Updates to TIF rules sought

The Urban Affairs Committee heard testimony Jan. 30 on a bill that would update the state’s tax-increment financing rules.

Introduced by the Urban Affairs Committee, LB874 is the result of an interim study to answer questions about the use of TIF that were raised in a 2016 report by the state auditor of public accounts.

Under a segment of the state’s community development law, Nebraska municipalities are able to designate areas as substandard and blighted, allowing them to be redeveloped. When a redevelopment plan is approved, TIF bonds may be issued for the acquisition and improvement of the property. The increased property taxes generated by the improvements are used to pay for the financing of TIF projects.

Among other provisions, LB874 would authorize the state auditor to audit a community redevelopment authority whenever the auditor believes it necessary, or when requested to do so by the governing body.

The bill also would:
• require a planning commission hearing on a redevelopment plan;
• require that an annual TIF report on projects be provided to a municipality’s governing body;
• require that cost-benefit analyses on TIF projects be made available to the public;
• clarify that the annual report on TIF projects provided by municipalities to the state Department of Revenue is required;
• limit reimbursement of costs incurred prior to the approval of a redevelopment project;
• require that a cost-benefit analysis consider the impact of a TIF project on school districts;
• require that if a redevelopment project divides the tax on only a portion of the real property included in the project, the property must be clearly related to the redevelopment project;
• require that each municipality that utilizes TIF retain copies of all redevelopment plans, substandard and blighted studies and analyses, cost-benefit analyses and supporting documents associated with the redevelopment plan or any related substandard and blighted declaration;
• require that TIF redevelopment contracts include a provision requiring developers to retain copies of all supporting documents associated with the project and provide them to the municipality;
• redefine the term redevelopment project to include enhancements to structures in the redevelopment project area that exceed minimum building and design standards in the community and prevent recurrence of substandard and blighted conditions;
• require that municipalities conduct a substandard and blighted analysis on whether a redevelopment project meets the requirements and include that analysis in the public hearing notice;
• allow redevelopment projects to include a provision that requires all property taxes levied on a redevelopment project to be paid before such taxes become delinquent to be eligible to receive TIF funds;
• require that municipalities give counties or school districts the opportunity to appoint a nonvoting member to a community redevelopment authority; and
• require that proceeds from the repayment of loans made for TIF projects be deposited in the municipality’s general fund and prohibit those proceeds from being used to establish a revolving loan fund.

Russ Karpisek, legislative liaison for the state auditor of public accounts, testified in support of the bill. The auditor’s office report did not necessarily find violations of state law in examining the implementation of TIF, he said, but rather a great deal of “gray area” in regard to legislative intent.

Larger cities like Lincoln and Omaha have experts on staff and keep good records regarding TIF projects, he said, but many smaller communities are unsure of the law’s specifications and the consequential lack of recordkeeping makes it difficult to evaluate those projects.

“Almost everything that the auditor’s office does is we look at statute and make sure that it’s being followed,” Karpisek said. “We just want to make sure that the Legislature knows how [TIF] works, that the people who are doing it understand how it works and that the people who are helping people do it understand how it works.”

Dave Landis, director of urban development for the city of Lincoln, testified in opposition to the bill, though he acknowledged that it had the potential to be a “peace treaty” on TIF. Not all cities should be required to add a nonvoting member of a county board or commission and school board member to a redevelopment authority, he said.

For example, he said, it’s not uncommon for Lincoln to meet with developers on an hour’s notice and it would be difficult to integrate someone into that process who doesn’t work at city hall.

Landis also raised concerns regarding the apparent prohibition in the bill on using TIF money as a revolving fund for smaller-scale development projects. Lincoln created such a fund for small projects—for which the issuance of formal bonds wouldn’t be feasible—and when those loans are repaid, he said, that money returns to the fund for additional loans.

“We can’t tell whether that’s a revolving fund outlawed by this statute or not,” Landis said. “But if it is, it does kill our chance to help small businesses—many of whom are first-generation immigrants—in doing small business projects that we’d like to see.”

Jamie Berglund, executive director of Omaha by Design, also opposed the bill. TIF creates redevelopment in urban areas that revitalizes communities in ways that would not happen otherwise, she said, in part because of significant challenges such as aging infrastructure. Having a streamlined and predictable process for TIF projects would avoid creation of additional hurdles, she said.

“Complicated and burdensome processes are surefire ways to ensure that projects don’t move forward,” Berglund said.

The committee took no immediate action on LB874.