A growing trend in Nebraska is the use of tax-increment financing (TIF) to fund redevelopment projects. Some, such as Omaha’s Mayor Stothert, are wholehearted proponents of TIF. Others, such as State Auditor Mike Foley are more cautious about its use, while not taking a “pro” or “con” position. Still others, such as Mayor Candidate Mike McDonnell, want to put a pause on new TIF projects.

 

So what is TIF? How has Nebraska used it, and why are so many Nebraska communities increasing their use of TIF? What are the benefits and dangers of TIF?

 

We’ve all seen those areas of town . . . dingy, unsanitary, empty. Places that used to be alive with activity but are now struggling to get by. No one likes them in their cities or towns, but what can be done about it?

 

TIF is a system of financing created to address areas such as these, called blighted areas. Among other criteria, the Nebraska legislature has defined a blighted/substandard area in the following ways:

 

To revitalize such areas, developers need financing. Where could that money come from? Future taxes. (Hang with me here.)

 

In blighted areas, property values are lower. However—add some new structures, enhance the area, make it an inviting place where people come, live, enjoy, and spend money—and property values go up. When the property values go up, so do the property taxes. And that increased property tax money is used to pay back the money that the developer borrowed.

 

To see how it works, here’s a very simplified example. I’m not accounting for interest, the length of time it takes to develop a property, or the ebb and flow of economic factors that affect property tax rates—here, my goal is to explain where TIF money comes from and how it is used to pay for development. There are multiple ways to do TIF, but the one here is the one that municipalities in Nebraska seem to be using. It is called “Pay as you go” TIF, and it lets the City provide financial resources for the developer, while still protecting the City and taxpayers, because it leaves the responsibility for the loan on the developer.

 

Let’s say we have a municipality called Cityville. A 10-block section of Cityville is blighted. A run-down playground, some old houses that aren’t safe to live in anymore, and a couple stores are barely hanging on in that area. Diego Jones comes by and says . . . “Well, if I had $15,000, I would build a new shopping center, an apartment building, and a beautiful park. But I don’t.”

 

Cityville looks at the area and says, “Well, this area is producing $100 per year in property taxes for the county right now. But if this developer did his thing, it could be producing $1100 in property taxes.”

 

So Cityville says, “Diego, go get a loan for $15,000. For the next 15 years, you will pay property taxes. $100 per year will keep going to the county, which is what they’re getting now and would continue getting if you didn’t do your project. But when you do your project, values will go up, and you’re going to owe $1000 more per year in property taxes. When you pay your property taxes to us, we will take the extra $1,000 and pay your loan with it. Once the loan is paid, the whole $1,100 will go to the county like normal property taxes do.”

 

Let’s say Diego’s project does even better, and he owes $2100 in property taxes. The $100 still goes to the county, and the $2000 goes to pay the loan only until the loan is paid off. Then the entire $2100 goes to the county.

 

On the other hand, perhaps Diego’s project doesn’t do as well, and property tax only goes up to $1000 instead of $1100. The county will still get $100, and $900 will go toward the debt. At the end of 15 years, he will still owe $1500, which he will be responsible to pay. Since the 15-year loan term is up, he will then also be paying $1000 property tax to the county.  

 

So, the basic idea is that property tax goes up because the properties are worth more. The overall property tax, then, is split. The county continues to receive the original blighted area’s property tax amount, which continues to go to the county to distribute to schools and public works approved by taxpayers. The increase in property tax goes to the municipality that made the agreement with the developer.

 

In Nebraska, TIF terms can be either 15 or 20 years, depending on how blighted the area is in the beginning. The TIF money can only be used to pay the loan for that one redevelopment project. When the loan is paid off, or the term ends—whichever happens first—then no more of that TIF money can go to the municipality; it must go to the county to be distributed as voters have approved.

 

 

Communities across Nebraska, both rural and urban, use TIF—and its use is expanding. While TIF has been legal for decades, its growth over the past decade has been particularly noteworthy, with the number of TIF projects growing from fewer than 750 in 2014, to about 1350 in 2024. Taxes going to fund TIF projects have also doubled from about $60 million in 2014 to $120 million in 2024. Perhaps most notable of all is that property values for these projects have risen by $6 billion.

 

Omaha alone approved 23 TIF projects in 2023, totaling $129 million to be paid over the next 15-20 years, depending on the project. These projects include the redevelopment of Crossroads at 72nd and Dodge, housing in Aksarben, housing in Bluestem Prairie (northwest Omaha), and a mixed-use development in North Omaha, Forever North. Former or continuing projects in Omaha include the Streetcar project, the Mutual of Omaha downtown tower, parts of Blackstone, the Livestock Exchange Building in South Omaha, and commercial buildings downtown.

 

Recently-approved TIF projects in Lincoln include a high-rise offices and luxury housing in the Haymarket, the North Haymarket Arts and Humanities Center, Sky Park Apartments, and the Pedestrian Crossing and Van Dorn Park Enhancement. Lincoln has identified affordable housing as a need, and is also using TIF to increase investment in affordable housing communities.

 

Rural communities and smaller cities use TIF as well, including housing in Lexington, Scribner, Pender, and Grand Island. These investments lower the cost of rental units or homebuying for rural families—a $300,000 home could cost $50,000 less. Broken Bow has had several TIF projects, largely commercial. Cass County’s cities have had seven TIF projects, such as Meadow Heights and the Missouri Riverfront Campground in Plattsmouth; Washington County has also had several, including Transformation Hill and the Grant St. Industrial Park in Blair.

 

These are just a few, for reference. TIF projects in every county in Nebraska, broken down by city, can be found here.

 

TIF has always been controversial, and its growing use in Nebraska has sparked both enthusiasm and concern. Some taxpayers are happy that their home valuations could increase if they are in an area being revitalized by a TIF project; others are concerned about the higher property taxes they will pay. Some citizens are eager to see blighted areas beautified; others worry that cities will abuse their right to designate areas as blighted just so they can make an improvement. Some see the redistribution of property tax money during a TIF term as an investment for the future; others are troubled that the regular recipients of property tax are losing that money during the TIF term. Some who live in blighted areas may look forward to seeing improvements in their community; others, who may have lower incomes, may fear being priced out of their homes as costs rise due to the neighborhood improvements. However voters measure the benefits and dangers of TIF for themselves, they have the opportunity to hold their local governments accountable to manage TIF carefully and ethically.

 

**This post will be expanded for a deeper discussion of the pros and cons of TIF usage in Nebraska.