Nebraska is one of many states that use Tax Increment Financing (TIF) to promote economic development. TIF in Nebraska is authorized by Article VIII, section 12 of the Nebraska Constitution and by the Community Development Law, Neb. Rev. Stat. §§ 18-2101 to 18-2158, which allow a city or village to use the property taxes on the increased valuation in a redevelopment project to repay the project’s financing. However, the use of TIF financing is a complex process that requires careful planning and execution to ensure that public investment generates an appropriate return on investment. Here is a closer look at how TIF laws work in Nebraska and what municipalities need to know to successfully utilize TIF financing.
What is Tax Increment Financing?
Tax Increment Financing (TIF) is a financing mechanism that allows municipalities to capture the additional property tax revenue generated by a development project in a designated area. The additional revenue, known as incremental revenue, is then used to finance the development project’s public infrastructure costs, such as site preparation, road construction, and other necessary infrastructure.
TIF financing is often used to promote economic development in blighted areas, with the goal of attracting private investment and increasing property values. In Nebraska, TIF financing is governed by the Community Development Law.
TIF in Nebraska
Here’s how TIF financing typically works in Nebraska:
- A real estate developer proposes a development project to a city or county government. This could include a new commercial or residential development, a public infrastructure project, or other types of economic development initiatives.
- The local government evaluates the proposal and determines if it is eligible for TIF financing. To be eligible, the project must meet certain criteria, such as creating new jobs, increasing property values, and promoting economic growth.
- If the project is deemed eligible, the government creates a TIF district that includes the area where the development will occur. The TIF district is a designated geographic area where property tax revenue generated by the project will be redirected to fund the project costs.
- As the development project progresses, the property taxes generated by the new development within the TIF district are collected by the government. The taxes on the increase in valuation above the pre-project base, known as incremental revenue, are diverted from the public bodies that levy them and paid into a fund of the redevelopment authority to pay for the development costs.
- The TIF funds can be used to pay for a variety of expenses related to the development project, such as infrastructure improvements, land acquisition costs, and other necessary expenses.
- Once the TIF financing has been repaid, or the division period ends, the property is taxed in the ordinary way and the taxes go to the public bodies that levy them.
TIF Laws in Nebraska
TIF laws in Nebraska are found in the Community Development Law, which lets a city approve a redevelopment plan that divides property taxes in a redevelopment project for up to 15 years, or up to 20 years where more than half of the project area has been declared extremely blighted (Neb. Rev. Stat. § 18-2147). The Local Option Municipal Economic Development Act (LB 840, Neb. Rev. Stat. §§ 18-2701 to 18-2739) is a separate program that lets voters approve local economic development programs funded with city revenue, subject to annual dollar limits.
Under the Community Development Law, cities are authorized to adopt redevelopment plans for redevelopment projects that are eligible for tax increment financing. The redevelopment plan outlines the goals and objectives of the project and identifies the types of development projects that will be supported by TIF financing.
TIF districts are created by designating a geographic area where TIF funds will be used to support economic development. The boundaries of the TIF district are defined in the redevelopment plan and may include one or more contiguous parcels of land. TIF is available only for a redevelopment project as the Community Development Law defines that term, which generally means work in an area the city has declared substandard and blighted.
Once a TIF district is created, the incremental revenue generated by the development project is captured and redirected to a special fund. The funds can then be used to finance the public infrastructure improvements and other costs associated with the project. TIF funds may be used to support a variety of economic development activities, including site preparation, land acquisition, construction, and other related expenses.
Benefits and Risks of TIF Financing
TIF financing can offer significant benefits to municipalities and developers by promoting economic development in areas that have experienced disinvestment or are otherwise blighted. TIF financing can also provide developers with access to capital that might not otherwise be available, particularly for large-scale development projects.
However, there are also risks associated with TIF financing. For example, TIF districts may not generate the anticipated incremental revenue, leaving municipalities with a funding gap that must be addressed. TIF financing also requires careful planning and execution to ensure that public investment generates an appropriate return on investment.
Utilizing TIF Financing for Economic Development in Nebraska
TIF financing can be an effective tool for promoting economic development in Nebraska. However, it requires careful planning and execution to ensure that the public investment generates an appropriate return on investment.
Municipalities that are interested in utilizing TIF financing should carefully consider the risks and benefits associated with this type of financing and work closely with developers and other stakeholders to ensure that the project is successful. By doing so, municipalities can help promote economic growth and improve the quality of life for residents throughout Nebraska.
Frequently Asked Questions
What is tax increment financing?
Tax increment financing is a tool that lets a municipality capture the additional property tax revenue a development project generates in a designated area. That incremental revenue then pays for the project’s public infrastructure costs, such as site preparation and road construction. TIF is often used to attract private investment to blighted areas.
How does TIF work in Nebraska?
A developer proposes a project to a city or county, which decides whether the project qualifies for TIF. If it qualifies, the government creates a TIF district, and the increase in property taxes generated by the new development is redirected into a TIF fund to pay project costs. Once those costs are paid, the district is dissolved and the property tax revenue returns to the general fund.
What can TIF funds be used for?
TIF funds can pay for infrastructure improvements, site preparation, land acquisition, construction, and other expenses related to the development project. The redevelopment plan defines the district’s boundaries and identifies the types of projects TIF will support.
What are the risks of tax increment financing?
A TIF district may not generate the incremental revenue that was projected, which can leave the municipality with a funding gap. For that reason, TIF requires careful planning to make sure the public investment produces an appropriate return.
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