Proposal to let Nebraska cities rescind TIF-related ‘blighted’ label clears early hurdle

LINCOLN — A measure that would allow Nebraska cities to remove a “blighted” designation, thereby ending an area’s eligibility for future tax-increment financing incentives, has advanced out of a legislative committee.

The Urban Affairs Committee in executive session voted to forward Legislative Bill 532 for debate by the full Legislature.

Introduced by State Sen. Terrell McKinney of Omaha, the measure pertains to the Community Development Law that governs tax-increment financing, or TIF. 

Under the TIF program — which has faced criticism by some lawmakers who think it is overused — a city must declare an area blighted and substandard before it can approve a TIF loan plan to help cover eligible costs on a development project.

Generally, the developer takes out the loan that’s then paid back over 15 or 20 years by using the increased property taxes generated on the new development. Normally, property tax revenue goes to support schools and other local tax-reliant bodies.

During the loan period, the property owner continues to pay a portion of property taxes to local governments based on the valuation that existed before any improvements.

After the TIF loan is repaid, property taxes collected on what then should be a higher-value, improved property starts flowing to those local governments.

LB 532 would allow for the substandard and blighted designation to be reviewed and removed by the city’s governing body. TIF projects approved prior to a blight removal would not be affected.

Blighted designations have caused controversy at times, as some residents believe the tag hurts property values in neighborhoods. Others have argued that the designation stretches the intended use of TIF.

TIF, as shaped by the Nebraska Legislature, was intended to spur development in blighted areas.

McKinney said the measure that moved forward Tuesday did not include a proposed amendment that called for the state to allocate $100 million to the Omaha streetcar project under the condition the city develop a line extending into north Omaha.