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I have observed the evolution of Tax Increment Financing (TIF) in Nebraska which originated as a constitutional amendment in 1978. It was created as an urban renewal tool for cities to redevelop their blighted and substandard cores. Municipalities’ use of TIF to confiscate property taxes worked well during its first 20 years as it helped revitalize their old downtowns. Omaha used TIF for the ConAgra Riverfront, and Lincoln used TIF for the Haymarket.
In enacting TIF, the Legislature made a vital mistake not putting state oversight into the process. Over the last fifteen years politicians and real estate speculators hijacked TIF, morphing it into an unauthorized use for self-serving development projects. Municipalities are now unilaterally confiscating the property tax dollars of our public schools, counties, NRD’s, and community colleges in order to increase developer’s profits and avoid the political pain of raising city property tax rates.
In 2014, statewide property valued at $2.9 billion was confiscated by TIF, and cities diverted$61 million in tax revenue. TIF projects in Douglas and Lancaster County accounted for over $35 million and over $6 million, respectively, of lost property tax revenue to local government entities.
I was quoted by the Journal Star that Lincoln did a “very good job” concerning TIF funds. That quote dealt with the way the funds were used for city infrastructure. Citizens of Lincoln have since informed me, rightfully so, of instances where the approval process of TIF projects has been abused.
A Journal Star article dated March 4, 2015 concerning the proposed Trinitas Ventures 172-unit living complex, states that the “developer is not asking the city for tax incentives to build the complex, but it has agreed to partner with the city to use [TIF]…to pay for parking improvements”. Neb. Rev. Stat. 18-2116 is clear that projects cannot be approved unless it is demonstrated that theywill not occur or be economically feasible in the blighted and substandard redevelopment area without TIF financing.
A story on August 10, 2014 in the Journal Star details another instance where the developer Ploughshare Brewing Company did not ask for TIF; the story states “an unusual situation because the financing wasn’t requested by a private developer. Instead, the city pitched the deal to Ploughshare…over the spring, after work had already begun on its new brewery”. [Emphasis added]. Clearly these projects do not pass the litmus test of the above statute.
In 1997, then Senator Paul Harnett reformed TIF through the passage of LB875. Changes were made to section 18-2147 that made it clear that the diverted tax dollars “be used solely to pay the principal of, and the interest on…financing”. It also struck the word “a”and replaced it with “the” project. I do not know how he could have made it any clearer. A corresponding example of outrageous abuse, found in a Journal Star article on March 29, 2011, is the claim by Lincoln that “leftover [TIF] funds” exist from ongoing TIF projects.
The law is clear – those increment property taxes from “the” project must “be used solely to pay” the bonded indebtedness of the project and “[w]hen such…indebtedness, including interest…ha[s] been paid,” such property thereafter shall be taxed as is other property in the respective taxing districts. There is no justification for “leftover [TIF] funds” in TIF related law. Once the projects mentioned in the article (Centennial Mall, Gold’s Building, etc.) generate enough funds to pay off the bond debt, the $5.6 million of property taxes should be returned to the public schools, county, and other taxing entities.
Politicians in Lincoln are not alone in abusing the TIF process. North Platte, in my district, has its stories too. Omaha, though, is the most egregious abuser of TIF. For example, 8% of the valuation of Omaha Public Schools is off the tax rolls. It affects all of us; income and sales taxpayers of Nebraska make up that loss with additional state aid to schools.
City governments’ ability to seize property taxes through TIF is an unchecked power that has gotten out of hand. An amendment proposed by the Urban Affairs Committee to LB539 that allows the State Auditor to audit TIF programs is a small, but necessary, step toward accountability. Meanwhile, citizens – via the election process – have the capacity to show their dissatisfaction with politicians who continue to allow TIF to be abused.