What is Tax Increment Financing?

Nebraska is one of many states that use Tax Increment Financing (TIF) to promote economic development. TIF laws in Nebraska are regulated by the Local Option Municipal Economic Development Act (LB 840), which enables municipalities to allocate local tax dollars to support economic development projects. 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 managed under the Local Option Municipal Economic Development Act (LB 840).

TIF in Nebraska

Here’s how TIF financing typically works in Nebraska:

  1. 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.
  2. 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.
  3. 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.
  4. As the development project progresses, the property taxes generated by the new development within the TIF district are collected by the government. A portion of these taxes, known as incremental revenue, is then redirected from the city or county’s general fund and instead deposited into a TIF fund to pay for the development costs.
  5. 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.
  6. Once the development project is completed and the TIF funds have been used to pay for the associated costs, the TIF district is dissolved, and the property tax revenue generated by the new development reverts back to the city or county’s general fund.

TIF Laws in Nebraska

TIF laws in Nebraska are regulated by LB 840, which provides municipalities with the option to use local tax dollars to finance economic development projects. LB 840 allows municipalities to allocate up to 1.5% of their total taxable property valuation toward economic development.

Under LB 840, municipalities are authorized to create redevelopment plans and TIF districts 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 districts can be created in any area within a municipality, including in areas that are currently undeveloped or that have experienced significant disinvestment.

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.

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