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Sen. Steve Erdman

Sen. Steve Erdman

District 47

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Straight Talk From Steve…

December 1st, 2017

LB 496 is a bill which would expand the definition of redevelopment projects to include the new construction of workforce housing. By expanding the definition, the new development of workforce housing would be eligible for tax increment financing (TIF). Last year Sen. Friesen (LD34), Sen. Groene (LD42), and I, Sen. Erdman (LD47) led a successful filibuster against the bill.

LB 496 is not dead, though. The bill will come up again for a vote on the floor of the Legislature sometime next year. Last week, Sen. Stinner of Scottsbluff reaffirmed his commitment to the bill, saying, “I am determined to pass legislation that allows the use of tax increment financing…for workforce housing in rural Nebraska.”

As I did last year, I will continue to oppose LB 496. I will oppose the bill because it defies the original intention of TIF. In 1978 Nebraska voters approved TIF for the purpose of urban renewal, and Article VIII, Section 12 was added to our State’s Constitution.

TIF was never intended to be used for economic development. As the Nebraska State Constitution states, TIF was created: “For the purpose of rehabilitating, acquiring, or redeveloping substandard and blighted property in a redevelopment project…” So, TIF monies were never intended to be used for new construction on undeveloped land; instead, TIF is supposed to be used only for the redevelopment of substandard and blighted properties.

TIF was never intended to fund workforce housing projects. Instead, TIF was created for the purpose of renovating old dilapidated buildings in urban areas. In fact, at least 50 percent of an eligible building is supposed to have existed within the city limits for 40 years prior to the start of the renovation project. Instead of being used for urban renewal, today TIF monies are being abused for economic development, and that is the real purpose behind LB 496.

TIF eligible properties are supposed to pass the “but for” test, meaning that the rehabilitation project would never occur ‘but for’ TIF. So, the construction of housing developments, whether they be workforce housing or not, ought to be subjected to the “but for” test. But, workforce housing cannot pass the “but for” test; instead, workforce housing can be built without using TIF financing. Therefore, workforce housing ought to be subjected to the regular forces of our free-market economy. When TIF monies are used to fund these kinds of workforce housing projects, it upsets the natural forces of competition in our free-market economy. Once TIF monies become freely available, contractors quickly realize that the only way they can compete in the marketplace is to finance their projects through TIF.

Property taxes are distributed differently under TIF. When a building project is financed through TIF, the property taxes collected on the new construction will not be distributed to local units of government for up to 15 years or until the bond is paid back with interest. This means less money for schools, counties, cities, etc. Moreover, property taxes collected from homes built with TIF monies, do not necessarily go to fund local needs. Such was the case with homeowners in the Northbank Preserve in north Lincoln, whose property tax dollars were designated exclusively for sewer and water lines. In another case, TIF home owners in Omaha had to sign a document stating they could never protest the valuations of their homes.

TIF is easily abused. Because there are no teeth in the laws nor oversight to ensure that TIF monies are used appropriately, communities have been abusing TIF monies for years. For instance, some of Omaha’s nicest neighborhoods have been targeted for being “blighted and substandard” in order to get TIF financing, and the city of Omaha recently used TIF monies to solve a traffic problem caused by the TD Ameritrade project in the downtown area.

Going forward, my goal will be to restore TIF to its original purpose. I believe TIF should be used exclusively for urban renewal. Therefore, further clarification may be needed in the law to define what actually constitutes “blighted” and “substandard” properties, consequences may need to be added to the law to discourage the abuses of TIF, and better oversight may be needed to govern the appropriate application of TIF. The bottom line, though, is that TIF was never intended to be used as a tool for economic development.

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Sen. Steve Erdman

District 47
Room #12th Floor
P.O. Box 94604
Lincoln, NE 68509
Phone: (402) 471-2616
Email: serdman@leg.ne.gov
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