As we approach fall, I am focused on ideas for new legislation for the 108th legislative session. One issue I want to tackle is improvements to the Micro-TIF program, so municipalities and counties in District 42 have the best tools they need to grow.

Today, there are three Tax Increment Financing (TIF) programs available. Traditional TIF was designed to help developers offset costs associated with land and infrastructure investments. A 15-year bond is issued to cover those costs.

Meanwhile, the tax assessed value of the property before the improvements are “frozen” and taxing authorities continue to receive the property taxes as if it was unimproved. The developer however, pays property taxes on the full increased tax assessed value and the increase is used to repay the TIF bond. TIF bonds 1) cannot exceed the amount of revenue available for repayment over the life of the bond, and 2) can only be used for qualified expenses. Qualified expenses include land and infrastructure costs and do not include actual construction costs.

Another program is Workforce Housing TIF, which is structured like Traditional TIF, but the bond can be used for construction-related costs as long as the ultimate sales price of the home is less than or equal to $325,000 or the home is rented at allowable rental rates.

Finally, Micro-TIF was designed to encourage rehabilitation of older homes that have been within the city limits for at least 60 years. The rehabilitation could also include demolition of the home for a new build.

However, unlike the other two TIF programs, Micro-TIF is not funded with a bond. Instead, a note is issued only after improvements are made and payments from the increased tax revenue go to the current homeowner during the remaining 10 years.

I supported improvements to Micro-TIF in the 2022 session (LB 1065), which expanded the program to unimproved lots within the city for at least 60-years and extended the time to receive the tax rebates for up to 15 years, and I think there is more work to be done.

The lack of upfront funding prevents some from participating in the Micro-TIF program. Currently, the owner or developer needs the necessary capital to invest in the improvements without subsidy or loan. I would like to see the Legislature provide an upfront payment mechanism, which would allow the owner or developer to pledge the note to a lender who can provide funding assistance for the improvements.

The ability to pledge the note to a loan would also help the city keep track of the investor to ensure they receive the note payments due to them under the program. Today, Micro-TIF payments are made to the owner of the property, which may not be the developer or homeowner who made the improvements on the property. If the property is sold, the new owner receives the payments – whether or not the original investor recouped their improvement costs when they sold the home.

If a Micro-TIF note is pledged to a loan, the city treasurer can distribute proceeds to the note holder without risk of distributing funds to the wrong party.

Additionally, I would like to see more discretion go to the authority tasked with approving Micro-TIF projects. Current law requires municipalities to automatically approve Micro-TIF projects. I think allowing municipalities to approve Micro-TIF projects individually will improve accountability and transparency.

All TIF programs require the municipality to make judgments about areas that are “blighted and substandard”, and the designation can only apply to a portion of the community. Individual Micro-TIF approval will increase transparency to help municipalities better manage their community development while also ensuring oversight of program qualification and fair distribution of program benefits.

Many communities in District 42 and other parts of greater Nebraska are experiencing housing shortages that make it difficult to recruit and retain businesses and workers.

Given the challenges associated with building new homes today, serious cost savings can be obtained by rehabilitating older homes, with the additional benefit of refreshing older neighborhoods within a community. Micro-TIF has a strong role to play in helping solve our housing problems and can be much more user friendly and effective with just a few small changes.

As you have ideas for 2023 legislation, please feel from to reach out to me at mjacobson@leg.ne.gov or 402-471-2729. I will be spending the fall fine-tuning bill language and talking with my colleagues about important issues we need to address next year.

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