Bill would cap tax increment financing use by cities

The ability of Nebraska cities to use tax increment financing (TIF) for redevelopment projects would change under a bill heard Jan. 24 by the Urban Affairs Committee.

LB918, sponsored by Bellevue Sen. Abbie Cornett, would cap at seven percent the total actual value of real and personal property of any political subdivision that a city or village could designate as blighted.

Current law allows villages to designate up to 100 percent of the total actual value as blighted, while cities of the metropolitan, primary and first class may designate up to 50 percent as blighted, she said.

In addition, the bill would limit the combination of current and proposed redevelopment projects’ excess value to seven percent of the total actual value of real and personal property of any political subdivision in which the proposed redevelopment project would be located, including the authorizing political subdivision.

Finally, the bill would remove a current requirement that cities conduct a cost-benefit analysis of proposed TIF projects.

Cornett said the bill is a response to concerns raised during an interim study conducted on TIF use by cities. Some public school and natural resource districts had expressed concern that their funding suffers when the increased valuation of a redevelopment project is diverted during the TIF period, she said.

Cornett said that when a city uses TIF and foregoes taxing the increased valuation on a property for up to 15 years, the money must be replaced in the state’s school financing formula using general fund dollars.

TIF projects can be a valuable tool for redevelopment, she said, but political subdivisions should have a voice in determining when to use the program because they are impacted by the choice to do so.

Cornett said the statewide average TIF usage last year by cities was 3.5 percent of their total valuation.

“Allowing a city to use twice the state average amounts seems reasonable,” she said, adding that the seven percent number was a starting point for negotiation.

“It’s definitely not my intention to shut TIF projects down in the state,” she said.

Jack Dunn of the Progressive Research Institute of Nebraska testified in support of the bill.

He said TIF can be used on projects that benefit citizens – such as developing alcohol and drug treatment facilities and low-income housing – but often instead is used to increase developer’s profits at the expense of school districts.

“The problems with TIF are not intrinsic,” Dunn said. “They are the result of a lack of oversight and accountability.”

Dave Landis, urban development director for the city of Lincoln, spoke in opposition to the bill, citing the success of 15 TIF projects undertaken by the city.

He said the total valuation on the projects before redevelopment was $15 million, resulting in approximately $347,000 of tax revenue to the city. Today, those properties are valued at $165 million and account for $3.3 million in tax revenue annually, he said.

“If we’re screwing up in redeveloping the city … tell us what we’re doing wrong and we will change,” Landis said.

Rick Cunningham, Omaha planning director, also testified against the bill.

He said a cap of seven percent of total valuation in any one district would end Omaha’s ability to utilize TIF for economic redevelopment. Between existing projects and those in the planning stages, the city would be at 7.45 percent in the Omaha Public School District, Cunningham said.

Dan Mauk, testifying on behalf of the Nebraska Chamber of Commerce and the Nebraska Economic Developers Association, also opposed the bill.

At least 25 cities in Nebraska would no longer be able to use TIF under the bill, he said, adding that many small cities have used the program to develop thousands of jobs.

“It’s extremely important to the viability of rural Nebraska,” Mauk said. “Let us govern ourselves at the local level.”

Andrew Rikli, assistant superintendent for Omaha District 66, testified in a neutral capacity. He said the school district’s testimony at the interim study concerned the proportion of the district that the city proposed to include in a TIF redevelopment zone.

The proposed area covered 50 to 60 percent of the school district, Rikli said, a percentage which has since been reduced.

The committee took no immediate action on the bill.