LINCOLN — An effort to water down cities' power to grant generous property-tax breaks to redevelopment projects appears headed for a watering down itself.
That was evident Tuesday after a string of representatives from municipalities and chambers of commerce across the state, including Omaha, argued against changes in the state's current laws governing tax-increment financing, or TIF.
Over and over, they told a state legislative committee that TIF has allowed cities large and small to attract dozens of new businesses and thousands of new jobs and to redevelop undesirable, blighted properties. Those benefits, they said, outweigh the property tax breaks for such projects that last up to 15 years.
"The old saying is, 'If it's not broke, don't fix it,'" said Ken Bunger, a former deputy Omaha city attorney who helped write the original TIF laws.
After the hearing before the Legislature's Urban Affairs Committee, State Sen. Abbie Cornett of Bellevue said she plans to amend her proposal, Legislative Bill 918, to focus more squarely on improving communications between taxing entities before a TIF project is approved.
Fifteen years is a long time for school districts and other taxing entities to forgo the tax-revenue benefits of new development, and those tax entities shouldn't be blindsided if that is going to happen, Cornett said.
"If you're going to impact someone's tax base for 15 years, you ought to at least talk to them," Cornett said.
Under TIF, projects can recapture the property taxes paid on the increased value of the redeveloped land and buildings. That money can be used to upgrade roads and sewers in the redevelopment area and to pay off bonds for such work. The tax break can be used for up to 15 years.
That means local school districts, cities, counties and other taxing entities don't get the increased property tax revenue generated by such TIF developments for up to 15 years. TIF projects also cause the state to send more state aid to affected school districts, which Cornett said amount to a "public subsidy" of $21 million a year.
The senator, who heads the Legislature's Revenue Committee, described TIF as a "great development tool." But she said she undertook an interim study last summer after hearing complaints about TIF's steep "price tag," in terms of forgone tax revenue to operate schools and scoop streets.
A recent incident involving the Westside Community Schools, she said, brought a greater focus to the problem.
Andrew Rikli, Westside's assistant superintendent, said Tuesday his district was surprised to learn that the City of Omaha planned to declare more than 50 percent of the district's land base "blighted" as part of allowing TIF for the proposed Crossroads Mall redevelopment.
He called that excessive and said it would have affected about 80 percent of the district's commercial property.
After school and city officials talked, the size of the proposed blighted area was reduced. Rikli said that was a "win-win" solution because the city could move forward with the redevelopment and the school district would not suffer such a large property tax loss.
Under Cornett's proposal, no more than 7 percent of a taxing district's property valuation could be involved in TIF.
That tougher cap brought the most complaints from those testifying, including Rick Cunningham, the City of Omaha's planning director.
Cunningham said LB 918 would "shut down" the use of TIF in Omaha and 25 other communities across the state within six months.
Already, about 6.75 percent of the land valuation in the Omaha Public Schools is involved in TIF projects, and pending projects would quickly push that percentage above 7 percent, he said.
Former State Sen. Dave Landis, now the urban development director for the City of Lincoln, called TIF a valuable tool for cities that permits redevelopment of hard-to-sell, inner-city properties.
He said 15 recent TIF projects in the state capital had resulted in $6.3 million in diverted property taxes over 15 years. But those projects raised the combined valuation of those properties from $15 million to $105 million, increasing the property taxes being paid — after 15 years — to $2.4 million a year, about a sixfold increase.
"TIF is the primary (redevelopment) tool and, in some of our cities and villages, the only tool they have," said Lynn Rex of the League of Nebraska Municipalities.
Only one person testified in favor of Cornett's proposal. Jack Dunn of the Omaha-based Progressive Research Institute of Nebraska said there needs to be great scrutiny of TIF projects so it is allowed only when there is "solid evidence" that a project would not proceed without it. Such projects, he said, must deliver a public benefit and not just "extra profit" for a developer.
The Urban Affairs Committee took no action on LB 918 after the public hearing.
Cornett said that while a 7 percent cap is too low, she remains concerned about small communities with up to 30 percent of their total valuation wrapped up in TIF projects.
Another TIF proposal is pending in the Legislature. Omaha Sen. Heath Mello has proposed a constitutional amendment that would allow TIF projects to extend up to 20 years, rather than the current 15.
The measure would also change some troublesome TIF language — substituting the words "property in need of rehabilitation or redevelopment" for the current "substandard or blighted," a label that's been applied to rural cornfields and even Omaha's affluent Fairacres area to qualify those areas for TIF.
Contact the writer:
402-473-9584, paul.hammel@owh.com
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