In Valley, public tax dollars pay for private lakes, neighborhoods with multimillion-dollar homes

The pool unfurls like a ribbon under a cloudless sky. Past the private beach and docked boat is Bluewater: 250 acres of lake water — an area larger than Disneyland Park — surrounded by 7 miles of sandy shores and some of Douglas County’s most expensive homes.

Ten years ago, this was a “blighted” pit. Now, neighbors like whoever buys the five-bed, six-bath house listed on Zillow for $3.25 million can fish, windsurf and kayak in this upscale neighborhood in Valley, about 30 minutes west of Omaha. 

The transformation was made possible by tax increment financing, a tool state lawmakers designed to incentivize building in “substandard” areas by freezing property values for 15 to 20 years and reimbursing developers the difference as they make improvements.

While tax increment financing, or TIF, is popular across the state, few have used it as much — or stand out as a “more extreme example” of the growing disconnect from the law’s intent — as Valley, say experts and a new Flatwater Free Press analysis.

Over the last 30 years, the 3,200-person town has been Nebraska’s fourth-largest user, reimbursing developers $38 million, far more than larger cities like Gretna, Kearney, Bellevue and Norfolk, according to the Flatwater analysis.

Three of Valley’s four projects have been lakefront neighborhoods. Those projects contributed to exponential growth: In the 21st century, Valley has been the state’s fifth-fastest-growing city, while its property value has increased from $110 million to $713 million.

But Valley also funneled a third of area taxes back to developers last year, nearly four times the average of other municipalities. By comparison, Omaha, criticized for building its streetcar with TIF, sent only 4% of its taxes back to developers.

Some state leaders think Valley has misused the tool to fuel development that would otherwise happen or doesn’t deserve the subsidy.

“It’s supposed to be used for blighted property,” said Lou Ann Linehan, a Republican former state senator from the Elkhorn area. “People are going to build homes on lakes.”

This use of TIF — collecting taxes but then giving them back to developers — also comes at the expense of public services, Linehan said. 

A Flatwater analysis confirmed by the Douglas County assessor shows that nearly $14 million of the taxes reimbursed in the past decade would have otherwise gone to the Douglas County West Community Schools, one of the state’s fastest-growing public school districts. 

Superintendent Melissa Poloncic declined to comment.

The Valley Fire Department recently raised funds from local donors to help build a new fire station. Nearly $2 million of the fire department’s tax dollars were diverted to developers over the past decade, the FFP analysis shows. Amy Carlson, president of the Valley Suburban Fire Protection District, did not respond to a request for comment.

Then there’s the brown water, an old problem made worse by new development, said Mike Adair, who oversees water and sewage in Valley through the company PeopleService.

Every summer morning, automated sprinklers draw tons of water toward the lake neighborhoods. The changes in pressure dislodge built-up iron and manganese on the city’s older pipes, causing the water to run brown out of faucets in the non-lake homes, Adair said.

“If they had more tax base to put toward (fixing) this, would that be better?” he asked. “Of course it would.”

Supporters of the tax breaks, including developers and the city’s former mayor, say the Valley projects have helped create a citywide boom, one that wouldn’t have happened otherwise if tax revenue and the city’s population had remained stagnant.

Without the tax breaks, there likely would be no lake neighborhoods at all, said Patrick Day, an Omaha-area developer whose company has developed several TIF projects, including Mallard Landing in the mid-2000s.

“There’s no incentive to do it,” he said. “Then when the city said, ‘Yeah, we would do TIF,’ it’s like, ‘OK, now it makes sense.’ If it wasn’t for TIF, Valley would just be a quiet little town.”

But there’s no way to know that, said Craig Maher, a professor of public administration at the University of Nebraska at Omaha. Nebraska provides little oversight, and its definition of “blight” is so broad it’s essentially meaningless, he said.

Valley, Maher said, “is a more extreme example” of TIF’s pivot away from lawmakers’ original intent.

It’s a complicated issue for Wendy Deane, who runs a Valley art gallery. The town’s growth is astronomical. Some of the people who buy art and rent the gallery for events live in the lakeside developments. But her part of town, the older one, needs more affordable housing and businesses.

Recently, the town has been engulfed in high-profile fights: recall petitions on the mayor and city council president, allegations of officials breaking the law, a controversial custody battle over a police dog.

TIF isn’t bad, Deane said. But how the city has used it is fueling tension, creating a perception of “the haves and the have-nots,” she said.

“They’re seeing things go up,” Deane said of residents who felt left behind, “but they’re not seeing their lives improving.”

‘Swiss cheese’

Valley didn’t go searching for TIF, said Mary Caffey, a longtime Valley city council member, mayor and teacher. TIF found Valley.

Around the turn of the millennium, Frank Krejci, a developer known for projects across Omaha, wanted to build a lake, Caffey said.

But he ran into a big problem — the whole city is in a floodplain between the Platte and Elkhorn rivers. To develop, everything must be elevated before sewage and water lines can be installed, Caffey said. For years, the land around Valley was more valuable for sand and gravel mining, which formed massive pits that flooded with groundwater. 

“We’re sitting on Swiss cheese,” Caffey said of the area’s topography.

The solution? Tax increment financing.

In 2003, the city council, including Caffey, signed the agreement for Valley Shores, a 42-acre lake surrounded by about 100 homes. It cost $7.4 million in refunded taxes, according to state reports.

Over the years, the projects got bigger. Mallard Landing — 149 homes on a 78-acre lake approved in 2006 — has received $14.5 million so far. Bluewater — 268 home lots on a 250-acre lake — was approved for $32.6 million in TIF subsidies in 2014.

Caffey, who signed off on Valley Shores as a city council member and Mallard Landing as mayor, said the agreements felt fair.

“It’s not a haphazard process,” she said.

Years later, the legacy of TIF is complicated, said Mayor Cindy Grove, elected in 2020.

The city’s property tax revenue is booming, the mayor said. Former TIF projects, now expired, are already adding $26.2 million to the area’s tax pool this year, according to county records.

New houses also pay fees for the city’s water and sewer system, which has helped the city spend $14 million on fixing its water issues, she said. The developer, not the city, is also responsible for building or maintaining utilities, streets, sidewalks and trails. 

But the optics — big tax breaks for private developments — haven’t sat well with some residents.

“I think the big perception, and it’s probably not entirely wrong, is that … they were very favorable for the developer,” Grove said of the original deals, “not so much for the city.”

The city is now trying to rectify past mistakes. It now has a TIF application and review committee — a process it took from Omaha.

The city has turned down some proposals and negotiated others to align with its shifting philosophy: more commercial space and lower subsidies. 

Last year, it approved $6 million for Catalina, a development that includes lake neighborhoods, sports fields and commercial space. Valley Landing, a project that will include a lake and space for a grocery store, which the town currently doesn’t have, will get $5 million.

“Everybody wants to be here,” said City Council member Melanie Hayden. “We’re the fun town. We’re the lake community… the ball is in our court.”

‘Poker game’

Valley’s publicly financed lakes are not open to the public.

That means to catch walleye in Bluewater, scuba dive in Valley Shores or boat in Mallard Landing, you have to live there or be invited. Attempts to get a public beach or pier for Valley residents have so far been unsuccessful, Grove said.

Valley City Council member Linda Lewis said she didn’t fully understand TIF before she voted to subsidize Bluewater.

Even now, there’s no good way to know if the developer really needs the money, she said.

“It’s kind of like a poker game,” she said of her strategy: ask a question and watch their face for tells.

City Council member Jake Lewis, unrelated to Linda, thinks the pits would be an advantage to developers.

“It’s a nice dredged lake. It’s set up for those types of neighborhoods,” Lewis said. “It’s very attractive.”

Demand for lake living helped Mallard Landing weather the Great Recession of 2008, developer Patrick Day said. When few people were building homes, construction at the Valley lake development kept on pace.

Defining something as “blighted” feels like a “silly rule,” he said. 

“If I was the state, what I would do is give the freedom to each city to make their own decision,” he said. “They’re all big boys and girls. They know how to make a proper decision. They’re gonna do what’s best for their city.”

Tax increment financing started as a way to help ailing downtowns with closing business, declining populations and aging buildings, said Craig Maher, the UNO professor. But Nebraska’s TIF law is so vague the blight definition has become “irrelevant.”

In Valley, justifications to blight areas include population declines of as little as six people and the presence of old mining equipment and rubble that “can create breeding ground for rats.” 

“That seems like a bit of a stretch,” said Zach Mohr, a professor at the University of Kansas who specializes in public budgeting and financial management.

He called the developments — tax breaks for expensive neighborhoods — “highly unusual.”

“I mean, clearly, Douglas County is growing, and I would imagine that people would be moving out there anyway, especially to live on nice lakefront properties,” he said. “And so the need for TIF seems pretty tenuous.”

Nebraska has no oversight over whether TIF is justified, Maher said. Some states like Minnesota require more robust financial documentation. Wisconsin requires review boards to vet applications. In Nebraska, making the financial case is often up to the developer.

“Now, is there much independent scrutiny of that?” Maher asked.

State Auditor Mike Foley, whose office has researched TIF, notably as a way to fund Omaha’s streetcar, said he thinks its overuse has driven up property taxes.

“I believe the Nebraska Legislature would do well to revisit the TIF statutes and place some meaningful guardrails on the use of the tool,” he said in an email.

For Caffey, the former mayor, Valley has so far gotten a good deal out of TIF. Its revenue is climbing and the population is growing. Now that the appetite for residential developments is sated, the city can move on to different needs.

Not everyone feels the same way, she acknowledges. She has friends who are not for it. Caffey tries to explain the benefits as she sees them, but it never goes anywhere.

“It’s just a flashpoint for people. It gets people’s attention,” she said. “And just about everybody has already formed their opinion about it.”