofviewofbusiness,areliablesupplyofhighqualityworkerswasseenascritical,whilefromthepointofviewofcollegegraduateshigh-quality, rewarding jobswereviewed in the sameway.Closing thatgap, to theextentthatitexists,isoneofthekeytasksfacingNebraska.Everybodywasconcernedaboutquality:high-qualityjobopportunities,high-qualityemployeeskills,andhighqualityofplace.Citizenswanttheirchildrentostay,orcomehomeiftheyhaveleft(lowwagesandqualityof lifeissuesarepartofthereasonwhygraduateswithgoodskills,neededinNebraska’s laborforce,leavethestate).

DiversityandscaleParticipantsseeahighvalue,diverseeconomyasthesolution.Aneconomythat isdiverseintermsofskills,butalsodiverseintermsofscale.Giventhelimitsonthelaborforce,Nebraskacannotexpecttooftenrecruitverylargescaleinwardinvestments,atleastfortheforeseeablefuture.Inmanyways,thisrepresentsanopportunity,notachallenge.

Figure7

AffordablehousingQuality3oflifeConnectivity

SkilledworkforceInfrastructureTaxes

OutdoorrecreationDiversecommunities

High3qualityjobs

Strong3KD12Community3 spaces

New$graduates Small$or$medium$ $business

Young$family



It should be remembered that most of Nebraska’s exports come from small- and medium-sizedenterprises(SMEs).Forexample,SRI’sanalysisidentifiedaclusterofSMEsinNebraskathatareintegratedintotheautomotivesupplychain.Aneconomythatrestsonaportfolioofbusinessesatdifferentscalesismoreresilientinthefaceofchangesinlong-termeconomictrends,lessexposedtoshort-termeconomicshocks,and,someargue,morelikelytobreedariskaccepting,entrepreneurialculture.IfthisistheheartofNebraska’seconomy,andlikelytoremainsointhefuture,thenitwillbeimportanttohaveincentivepackagesalignedaccordingly.

VisionThe vision for the future implied by the discussion above is already unfolding.Nebraska is building adiverseeconomywithhighvaluebusinessesatdifferentscales.Thiskindofeconomyischaracterizedbyrichcareerpathways,withopportunitiesforstartingbusinesses,thatisattractivetooutsideinvestmentbyskillandtechnologyintensivebusinesses.Thisisaneconomythatbenefitsfromhighquality,diversecommunities,whereindividualsandfamiliesflourish.Insummary,thisisaneconomywherealltheassetsandvaluesofNebraskaunderpinahighvalue,hightechnologyandconnectedfuture.



Targeted BusinessAswiththeUSeconomyasawhole,Nebraska’seconomyischieflyaservicesectoreconomy,albeitwithsomeimportantanddistinctivecharacteristics.AscanbeseeninFigure8below,education,government,andhealthservicesplayimportantrole,alongwiththeretailsector.Inaddition,businessfinancialandotherservicesareoverrepresentedbasedonthesuccessoftheinsuranceclusterinOmaha.TheimportantrolefortransportationdistributionandagribusinessandfoodprocessingisalsowellknowntoNebraska’sleaders and citizens. Two areas of importance that don’t represent as yet a significant share of theeconomy are non-agricultural machinery manufacturing and high-technology, research and creativesectors.2

Whenwelookatthegrowthandemploymentinthesectorsoverthelast10years,itisclearthatbusiness,financial,andotherservices,andagribusinessandfoodprocessinghaveflourished.Worthnotingalsoisstrengthinhospitalityandtourismandrelativeweaknessinhightechresearchandcreativebusinesses.However,high-skill,technologyintensiveactivitiesarenowspreadacrossallsectors,andwhenweturntothekindofjobsnowinNebraska,wewillseeanimportantroleforthiskindofemployment.

2ThesesectorsarecalculatedbasedonBureauofLaborStatisticsdatausingSRI’scustommethodology

Business,Financial,&

OtherServices18%

Educa9on&Government

16%

HealthServices11%

Retail11%Hospitality

&Tourism10%

Agribus.&FoodProc.

8%

Transport.&Distrib.7%

Construct.&RealEstate

7%

High-Tech,Research,&Crea9ve

6%

Manufacturing(non-ag.),Mining,U9li9es6%

Figure8



ClusterMethodologySRIhasdoneacomprehensiveindustryclusterdataanalysisforNebraska,lookingat5-yeartrendsfrom2010-2015.Ouranalysiscovers32industryclustersand93sub-clustersunderneaththoseclusters.WhilewehavetakenintoaccounttheworkdonebyBattellein2010,ourworkisnotjustanupdateoftheirnumbers.3Wedecidedtodoafull-scaledataupdateatthispoint,forseveralreasons:

1) Industrygrowthratesarerelative.TheimportanceofgrowthtrendsdependsoncomparisonstootherindustrysectorsinNebraskaandalsotonationalgrowthrates.

2) TheNAICScodes(whichweusetodefinetheindustryclusters)havebeenupdatedsince2010,andthenewcodesletusdoamoregranulardefinitionofsomesegmentsthanwaspossibleinthe2010analysis(e.g.,forrenewableenergy).

3) Itisimportantto“sliceanddice”thedataatmultiplelevels(lookingatbothhigh-levelclustersandalsomicrodatadowntothe6-digitNAICS level)sothatwecanunderstandwhat’sdrivingNebraska’sindustriesandpinpointsmallsectorsthatmaybeemerginginthestate.

4) WhilewedidincorporatetheindustriesthatwereassessedbyBattellein2010,wealsowantedtoexpanduponthemandreshapesomeoftheclusters.Whatmadesense5yearsagomaynotmakesensetoday.

3“GrowingJobs,Industries,andTalent:ACompetitiveAdvantageAssessmentandStrategyforNebraska”BattelleTechnologyPartnershipPractice,October2010

3.3%

2.5%

2.1%1.8%

1.2%

0.9% 0.8%

0.5% 0.4%0.3%

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1.5%

2.0%

2.5%

3.0%

3.5%


Business,Financial,&OtherServices

Hospitality&Tourism

Agribus.&FoodProc.

Retail

Manufact.(non-ag.),Mining,URliRes

Transport.&Distrib.

EducaRon&Government

HealthServices

High-Tech,Research,&CreaRve

EmploymentGrowthRates(CAGR),2010-2015

Figure9



HighLevelClustersWhile business services, construction and real estate, and hospitality and tourism are the strongestperformingclusters forNebraska,severalsizeablemanufacturing/productionclustershaveshownalsostronggrowth–theonesthatstandoutare:Agriculture&FoodProcessing(+6,560jobs),PrecisionMetals(+2,224jobs),Materials&Chemicals(+1,188jobs),andAutomotive&TransportationEquipment(+1,031jobs).Nebraska will continue to enjoy enduring strengths in agriculture, food processing and agriculturalmachinery(althoughjobsinthesesectorshaveverydifferentskilllevelsandpayscales).Nebraska’surbanareas enjoy significant prospects in skill-intensive and technology-intensive services and research. Inaddition,wewanttotakenoteofbusinessesinmaterialsandnon-agriculturalmachinery,andautomotiveand transportation equipment, that have a significant presence and which, as we will see, offer theprospectofgoodjobsbasedonmid-levelskills.TherightworkforcepracticescouldsituateNebraskaverywellforthisdiversesetofactivities.4Aswelookatthedataingreaterdetailbelow,itisimportanttooutlinethecriteriaorfiltersthatshouldbeusedtoprioritizesectorsandsubsectors.ThecriteriathatwethinkimportantarepresentedbelowinTable1.Inparticular,weseethequestionofjobqualityasparamount.Nebraskahasverylowlevelsofunemployment,butnotenoughofitsworkforcehavethehigh-skill,technology-intensivejobsthatpaywellandthatwillbeimportantinthefuture.Thismeansbusinessesthatrequirehigherskills,payhigherwages,andwithahistoryofemploymentgrowth,willbeattheheartofthestate’sfuture.

4ThomasA.Kochan,DavidFinegold&PaulOsterman“WhoCanFix the“Middle-Skills”Gap?”HarvardBusinessReview,2012

-4,000

-2,000

0

2,000

4,000

6,000

8,000

10,000

12,000BusinessServices


Hospitality&Tourism

SocialServices

Agricult.&FoodProcess.

RetailTrade

Educa?on

IT&DataServices

PrecisionMetalsMfg.

Health&Med.Services

Transport.&Logis?csSer.

Materials&Chem.Mfg.

Auto.&Transp.Equp.Mfg.

FinancialServices

WholesaleTrade

GeneralServices

Biosciences

NaturalRes.&Mining

Tex?les&ApparelMfg.

PackagingMfg.

MiscellaneousMfg.

Government

Telecommunica?onsSer.

PaperMfg.

ElectronicsMfg.

Wood&FurnitureMfg.

RenewableEnergy

Machin.,Equip.,&Applian.Mfg.

Research&Engineer.Ser.

CallCenters&E-Commerce

Media,Design,&Info.Ser.

U?li?es&WasteMgmt.NetNumberofJobsAddedinNebraska

(March2010-M

arch2015)

Figure10:NetEmploymentGrowth



Table1

Beyondthequestionofquality,othercriteriashouldalsobeapplied.Criticalmassisalwaysanimportantpreconditionforthesuccessfuldevelopmentofacluster.Clustersarecharacterizedbypositivespillovers,sohavingapre-existingcriticalmassoffirmsoremploymenttobuildonoffersapositiveenvironmentinterms of skills, supply chain components, and other business networks, ready to fuel above averagegrowth.Existinggrowthinacluster,inNebraska,nationallyorinternationally,isalsoimportant.Nebraskashouldpivottowardsbusinessesandsectorswithsignificantlong-termpotential.Moregenerally,andthisisathemethatrecurredconstantly instakeholder interviewsandfocusgroups,akeycriterionforthefuture is the degree to which a cluster will diversify Nebraska’s economic base. Stakeholders wereinterested in a diverse, high quality set of economic and social opportunities in the future. The shifttowardsqualityforNebraskawillalsobeashifttowardseconomicdiversity.Thefutureforthestate’surbanareasmayalso lie innewbusinessesandstart-ups,thataresmallbutwhichoftenhaveexcitingprospects.Aseparate,focusedassessmentofNebraska’sinnovationeconomyisincludedasaseparatesectioninthisreport.Inshort,whiletheframeworkbelowisaverygoodstartingpointforidentifyingvaluabletargets,itwillnottellthewholestory.Newbusiness,smallbusinesses,andstartupswillplayanincreasinglyimportantroleinNebraska’sfuture.

Categories*and*Criteria*forIdentifying*High2Potential*Target*Clusters*for*Nebraska

Category Criteria

Job*Quality! Does%the%cluster%offer%high/wage%jobs?! Does%the%cluster%offer%high/skill%jobs?

Critical*Mass

! Does%Nebraska have%an%existing%“critical%mass”%of%firms%or%employment%to%build%upon%(i.e.,%not%trying%to%grow%a%cluster%from%scratch)?

! Does Nebraska%have%unique%assets%or%strengths%for%developing%this%cluster,%or%that%provide%opportunities% to%“pivot”%toward%new%opportunities?

Growth*Trends

! Does the%cluster%have%positive%growth%trends% in%Nebraska%(i.e.,%indicating%potential%for%future%growth)?

! Does%the%cluster%have%positive%growth%trends/forecasts nationally%or%globally%(i.e.,%do%not% invest%in%a%declining%industry)?

Other*Factors

! Is%the%cluster%tradable/export/oriented%(i.e.,%brings%in%revenues%from%out%of%state)?

! Does%the%cluster%offer%an%opportunity% to%diversify%the%state%economy%into%new,%high/potential%sectors?



Cluster Details Clustersandsub-clustersofpotential interesttoNebraskainthefuture,basedonamixofthecriteriadiscussedabove,arecircledbelow.

Agribusiness&FoodProcessingNebraska’sveryhighlocationquotientsindicateitslongstandingstrengthsinthiscluster,whichspantheentireagriculturesupplychain.This isNebraska’s5thlargestcluster intermsof jobs,andthecluster’slocationquotienthasincreasedoverthelastfiveyears.Overhalfthecluster’sjobsareinfoodprocessing.Nebraska’s employment growth has exceeded the national average for the primary agriculture andag./foodwholesalesub-clusters,wassimilartothenationalaverageforag.machinery,andlaggedthenational average for food processing. High-wage sub-clusters include ag. machinery and ag./foodwholesale,whileprimaryag.andfoodprocessingofferbelow-averagewages.

BiosciencesTheBiosciencesclusterisreallycomprisedoftwosmallandseparatesectors:agriculturalbiosciencesandmedical biosciences. Bothoffer above averagewages andhighly-skilled jobs. Themedical biosciencessectorislargerintermsofemployment,butthenumberofjobsinNebraskahasshrunkinrecentyears.Ontheotherhand,agriculturalbioscienceshashadaverystronggrowthtrend,wellabovethenationalaverage,andhasobvious local linkages. It is important tonote thatbiosciences is very challenging tomeasure using traditional NAICS-based data, so cluster data are just ballpark estimates and mayundercountthesizeofthesesectorsinNebraska.

Nebraska(Cluster(&(Sub/Cluster(DataQ1(2015

EmploymentEmployment CAGR(

(2010/2015) LQ Establishments Average(Annual(Pay

NE US

Primary Agriculture 14,955* +4.1%(+2,725:jobs) +2.8% 1.56 2,350 $36,128

Food:Processing 35,001 +1.0%(+1,657:jobs) +1.2% 3.07 348 $36,042

Agricultural:Machinery 10,670 +2.4%(+1,179:jobs) +2.4% 7.59 432 $55,997

Agricultural:&:FoodKRelatedWholesale 14,593 +1.4%

(+999:jobs) +1.1% 2.16 1,341 $46,777

TOTAL: Agribusiness(&Food(Processing(Cluster 75,219 +1.8%

(+6,560(jobs) +1.7% 2.58 4,471 $40,973

Table2:Agribusiness&FoodProcessing



AdvancedManufacturingAdvancedmanufacturing is a large cluster in Nebraska,with solid growth trends across a number ofsectors, indicating emerging opportunities for the state. Employment is primarily concentrated inprecisionmetals,materialsandchemicals,andautomotiveandtransportationequipment,allofwhichhave posted strong job growth over the last five years. Nebraska also has sizeable employment inmachinery,equipment,andappliances,andelectronicsmanufacturing,butbothof thesesectorshavebeen losing jobs in the state.Note that only non-agriculture-relatedmanufacturing is counted in thiscluster(ag.-relatedmanufacturingisincludedintheagribusinesscluster,intable2above).




NE US

Agricultural*Biosciences* 2,194 +4.3%

(+416*jobs) +0.7% 0.55 114 $64,136

Medical*Biosciences* 9,636 D0.3%(D130 jobs) +0.9% 0.93 560 $69,805

TOTAL: Biosciences(Cluster* 11,830 +0.5%

(+286(jobs) +0.9% 0.82 674 $68,754

Table3:Bio-sciences




NE US

Precision)Metals 10,739 +4.8%(+2,224)jobs) +3.1% 0.78 338 $45,975

Materials)&)Chemicals 9,052 +2.9%(+1,188)jobs) +1.6% 0.96 260 $31,297

Automotive)&)Transport.)Equipment. 8,891 +2.5%

(+1,031)jobs) +3.7% 0.73 97 $42,229

Machinery,)Equipment, &)Appliances 5,752 M1.6%

(M482)jobs) +3.0% 0.68 453 $42,216

Electronics 4,806 M1.1%(M268)jobs) )0.7% 0.61 187 $29,146

Wood)&)Furniture 3,433 M1.5%(M269 jobs) +1.6% 0.61 154 $34,606

Packaging 1,812 +1.1%(+97)jobs) +0.3 0.71 32 $45,551

Other)(textiles)&)apparel,)paper,)etc.) 1,880 NA NA NA 145 NA

TOTAL: Advanced(Manufacturing(Cluster 46,365 +1.7%

(+3,658(jobs) +1.9% 0.71 1,666 $38,810

Table4:AdvancedManufacturing



RenewableEnergyRenewableenergyisasmallclusterinNebraska,withaboveaveragewages,whichiscomprisedoftwosub-clusters:renewableenergyproductionandenvironmentalconsultingandorganizations.Renewableenergyproduction,drivenchieflybyethanol,hashadverystrongjobgrowthinNebraskaanditsveryhighlocationquotienthasalsobeengrowing.Ontheotherhand,environmentalconsultingandorganizationshas lost jobs over the last five years. As a result, overall cluster employment in Nebraska has beenshrinkingandthestate’slocationquotienthasdeclined.ItisimportanttonotethatrenewableenergyisverychallengingtomeasureusingtraditionalNAICS-baseddata(includingdatasuppressionproblems),sotheseareballparkestimatesandmayundercountthesizeofthesesectorsinNebraska.

FinancialServicesNebraska has established strengths and criticalmass in financial services – especially in the financialinstitutions and insurance sub-clusters, as evidenced by its relatively high LQs in both of these sub-clusters.ThisisNebraska’s8thlargestclusterintermsofjobs.Thestate’sfinancialinstitutions/bankshavesignificantlyoutperformed thenational trend in termsof jobgrowth,while the state’s insurance sub-clusterhasbeen losing jobs (andhasperformedfarworsethanthenational trend).Theentireclusteroffersveryhighwagescomparedtothestateaveragewage.

Nebraska(Cluster(&(Sub/Cluster(Data

Q1(2015

Employment

Employment CAGR(

(2010/2015) LQ EstablishmentsAverage(

Annual(PayNE US

Renewable(Energy(Production 1,951 +1.3%

(+121(jobs) !0.7% 7.54 29 $64,937

EnvironmentalConsulting( &(Organizations

2,940 L2.8%(L457(jobs) +0.2% 0.98 330 $47,694

TOTAL: Renewable(

Energy(Cluster4,891

/1.3%

(/336(jobs)+0.1% 1.50 359 $54,572




NE US

Financial'Institutions 24,340 +0.9%(+1,070'jobs) +0.1% 1.37 1,572 $60,735

Securities 4,629 +0.4%(+92'jobs) +0.2% 0.75 630 $112,579

Insurance 25,418 C0.2%(C263 jobs) +1.7% 1.65 2,083 $76,204

TOTAL: Financial(Services(Cluster 54,387 +0.3%

(+899(jobs) +0.7% 1.39 4,285 $72,377

Table5:RenewableEnergy

Table6:FinancialServices



ITandDataServicesITanddataservicesisamid-sizedclusterintermsofsizeandhashadsolidjobgrowthinNebraskaoverthe last five years (however, Nebraska’s growth rate is still lower than the national average and thecluster’slocationquotienthasdeclined).Theclusteroffershigh-wage,high-skilljobs.Nebraska’sclusteremploymentisheavilyconcentratedinthedataservices,programming,andsystemsdesignsub-cluster,whichhasanaboveaveragelocationquotientinthestate.Theothertwosub-clusters–internetservicesandsoftwaredevelopment–arerelativelysmallbuthavepostedstrongemploymentgrowth.

Health and Medical ServicesHealth andmedical services is the largest cluster inNebraska in terms of employment. Although theclusterhasbeengrowingrelativelyrapidlynationwide,Nebraska’sgrowthtrendshavebeenjustslightlypositive(andemploymentinthehospitalssub-clusterhasactuallydeclinedoverthelastfiveyears).Whilemostportionsofthisclustertypicallyofferhigher-wage/higher-skilljobopportunities,jobsinthenursingandresidentialcaresub-clusterhaveverylowaveragewages.Nebraska’slocationquotientforhealthandmedicalservicesisslightlybelowthenationalaverage,indicatingaslightundersupplyofservicesinthestate.Thisisanimportantsectorbecauseofitssize,payscales,andbecauseoftheeconomicopportunitythatmayexist.Anundersupplyofservicesmeans,potentially,thatNebraskaisimportingthem–thatistosaythat more Nebraskans leave the state for health services than out-of-state patients enter makingNebraskaanet importerofhealthservices.GiventheexcellenceatUNMC,andtheinvestmentbythestateinthisarea,thissituationshouldbeturnedonitshead.MissionSt.Joseph’shealthsysteminAsheville,NC,isagoodmodel.Ithasanationalreputationandisapowerful inducement to retirees looking to move to the area. An early adopter of best practices inevidence-basedcare,itisattheheartofaregionalhealthinformationtechnologynetwork.AshevilleisalsohometoProjectAccess,throughwhichuninsuredorunderinsuredpatientscangetspecialistcare.Thesesuccessesowelesstostateinitiativesandmoretolocalcontrolofthehospitalthat isseenasacrucialassetinthecompetitionforvisitorsandretirees.Asaresult,Ashevilleisasubstantialnetexporterof health services to the western counties of South Carolina and Georgia, eastern Tennessee, and




NE US

Data$Services,$Programming, &$Systems$Design

16,362 +2.4%(+1,834$jobs) +5.3% 1.10 1,799 $85,221

Internet$Services 628 +29.0%(+452$jobs) +15.4% 0.51 67 $70,252

Software$Development 799 +20.2%(+481$jobs) +4.8% 0.36 44 $91,884

TOTAL: IT(&(Data(Services(Cluster 17,789 +3.4%

(+2,767(jobs) +5.8% 0.97 1,910 $84,992

Table7:ITandDataServices



southeastVirginia.Inthesameway,UNMCcouldbecometheregionalhubforthosespecializedhealthservicesinwhichitenjoysrecognizedexcellence.ItcouldbeadestinationforpatientsfromtheDakotas,westernIowa,andevenfurtherafield.

BusinessServicesBusinessServicesareamongNebraska’slargestclustersintermsofemployment.However,two-thirdsofthe 65,000 jobs in this cluster are in “management of companies and enterprises” and “temporaryemploymentservices”–activitieswhoseemploymenttechnically“belongs”tootherindustriesbutcannotbeclassifiedbytheresearchteamintotheappropriatesectors.


Q1(2015

Employment

Employment CAGR(


Annual(PayNE US

Ambulatory+Health+Services 37,002 +2.0%

(+3,529+jobs) +2.7% 0.81 3,473 $57,777

Hospitals 37,056 G0.9%(G1,557+ jobs) +0.6% 0.89 159 $49,965

Nursing+&+Residential+Care 33,943 0.0%

(+67+jobs) +0.8% 1.43 667 $28,173

TOTAL: Health(&(

Medical Services(Cluster108,001

+0.4%

(+2,039(jobs)+1.5% 0.97 4,299 $45,792




NE USLegal&&&Accounting&Services 9,131 +0.6%

(+280&jobs) +0.4% 0.76 1,436 $50,073

Management of&Companies&&&Enterprises* 21,600 +4.5%

(+4,281&jobs) +3.4% 1.44 780 $102,960

Business&Process&Outsourcing&&&Employment/Temp.Services**

21,944 +9.3%(+7,864&jobs) +4.9% 0.69 1,553 $38,980

Printing&Services 3,255 S4.1%(S751 jobs) (1.6% 1.05 226 $38,116

Other Business&Support&&&Security&Services 7,509 +0.4%

(+142&jobs) +1.8% 0.74 484 $41,563

Business Associations&&&Organizations 1,334 S2.1%

(S146&jobs) 0.0% 0.62 274 $41,775

TOTAL: Business(Services(Cluster 64,773

+4.1%(+11,670(jobs)

+2.9% 0.87 4,753 $62,193

Table8:Heath&MedicalServices

Table9:BusinessServices



The remaining 21,000 jobs in this cluster are in skilled and semi-skilled activities such as legal andaccountingservices,printingservices,andotherbusinesssupport/securityservices.Thesesub-clustersgenerallyofferaveragetoslightlyaboveaveragewagesinNebraskaandhavelocationquotientsthatarebelowaverage.

Tourism&HospitalityTourismandhospitalityisNebraska’s4thlargestclusterintermsofemployment,andrecentgrowthtrendsintheclusterhavebeenverystrongbothinNebraskaandnationally.Nearlythree-quartersofNebraska’semploymentinthiscluster(andmostofitsrecentjobgrowth)isinthefoodandbeveragesub-cluster.Asistypicalforthiscluster,averagewagesinNebraskaforthetourismandhospitalityclusterareverylow.Thetravelarrangementssub-clusterhasarelativelyhighlocationquotientinNebraska,whilethelocationquotientsfortheothersub-clustersareallbelowaverage.These lowpayscalesshouldnotbeallowedtoobscuresome importantaspectsof thissector,and itscontribution to Nebraska’s economy. Many of the small businesses involved represent “lifestyle”entrepreneurs,whoemployseasonalvisitors,studentsandretirees.Moreimportantly,theirservicesaddappreciablytothequalityoflifeinthestate,makingitanappealingdestinationnotonlytovisitors,buttoemployeesrecruitedfromoutofstate.Omahaisnothometo“bigtime”professionalsports(andthereis no evidence that providing heavy subsidies to recruit a professional teammakes business sense).However,itishometoamateursports,huntingandfishing,andotheroutdooractivities.Thedepthandvarietyofofferingsinthissectormakeakeycontributiontoqualityoflife.

Table10:TourismandHospitality


Q1(2015

Employment

Employment CAGR(


Annual(PayNE US

Travel'Arrangements 3,962 +1.6%(+310'jobs) +2.4% 1.54 204 $32,169

Accommodations 7,648 +1.2%(+436'jobs) +2.1% 0.70 477 $17,799

Food'&'Beverage 66,238 +1.9%(+5,778'jobs) +3.2% 0.88 3,937 $13,626

Arts'&'Culture 2,158 +3.8%(+370'jobs) +2.6% 0.93 198 $22,642

Sports'&'Recreation 10,205 +4.0%(+1,812'jobs) +2.5% 0.86 657 $14,965

Gambling 992 +1.2%(+56'jobs) +0.4% 0.24 41 $21,328

TOTAL: Tourism(&(

Hospitality(Cluster90,203

+2.1%

(+8,762(jobs)+2.9% 0.85 5,514 $15,246



TransportationandLogisticsNebraskahasestablished criticalmass in the transportationand logistics cluster,which is amid-sizedindustryintermsofthenumberofjobsinthestate.Clusterwagesaregenerallynearthestateaverage.The bulk of this cluster’s employment and recent job growth is in the freight, distribution, andwarehousingsub-cluster,whichalsohasanaboveaveragelocationquotient.NotethattheBLSdatasetusedforthisanalysisdoesnotincluderailroademployment(duetodatasuppression),butthereareatleastanadditional8,000workersemployedbyUnionPacificand5,000employedbyBurlingtonNorthernSantaFeintherailtransportationsub-cluster,notincludedinthedataanalysisshownhere.

CallCentersande-CommerceAlthoughthisisarelativelysmallclusterintermsofemployment,Nebraskahasawell-establishedcriticalmassincallcentersande-commerce,asevidencedbyitshighlocationquotients.Thecallcenterssub-clusterhasbeengrowing,whilethee-commercehasseensignificantjoblossesinNebraskaoverthelastfiveyears(eventhoughithashadstronggrowthatthenationallevel).Jobsinthisclustertendtobelowerskill, as reflected in the cluster’s below-averagewage levels.Note that the e-commerce category hassignificant overlap with other industry clusters, such as IT or retail, and is difficult tomeasure usingtraditionalNAICS-baseddatasoitislikelythatNebraska’semploymentinthissub-clusterisundercounted.


Q1(2015

Employment

Employment CAGR(


Annual(PayNE US

Call$Centers 6,311 +0.7%(+221$jobs) +3.9% 1.80 128 $35,620

E=Commerce* 3,038 =5.7%(=1,043$ jobs) +5.2% 1.25 153 $36,130

TOTAL: Call(Centers(&(E/

Commerce(Cluster9,349

/1.7%

(/822(jobs)+4.4% 1.57 281 $35,786

Table11:TransportationandLogistics

Table12:CallCentersande-Commerce


Q1(2015

Employment

Employment CAGR(


Annual(PayNE US

Freight,)Distribution,)&)Warehousing 40,307 +0.9%

(+1,672)jobs) +2.5% 1.45 2,825 $43,944

Air)Transportation 472 G3.7%(G97 jobs) +0.0% 0.15 42 $47,580

Rail)Transportation* NA NA NA NA NA NA

Water)Transportation 0 NA +1.7% NA 0 NA

Passenger)Transit 2,424 +0.9%(+101)jobs) +1.6% 0.48 106 $22,093

TOTAL: Transportation(

&(Logistics(Cluster43,203

+0.8%

(+1,676(jobs)+2.2% 1.20 2,973 $42,758



Business Attraction and Development ThissectionwillfocusonthesetofeconomicdevelopmentpoliciesthatcomprisetheNebraskaAdvantageAct(NAA),aswellassomediscussionofNebraskaDepartmentofLaborpolicies.Innovation,Workforce,andLocalandCommunityDevelopmentareaddressedinsubsequentsections.Thediscussionherewillfocus heavily on tax credits, or as they are also known, tax expenditures. There are other, valuableelementstotheNAA(tobediscussedbelow),buttheyaredwarfedbythedollarvalueofthetaxcredits.The top priority for any state is to improve its fundamental assets—for example, throughworkforcedevelopmentandinvestmentininfrastructure.Surveysalwaysreportthatthesebasicsarethehighestpriorityforbusinessescontemplatingexpansionorrelocation.Taxesandtheregulatoryenvironmentarealsoimportant,butgenerallyrankalittlelower.However,aftertakingaccountofthesebasics,businessesoftenstillfaceachoiceamongpossiblelocations.Itisherethatstates,andincreasinglyregions,seektotipthebalanceintheirfavorwithawidevarietyofeconomicdevelopmentincentives.Therearepeopleacrossthecountrywithreservationsaboutthesekindsofincentives,butabsolutelyeverybodyusesthem.Thekeytotheiruseisthattheybealignedaroundastrategyconsistentwithastateorregion’sneeds.Thegrowthofbusinessclustersbasedonproximityandspillovers—aphenomenonnowfirmlyestablishedbyeconomicanalysis—canbeshapedbypolicyandcomplementedbystrategiceconomicdevelopmentpractices.TheanalysisofNebraska’spoliciesandpracticesinthediscussionbelowisaimedatidentifyingwaysinwhichtheycanbeamendedandimprovedtobemorestrategicandmorealignedwiththeclustersandbroadergoalsoutlinedinthefirsttwosectionsofthisreport.Ahypotheticalexamplecanillustratethecurrentstateofaffairs:TheUniversityofNebraskaishometonationally recognized research capabilities in agriculture related bio-sciences. This complementsNebraska’sworldcomparativeadvantageincertainkindsofagriculture.Itmakesperfectsensetorecruittechnology businesses in the same space to locate alongside these research capabilities. This is theaspirationbehindtheInnovationCampusattheUniversityofNebraskaatLincoln(UNL).ThekeyquestioniswhethertheothereconomicdevelopmenttoolsavailabletotheDepartmentofEconomicDevelopment(DED)arealignedwiththiskindofrecruitment.Atpresent,NAAtaxcreditsareonlyavailabletoabusinessthatcreatesatleast10jobsandretainsthemforafive-yearattainmentperiod(thebenefitsatthis,thelowestthresholdforqualification,aremodest).A promising bio-science investment might not meet that threshold. In contrast, a factory selling itsproducts out of state but paying wages well-below the state average could qualify. Is this the rightbalance?ThefirstsectionofthisreportoutlinedthedesirabilityofastrategicshiftinNebraska’spoliciestowardshigh skill, technology- and capital-intensive investment. The example given above suggests that, atpresent,Nebraska’staxincentivesmaynotbealignedaccordingly.Thereisasimpleexplanationforthis.Nebraska’seconomyhasnotonlygrown,butchangedsignificantly.TheNAA,andearlierlegislationuponwhichitisbased,reflectsatimewhenjob-richinvestmentsofanykindwerethepriority.Thetimehascomeforthoroughupdatetomeettheneedsofthefuture.LB 775 & LB 312 TheNebraskaAdvantageAct(NAA),passedin2005(totakeeffectin2006),wasdesignedtoamendand



improveLB775,originallypassedin1986,whichwasthefirstsubstantialpieceoflegislationtousetaxexpenditures(thatis,taxrelief,typicallyonsalesandusetaxespaidforbusinessinputs)totargetbusinessrecruitment, retention, and expansion. In particular, LB 775 targeted the recruitment of businessheadquartersandlargemanufacturingplants.Itwasaprogramwithalongtimehorizonbydesign,aimedatengagingand supporting long-term investors in the state inwhat couldbedescribedas traditionalmanufacturingsectors.Abusinesscouldtakeuptosevenyearstoreachattainment—themomentwhenabusinesswascertifiedtohavehiredandretainedthepromisednumbersofemployees.Thereafter,thecreditscouldbeearnedandusedoverthenextsevenyears,andanyremainingcreditscouldbecashedinoverthenextsevenyears,foratotalperiodof21years.Thelongattainmentperiodreflectedconservativeauditingrequirementsincludedinthestatute,consistentwithNebraska’sconservativefiscalpractices.ObviouslytheNetPresentValue(NPV)oftheprogramfromthepointofviewofbusinessisquitelow.Onlybusinessesinarelativelystablecommercialenvironmentcouldrealisticallyexpecttorealizeallthebenefits to which they were entitled (and which business is completely insulated from the businesscycle?).Asaresult,manyfirmsearnedcreditsbuthadtroublecashingthemin.Thissteadilyaccumulatingbalanceofunusedcreditsalsorepresentedafutureclaimonstaterevenues.Whilesomecreditsexpired,tothefrustrationofsomebusinesses,manyarestillbeingclaimed—lastyear,morewaspaidunderLB775thanunderLB312,eventhoughLB775wasendedin2005(itisestimatedthatover70%ofthetotalcreditswillbeusedused).LB312,theNebraskaAdvantageAct,addressedsomeofthesechallengesbytyingtheattainmentperiodtothecarryoverperiod,duringwhichcreditscouldbeclaimed,foramaximumtotalofeightyears,whileleavingtheentitlementperiod,thetimewhencreditscanbeearnedandused,unchangedatsevenyears.Thisshortenstheperiodofparticipationforbusinessesandlimitsexposuretothestateforthoseprojectsthattakemorethanoneyeartoattain.Becausebusinessestypicallyhavethesameamountoftimetoearncreditsandlesstimetousethem,between2006and2014,almost$600millioncreditshavebeenearned,andonlyalittlemorethan$220millionused.Participantsareonceagainaccumulatingcreditsthattheymayormaynotuse,andthestate’sexposureintermsofoutstandingtaxcreditscontinuestoincrease.Theadditionofawithholdingtaxcredit,aswellastheexistingsalesandincometaxcredits,weredesignedto improvethe lowNPVbyallowingbusinessestoretainaportionof theiremployee’sstateincometaxwithholding.However,tosomedegree,thechallengesidentifiedinthecaseofLB775havebeenreproducedinitssuccessorlegislation.Whilestateexposuremayhavebeenreduced,theissueoflowNPVremains,atthecostofmoreunused,andpotentiallyunusable,credits.5

Complex criteria LB312,theNAA,isalsocomprisedofcomplicatedcriteriadesignedchieflytorewardjob-richinvestment.Butthisgoalisnotexplicit—indeed,whentheLegislativePerformanceAuditCommitteecametoexamine

5Thecreditlevelswerekepthighevenasthecarryoverperiodwasreducedtoaslittleasoneyear,dependinguponhowlongittooktheprojecttomeettheinvestmentandjobsthresholds.This,alongwiththefailuretoreducetheamountofcreditsearned,leadstothelargecreditbalances.Withoutalongertime-frameforanalysisitisdifficulttoprove,butitisbelievedthatLB312willresultinmanymoreunusedandunusablecredits.



theperformanceoftheNAAin2013,itfoundthatthegoalsofthestatuteweretoobroadtoallowformeaningfulevaluation.ScrutinyofthedetailsofthesystemoftaxcreditsattheheartoftheNAArevealsapolicythatrewardsdifferentcombinationsofdollarinvestmentsandnewjobs(withspecialrulesfordatacenters,renewableenergyinvestments,andsmallerinvestmentsinruralareas).Investmentscanonlyobtainarefundonthesales taxoncapitalpurchaseswhen theyattaina related levelofnewemployment,asdefinedby sixdifferenttiersorlevelsofinvestment.Thesejobshavetobefromwithinaseriesofnominatedsectors(whichcovermostofmanufacturing)orfromheadquartersoperations.Thereisalsoaslidingscaleforwagecredits,determinedbynewemployeecompensationasapercentageoftheNebraskaaveragewage.Creditsstarttobeavailableat60%ofthestateaverage,orroughly$25,000in2014.Thissummarydoesnotdojusticetoallthecomplexitiesoftheprogram.Thegoal,generallystated,isthatthemorecreditsyouwanttoclaim,themorepeopleyouhavetohire.Theconsequencesoftheseprogramcharacteristicswereclearlyrevealedbythebusinessinterviewsconductedaspartofthisstudy.Onesetofbusinesseswereverysatisfied,andhadusedNAAcreditsmorethanonceinsomecases.Theymay have hired outside experts to help navigate the initial paperwork and subsequent auditingrequirements, but just as often they had internal capacity adequate to the task of meeting theexpectationsofprogramparticipation.Thesefirmstendedtobemedium-tolarge-sizedfirms,often(butnotalways)inmanufacturing,withadecadeslong-presenceinNebraskaandastablebusinesstrajectory.TheyalsoreportedestablishedrelationshipswiththeNebraskaDepartmentofEconomicDevelopment(DED)andlocaldevelopagencies.Attheoppositeendofopinion,morethanonetechnology-basedstart-upthathadscaledrapidlywithmorethan100full-timeemployees(FTE)wereunable(andunwilling)toinvestmanagementcapacityinparticipatingintheprogram,totheextentthattheyunderstoodit.Notonlydosuchfirmsoftennotmeetthe capital investment criteria, butunder conditionsof rapid growth in anuncertain and competitiveenvironment theydidnothave theband-width todedicate tonavigatingacomplicatedprogramwithuncertainanddeferredbenefits.Beyondthesetwolimitcases,thecomplexityoftheprogram(especiallythresholdsforemploymentandinvestment,whichseemedarbitrary)andtheburdenofcomplyingwereoftenmentionedbyinterviewees,eventhoughbusinesseswereappreciativeofthecredits.Onefinalgroupinterviewedwereeconomicdevelopmentprofessionals.Feedbackhereindicatedthatthecomplexityof theprogramand lowNPVof the tax creditsmakes theNAAaspresently designed lesseffectivethanitcouldbeasaninstrumentforexternalrecruitment.Insummary,NAAtaxcreditstargetalmostanykindofjob,reflectingNebraska’sneedsinyearsgoneby.Furthermore,asresultofprogramdesignandimplementationrequirements,theprogramisbestsuitedto the needs of established, larger firms on a steady path to expansion. There are plenty of firms inNebraskawhofitthisprofileandaregladforthissupport.However,thisdesigntendsnottohelphigh-technology, high-skill, fast growing firms with modest capital needs. The discussion below highlights



practiceselsewherethatcanprovideideasforreworkingtheNAAsothatitbetterservestheneedsofthosebusinessesNebraskaistargetingforthefuture.

Best practice Alternativepractices,morealignedwiththestrategicgoalsidentifiedinthefirstsectionofthisreport,canbeidentifiedbyreferencetopracticesinotherstates.Fiverecognizedapproachesoffernewdirections.

QualityJobsManystatetaxcreditprogramsproviderebatestoemployersforjobcreationwithoutconsiderationofthekindofemploymenttheyareincentivizing.However,somestateshaveimplemented“qualityjobs”incentives that provide credits or rebates to employers only for newemployment thatmeets certainstandards.Quality jobstaxcredits typicallyrequirethatpositionspayaboveacertainwagethreshold,usually in relation to thecountyaverageormedianwage.Adjusting theeligibilitycriteriaat the local,ratherthanstatewideleveltakesintoconsiderationlocalvariationsinlabormarketsandcostofliving.Qualityjobstaxcreditsemphasizethecreationofnewhigh-payingjobs,ratherthanapotentiallylargernumberoflow-payingjobs;givenNebraska’sexceptionallylowrateofunemployment,andcomparativelylowwagerates,thistargetedapproachmayprovideadvantagestothestate.Quality jobs programs vary substantially in their structure and requirements by state. For example,Georgia’sQualityJobsTaxCreditprovidestaxbreaksforcompaniesthatcreateatleast50jobsina12-monthperiodprovidedtheypayat least10%morethanthecountyaveragewage.Thesizeofthetaxbreakscalesbasedonthepaydifferenceofthenewjobversusthecountyaverage:employersreceiveataxcreditof$2,500perjobthatpaysbetween10–20%higherthanthecountyaverage,and$5,000foreachjobpayingatleasttwicetheaverage.6The50jobthresholdwouldberatherhighunderNebraska’scircumstances,butthiskindofprogramdesignwouldbealignedwithastrategicgoalofhighqualityjobs.Arizonarequiresthatcompaniescreatebothaminimumnumberof jobsandmakeaminimumcapitalinvestmenttoqualifyforitsQualityJobsTaxCredit:25jobsand$5millionsofinvestmentformetroareas,and5jobsand$1millioninvestmentforruralareas.Theprogramemphasizeslongertermemployment,providing$3,000pernewpositionpayabovethecountymedianwageforeachofthefirstthreeyearsofemployment.7 This program emphasizes quality adjusted for urban or rural conditions (by using localmedianwagesasabenchmark).Oklahoma’sQualityJobsProgram,targetedatspecificmanufacturingandserviceindustries,providescashpaymentstoemployersofupto5%ofnewtaxablepayroll(payingatthelocalorstatemedianwage)forthosewithatleast$2.5millioninnewpayrollinvestment,forupto10years.8Thisprogramemphasizesquality,combinedwithveryhighNPVintheformofcashpayments.

6GeorgiaDepartmentofEconomicDevelopment,“QualityJobsTaxCredit,”http://www.georgia.org/competitive-advantages/tax-credits/quality-jobs/.7ArizonaCommerceAuthority,“QualityJobs,”http://www.azcommerce.com/incentives/quality-jobs.8OklahomaDepartmentofCommerce,“QualityJobsProgram,”http://okcommerce.gov/business/incentives/quality-jobs-program/.



PayforPerformance(P4P)Taxincentivesthatinvolveup-frontpaymentsorgrantscarrytheriskthattheissuingagencymaynotbeable to recover funds in the event that the recipients fail tomeet certain conditions. Programs thatoperateonapayforperformancebasis(P4P;alsocalledpayforsuccess)addressthisvulnerabilityastheyonlycommitfundswhenspecificgoalsaremetorcriteriasatisfied.Atthesametime,thisapproachiscloser toapay-as-yougo, rather thanaperform-then-payapproach,andso thebenefitsare receivedsooner.ArizonaincorporatesP4PprinciplesintoitsQualifiedFacilityTaxCredit,establishedin2012.Thisprogramisdesignedtopromotethelocationandexpansionofmanufacturinginthestate,includingmanufacturing-related R&D and headquarters facilities. Given certain wage and business activity requirements,companiesreceiverefundableincometaxcreditsbasedontheircapitalinvestmentornewjobcreation.9Thestatereservestaxcreditsforapplicantsatanadvancepre-approvalstage,andthecreditsareclaimedasthefacilitybeginsoperationsandpassesaCPA-conducted.Thestate’sQualityJobsTaxCreditprovidesup to$9,000 tobusinessespernewqualified jobcreated,butdoesso through installmentsof$3,000spreadoverthreeyears.Incontrasttojobsprogramsthatprovideallcreditsup-frontfornewjobscreatedorattheendofasingleyear,thispaymentmodelincentivizesthecreationandretentionofhigherpayingjobsovermultipleyears.

TieredTaxCreditsRegionaleconomicsystemsdonotconformtostateboundaries,andsignificantdisparitiesineconomicandsocialwell-beingoftenexistwithinthesamestate.Nebraskahasexperiencedtheemergenceofsuchdisparitieswithrespectto incomeandpopulationgrowthbetweenurbanandruralareasofthestate.Stategovernmentshavemovedtoaddresstheseimbalanceswithintheirborders,inpartthroughtheirtaxsystemsandeconomicdevelopmentprograms.Oneapproachoffurtheringregionaleconomicequityis to implement a tiered system of ranking counties by level of economic well-being, and providingadditional tax incentives to organizations generating economic activity in the most economicallydisadvantagedcounties.NorthCarolinaannuallyranksits100countiesbyeconomicwell-being,andclassifiesthemintothreetiers,withTier1representingthemostdistressedcounties.10Thestatehasintegratedthistieredsysteminavarietyofprograms.Forexample,theOneNorthCarolinaFund(OneNC)supportsjobcreationprojectsthroughoutthestate,butmatchesspendingbylocalgovernmentsinTier1countiesona3:1basis,andonlya1:1basisinTier3counties.11

9Specifically,thetaxcreditisequaltothelesserof:10%ofthequalifyingcapitalinvestment,$20,000pernetnewjobatthefacility,or$30millionpertaxpayerperyear.ArizonaCommerceAuthority,“QualifiedFacility,”http://www.azcommerce.com/incentives/qualified-facility?referrerId=1310.10Counttiersarecalculatedbasedonaverageunemploymentrate,medianhouseholdincome,percentagegrowthinpopulation,andadjustedpropertytaxbasepercapita.The40mosteconomicallydistressedcountiesaredesignatedTier1,thenext40asTier2,and20theleastdistressedasTier3.NorthCarolinaDepartmentofCommerce,“2016CountyDesignations,”https://www.nccommerce.com/research-publications/incentive-reports/county-tier-designations.11EconomicDevelopmentPartnershipofNorthCarolina,“OneNorthCarolinaFund,”http://edpnc.com/incentives/one-north-carolina-fund/.



The State of Maryland does not explicitly tier counties, but does provide additional incentives forbusinessesandprojectsineconomicallyunderperformingregions.TheOneMarylandTaxCreditprovidesupto$5millionintaxcreditstobusinessesforcostsassociatedwithprojectsinPriorityFundingAreasinQualified Distressed Counties, and the OneMaryland Start-up Tax Credit provides up to $500,000 increditstobusinessesmovingfromoutsidethestatetooneoftheseareas.12TheJobCreationTaxCreditthatMarylandprovidestoemployerscreatingnewfull-timepositionspayingatleast150%ofthefederalminimumwageincreasesfromupto$1,000perjobto$1,500perjobindesignatedrevitalizationareas.13

DiscretionaryIncentiveProgramsStatetaxcreditprogramsgenerallyprovidefundingautomaticallytoallbusinessesthatmeeteligibilitycriteria,providedthatresourcesareavailable.Alternatively,discretionarygrantandincentiveprogramscanprovidesupporttobusinessesbasedonasetofreviewcriteriaofaproject’smerit.NorthCarolina’sOneNC Fund and Job Development Investment Grant are both examples of such discretionary grantprograms.Eachprogrambasesawardsoncriteriasuchasnumberandqualityof jobscreated, levelofinvestment,economicimpact,andthestrategicimportanceoftheindustrytothestate’seconomy,amongotherfactors.

CapacitybuildingDiscretionaryincentiveprogramsallowstatestobemorestrategicwhenconsideringtheeconomicandsocialimpactofaprojectascomparedtoeligibility-basedtaxcredits.Economicdevelopersgenerallylikethese funds, seeing them as high NPV, “deal closing” tools. This sentiment was echoed by someinterviewees.However,thisrequiresarigorousapproachtoensurethatprojectsare(andareperceivedtobe)anappropriateuseoftaxpayerdollars.Virginia’seconomicdevelopmentprogramsarenotablefortheircomparativeemphasisondirectbusinessfinancingoverstandardtaxcredits.TheVirginiaEconomicDevelopmentPartnership(VEDP)administersseveraldiscretionaryfundinitiatives,suchastheCommonwealth’sOpportunityFund,VirginiaInvestmentPartnershipGrant,MajorEligibleEmployerGrant,andVirginiaEconomicDevelopmentIncentiveGrant.14VEDPrequires thatallprojectsundertheseprogramsundergoa front-endreturnon investment (ROI)analysistoestimatenetstaterevenueinadvance,andalsoperformsretrospectivereviewsthroughitsreturnoninvestedcapital(ROIC)process.VEDPhasalsodevelopedaLocalROIModelforevaluatingfiscalimpactsofeconomicdevelopmentprojects,andmadeitavailableforlocalplannerstouseonline,withmethodologicalnotespubliclyaccessible.15

12MarylandDepartmentofCommerce,“OneMarylandTaxCredit,”http://commerce.maryland.gov/fund/programs-for-businesses/one-maryland-tax-credit.13MarylandDepartmentofCommerce,“JobCreationTaxCredit,”http://commerce.maryland.gov/fund/programs-for-businesses/job-creation-tax-credit.14SeeVirginiaEconomicDevelopmentPartnership,VirginiaGuidetoBusinessIncentives:2015-16,2016,http://www.yesvirginia.org/Content/pdf/guides/Virginia%20Guide%20to%20Business%20Incentives%202015-2016%20Updated%201.19.2016.pdf.15CharlesB.Kennington,TheVirginiaEconomicDevelopmentPartnershipLocalReturnonInvestmentModel:AToolforAnalyzingtheLocalFiscalImpactsofEconomicDevelopmentProjectsinVirginia,VirginiaEconomicDevelopmentPartnership,2011,http://www.virginiaallies.org/assets/files/LocalROI.pdf.



Thiskindofcapacitybuildingwithinstateagenciesisunglamorous,andsomewhatunappealingtopoliticalleaders. But it is very normal for businesses planning for growth and contemplating substantialinvestments to invest in business intelligence. This should be thought of a recipe for smarter, morestrategiceconomicdevelopment,ratherthanmerelymoreexpensivegovernment.

Goals, practices and metrics Asaresultofthe2013LegislativePerformanceAuditCommittee’sevaluationoftheNAA,thecommitteepublishedareportinDecember,2014,LR444,thatrecommendedaclearprocessfortheregularreviewandevaluationofalleconomicdevelopmentprograms,togetherwithsomeindicatorstobeusedasthebasis formeasuresof success. Thisworkwas informedby theexpert guidanceof thePewCharitableTrusts.Thegoal inthissection is to foldsomeof thesepotentialmeasures intothedesignofpossiblechangestoNAA.SomeofthepracticesidentifiedabovecanaddressweaknessesinthebasicdesignoftheNAA,forexamplethelowNPVofitstaxcredits.OtherscanhelpalignNAAaroundthestrategicgoalsidentifiedattheoutset.Ashifttoprogramdesignbasedonpay-as-you-gowouldmakeitmoreattractive,andcouldbecombinedwithindependentverificationofperformance.Therewouldbeno“attainment”period,thefirmwouldhit thegoal,andberewarded incrementallyaccordingtosomepre-arrangedschedule. Ifemploymentlevelsdrop,rewardswouldcease.LR444recommendstrackingemploymentstatusbothbefore,duringand after program participation. This can be achieved through data obtained from the state’sUnemploymentInsurance(UI)system,usingindividualandfirmreports(subjecttocarefultreatmentofconfidentialinformation).Thiswouldlightenthereportingloadsignificantly.In addition, Nebraska should develop a “discretionary” fund, subject to a transparent set of ROIcalculationsbasedonapre-existingmodel that estimates expected impactof the investment.Havingindustry targetsmeans thatnotallpotential investmentsbysucha fundwouldbe treatedequally,orreducedtoasimpleformula.Buildingclustersisaforwardlooking,strategicactivitywhosevaluecan’tbeeasilycapturedbasedonexistingdata.However,thecapabilitytoestimateimpactinarigorouswayisacriticalbaselineforsubsequentdecisionmaking.Takentogether,suchchangeswouldmaketheprogrammoreattractivetoawidersetoftaxpayers,easierto implement, andmore effective as a tool for recruitment. But it would not automatically bemorestrategic.Forexample,fastgrowing,technologybusinessesthatinvestalmostwhollyinwell-paidtalentcannotbenefitfromsalestaxrebatesoncapitalequipment.

Highskill,highwagejobs&capitalintensiveinvestmentGivenlowunemploymentinNebraska,combinedwithvarianceinaveragepayacrossregions,theNAAshouldsetthewagethresholdthatqualifiesforcreditswithreferencetothemedianwagebycounty.Nebraskashouldnotincentivizenewjobsunlesstheyareatorabovethislocalmedian.ThiswouldalignNAAwiththegoalofhighskill,highwagejobs.Bysettingthethresholdonalocalbasis,therewouldbenoneedtocarveoutaruralcategory.LR444recommendscomparingwagesat incentivizedjobswithcounty and industrymedians. The suggestion here is to set a threshold accordingly in the program’sdesign.



Furthermore,thresholdsforthenumberofjobscreatedandinvestmentmobilizedshouldbeeliminated.Thiscouldbedeterminedbyasimple,continuousformulainwhichanynewjob,associatedwithsomecorrespondinglevelofcapitalinvestment,garnerssalestaxorotherreliefasjudgedappropriate.LR444recommendsestimatingthecostperjobofthetaxcredits.Thiswouldbecalculationwouldbetransparentunderacontinuousformulaofthiskind.Inthecaseofatechnologyandtalentintensivefirm,thestatecouldturntocashincentives,similartotheprograminOklahoma,butsetthewagethresholdatamuchhigherlevel(forexample,200%ofthecountymedian).Finally, inthecaseof investment innewplant,equipmentorprocessesthatyieldsnonewjobs,thereshouldbeascalebasedonlyonthecapitalvalueofinvestment,withincreaseintheaveragepayofexistingproductionworkersand/orincreasedsalesandincomeservingasthethresholdtest(thesetwoelementswillprobablycorrelate).ChangesofthiskindwillalignNAAmuchmorecloselywiththestate’sstrategicgoals.Insummary,thetaxcreditsattheheartoftheNAAshouldbereworkedalongthefollowinglines:

Ø Creditsshouldbedistributedonapay-as-you-performbasisØ Performancemeasuresshouldrelyonindependent,lowcostsourcesofdataØ NebraskashouldoperateadiscretionaryfundbasedonrigorousROIestimatesØ TaxcreditsshouldonlybeavailablefornewjobsatorabovecountymedianwagesØ Comparable cash incentives should be available for new jobs atmore than 200%of county

medianwagesØ Taxcreditsshouldbeavailablefornewinvestmentsthatyieldincreasedpay,salesandincome.

Training and sites & buildings TwootherpiecesoftheNAAwerediscussedbytheinterviewees,althoughthecombineddollarvalueoftheseelementsismuchlowerthanthevalueoftheNAAtaxcredits.Thecustomizedjobtrainingofferedaspartofrecruitmentpackagesiseasyforfirmstobenefitfrom,giventhattheycontrolthecurriculum,whichisofferedonsiteandalignedtightlywiththeirproductionneeds.Worth noting also is that InternNebraska (part of the Talent and Innovation Initiative) is alsowidelypraisedasaveryeffectivewaytosecureacollegetoworkplacepipeline.TheCommunityDevelopmentBlockGrant(CDBG)andtheSiteandBuildingDevelopmentFund(SBDF)areseenascrucialelementsforbusinessexpansion.Theywillbediscussedinmoredetailbelowbuttheonlysignificantcomplaintrelatestolevelofeffort.Thetwo-yearallocationfortheSBDF,January2014toDecember2015,wasabout$4million.NAAawardedabout$160million in tax creditsover the sameperiod. Yet plant expansion, or closing the deal with an outside investor, depends crucially on theavailabilityanddevelopmentofappropriatesitesandinfrastructure.



Both training and site development have high NPV, and significant spillovers into the economy andcommunity. As a strategic matter, Nebraska should review the balance of its level of effort acrossprograms.



Workforce ThisoverviewfortheStateofNebraskasynthesizesinformationfromexistingeconomicdevelopmentandlabormarketliterature,findingsfrominterviewsandfocusgroups,andanalysisofpopulation,education,and occupational indicators. Our preliminary findings indicate several trends with implications forNebraska’scurrentandfutureworkforce.Discussionswithnumerousstakeholders,combinedwithknowledgeofpracticeselsewhere,haveyieldedavarietyofsuggestions forbuildingon,oraddingto,a rangeofexisting initiativesalreadyaddressingchallenges indicatedby these trends. It shouldbenotedat theoutset thatworkforce institutionsandpoliciesinNebraskaaregenerallyviewedasverystrong,workingquitewellwiththepipelineoftalentthatexists.Over the last decade, the Omaha and Lincoln metro areas have captured virtually all of the state’spopulationgains,whilecommunitiesoutsideNebraska’stwomajorurbancentershavelargelyremainedflatordeclinedinpopulation.Furthermore,manyofthesecommunitiesarealsoagingrelativetotherestofthestate,thoughimmigrationhasbeenasourceofexpandingandyoungerpopulationsinsomemoreruralareas.Nebraskahasawell-educatedworkforce,andhasachievedaveryhighrateofhighschoolgraduation,butachievementgapsremainamongcertainsegmentsofthestate’spopulation.Nebraska’shighereducationsystemhasincreasedthevolumeofstudentsearningpostsecondarydegrees.Atthesametime,scienceandengineering(S&E)degreesremainasmallminorityofthetotal,andareinsufficienttofillcurrentlabordemand,particularlyininformationtechnology(IT).Nebraska’sworkforceismosthighlyspecializedinlow-wageagriculturalwork,clerical,ande-commercepositions(althoughemploymenthasdeclinedsomewhatintheseareas).Strongemploymentgrowthandhigherwagesin“middle-skill”trades,businessandfinancialoperations,andSTEMoccupationsindicatetheircontinuedandfutureimportancetoNebraska’seconomy.ThemostimportantfeatureofNebraska’sworkforce, notwithstanding its high quality, is the fact that it is in generally short supply. As theunemploymentdatareportedaboveindicate,thelimitedquantityofavailablelaborinNebraskaposessignificantchallengesforthestate’seconomicfuture.

Population Trends Nebraskahasexperiencedsteady,modestpopulationgrowthoverthelastdecade,risingfrom1.74millionin2004to1.88millionin2014,withanaverageincreaseof0.77%peryear.However,asnotedinthefirstsectionofthisreport,thestate-levelgrowthrateconcealsimportantregionaldifferences:populationhasincreasedsubstantiallyinNebraska’smajorurbanareas,whilepopulationintherestofstatehasremainedflat.Inparticular,someruralareasfaceexistentialchallenges.TheU.S.CensusBureauestimatesthat63ofNebraska’s93countieslostpopulationfrom2010to2014.16

16U.S.CensusBureau,EstimatesoftheComponentsofResidentPopulationChange:April1,2010toJuly1,2014.2015.



Inadditiontoadecliningpopulation,manyareasofNebraskafacethechallengeofanagingpopulation.Nebraska’smedianageis36.2years,butmuchofthestateisconsiderablyolder.Sixty-nineofNebraska’scountieshavemedianagesof40orolder,and42countieshavemedianagesof45orolder;thesecountiesarepredominantlyinlessdenselysettledareasintheWesternportionofthestate.17 An urban-rural divide exists in Nebraska with respect to workforce age: workers 55 years and olderaccountfor21.6%oftheworkforceinmetropolitan/micropolitanareasinNebraska,butnearly28%ofthe non-metropolitan/micropolitan workforce.18 Although older workers can be a source of valuablebusinessexperienceandtacitknowledge,theysignalaneedfortransitionofleadershipandtrainingofnewworkers. Forexample, a recent surveyof small businessesowners inNebraska found that “[t]heimportanceofsuccessionplanningcontinuestogrow,andcontinuestobeamongthechiefconcernsofruralsmallbusinesses.”19ThisfindingalignswiththeviewsofSRIfocusgroupparticipants,manyofwhomidentifiedsmallbusinesssuccessionasanurgentproblemforthestateofNebraska.Nebraska’spopulationisnotuniversallyaging,asimmigrationfromothernationshasbeenasourceofpopulationgrowthandofyoungerworkersforthestate.From2010to2014,Nebraskalostabalanceofapproximately5,400peopletodomesticmigration,butgainednearly15,500peoplefrominternationalmigration.20Furthermore,theforeign-bornpopulationofNebraskaisamongtheyoungestinthenation,andtheseimmigrantsarelikelytobeasignificantsourceoffuturebirths.21FocusgroupparticipantsdidnotethatsmallNebraskatownsmayfacesocialandeconomicstrainswhenintegrating foreign populations, especially with respect to local education systems. Despite thesechallenges, immigrantpopulationsareapotential resource forbolstering the state’s limited supplyofworkers,especiallyinruralareas,andcouldhelpfillgapsinsmallbusinesssuccession.

Educational Attainment Nebraska’spopulationhashigheducationalattainmentcomparedtothenationalaverage,suggestingthatinbroadterms,thestateenjoysacomparativeadvantagewithrespecttothevalueofitsworkforce.Asshown inFigure11below,90.5%ofNebraska’spopulationage25yearsandolderhasat leastahighschooldiploma,abovethe86.3%ratefortheUnitedStatesoverall.NebraskaalsohasahigherportionofAssociate’sdegreeholders(9.7%)andBachelor’sdegreeholders(19.6%)amongitsadultpopulation.The

17U.S.CensusBureau,2010-2014AmericanCommunitySurvey5-YearEstimates.18U.S.CensusBureau,LongitudinalEmployer-HouseholdDynamics,ascitedinNebraskaDepartmentofLabor,2015ScottsbluffMCRegionalReview,2015,p.27.https://neworks.nebraska.gov/admin/gsipub/htmlarea/uploads/2015_Scottsbluff_Regional_Review.pdf.19JonM.Baileyetal.,SmallBusinessesinRuralNebraska:TheirNeedsandThoughts:ResultsoftheFourthBiennialSurvey,CenterforRuralAffairs,2014,p.2.http://files.cfra.org/pdf/small-business-needs-assessment-survey-results-2014.pdf.20U.S.CensusBureau,EstimatesoftheComponentsofResidentPopulationChange:April1,2010toJuly1,2014.2015.21NicholasBergin,“CensusReport:NebraskaImmigrantsAmongYoungestinNation,”LincolnJournalStar,December3,2015.http://journalstar.com/news/state-and-regional/nebraska/census-report-nebraska-immigrants-among-youngest-in-nation/article_0f6f86f7-6624-5e7f-908d-fda17f9c3e92.html.



oneexceptionisatthegraduateandprofessionaldegreelevel(e.g.,law,medicine):9.4%ofNebraska’spopulation25yearsandolderhasreachedthislevelofeducation,lowerthanthenationalrateof11.0%.22

Figure11:PercentofPopulation≥25YearsOld,ByEducationLevel(2014)SOURCE:U.S.CensusBureau,PopulationDivision

K-12TurningtowardsNebraska’sfutureworkforce,interviewandfocusgroupparticipantsgenerallyofferedpositiveviewsonthequalityofprimaryandsecondaryeducationinNebraska.TheyqualifiedthisoverallassessmentwithremarksthatK-12educationqualitywasnotuniversallyhighacrossallareasofthestate,and that certain school districts experience difficulty recruiting and retaining teachers due to ruralisolationandmoreattractiveemploymentopportunitiesinneighboringstates.Nebraskaenjoysoneofthehighesthighschoolgraduateratesinthenation,reaching89.7%forthe2013-2014schoolyear,secondonlytoIowa(90.5%).23BreakingdownNebraska’shighschoolgraduationratesby demographic characteristics, however, reveals achievement gaps in the state that leave room forimprovement(Table13),despiteappreciablegainsinrecentyears.24

22U.S.CensusBureau,2010-2014AmericanCommunitySurvey5-YearEstimates.23 U.S. Department of Education, Common Core of Data (CCD) Data Tables. 2015.https://nces.ed.gov/ccd/tables/ACGR_RE_and_characteristics_2013-14.asp. Graduation rates cited in this reportare4-yearadjustedcohortgraduationrates(ACGR).24JoeDejkaandJulieAnderson,“Nebraska’s89.7%publicschoolgraduationratejustmissesHeineman’s90%goal,”Omaha World-Herald, November 22, 2014. http://www.omaha.com/news/nebraska/nebraska-s-public-school-graduation-rate-just-misses-heineman-s/article_80e79745-9c61-5c94-81a4-ec95b97b0033.html.



GraduationRate(ACGR)forNebraska(SchoolYear2013-2014)

Population GraduationRate StateRankTotal 89.7% 2AmericanIndian/AlaskaNative 69% 28Asian/PacificIslander 78% 49Hispanic 82.8% 8Black 81% 6White 92.8% 4EconomicallyDisadvantaged 82.4% 6LimitedEnglishProficiency 60% 34StudentswithDisabilities 72% 10

Table13:PublicHighSchool4-YearAdjustedCohortSOURCE:U.S.DepartmentofEducation,NationalCenterforEducationStatistics.While92.8%ofwhitestudents inNebraskagraduate in fouryears,only82.8%ofHispanicand81%ofblackstudentsdoso.Nebraskaranksverylow(49th)withrespecttoAsianandPacificIslanderstudents,whograduate at a rateof 78%. The state’s laggingperformanceamong studentswith limitedEnglishproficiency (LEP) is a significant outlier in comparison to its higher performance among most otherdemographics.Nebraska’sfour-yeargraduationrateforLEPstudentsis60%,rankingthestate34thinthenationinthismetric.Giventhewidespreadworkforceshortagethatexistsacrossthestate,andasaresulttheincreasingrolethatimmigrantsandtheirchildrenareanticipatedtoplayinNebraska’seconomy,enhancingeducationaloutcomesamong this studentpopulation isa criticalarea for future improvement. These sub-groups(someisolatedinsmalltowns,someinNorthOmaha)areanear-at-handsolutiontosomeofthestate’sworkforcechallenges.

HigherEducationHighereducationinstitutionsinNebraskaincludetheUniversityofNebraskapublicuniversitysystem,theNebraskaStateCollegeSystem,privateliberalartscollegesanduniversities,andanetworkofcommunitycolleges distributed throughout the state. In 2014, these institutions awarded approximately 30,000postsecondarydegreesandcertificates,about49%ofwhichwereBachelor’sdegrees,by far themostcommondegree type inNebraska.TheUniversityofNebraskaSystemaccounts foroverhalf (53%)ofBachelor’sdegrees,and37%ofalldegrees.25

25U.S.DepartmentofEducation,NationalCenterforEducationStatistics,IntegratedPostsecondaryEducationDataSystem(IPEDS).RetrievedfromNationalCenterforScienceandEngineeringStatistics,WebCASPAR,February3,2016.https://ncsesdata.nsf.gov/webcaspar/.



TotalhighereducationdegreesawardedinNebraskarosefromabout22,800in2004to30,000in2014,anincreaseof31%.Duringthisperiod,certificateshavebeenthefastestgrowingdegreetype,increasingby46%.Associate’sdegreesalso rose faster than theaverage foralldegree types, increasingby34%,indicating an increasing relative role of theNebraska’s community colleges in the state’s educationalpipeline.

Figure12:PostsecondaryDegreesAwardedbyNebraskaInstitutionsSOURCE:U.S.DepartmentofEducation,NationalCenterforEducationStatistics.GraduationratesatNebraska’shighereducationinstitutionsarelowrelativetothestate’shighschoolgraduation rates and compared tonational averages.According to theChronicle ofHigher Education,approximately 56.2% of all students at Nebraska’s 4-year public colleges graduate within six years.Althoughthisrate increasedby9.1%from2002to2013, itstillplacesNebraskaat23rd inthenation,belowthenationalaverageof57.6%.26Thegraduationrate(within150%ofdegreecompletiontime)for2-yearpubliccollegesis27.0%,comparespositivelytothe2-yearnationalrateof19.4%.Thereareanecdotal reportsof abraindrainof goodgraduatesof theNUsystem.However, thedatasuggestthatNebraskalookslikemuchoftherestofthecountry,somegraduatesleave,andsomearerecruitedfromelsewhere,andmost(morethan70%)stayinthestate.OfmoreconcernistheNUsystem’ssomewhatlengthytimetodegree.Thisoftenleadstofailuretocomplete.

STEMStudentswithdegreesinscienceandengineering(S&E)disciplinesgenerallyexperiencegreaterdemandfor their skills andmore favorable outcomes in the labormarket than graduates in other fields. SRI’sresearchsupportstheconclusionthatthenationaltrendofhighdemandforS&Egraduatesisalsotruefor Nebraska, particularly in the Omaha area. STEM occupations account for a small share of total

26ChronicleofHigherEducation,“CollegeCompletion,”2015.http://collegecompletion.chronicle.com/.



employment inNebraska,makingup5%ofthetotal.However,STEMjobs inNebraskaarebothfastergrowingandhigherpaidthanthoseoutsideSTEMfields.ThenumberofSTEMjobsinNebraskaincreasedbyanaverageof1.8%peryearfrom2004to2014,asignificantlyhighergrowth rate than thatof total jobs (0.7%)andnon-STEM jobs (0.6%). TheaverageannualwageforSTEMjobsin2014was$70,684comparedto$37,601fornon-STEMjobs.Furthermore,thewagegaphasexpandedby27%overthelastdecade,increasingfromapproximately$26,000in2004to$33,000in2014.TheoccupationaldatareinforcetheattitudesexpressedbySRI’sinterviewsubjectsandfocusgroupparticipants:STEMjobsareinhighandincreasingdemandinNebraska.

Figure13:STEMandnon-STEMjobsinNebraskaNebraskainstitutionsofhigherlearningareacceleratingtheiroutputofS&EgraduatesattheBachelor’slevelandhigher:degreesawardedincreasedfromabout3,500in2004to5,200in2014.Despitethis50%increase,S&Edegreesstillonlyaccountfor25%ofthestatetotal.27Theacuteshortageofqualifiedinformationtechnology(IT)workersfacingmetroemployersexemplifiesNebraska’s high-techworkforce challenge. A 2013 survey ofOmaha-area employers projected robusthiringoverthenexttwoyears,withIThiringintheregionlikelybetween1,400–2,100jobsperyear.28Ina2014surveycommissionedbytheNebraskaDepartmentsofLaborandEconomicDevelopment,two-thirds (66.7%)ofLincolnbusinessesthatroutinelyhire ITworkersreportedthat itwasdifficult to find

27U.S.DepartmentofEducation,NationalCenterforEducationStatistics,IntegratedPostsecondaryEducationDataSystem(IPEDS).28GreaterOmahaChamberofCommerceandAIM,OmahaAreaITandEngineeringTalentStudy,October24,2013.http://cdn.aimforbrilliance.org/pdf/2013omahaareaitandengineeringtalentstudy.pdf.

Source:BLS

2004Jobs

2014Jobs

AnnualJob

Growth(%)

Avg.AnnualWage

AllOccupations 861,730 927,500 0.7% $41,080

STEMOccupations 38,510 45,920 1.8% $70,684

Non-STEMOccupations 773,690 821,870 0.6% $37,601



workersforcomputerandIToccupations,primarilyduetoalackofapplicantswithnecessaryITskills.29SRI’sconversationswithlocaleconomicdevelopmentofficialsandITbusinessleadersrevealthatagreatnumberofopenITjobsaregoingunfilledduetoalimitedapplicantpool.Thisseverelyconstrainsbusinessexpansion.Thebottomlineisthattheexistingpipelineisinadequate.TheNational Center for Education Statistics reports thatNebraska institutions across the entire stateawarded704computersciencedegreesattheBachelor’slevelorabovein2014,withUNOawarding195degrees.Respondentstothe2013surveyreportedthat54%oftheirprojected1,400–2,100yearly ITopeningswouldrequireatleastagraduatedegree,whereasallNebraskainstitutionscombinedawarded196degreesattheMaster’slevelorabove,73ofwhichwerefromUNO.

Occupational Analysis Examining theoccupationaldistributionofNebraska’s currentworkforcecanprovide insights into thecurrentstrengthsofthestate’seconomy,andthejobsandrelatedskillsthatareingreatestdemandinthe labor market. Data on jobs concentration (i.e., location quotient), wages, and recent trends inemploymentgrowthareimportantindicatorsoftheevolvingnatureofNebraska’sworkforce.Figure14belowshowsthetop20specificoccupations30withhighestlocationquotientsinNebraskawithemploymentlevelsofatleast1,500.Inotherwords,theseoccupationsarebothheavilyconcentratedinthestate,andcommonenoughtohaveanappreciableroleinthestate’seconomy.

29UniversityofNebraska-LincolnBureauofBusinessResearch,SurveyofLincolnAreaBusinessesaboutSkillandTrainingRequirements,December4,2014.https://neworks.nebraska.gov/admin/gsipub/htmlarea/uploads/UNL_Final_Report_120314.pdf30 Asmeasured by six-digit StandardOccupational Classification (SOC) codes. Formore information on the SOCsystem,seehttp://www.bls.gov/soc/home.htm.



Meat,poultry,andfishcuttersandtrimmersisbyfarthehighestconcentratedoccupationinNebraska,withanextremelyhighLQof10.57,followedbyfarmequipmentmechanicsandservicetechnicians(7.16).Together,thesehighconcentrationsreflectthegreatspecializationofthestate’sworkforceinagriculturecomparedtotherestofthenation.ThenexthighestconcentratedoccupationisInsurance.Underwriters,withanLQof2.9,areasignofthestrongpresenceoftheinsuranceindustryinNebraska.

Figure14:Top20HighestConcentratedOccupationsinNebraskaSOURCE:BureauofLaborStatistics,OccupationalEmploymentStatisticsSurvey

Thefactthatcertainoccupationsarehighlyconcentratedinastatedoesnotnecessarilymeanthattheyhaveapositiveoutlookorshouldbetargetedaspartofeconomicdevelopmentstrategy.Medianwagesand employment growth rates are important indicators of the demand for specific occupations in achangingeconomicandtechnologicallandscape.ThisinformationisshowninTable14forthesamesetofhigh-LQoccupations.

Occupation LQ Employment Emp.Growth(2010-14)

MedianWage

Meat,Poultry,andFishCuttersandTrimmers 10.57 11,090 19.4% $28,010FarmEquip.Mechanics&ServiceTechnicians 7.16 1,760 -0.6% $36,860InsuranceUnderwriters 2.9 1,860 28.3% $51,880Interviewers,ExceptEligibilityandLoan 2.68 3,560 -18.9% $26,420HighwayMaintenanceWorkers 2.62 2,570 8.4% $32,890Telemarketers 2.37 3,880 -10.8% $20,920HeavyandTractor-TrailerTruckDrivers 2.3 26,080 0.8% $41,720



OrderClerks 2.29 3,050 -30.7% $24,120CementMasonsandConcreteFinishers 2.16 2,300 0.9% $34,250SocialandHumanServiceAssistants 1.95 4,820 6.4% $24,010First-LineSuperv.ofNon-RetailSalesWorkers 1.75 3,030 23.2% $62,640ComplianceOfficers 1.64 2,830 28.1% $57,550LoanOfficers 1.6 3,360 11.6% $65,600Carpenters 1.57 6,770 28.2% $33,360Welders,Cutters,Solderers,andBrazers 1.57 4,050 15.1% $34,990ChildcareWorkers 1.53 6,240 14.5% $18,790Cooks,InstitutionandCafeteria 1.53 4,290 17.2% $23,030IndustrialMachineryMechanics 1.52 3,340 73.1% $43,250InsuranceClaimsandPolicyProcessingClerks 1.52 2,690 -29.8% $35,100ComputerProgrammers 1.48 3,120 13.9% $73,720

Table14:Top20HighestConcentratedOccupationsinNebraska–EmploymentandWagesNOTE:OccupationswithemploymentgrowthandwagesabovetheNebraskamedian($32,570)areinbold,thosewithwagesabovetheOmahamedianinitalics.SOURCE:BureauofLaborStatistics,OccupationalEmploymentStatisticsSurveyTakentogether,thesedatayieldseveralinsightsintoNebraska’sjobmarket:

• First,Nebraska’sstrongestoccupationalspecialization is ina low-paying job:meatandpoultryworkers arehighly concentratedandnumerous inNebraska,butearn substantiallybelow thestatemedianwage.

• Second,clericaloccupations,suchasinsuranceclaimsandpolicyprocessclerksandorderclerks,experienced significant declines in employment, along with telemarketers and interviewers.ThesedeclinesarelikelyduetoincreasedadoptionofITandautomationofthesepositions.

• Third, above-median pay and strong employment growth in industrial machinery mechanics(73.1%), along with carpenters and welders, signals healthy demand for “middle-skill”occupations.

• Fourth, high pay, growth, and concentration are also present for insurance underwriters,compliance officers, and loan officers, indicating high value for banking and insuranceoccupations. Finally, although computer programmers are not particularly concentrated inNebraskaatthistime,rapidgrowthandveryhighmedianwages($73,720)demonstratethatITskillsareingreatdemandinthestate’slabormarket.

Thedemandfortheseparticularoccupationsisconsistentwiththeoverallpicturegeneratedbytheclusteranalysisintheprevioussection.Nebraskahasalocationadvantageinaclusterofmid-skillsectorsintheareaofmetals,transportationequipment,andtransportationservicesthatpayabovethestatemedianwage.Thestatealsohasalocationaladvantageintechnologyandskillintensiveoccupationsinfinancialservices, information technology and (presently at a smaller scale) bio technology that pay far aboveOmaha’smedianwage.



Therearetwootherfeaturesofthelandscapewhichcontributessignificantlytochallengesincommunitydevelopment.Thereisashortageofsmallbusinessesandqualifiedemployeesinthebuildingtrades.Thisreflects a variety of economic forces, but limited availability of curricula at some community collegesseems to be part of the problem. Also, because student teachers are not paidwhile they earn theirclassroomcreditsinordertogetqualified,manyturntootherstatesanddonotreturn.Thisexacerbatestheteachershortageinruralareas.AsummaryoftheworkforcechallengesfacedbyNebraskaisstraightforward:

• Generalshortageinallregionsgivenverylowunemployment• AcuteshortageofITandotherSTEMgraduatesinhighpay,fastgrowingoccupations• Acuteshortageofworkerswithqualificationsinthebuildingtrades• Failuretointegrateunderservedandnon-Englishspeakingpopulationsintothepipeline• AboveaveragetimetodegreeintheUniversityofNebraskasystem• Lossofteachersthroughthecredentialingpipeline

Portfolio of responses As noted, existing institutions in Nebraska have considerable strengths, and have already adoptedpracticesandpoliciesaimedataddressingmanyofthesechallenges.Avarietyofadditionalshort-termandlong-termsolutionsareidentifiedbelow,recognizingthattheycouldbecomplementaryto,andbuildon,existingefforts,andalsothattherenosilverbulletsavailabletoquicklyresolvethesechallenges.

ShorttermInviewofthegeneral importanceoftalent,andthecrisis intechnologytalent inthemetroareas,thestateofNebraskashouldredoubleit’seffortstoretain&recruittalent.

Ø Shortprogramssuchas the InterfaceWebSchool inOmaha,1st JobLincoln,andcertificateorstand-alone short courses at community colleges could be enlarged to help plug identifiedworkforcegaps(thisoftenallowsadultswithsomecollegecreditstocontinuetheireducation).

Ø TheInternNEinternshipprogram(widelypraisedbyinterviewees)couldbeexpanded,andotherprograms within universities in which students obtain short term placements (COOP,apprenticeships,etc.)couldalsobeexpanded.

Ø Highschoolscoulddesignprogramssothatstudentswhoentertheworkplaceonanexperientialbasisareshelteredfromregulatoryandliabilityobstacles(theactivityisclassifiedaseducational).

Ø TheDepartmentofLaborworkforcetraininggrantscouldbeaccepted,consideredandgrantedona continuousbasis in areasof acuteneed (subject to reviewby a smallerboardoperatingoutsideaquarterlyschedule).

LongtermInthelongtermhighereducation,K-12andotherworkforceinstitutionsshouldbemoretightlyalignedaroundthestate’seconomicdevelopmentgoals.

Ø Nebraskahighereducationinstitutionscouldmakesomepercentageofseatsindegreeprogramsinareasofhighdemandavailabletonon-residentsat in-stateratesfortuitionandfees(theseprogramswouldbeexpectedtoexpandovertime).



Ø TheexistinginitiativeofHighSchoolacademiesshouldbesupported,andmoreemphasisplacedonwraparoundactivitiestoencourageengagementinSTEMfieldsbyteachers,students,parentsandcommunitystakeholders(Iowa’sSTEMScale-Upinitiativecanserveasamodel)

Ø Teachereducationprogramscouldallowstudentstobepaidwhenearningcreditsforclassroomexperience.

Ø Pilotoradoptmeasuresofmasteryandcompetenceinareasofmid-skillshortagessothatadultswithsomecollegecreditscangaincredentials

FundingformulaBestpractice indicatesthatonewayto incentcollegesystemstobeaclosercollaborator ineconomicdevelopmentand talentdevelopment initiatives is througha funding formula.ThecommunitycollegesysteminNebraskaisalreadygovernedbyafundingformula,howeverthefouryearcollegesarefundedatpresentusingabase-plusapproach.Inotherwords,lastyear’slevelistakenasapointofdeparture,andthebudgetincreasedornotasdeemedappropriate.(ThecurrentbasedoesreflecttheearlieruseofaformulabasedonFTEs).Thisisfarremovedfromexistingbestpractice.Otherstates(forexample,TennesseeandWashingtonState)havedevelopedfundingformulasthataredesignedtorewardperformancealignedaroundthestate’sgoals,includingeconomicdevelopmentgoals.Inaddition,collaborationbetweenthestateandtheUniversitiesonmattersofeconomicdevelopmentgoalscouldbeincentedthroughatargetedtaxincentiveprogramthatcouldprovidefundingbasedonlicensingrevenuethat isused inNebraska,andandsoreducethehighcost forstartupsof theuseofUniversityfacilities.Othergoalscouldincluderewardsforshortertimetodegrees,rewardsforgraduatingmembersofunderservedcommunities,andrewardsforSTEMdegrees.GiventhedeficiencyintheSTEMpipelineinNebraska,thisshouldbeconsideredasalong-termstructuralsolution.Inshort:

• TheNebraskalegislaturecouldauthorizeacommissiontoresearchanddesignafundingformulaforallfouryearinstitutionsthatprovidesrewardsforreducedaveragetimetodegree,increasedenrollmentandgraduationofunderservedgroups,andrewardsfortheproductionofgraduateswithSTEMdegrees.

• WithinNebraskaAdvantageorasuccessorprogram,anincentiveorincentivescouldbeprovidedtohelpalignstateandUniversityeconomicdevelopmentandresearchgoals.



Infrastructure, Housing & Community Development Good infrastructure, affordable housing, and high quality of life are aspirations shared by almosteverybodywhenthinkingaboutthefutureofNebraska,andarethefoundationsforhighqualityeconomicdevelopment.Nebraskaalreadyenjoystheseelements,toagreaterorlesserextent.Buteconomicgrowthhasbroughtwithitsomestresstotheseexistingassets.

Infrastructure Interviewees generally reported very high satisfaction with infrastructure. Nebraska owes its earlydevelopmenttotworivers(theMissouriandthePlatte),thetranscontinentalrailway,andInterstate80,oneofthecountry’smajortranscontinentalhighways(althoughcommunitiesintheNortheastcontinuetopushforwideningInterstate275intoafour-lanehighwayeastofNorfolk).Inaddition,thepresenceofOffutt Airforce Base means that Omaha has a world-class connection to information networks. ThisinfrastructureandconnectivityallowsNebraskatomakethemostofitscentralgeographiclocationandtosenditsproductsallovertheworld.

PowerOutsideOmaha,wholesalepowerismainlyprovidedbytheNebraskaPublicPowerDistrict(NPPD),whichdeliverspoweratacompetitiveprice.Thissystemisheavilydependentonfossilfuel,withagoalof10%renewablesby2020.This isapotentialobstacle to therecruitmentof large-scaledatacenters,where100% renewable sourcesof power areoften “non-negotiable”, according toone interview. There arebarrierstotheeasyadoptionofrenewables.Asanon-profit,NPPDcannotdirectlybenefitfromfederalrenewableenergytax-credits,andtherealreadyexistssubstantialwindcapacityintheGreatPlains.TheOmahaPublicPowerDistrict (OPPD) ismovingmorequickly towardsrenewables,with therecentretirement of a coal plant and the proposed retirement of a nuclear plant. Instead, it has signedagreementsforthepurchaseofenergyfromrenewablesourcesthatwillmeet30%ofitsretailsalesby2017.Asaresult,OPPDhasbeenabletoplayakeyroleintherecruitmentofdatacenters.Inthefuture,distributedrenewablegenerationandstorage(wherepowerisproducedatthelocallevelbasedonamixofrenewablesourcescombinedwithadequatestorage)isadvancingrapidly.Itmaybeavaluableoptionforruralareasinthefuture.Thiskindofapproachtomeetinglocalpowerneedshasnotyet closed the gapwith grid scale prices, but the cross-over in pricewill probably occur sooner thanexpected.When the cross-over occurs distributed generationwill build assets (and the tax base) andprovidejobsinmanyruralcommunities.

CommunicationsThe federal map of high speed internet indicates general availability outside the metro areas alongInterstate80and thePlatteRiver.However, some interviewees indicatedgaps in coverage thatwereburdensome for business connectivity, as well as high prices. Beyond those areas, even cell phonecoverageispatchyinmanyruralareas.Addressingthesedeficienciesiscriticalforthefutureofthestateoutsidethemetroareas,theequivalentofadequatelyprovidingandmaintainingroads.Otherstates,suchasGeorgiaandNorthCarolina,haveexperimentedwithpublicagenciestaskedwithextendingthereachof the internet.These initiativesarenotwithoutcontroversy,but thedifficultiesofunderserved ruralareasareconsistentacrosstheU.S.



UtilitiesNebraska’smetroareasandmediumsizedtownsarenowconfrontedwithaseriousconstraintcreatedbysteadyeconomicgrowth.Thebasicinfrastructureforresidentialandcommercialsites–water,sewer,gas,andpowerlines–isfullyextendedandhaslittleextracapacity.Thishasasignificantimpactonthecostandavailabilityofnewresidentialhousing(seebelow),ontheavailablestockofshovel-readysitesforbusinessrecruitment,andespeciallyonthedevelopmentofnewsitestomeettheneedsofnewandexpandingbusinesses.Theexistingfinancialtoolsavailabletoaddressthisconstraintneedreviewandgreaterinvestment.TheSiteandBuildingDevelopmentFundisexhausted,havingreceivedonlyalittlemorethan$2millionin2015. Community Development Block Grants (CDBG), now offered as loans at zero interest, are veryhelpfulinbothrecruitmentandexpansion,buttheirvalueisdilutedwhenfirmsmustpaytoconnectnewsitestotheutilitynetwork.

Housing Housinginthemetroareasisgenerallyavailableatcompetitiveprices.Indeed,onerecentstudybythestateofOregonidentifiedOmahaasinthesweetspotforaffordability,economicstrengthandqualityoflife.31OmahaandLincolnhavethebalancerightamongthesecompetingdimensions,confirmedbymanyoftheinterviews.However,outsidethemetroareas,accesstomarketratehousingfornewemployeesoryoungfamiliesisaverysignificantchallenge.Thisisasimportanttoeconomicdevelopmentaschallengesintheareaofworkforce. Indeed,shortcomings inaccesstohousingcontributessignificantlytoworkforcechallengesoutsideNebraska’smetroareas.Itisveryhardtorecruitorretaintalentiftheyhavenowheretolive.A simple contributing factor is relatively low wage rates compared to the rest of United States (asdiscussedabove).Inthelongrun,ashifttowardsahigh-skill,technologyintensiveeconomywillhaveausefulimpactontheproblem.Butotherwisetheredonotappeartobeoneortwosingularreasonsforthis situation.Yet this shortage representsa serious, immediateconstraintoneconomicdevelopmentoutsidethemetroareas.

PropertytaxesRelatively high property taxes also contribute to the problem. Compared to other states, Nebraska’scombinedstateandlocalrevenuesrestheavilyonthepropertytax.Theissuewasraisedinmanyoftheinterviews conducted for this project, and it is an outlier inNebraska’s otherwisewelcoming tax andregulatoryenvironment.This report cannot address in useful detail the causes, consequences and cure for this situation. Thelegislaturecompletedanexhaustivestudyin2013whichidentifiedarebalancingofsourcesofrevenueawayfromthepropertytaxasakeygoal.Aproblemwiththiskindofchangeisthedependence,inpart,ofschoolsandcommunitycollegesonthepropertytax.31https://oregoneconomicanalysis.com/2016/06/08/the-housing-trilemma/



Inthelong-run,economicdevelopmentthatfostersthedevelopmentoftechnologyandcapitalintensivebusinessinvestment(asproposedinthesectiononNebraska’staxcredits)willbroadenthepropertytaxbaseandhelpspreadtheburden.

CostsandincomeNotwithstandinglowwagesandhighpropertytaxes,whenwecomparethecostofhousinginNebraska(andinspecificpartsofNebraska),expressedasashareofmedianhouseholdincome,totheMidwestandtotheUnitedStatesasawhole,wedonotseethatNebraskaresidentsfaceapeculiarburdenintermsofprice.

Figure15

Yetinsomecommunitiesoutsidethemetroareas,housingissometimessimplynotavailableatanyprice.(InKearney,averagedaysonthemarket foraresidentialpropertyhasbeenas lowasthreedays.Forcomparison,inthehistoricallytightmarketoftheWashingtonD.C.metroarea,theaveragedaysonthemarketinthefallof2015was32days).Asaresult,smallercommunitiesfindrecruitingkeyprofessionals,such as physicians or teachers, or skilled workers andmanagers for local businesses, an insuperablechallenge. Identifyingthefactorsthatunderliethissituationisanimportantfirststeptowardscraftingpoliciesandpracticesthatwillhelptomitigatetheconsequencesofthissituation.

SupplyConstraintsThereappeartobeseveralreasonsonthesupplysidefortheshortageofhousing.First,whileNebraskaislandabundant,irrigatedfarmlandisvaluable(albeitsomewhatvolatileinprice)limitingthesupplyoflandfordevelopmentinsomecases.Inaddition,townsinNebraskadonothavetheresourcestopaytoextendutilitiestonewparcels(seethediscussionintheprevioussection).Asaresult,thedevelopmentoftheseparcelsmustincludethecostofexpensiveinfrastructure,spreadoverjustafewunits.Other inputs are also costly and in short supply, especially in small towns. Building suppliesmust beshippedfrommetroareasorColorado.Morestrikingisthescarcityofqualifiedworkersinthebuildingtrades.Stakeholderparticipantscommentedrepeatedlyindifferentpartsofthestateonthedifficultyof

Source:(Census(Bureau(



findingandretainingtheskilledcraftsmennecessarytobuildnewhousing.TraininginthebuildingtradesappearstobeinadequateinNebraska,aproblemcompoundedbythelackofconsistentopportunitiesforemploymentoutsidethemetroareas.FinancingforindividualhomebuyersisalsonotasreadilyavailableinNebraskaasmightbeimagined.Fewlocalbanksknoworwanttolearnthedetailsoffederalprograms(Veterans,F.H.A.,etc.)thatassistfirst-time home buyers, due to their complexity. Further, conservative valuations (based on limitedcomparableproperties)oftenpreventanewsalefrombeingfinanced,evenwheretherearewillingbuyersandsellers.Afinal,andcriticalissue,isthatthefinalpriceofnewhousingisalsooftenbeyondthemeansofyoungworkers earningmodestwages because of the problemof scale. InOmahaor in the urban areas ofColorado,newhousingdevelopmentisatascalethatsignificantlylowersthecostofeachindividualunit.This kindof scalenot available in themarket inNebraskaoutside themajorurbanareas,wherenewdevelopmentsmaycomprisefiveorsixhouses,notfiftyorsixty.

RegulatoryEnvironmentTherearesomewaysinwhichzoningincreasesthecostofdevelopingresidentialhousing.Forexample,requirementsforwidesuburbanstreetswithsidewalksandextensivelightingmayexceedtheneedsofmodestdevelopmentsattheedgeofsmalltowns.Inaddition,the‘distress’criteriarequiredfortheuseofTaxIncrementFinancing(TIF)—awidelyusedtoolacrossNebraskatofundtheextensionofutilities—makesitsuseunwelcomeinsomecommunities.

AHousingGrandChallenge?InsummarythehousingchallengefacedbyNebraska,especiallyinsmalltownsandruralareas,hasmanycontributingelements.AfurthercauseforconcernarelargerdevelopmentsinthehousingsectoracrosstheU.S.economy.AcontinuingnationalshortageofhousingstockintheU.S.followingthefinancialcrisis,combinedwiththe increaseddemandforhousingthatwill followasmillennialsestablish families,willlead to substantial, continuing demand for inputs. In particular, an additional 500,000 constructionworkerswillbeneededacrossthecountryinthecomingyears.RuralareasofNebraskastandlittlechanceofsuccessfullycompetingforthisworkforce.32Theimplicationisthatanalreadyserioussituationislikelytoworseninthemedium-term.Everybody knows the problem that needs to be solved—it can be precisely specified asmarket ratehousinginthe$90,000-$120,000range—butsolutionsareelusive.Takentogether,thesefeaturesoftheproblemmakeitamenabletotheuseofagrandchallenge,orprize,asapolicyresponse.Grandchallenges,orprizes,areusedtomobilizeawide-rangeoftalenttowardsfindinganovelsolutiontoapressingproblem.Theirusehasacceleratedinrecentyears,includingchallengesorganizedbytheDefenseAdvancedResearchProjectsAgency(DARPA),theDepartmentofEducation,andseveralprivatefoundations.

32http://csen.tumblr.com/post/145455151989/why-housing-is-about-to-eat-the-us-economy



Inthiscase,leadersinNebraska(forexampletheBankersAssociation,oraprivatefoundation,inadditiontoNebraskastategovernment)couldofferasubstantialcashprizeforthedesignandconstructionofahouse,basedonnewtechnologiesornewusesofexistingtechnologies,andoninnovativedesigns,thatcouldbemadewidelyavailableinNebraskawithinthespecifiedpricerange(thehousetobeconsistentwithexistingbuildingcodesandzoningrequirements).Of course housing developers have been adopting incremental improvements to new constructiontechniquesformanydecades,soanobjectiontothisideaisthattherearefewimprovementsavailable,especiallyfewdramaticimprovements,thatarenotalreadyinuse.However,thecaseinquestionappliestoaspecificnicheinthehousingmarket,inwhichconstructioncannotbedoneatscale.Hereweneedinnovationofaspecifickind.Further,grandchallenges,bytheirnature,oftenacceleratedevelopmentsthathaveotherwisebeentooslowandfragmentedtomeetexistingneeds.There are precedents that serve as inspiration for this idea. Following Katrina,many architectswereinspiredtoreinventhousingfortheinhabitantsofNewOrleans,eventhoughtherewerenospecificprizesoffered.Thechallengecreatedbythenaturaldisasterappealedtotheirprofessionalpride.Atanearliertime, Nebraskawas a beneficiary of another innovation in housing, the Sears house,which could beorderedfromacatalogueanddeliveredtoyourhomesite.Therehavebeenmomentsinthepastwhenpeoplethoughtimaginativelyabouthowtodesignanddeliverhousing.Agrandchallenge,whichwouldattractagreatdealofdesirableattentiontothestateasaninnovativeplace,couldsparkanothersuchmoment,andfindasolutiontoasignificanteconomicandsocialdifficulty.

Community Development Itwas noted at the outset that quality of place is a key strategic goal for the future. In fact, almosteverybodyinterviewedforthisprojectreportedthathighqualityofplaceandoflifealreadyexistsinthestate,andthatthesequalitieswereanimportantreasonwhyresidentscame,invested,stayedorreturnedtoNebraska.However,maintainingandexpandingthisqualityoflifeafteryearsofsuccessfulgrowthwillrequire an active approachby local communities. The limited capacity ofmunicipal utilities discussedaboveisagoodexampleofstressbroughtaboutbysuccess.

DiversepeopleThe discussion of Nebraska’s population at the beginning of the workforce section underlined theimportance of in-migration to the overall demographic trajectory of the state, migration often fromoutsidetheUnitedStates.This isasignificantopportunity foravarietyof reasons. Inthe21stCenturybusinessesneeddiverseteamsfrommanydifferentbackgroundsiftheyaretobecompetitiveinworldmarkets.Further,talentinthe21stcenturyseeksoutculturallyrich,diversecommunities.Also,smallerrural communities will havemuch richer, more dynamic futures to the extent they are able to takeadvantageoftheirimmigrantworkforce.Somesmallcommunitiesarenotcomfortablewiththesuddenchangesanimmigrantworkforcecanbring.Eachcommunityisthebestjudgeofitsowninterestinsuchcases.Butgiventheslow,seculardeclineinpopulationinruralareas,otherswillbegladofthevitalityofferedbynewarrivals.



However,Nebraskawillnotfullybenefitfromthesenewpopulationgroupsiftheyareisolatedfromthelargercommunityanddon’thaveeasyaccesstoemploymentopportunities.33PhysicalisolationinNorthOmahaismadeacutebypoortransportationoptions.Thelackofanadequatesystemofpublictransportlimits access to the workplace for these groups, even as employers in the same city face constantworkforceshortages.Omaha’sleadersunderstandthetransportationchallenge,andthereisavigorousdebateaboutpossiblesolutions,includingthevalueoflightrailorbusrapidtransit.Thisreportcannotspeak to specific solutions, but it is important tomake the larger point that any solutionwill requiresignificantpublic investment.Manyof the stressescreatedbyNebraska’s success require investment,whichshouldbeacknowledgedattheoutsetbystateleaders.Insmalltownsandruralareassecondgenerationimmigrantsalreadyrepresentapoolfromwhichsmallbusinesses will grow, and where community leadersmay be found. It is important that professionaladvice,supportservices,andfinancingareavailabletopotentialentrepreneurs,andleadershipprogramsandserviceopportunitiesareprovidedinsupportofpotentialcommunityleaders.SmallbusinessesinruralNebraskafacethesamesuccessionproblemsexperiencedinotherpartsofthecountry, but with a much more restricted pool in which to look for candidates. Second generationimmigrantsshouldbeincludedinthatpool.Theyoftenrepresentrelativelyyoung,untappedtalent. Inaddition,thisapooloutofwhichcoulddevelopsmallbusinessesengagedinthebuildingtrades,wherethereisotherwiseasevereshortage.Inalargersensethesegroupscanbethebasisforthefuturesuccessforwholecommunities,thebestchancetheyhavetoreversecurrantdemographicandeconomictrends.

DiversePlacesOmaha and Lincoln are already the beneficiary of significant investments in the arts, and home tocommunitiesofartists,performersandmusicians.Thesecommunitiesco-existwithtechnologytalentindense urban areas, and serve as an important ingredient for innovation districts and innovation eco-systems.34Smallscale,modestandexperimentalinvestmentsinco-workingspaces,publicspaces(parks,pedestrianareas,muralsetc.)and infrastructureforpedestriansandbicyclesshouldbeexpandedandspreadwidely.Thekindoftalentassociatedwithhigh-skillandhigh-technologybusinesseswantarichenvironment to live work and play. Growing that environment will require modest, widespreadinvestmentscombinedwithcivicvisionandimagination.Inmanyways thecommunityneedsof smaller towns inNebraskaare the same,albeitmoremodest.InterviewsandthelisteningtourconductedbySRIyieldednumerouscommentsaboutthevalueofthirdspaces/places.LibrariesacrossNebraskaremainvibranthubs forcommunitiesandmodelexamplesofsuch community assets, but small downtowns continue to struggle with aging, poorly maintainedresidential property and empty store fronts. The community approach encouraged by Main StreetAmericaisamechanismfordevelopingcivicengagementaswellasaplanforfutureimprovements(Grand

33Therelativelypoorperformanceofsomepopulationsub-groupsinanotherwisestrongK-12systemisdiscussedintheworkforcesectionabove. 34http://www.brookings.edu/blogs/metropolitan-revolution/posts/2016/03/30-innovation-district-audit-wagner-storring



IslandandFremonthavealreadyemployedtheseprinciples).35Small communitieshave several tools for thesepurposes, includingTax IncrementFinancing (TIF)andBusiness Improvement Districts. There exist some reservations about the proliferation of these localfinancingoptions.Theyring-fencefuturerevenues,andaresometimesfocusedonprojectsofuncertainmerit(forexample,fundingacardealershipontheedgeoftown).However,manyleadersfromsmallercommunitiesstronglydefendedtheavailabilityanduseofthesetools.Thekeytotheireffectivenessinbuildingqualityofplaceisaspatialfocus.Diversecommunitiesoftalentwanttolivetowardstheheartofanycommunity,thetoolstoimproveandexpandtheseplacesshouldbefocusedaccordingly.

Summary Broadlystated,Nebraska’schallengesintheareasofinfrastructure,housingandcommunitydevelopmentarechallengesbroughtonbysuccess.Inadditiontoconstraintsintheareaofmunicipalinfrastructure,therearechanges that canbemade toalign the statemorecloselywitha skill-intensive, technology-intensivefuture.Meetingthesechallengesandmakingthesechangeswillrequiresomemoneyandagreatdealofimagination.

35http://www.preservationnation.org/main-street/about-main-street/main-street-america/the-main-street-approach.html#



Goals and Metrics Thereareno silverbullets ineconomicdevelopment, it is chieflyagameofblockingand tackling—ofgettingthefundamentalsright.Manyofthesuggestionsandrecommendationsinthisreportaremodestinscale.Butifalignedwiththefourstrategicobjectivesidentifiedabove,andappliedaspartofabroadwaterfront of day-to-day activities by the state’s leaders, businesses, and development professionals,thenchangesalreadyunderway,propelledbythemarket,willaccelerate.Nebraskawillemergewithaskill-based,technology-basedandinnovation-basedeconomy.Thesegoalsareeasilyassociatedwithbroadmeasuresthatcaptureprogress.Settingtheactuallevelforanyparticularmeasure isacontinuousactivity,amendedasnecessaryfromyeartoyear.Butselectedindicatorsareofferedbelowforillustrativepurposes,associatedwitheachgoal.

Highskill,highwagejobs• Increaseincompoundannualgrowthrateofrealwages(bycounty,MSA,state)• Annual increase in employment over and above total employment growth in occupational

classificationsrequiringassociatesdegreeorhigher

Technologyintensiveinvestment• Annual increase in average value added (input-output) bymanufacturingbusinessesover and

abovenationalaverages• Annualincreaseinnewcapitalinvestmentperemployeebybusiness

Innovation• Annualincreaseinventurecapitaldealflow(allforms)(threeyearmovingaverage)• Annualincreaseinnewestablishmentsengagedin“opportunityentrepreneurship”

Highqualitycommunities• Annualincreaseinrankingsinnationalsatisfactionsurveys• Annualdeclinesinnetmigrationofrecentcollegegraduates



Appendix A: Select Bibliography “Lincoln’s Community Vision: Strategic Recommendations for a Globally Competitive City." AngelouEconomics(2015).Bartik,TimothyJ.,andNathanSotherland."MigrationandHousingPriceEffectsofPlace-BasedCollegeScholarships."(2015).Business Incentives and Economic Development Expenditures: An Overview of Nebraska's ProgramInvestments and Outcomes Nebraska Incentive Programs by Type Center for Regional and EconomicCompetitiveness(2015).NebraskaHigherEducationProgressReport,2015.CoordinatingCommissionforPostsecondaryEducation(2015).Chang,JudyW,JMichaelHagerty,andJohannesPPfeifenberger.NebraskaRenewableEnergyExports:ChallengesandOpportunities(LB1115Study).PreparedfortheNebraskaPwerReviewBoard,2014.David,H.,DavidDorn,andGordonH.Hanson."TheChinasyndrome:LocallabormarketeffectsofimportcompetitionintheUnitedStates."TheAmericanEconomicReview103.6(2013):2121-2168.TheNewMapofEconomicGrowthandRecovery.EconomicInnovationGroup(2016).Feldman, Maryann, and Ted D. Zoller. “Dealmakers in Place: Social Capital Connections in RegionalEntrepreneurialEconomies.”RegionalStudies46.1(2012):23–37.Florida,Richard.“TheU.S.CitiesWinningtheBattleAgainstBrainDrain.”CityLabMar.2016.IowaSTEMEducationRoadmap:AStrategicPlanforScience,Technology,EngineeringandMathematics(STEM)Education.Governor'sSTEMAdvisoryCouncil(2011).Görg,Holger,AlexanderHijzen,andBalázsMuraközy.Theroleofproductiontechnologyforproductivityspilloversfrommultinationals:Firm-levelevidenceforHungary.No.1482.Kielworkingpaper,2009.Harpel,Ellen.“MakingtheMostofIncentiveEvaluations.”SmartIncentives.2015.Web.Hathaway, Ian, and Robert Litan. "What’s Driving the Decline in the Firm Formation Rate? A PartialExplanation."TheBrookingsInstitution(2014).Hicks,MichaelJ.,andDagneyFaulk."WhatComesFirst,PeopleorJobs:EvidenceandLessonsforIndiana."(2016).LeRoy,Gregetal.ShortchangingSmallBusiness.GoodJobsFirst(2015).WORKFORCEDEVELOPMENTTASKFORCE.LincolnPartnershipforEconomicDevelopment(2015).



Liu,Amy.“RemakingEconomicDevelopment.”TheBrookingsInstitution(2016).Lowe, N. J. “Beyond the Deal: Using Industrial Recruitment as a Strategic Tool for ManufacturingDevelopment.”EconomicDevelopmentQuarterly28.4(2012):0891242412467365.Lowe,Nichola,andMaryannFeldman.BreakingtheWaves:InnovationattheIntersectionsofEconomicDevelopmentPolicy.Workingpaper.ChapelHill:UniversityofNorthCarolina,2014.Lowe,Nichola,andAllanFreyer.“AMovingTarget:RethinkingIndustrialRecruitmentinanEraofGrowingEconomicUncertainty.”EnvironmentandPlanningC:GovernmentandPolicy33.5 (2015):1284–1300.Web.Mazerov,Michael,andMichaelLeachman."StateJobCreationStrategiesOftenOffBase."(2016).NebraskaDepartmentofEconomicDevelopment,2014LegislativeAnnualReport(2014).NebraskaDepartmentofLabor,Nebraska2010-2020Long-TermOccupationalandIndustryProjections(2013).NebraskaDepartmentofLabor,METROAREALABORAVAILABILITYREPORT.(2015).NebraskaDepartmentofLabor,RegionalReviews:ScottsbluffMC2015(2015).NebraskaDepartmentofLabor,NebraskaWorkforceTrends(2016).Nebraska’sEducationandRevenueCommittees,SchoolFundingandPropertyTaxesinNebraska,(2015)Nebraska’sTaxModernizationCommittee,BalancingtheScales:AComprehensiveReviewofNebraska’sState-LocalRevenueSystem(2013).NeededinNebraska:ANewApproachtoHigherEducationPolicymakingattheStateLevel.NationalCenterforHigherEducationManagementSystems(2013).NebraskaPowerReviewBoard,NebraskaRenewableEnergyExport(LB1115)Study(2014)McKinsey Corporation, Public-Private Partnerships Harnessing the private sector’s unique ability toenhancesocialimpact(2009).Reeves, Richard V., and Edward Rodrigue. "The AmericanMiddle-Class Is Still Thriving in Utah." TheBrookingsInstitution(2016).Stephen,R.,&Freyman,C.States’methodsoffundinghighereducation.MenloPark,CA:SRIInternational,2012.Availableat:http://www.sri.com/work/projects/states-methods-funding-higher-education



Stephen,Roland.LessonsforaNewRealityfromNorthCarolina.NewAmericaworkingpaperseries,2012.Thompson,Eric.LincolnSkillsGapReport.PreparedfortheNebraskaDepartmentofLabor,2016.Thompson,Eric.ResultsoftheDecemberSurveyofNebraskaBusiness:January8,2016.PreparedbytheUNLCollegeofBusinessAdministration,2016.Thompson,Eric.SurveyofLincolnAreaBusinessesaboutSkillandTrainingRequirements:FinalReport.PreparedfortheNebraskaDepartmentofLabor,2014.Tilsley,Alexandra. “Six Things States ShouldKnowaboutApprenticeships.” TheUrban Institute. 2016.Web.



Appendix B: Higher Education Funding Formulas Asummaryofthefundingformulasforthreestatesareprovidedbelowthataregenerallyrecognizedasrepresentingbestpracticeinthisarea.Inparticular,Tennesseeemphasizesanapproachfocusedentirelyonoutcomesratherthaninputs.

Tennessee TheCompleteCollegeTennesseeAct(CCTA)of2010stipulatedthathighereducationinstitutionsshouldbefundedbasedonoutcomesratherthanenrollment.TheTennesseeHigherEducationCommission,inconjunction with the University of Tennessee, Tennessee Board of Regents, and state governmentrepresentatives developed an outcome-based formula that funds institutions based on metrics thatmeasuresuccessaswellasweightsthatreflectinstitutions’prioritiesandmissions.Thisformulaappliedtobothstatecommunitycollegesanduniversities.Basedontheperceivedstrengthsandweaknessesoftheformula,structuralchangestothemodelwereimplementedattheendofthefirstfive-yearcycle.The2015-2020Outcomes-Based Funding Formula ismade up of threemajor elements: outcomemetrics,institutionalmissionweights,andfocuspopulations.Theoutcomesmeasuresforthecommunitycollegesectorinclude:

• Studentsaccumulating12,24,and36credithours;• Dualenrollmentstudents;• Associatesdegreesearned;• Long-termcertificatesearned;• Short-term certificates earned (includes all technical short-term certificates, regardless of

whetherastudentstops-outorcontinuestobeenrolled;certificatesdefinedasacademicarenotcounted.);

• Jobplacements;• Transfersoutswith12credithours;• Workforcetraining;and• Awardsper100full-timeenrollments(degree-seekingundergraduatestudentsonly).

Theuniversityoutcomesinclude:• Studentsaccumulating30,60,and90credithours;• BachelorsandAssociatesdegreesearned;• MastersandEdSpecialistdegreesearned;• DoctoralandLawdegreesearned;• Researchandservice;• Degreesper100full-timeenrollments(degree-seekingundergraduatestudentsonly);and• Six-yeargraduationrate.

Apremiumlevelisappliedtotheprogressionandundergraduatecompletionmetricsforstudentswhofallintothefocuspopulationcategories.Thepremiumsaredifferentiatedbasedonthenumberoffocuspopulationsforwhichastudentqualifies.Thefirstsubpopulationgarnersan80percentpremium,thesecondgarnersanadditional20percent,andthethird(inthecommunitycollegesectoronly)garnersanother20percent.Focuspopulationsinclude:

• Adults;



• Low-incomestudents;and• Academicallyunderprepared(communitycollegeonly).

CCTAstipulatesthatoutcomesmustbeweightedtoreflectmissiondifferentiation.Duringtheformulareviewprocess,collegepresidentsandchancellorswereaskedtoprioritizethe2015-2020outcomesandto provide narratives describing how the priorities reflect their institutions’ missions. Weights atuniversitiesarebasedonacombinationoftheprioritizedoutcomesandonCarnegieclassification.Inthecommunitycollegesectorweightsarelargelybasedoninstitutionalmission.Weightsforcertainoutcomesareprioritizedandstandardizedacrossthecommunitycollegesectortoreflecttheneedsofstatewidecompletion initiatives:Associatedegreesareweightedat22.5percent;progressionmetricssumto15percentforallcommunitycolleges;andLong-termandShort-termcertificatessumto20percent,withdifferentiation between the two certificate types based on institutional priority and historicalperformance.

Iowa In2014, theBoardofRegents for thestateof Iowarecommended thestateadoptanewformula forallocatingthestate’sgeneraluniversityappropriationamongitsthreeregentuniversities.Underthisnewformula, 65percent of the appropriationwouldbe allocated according to enrollment. Specifically, 60percentofthegeneralstateuniversityappropriationwouldbelinkedtotheuniversities’undergraduateenrollmentofresidentstudentsand5percentwouldbedistributedaccordingtoresidentgraduateandprofessional student enrollment. All studentswould be counted equally, regardless of their academicprogram. The remaining 35 percent would be tied to performance outcomes. The funding formulaincludestheseperformancemeasures:

• Ten percent for providing college access to targeted resident student populations (to bedetermined by the regents, but could include low income, ethnic minority, veteran or Iowacommunitycollegetransferstudents);

• Fivepercentfortheprogresstodegreeofresidentsstudents(countedbythethresholdsof24-48-72credithourscompleted);

• Tenpercentforthenumberofdegreescompletedbyresidentstudents• Fivepercentforsponsoredresearchlevelsthatrecognizetheuniversities;contributionstostate

economicdevelopment;and• Fivepercentdeterminedbycustommetricssetbytheregentsforeachuniversity.

Inproposingthismodel, theBoardofRegentssoughttomovefundingdecisions fromatraditionplusinflationmodeltoonebasedonperformancemeasures.TheBoardwasguidedbytwoquestions:

• Doesthecurrentmethodprovidefundingtocoverthedifferencebetweenresidenttuitionpaidandcostofinstruction?

• DoesthecurrentmethodincenttheuniversitiestoeducateIowans?

Washington Washingtonusesabaseplusmodeltodeterminefundingforitscommunityandtechnicalcollegeswherethecollegesearnaportionoftheirfundingbasedonresults,notjuststudentenrollment.TheStudentAchievementInitiativerewardsinstitutionsformovingstudentsfurtherandfasterthroughcollegeandimproving student success. Colleges earn achievement points, which translate into financial awards



distributedeachfall,basedonstudentachievement.Thesystemrewardscollegeswhenstudentsreachkey academic momentum points in their academic careers, such as finishing college-level math,completing the first year of college, and earning a degree or certificate. In addition to individualmomentum points, colleges are awarded for how far a studentmoves through college, with greaterrewardsforstudentswhomovethefurthest.Thegoalofthisfundingmodelistopropelstudentstoandthroughthe“tippingpoint”–thelevelofeducationthatmeansthedifferencebetweenstrugglinginalow-wagejobandhavingacareerthatleadstoabetterlife.Thisfundingmechanismhasledinstitutionstolinkperformance-basedfundingprioritiestostrategicplanningandaccreditationactivities,andtofocusonimprovinginstruction,tutoring,assessmentandadvising.Onepointisawardedeachtimeacollegestudent:

• Makes nationally recognized standardized test gains inmath, English language, or reading asmeasuredbypre-andpost-testingorbyearningahighschooldiplomaorequivalencycertificate;

• Completesthehighestpre-college(remedial)mathorEnglishcourseandsubsequentlycompletesthecollege-levelcourse;

• Earnsthefirst15college-levelcredits;• Earnsthefirst30college-levelcredits;• Completesthefirst5college-levelmathcreditsincomputation,math,orlogic;• Earnsthefirst45college-levelcreditsinaprofessional-technicalfieldorforuniversitytransfer;• Earnsacertificatebackedbyatleastoneyearofcollege,earnsatwo-yeardegree,orcompletes

anapprenticeship.Eachbasicskillsstudentwhoreachesanacademicmilestonebeyondearningahighschooldiplomaorequivalentareawardedonepointmorethanotherstudentswhoreachthesamelevels.Anextrapointisawardedifastudentcompletesacollege-levelmathorEnglishclasswithinthesameyearascompletingapre-collegeclass.Studentswho increasetheirachievement fromoneyear to thenextqualify foranadditionalpoint.Eachcollegereceivesawardsforimprovementsinstudentachievementmeasuredbynetgainsinitstotalmomentumpointsoverthepreviousyear.Priortoeachacademicyear,thestatesetsthedollarvalueperpointbasedonthetotaldollarsavailableforawards.Thedollarvalueperpointissetconservativelysothatfundsavailableshouldcoverallprojectedrewards.Thereisnoupperlimittothenumberofpointsthatcanbeearnedbyacollege.Iffundsavailabledonotcoverallearnedrewards,theunfundedpointswillbebankedforincentiverewardsthefollowingyear.Onceearned,therewardisaddedtothecollege’sbasebudget.

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