Housing supplies continue to be tight as our region continues to grow job opportunities, primarily due to high construction costs coupled with rising interest rates. This combination is making new housing unaffordable for far too many. Since there are limited lots ready to build on in many areas in District 42, it often becomes necessary to develop new subdivisions to create new lots. Given the infrastructure costs involved, new lots can cost as much as $100,000 per buildable lot. That does not leave much room in the budget to complete the home.

One alternative is to consider remodeling older homes. A second is to purchase older homes that are beyond repair, tear them down, and build a new home on the existing lot with the necessary infrastructure already in place. This can certainly help reduce building costs, particularly when paired with the Micro-TIF program.

Micro-TIF was first introduced by former Senator Mike Groene in an effort to incent property owners to fix up their existing homes in exchange for getting property tax relief on the incremental increase in property taxes resulting from the improvements. Unfortunately, the structure of the bill made it hard to achieve the goals envisioned. During this session, I introduced LB98 to improve the program. LB98 was eventually amended into and passed as part of LB531, one of the Urban Affairs Committee’s priority bills.

With the improvements made in LB98, Micro-TIF can provide the necessary incentives to spur improvements to existing homes or replace homes beyond repair.

Under the “regular” Tax Increment Financing (TIF) program, which only covers the purchase of land and installation of infrastructure, vertical construction expenses are “eligible” expenses under Micro TIF. This is important because the incremental property tax base increases significantly if an older home is torn down and replaced with a new home.

For example, let’s assume you can buy an older home on a lot with public infrastructure in place for $25,000. You tear the home down and replace it with a new home for an additional cost of $200,000. If the property has an assessed value after completion of $250,000, the increase in the annual property tax would be around $4,500/year versus about $375/year with the previous home. With Micro-TIF, the owner can put a Micro-TIF loan in place when the project is completed to help cover the costs of the improvements based on the value of the property tax increase. Keep in mind that the Micro-TIF loan would be separate from any other mortgage or construction loan.

The Micro-TIF loan is designed to allow the annual “increase” in property taxes paid each year by the homeowner (in this example, $4,125/year) to cover 15 years of payments, including both the principal and the interest. The loan, or note, is repaid from the property tax increase for the next 15 years or until the loan is paid in full, whichever comes first. In this example, the upfront note amount could be about $50,000, given current interest rates.

In sum, the property owner could borrow $50,000 on a separate note once the home is finished and have the note fully repaid from the property taxes rebated back to each year, based on the incremental increase in the assessed value.

The property taxes are paid by whoever owns the property now and in the future. The payments go back to the original owner/developer who paid for the improvements to the home and took out the note. The county treasurer will still collect the amount of property taxes that would have been paid to the taxing authorities if the property had not been improved. Only the “incremental” tax payments go to the owner/developer. After the Micro-TIF loan is repaid, the county treasurer will collect the full property tax payments going forward.

Some have said over the years that TIF removes property taxes from the property tax roles. The fact is, no taxes are removed because all existing tax base remains at the same level as they were set at prior to granting TIF. The “new” incremental tax base is only temporarily redirected to repay the loan that provided the incentive. It is important to remember that you cannot lose what you do not have. If the only way to get the new home built is to grant TIF, then what has been lost? Homes eligible for Micro-TIF will only sink further into disrepair if no investment is made. If we do not build more housing, then our ability to grow our market and fill open jobs will be difficult. We need to use all the tools in the toolbox to solve this problem.

I will be traveling to each of the communities in District 42 to meet with the town and village leadership to discuss the details of this program and how it could be used in each community. If used strategically, Micro-TIF can be an effective method of increasing new and improved housing options in our area.

Please continue to contact me on this and other issues at mjacobson@leg.ne.gov, or feel free to call my office 402-471-2729. My door is always open!