Editor’s Note: Flatwater Explains is an occasional series during which FFP reporters explain the people, places and things that make Nebraska what it is while answering questions that both longtime residents and first-time visitors might have.
Across Nebraska, local governments have relied on a tool, one created decades ago by the Legislature, to help spur development.
Tax increment financing, or TIF, has increasingly become part of the conversation when new projects arise.
In Omaha, TIF has been used for the new Mutual of Omaha headquarters project downtown. In Lincoln, officials have approved its use for a proposed skyscraper on the site of a since-demolished gas station. North Platte used it for a Walmart and a Menards. And in Valley, neighborhoods with million-dollar homes have been aided by TIF.
What is TIF?
Tax increment financing (or TIF) is a public tool meant to incentivize construction of commercial, industrial or housing projects in areas where it may otherwise not be profitable. For many local governments across America, TIF is the most effective tool to spur development.
How does TIF work in Nebraska?
First, a public body designates an area as “blighted and substandard.” Then the same group, typically a city council, will vote on plans for projects in the area.
If approved, the property valuations in this area are frozen for at least 15 years so that as the developer improves the land, that developer gets refunded for doing so.
After the TIF period ends, the property is taxed normally.
Nebraska’s Community Development Law, which outlines TIF, explains these steps much more in-depth.
What is a “blighted” area?
Based on state law, a local government can designate an area “blighted” if it contains deteriorating buildings, defective street layouts, unsafe conditions or a variety of other qualities. It also has to have high unemployment, low income, old buildings, unimproved land or a declining population, state law says.
TIF was intended to redevelop downtowns in economic slumps, said University of Nebraska at Omaha Professor Craig Maher, who has studied the tool. But in practice, Nebraska’s standard for blight has been applied so broadly it has become irrelevant, Maher said.
What does “extremely blighted” mean?
An area can also be considered “extremely blighted,” which extends the TIF period from 15 to 20 years. For that designation, an area must have much higher unemployment as well as higher-than-average poverty rates.
How does a TIF project get approved?
A public hearing and vote must be held in order to designate an area either blighted or extremely blighted. There’s no limit on how big or small these areas can be.
From there, a group (typically a developer) submits a plan to a planning commission or some other board that oversees the redevelopment area. The plan has to meet an area’s overall development goals.
These proposals also have to contain a cost-benefit analysis, basically summarizing the project’s potential impact, both positive and negative.
How does TIF work in Omaha?
In Omaha, these plans go through a review by the city’s economic development staff, then through its TIF committee. Along the way, the plan is workshopped before it gets in front of the Omaha Planning Board, the Omaha City Council and finally the mayor.
Nebraska started utilizing TIF in 1979, and Omaha has always led the way on the tool’s use. A 1975 Omaha World-Herald article imagined TIF turning downtown into a bustling metro traversable by boat. That didn’t really happen, but the city has used TIF a lot. The state’s 2024 TIF report shows the city generated $46 million in “excess” taxes from its TIF projects. Its biggest recipients through the years have included Aksarben, midtown, Blackstone and downtown.
In other states, TIF has been restricted or received criticism for diverting too much tax revenue from public institutions like schools.
What’s the current state of TIF in Nebraska?
It’s taking some criticism, including from the state auditor and current and former state lawmakers of both parties.
Nebraska Auditor Mike Foley raised concerns about how the City of Omaha uses the tool, though he didn’t allege the city was breaking the law. Omaha mayoral candidate Mike McDonnell used that report to attack big projects like the Omaha streetcar, a $421 million project that the city is expected to help finance through TIF revenue.
Former Omaha Mayor Jean Stothert and the Omaha Chamber of Commerce released studies defending the city’s practices.
Former State Sen. Justin Wayne, a Democrat from Omaha, protested the city’s use of an “extremely blighted” designation, a modification to the law he introduced the year before, to extend the streetcar’s tax break period. Former State Sen. Lou Ann Linehan, a Republican from the Elkhorn area, introduced legislation to prohibit “TIF’ing” a property twice in 50 years.
Others say it’s a powerful tool when done right. State Sen. Mike Jacobson, a Republican from North Platte, told KNOP that negative feelings toward TIF stem from a misunderstanding of the tool. State Sen. Brad von Gillern, a Republican representing an Omaha-area district, told the Nebraska Examiner rural areas have embraced the tool, particularly to build workforce housing.
3 Comments
I would have liked to have seen a little more said about how a TIF is funded After living downtown for 7 years. I can tell you that we would regularly received assessment for the funding of these TIF’s and would have a short time to pay them on top of high taxes. At first they were small amounts. By the time we moved out of downtown the amounts were getting larger and larger
So, do the homeowners in the newly developed areas not have to pay taxes for 15 years, or just the developer?
I think the tax payers in Omaha should know how much is given away in tax exemptions or abatements every year. We are picking up the tab so we should see how much and where the money is going.