LINCOLN — City and business leaders in Nebraska say their most powerful tool to spur economic development could be in jeopardy, depending on the property tax relief plan state officials settle on in the special legislative session.

Commonly called TIF, the tax-increment financing program was authorized in the 1980s by the Nebraska Legislature as a way to boost development and jobs in blighted areas. In essence, it allows a developer, with approval by the respective city, to use the increased property taxes generated by the improvement on a blighted property (the so-called increment) to help finance a redevelopment project.

“Tax-increment financing is, frankly, the dominant tool municipalities have for economic and community growth,” said Lynn Rex, executive director of the League of Nebraska Municipalities. “If property taxes are dramatically lowered, that will have an impact on tax-increment financing, and development, in a profound way.”

Streetcar Trouble?

To be sure, lawmakers have been presented with multiple proposals for curbing rising property taxes burdening Nebraskans and the impact on tax–increment financing varies under each. Legislation is expected to evolve as lawmakers deliberate.

But fundamentally, Rex and others say that a call for cutting the levy, or amount of property tax a school or local government collects, would reduce the amount of revenue generated and available to pay back a TIF loan.

They say a shift potentially could wreak havoc with existing loan obligations and, if developers have less borrowing clout, that could result in less incentive to tackle urban infill projects that developers say typically are more pricey and complicated than building in suburban greenfields.

“A giant artificial drop in the levy would … make trouble for current TIF projects and make new TIF projects unworkable,” said Steve Curtiss, finance director for the City of Omaha. “It would stop development.”

Curtiss said developers take the risk and are on the hook for any defaulted TIF loans related to existing Omaha projects.

Currently, TIF is widely used across the state, not only in Omaha but in 67 Nebraska counties and 136 cities, according to a recent state report. Numerous projects representing billions of dollars in investment have tapped into the financing mechanism.

In Nebraska’s largest city, for example, TIF-buoyed projects include the $600 million Mutual of Omaha office tower that’s under construction downtown and the proposed $862 million redo of the Crossroads mall at 72nd and Dodge Streets.

TIF is also the way Omaha officials plan to pay off $389 million in bond debt related to the planned modern-day streetcar project that is to be up and running between midtown and downtown in 2027.

Curtiss said a sizable cut in the school property tax, which is the biggest portion of a person’s property tax bill, would put the streetcar in “jeopardy.”

“We’d have to figure out some other funding mechanism,” he said, calling the impact on TIF “one of the unintended consequences of what they’re trying to do.”

TIF Critics

Tax-increment financing has its critics.

Challengers often question whether the public incentive is overused and whether a developer would have done the project even without TIF. They bristle that increased property taxes on the TIF site’s new development for up to 15 years go toward paying off the developer’s loan, rather than to traditional sources such as school districts or city governments.

Heath Mello, executive director and CEO of the Greater Omaha Chamber, said that potential negative impact to the tax-increment financing program raised a concern for business and city leaders in the last legislative session, as well.

Worry was mostly quelled following negotiations, he said, but property tax reform then stalled.

With a special session now in progress to focus on property tax relief, he said concerns loom once again.

Mello said business leaders also are wary about the impact of a potential freeze on property tax collections by cities and counties.

“There is no increment coming from a zero percent cap in the growth of property taxes,” said Mello. He said that could “kill” TIF projects.

Multiple Plans In Play

The property tax relief plan put forth by Gov. Jim Pillen would restrict city and county governments from raising their annual property tax collections by the greater of 0% or the consumer price index, though it allows for flexibility in certain cases such as filling law enforcement vacancies, local growth and inflation. Voters also can override caps.

Rex said the League of Municipalities has opposed the Pillen plan, introduced by Sen. Lou Ann Linehan of Elkhorn as Legislative Bill 1, for reasons including the zero percent cap, which she called “absolutely unacceptable.”

She said the League, however, is appreciative that the governor’s plan was retooled to address certain TIF-related concerns by providing a property tax credit, at least initially, rather than calling for a direct drop of K-12 school district general fund tax levies.

Rex said the League has opposed an alternative plan by State Sen. Jana Hughes of Seward, which in part advocates for a gradual lowering of the property tax rate that local school districts could levy.

As introduced, Legislative Bill 9, supported by Hughes and a bipartisan lawmaker group, would lower the maximum school property tax rate by 80 cents over the course of a decade. Rex said Hughes has expressed an openness to work with the League on TIF-related concerns.

Rex said the League views Legislative Bill 80, introduced by State Sen. Jane Raybould, as their preferred approach. She said the League and the Nebraska Association of County Officials were involved in creation of that plan, which considers TIF valuation growth and restricts cities and counties from raising their annual property tax collections by the greater of 5% or the change in the consumer price index. LB 80 also protects TIF payments if school district levies are reduced.

No ‘Silver Bullet’

TIF impact has come up during discussions this week on the various proposed property reform measures.

At one point during a public hearing before the Legislature’s Revenue Committee, State Sen. Eliot Bostar of Lincoln challenged Mello, asking him if he believed the state should lower property taxes.

He asked Mello, a former state senator, how he might lower property taxes while at the same time “not blow up tax increment financing.”

Mello said he did not have a “silver bullet solution.”

Rex said her association, which represents the state’s cities, supports efforts to lift Nebraskans’ property tax burden. She and Mello said city and business leaders intend to continue working with lawmakers to find a path forward that addresses their concerns about tax-increment financing.

This story was published by Nebraska Examiner, an editorially independent newsroom providing a hard-hitting, daily flow of news. Read the original article: https://nebraskaexaminer.com/2024/08/01/nes-tif-economic-development-too...