A small tweak to Nebraska’s Constitution that voters overwhelmingly approved this month could have a big impact in bringing redevelopment to economically distressed Omaha neighborhoods.
The change, once legislation is approved by state legislators, will give real estate developers 20 years to pay back their tax-increment financing (known as TIF) loans, instead of the current 15, in neighborhoods with high unemployment and high poverty.
The longer repayment period has the potential to make a big difference, said a veteran of residential, commercial and retail redevelopment projects in North Omaha.
“In some projects, it will be the difference between it happening or not,” said Michael Maroney, president of the Omaha Economic Development Corp. “It means you’ll probably have to borrow less money on a project, which means it has a better opportunity, a better chance to succeed.”
The constitutional change was on the Nov. 3 ballot as Amendment 2. It was approved by 65% of Nebraska voters. Its passage means the Legislature can now enhance TIF with the extended payback time in areas that cities designate as “extremely blighted.” That is defined as having more than 20% unemployment and a poverty rate over 20%.
It’s expected to be used most in parts of North and South Omaha, but also could apply to such other cities as Lincoln, Grand Island, Scottsbluff, South Sioux City and Fremont.
State Sen. Justin Wayne of Omaha, who pushed to place the amendment on the ballot, said he will introduce legislation in the 2021 session to enable cities to award the enhanced TIF.
“After that we’ll just be ready to go, get people out there and see what kind of extra projects we can spur up here,” Wayne said.
Tax-increment financing has been on the books in Nebraska for decades and has been frequently used by real estate developers and the City of Omaha to boost urban renewal. It is not a direct subsidy. But it does indirectly divert potential tax dollars into private development.
The funding mechanism allows developers to use a portion of a project’s future increased property taxes to pay for certain upfront costs, such as site preparation and street and sewer improvements. Developers are supposed to demonstrate that their projects would not be doable without TIF and then obtain a private loan for the city-approved TIF amount. For up to 15 years, instead of paying those increased property taxes to support local government, they use that money to repay their TIF loan.
Wayne has acknowledged that some uses of TIF have been seen as questionable but said this change should lead to it being used where it can do the most good.
“As long as you can provide the same financial benefit whether you do 108th and Dodge or North 30th Street, businesses are going to gravitate toward 108th and Dodge or 72nd and Dodge, and you’ll never be able to develop those areas in North or South Omaha,” Wayne said. “So I hope that this additional tool, this extra time, will allow these developments to occur in North and South Omaha.”
Wayne did not know of any developments waiting in the wings to use the enhanced TIF. Neither did two city officials, Maroney or two other developers who are active in the eastern third of Omaha.
But the City of Omaha has already taken a big step toward using the enhanced TIF. The City Council voted in December to approve extremely blighted areas. The descriptive phrase isn’t popular but has stuck around because it’s codified in state law. The designation was mainly for a $5,000 tax credit for people who buy homes in those areas as their primary residence. Those Omaha areas will already be defined when the state passes new TIF legislation.
Bridget Hadley, economic development manager in the City Planning Department, has been talking up the added incentive to developers.
“The intent for that extension is really to give the development community an incentive to do a project in these areas instead of going out west,” she said.
Will it be enough? She hopes so, but added, “Only time will tell.”
Kevin Andersen, who is Mayor Jean Stothert’s deputy chief of staff for economic development, said the new measure “could have a really good impact” — especially on affordable housing developments — by lowering a developer’s bottom line and thus the cost to homebuyers.
Maroney said he could see developers using the incentive for multifamily housing as well as commercial development. It takes “multiple layers of financing” to make developments work in economically stressed areas, he said, and this added incentive may help developers attract financing for projects.
“It’s not easy, particularly when people on the outside are looking in and they don’t see all the positives they’d like to see in a deal and it becomes harder to finance,” Maroney said. “I look forward to the Legislature creating the legislation that will allow it to go forward, and hopefully it’s done in a way that has the greatest impact on the areas with the greatest need.”