LINCOLN — Two state senators say that Nebraskans would be paying millions less in local property taxes if the state tightened up the use of tax-increment financing, or TIF, by cities.
But proposals by the two lawmakers prompted a torrent of opposition from developers and city officials, who said changes in TIF might halt its use, stopping dozens of worthy redevelopment projects.
Last year, about $61 million in local property taxes was diverted from schools and other local governments to help fund improvements associated with local economic development projects.
Sens. Mike Groene of North Platte and Al Davis of Hyannis introduced bills aimed at stopping what they consider the misuse of TIF, which they say has strayed from its original purpose of redeveloping “blighted and substandard” properties and has increased the tax burden.
“If we want to do something about (high) property taxes, we ought to put a plug in the rowboat first,” said Groene.
He introduced two proposals before the Legislature’s Urban Affairs Committee on Tuesday.
Legislative Bill 445 would require the State Department of Revenue to review local TIF projects to make sure they’re following state law, and LB 238 would require that TIF funds be used only for land acquisition and preparation, and to improve substandard public facilities and infrastructure.
Davis’ proposal, LB 596, is also aimed at greater state oversight of TIF projects. It would set up a new unit within the State Auditor’s Office to ensure compliance with state TIF laws. His bill would also include schools and counties in deciding whether to approve a TIF project, so they are ensured a voice in whether local property taxes should be diverted from them.
Davis cited a study last year that found that the use of TIF increased spending on state aid to local schools by $22 million, because state aid had to make up for reduced local tax collections.
The trio of bills prompted a deluge of opposition from developers and city officials, including Lincoln Mayor Chris Beutler and a representative of Omaha Mayor Jean Stothert.
They said changes in TIF laws were unnecessary, would needlessly increase bureaucracy and would most likely halt many redevelopment projects.
“This is the city’s only true redevelopment tool,” said Cassie Seagren, a deputy chief economic developer for the City of Omaha. “This would impact us financially.”
Seagren ticked off a list of Omaha projects that were aided by TIF, including Aksarben Village, Midtown Crossing, the South Omaha Livestock Exchange Building and the new TD Ameritrade headquarters.
TIF allows the city to divert the increased property taxes generated by a project to repay the cost of improvements associated with it, such as building new streets, tearing down old buildings and buying sites for new developments. The new development remains off the tax rolls for up to 15 years or until the improvements have been paid off, which has averaged about 12 years per project in Omaha.
Seagren said she was particularly concerned with LB 238, which appears to rule out the use of TIF funds for rehabilitation of old structures, such as the former office buildings in downtown Omaha that have been turned into upscale apartments.
She said that not only has TIF made possible projects that had been considered financially infeasible, it has dramatically increased property values, which eventually leads to higher tax revenue.
The Midtown Crossing site, for instance, was valued at $11 million before redevelopment began and is now valued at $170 million, Seagren said. Adjacent property valuations have increased 33 percent, she said.
During the hearing, many of the past complaints about the use of TIF were brought up.
One was that some of the nicest neighborhoods in Omaha have been considered for declaration as “blighted and substandard” so that the TIF financing could be used.
Omaha Sen. John McCollister pointed out that his old office at the Omaha-based Platte Institute, near 72nd and Dodge Streets, was in a “blighted” area. The reason: It was across the street from Nebraska Furniture Mart, which used TIF for its redevelopment.
“I feel pretty safe when I walk out in the parking lot there,” said Dick Clark, who currently works for the Platte Institute.
Jack Dunn of the Omaha-based advocacy group Policy Research & Innovation said Omaha is a good example of TIF “run amok.” He cited the declaration of the Old Mill area of Omaha as “blighted” so that TIF funds could be used to deal with traffic problems caused by the TD Ameritrade project.
“It had nothing to do with improving a blighted area,” Dunn said.
Seagren, the Omaha city economic developer, said that while some may have considered the use of TIF for TD Ameritrade a “misuse,” the funds were used for a public purpose. She said the blighted designation of that area was rescinded last fall because, after two years, the improvements had been paid off and it was determined that no further improvements were needed in that area.
Mayor Stothert, Seagren said, meets regularly with local school superintendents, so they are well aware if the city is planning to approve more TIF projects. And, she added, the “blighted” designation refers to characteristics other than appearance, such as local job losses and the age of existing structures.
Groene said that the use of TIF has grown tremendously, to 716 projects statewide, and there is no state oversight to ensure that it’s being used properly. He said he was particularly upset that when Menards came to his community, North Platte, TIF was used to help the company acquire a site next to the busy Interstate 80 interchange, as opposed to a deteriorating downtown area of the city.
“It’s not being used as urban renewal, it’s being used as economic development,” the senator said.
The committee took no action on the TIF bills following the public hearing.