Tax Incrementing Financing (TIF)
Tax increment financing (TIF) is a method of financing the public costs associated with a private development project. Essentially, the property tax increases resulting from development are targeted to repay the public infrastructure investment required by a project.
TIF provides a means of encouraging private investment in deteriorating areas by allowing local governments to use future property tax revenues to finance the current infrastructure costs needed to attract development. Nebraska voters approved TIF in 1978 and the Unicameral passed enabling legislation in 1979. The legislature has revised the TIF statutes numerous times since.
Under Nebraska law, TIF projects may be commercial, residential, industrial, or mixed use. After a project is approved, the locality authorizes the issuance of warrants or TIF bonds to undertake public improvements in the designated area. TIF bonds may be issued in conjunction with revenue bond issues for water, sewer, or parking purposes and are exempt from state and federal income taxes. Land assembled for the project is conveyed to the developer at a "fair value." The developer proceeds with construction in accordance with an approved plan and the bonds are paid off from the increase in property taxes resulting from the development.
The following highlights some of the legal steps a local government or community redevelopment authority must go through to initiate a TIF project. Each step has a link to the section of the Nebraska statutes that defines or describes what is legally involved. Although the steps are discussed discreetly and consecutively, several activities may occur simultaneously. For example, a community may not consider declaring an area substandard and blighted until a developer comes to the city council with a proposed TIF project.
Steps to Follow to Develop a Local TIF Project
- Identify a “substandard and blighted area” that needs redevelopment, Revised Statutes of Nebraska Sec18-2103
- Develop a plan for the project area, Revised Statutes of Nebraska Sec. 18-2111
- The community redevelopment authority can recommend a plan only when “a general plan for the development of the city has been prepared," Revised Statutes of Nebraska Sec. 18-2110
- Submit a plan to a local "planning commission or board of the city" for review and recommendations, Revised Statutes of Nebraska Sec. 18-2112
- Redevelopment authority must do a cost-benefit analysis of a project before recommending it to a local government, Revised Statutes of Nebraska Sec. 18-2113
- After a redevelopment authority approves a plan, it recommends the plan to the local government, Revised Statutes of Nebraska Sec. 18-2114
- Plan approval, Revised Statutes of Nebraska Sec. 18-2115
A local government must find that tax-increment financing is central to the feasibility of the project, Nebraska Revised Statutes Sec. 18-2116
Then, the redevelopment site is transferred to the developer "at its fair value for uses in accordance with the redevelopment plan," Nebraska Revised Statutes Sec. 18-2118
The property taxes increases generated from the redeveloped site are applied to the TIF bonds until they are repaid, or for 15 years, after which the increases revert to local government taxing jurisdictions, Nebraska Revised Statutes Sec. 18-2147. The city/CRA must file a Notice to Divide Tax for Community Redevelopment Projects (statutory form) with the County Assessor on or before August 1 in the calendar year the division is to become effective. This form is available on the Department of Revenue, Property Assessment Division’s website at www.revenue.ne.gov/PAD/forms/Notice_to_Divide_Tax_for_TIF.pdf.
On or before December 1, cities are required to provide the Property Tax Administrator at Department of Revenue, Property Assessment Division, a copy of any new redevelopment project plans not previously reported or any amendments that are made to an existing project, per Nebraska Revised Statutes Sec. 18-2117.01. The city is not required to report value or tax information or any information on existing TIFs.
For more information on TIF activity in the state, see Nebraska Department of Revenue annual report. To review all state community development laws, visit: http://nebraskalegislature.gov/laws/browse-chapters.php?chapter=18.