I want to focus my comments this week on Tax Increment Financing (TIF) and why it is the best economic development tool that the state may have ever created. I say this because TIF (if properly approved) has no cost to the taxpayer while growing our total tax base and having no impact on our current tax base.

With TIF, as the name implies, the “Incremental” increase in property taxes due to the project getting built is “divided” into two portions: the base property tax value and the increase in the incremental value. The increase portion is then used to repay the TIF bond. This division of taxes stays in place for up to 20 years (if the project is in an extremely blighted area) or when the bond is repaid, whichever comes first. The local TIF authority, the Planning Commission, and the City Council must approve all traditional TIF projects, and the City Council must approve all Micro-TIF projects.

The initial TIF bond is funded by the developer (applicant). They generally will borrow those funds from their project lender. The CRA will then issue the bond and send the funds back to the developer (applicant). The developer will also hold the TIF bond, which gives them the right to receive the increase portion of the divided property taxes resulting from the project. That bond is generally pledged to the lender as additional collateral.

If the TIF project results in the developer owning the project post-construction, the developer pays all the property taxes going forward including the incremental real estate taxes. Those incremental real estate taxes then repay the TIF bond over time. If the taxes collected along the way do not produce sufficient property tax revenue over the life of the bond, it is the developer who takes the loss.

So, let’s do a quick recap. Who funds the fund? The developer. Who receives the bond proceeds? The developer. Who repays the bond? The developer. Who takes the loss if the project does not generate sufficient funding to repay the bond? The developer.

And, if the project otherwise would not have been built, would the “increment increase” ever exist? NO.

And there is much more!

A TIF bond only captures the incremental increase in “property taxes.” All of the pre-development property tax base continues to be collected by local political subdivisions. Additionally, all new sales taxes on materials purchased for the project and all new personal property taxes go to the taxing authorities.

When using TIF for housing, we make great progress in solving our housing shortage and create jobs. The new residents moving to the area to live in the new housing will fill open jobs and generate more disposable income to grow our sales tax base.

If you sit on the board of a local taxing authority and oppose TIF, I would like to know why. Do you not want to build new housing or improve existing housing in blighted areas? Do you not want to fill the open jobs? Do you not want to grow our tax base?

I also want to mention the recent audit on the use of TIF in Nebraska issued by State Auditor Foley. I have great respect for Auditor Foley and do not disagree with some of his findings. I have always believed that Omaha has used the program in a very aggressive fashion (such as the proposed street car project). He also found that a few smaller communities do not have a good system in place to monitor the progress of the TIF bond repayment, causing some taxes to continue being divided after the bond has been repaid. However, these are not problems in every community. I know firsthand that the North Platte Area CRA has a great system in place and is in full compliance with state law.

If we want to continue our current growth path, it will be imperative that our local leaders understand TIF and how it works.

It is a privilege to represent you in the Nebraska Legislature, and I look forward to hearing from you regarding issues that are important to you. I can be reached at 402-471-2729 or by emailing me at mjacobson@leg.ne.gov.