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Tax Increment Financing Op-Ed Column 8-17-2017
In November 1978, Nebraskans adopted Amendment 1, which added Article VIII-section 12 to our state Constitution. The amendment created an exception to the constitutional mandate that property taxes are levied “uniformly and proportionately upon all real property.”
Nationally, an idea had emerged to encourage urban renewal with private-sector development, with the particular aim to aid our country’s inner cities. Voters allowed municipalities to unilaterally confiscate from all local government entities the increased increment of property taxes attributed to new construction for the purpose of “rehabilitating, acquiring, or redeveloping substandard and blighted property in a redevelopment project.”
This created what’s known as Tax Increment Financing (TIF).
The voters understood the amendment. An Aug. 6, 1978, Omaha World-Herald article stated, “A city or village could buy blighted downtown property and clear it in preparation for a new structure.” The proposal, the article said, was “to encourage developers to use downtown or main street property instead of building on the outskirts of town, where taxes and property values may be lower.” On Nov. 3 The World Herald’s endorsement stated, “We have recommended passage … which would help cities and towns of all sizes to develop rundown areas.”
The following year the Legislature enacted legislation with an understanding that TIF’s purpose was to fund urban renewal. Lawmakers avoided using economic development terms, referring only to redevelopment. They knew that existing redevelopment law defined “substandard” as conditions where “there is a predominance of buildings” marked by “dilapidation, deterioration, age or obsolescence, inadequate provisions for ventilation” or”conditions which endanger life or property by fire” or are “conductive to ill health.”
You get the point; we are not talking about a farm field.
Blighted property was defined in terms such as “unsanitary or unsafe conditions,” and open land was defined as “unimproved land that has been in the city for 40 years and has remained unimproved during that time.” Lawmakers understood that TIF was not a description of a redevelopment area but instead was a financing tool for individual projects that fit certain criteria. Amendment 1 made an important distinction when it used the conjunction “and” — requiring that the property be both”substandard and blighted.” This provision was unlike older redevelopment laws, which allowed a project to be approved if either condition exist.
Last year TIF diverted $70 million out of local government coffers, more than doubling the amount from 10 years ago. TIF has a negative effect on public school funding and adds to already high property tax burdens. Normal growth from housing and retail development brings the need for increased public services, but TIF’s tax revenue shift to developers causes existing taxpayers to foot the bill.
How did a good program that helped rejuvenate the riverfront in Omaha and the Haymarket area of Lincoln evolve into something now used as an economic development threat — “give it to me or I won’t build” — for normal free-market projects such as building homes on a newly annexed farm field near Ashland, a chicken factory on the outskirts of Fremont or an office complex in west Omaha?
The answer is simple: When the Legislature enacted legislation defining TIF, they never allowed for state oversight. Imagine a speed limit without police, and you understand TIF use in Nebraska.
TIF today is whatever a city council wants it to be. Attorneys create click legal arguments that promote opportunistic, “end justifies the means” interpretations of TIF. Other than filing expensive civil lawsuits, local taxing entities and concerned citizens have no recourse to stop such practices.
The most obvious way to stop this abuse is to elect city officials who have an appreciation of the rule of law. In lieu of that unlikelihood, I have and will continue to introduce legislation to put state oversight into TIF; the original bills were killed in committee.
Why, you ask, would elected city and state officials oppose legislation that promotes accountability and transparency in government? The answer is always the same — follow the money!