Tax increment financing, commonly referred to as TIF, is a public financing tool used by Nebraska municipalities to encourage private investment in designated redevelopment areas. For developers working on projects in blighted or substandard areas, TIF can be a powerful mechanism for bridging the gap between project costs and available financing. Understanding how TIF works under Nebraska law, how projects qualify, and what obligations the developer assumes is essential before pursuing this financing option.
The Basics of How TIF Works
TIF is authorized under Nebraska's Community Development Law, found at Neb. Rev. Stat. § 18-2101 et seq. The fundamental concept is straightforward. When a redevelopment project is approved and built, the new development generates additional property tax revenue compared to the pre-project base value. This increment of additional tax revenue is diverted from the general tax rolls and used instead to repay bonds or other financing that funded eligible project costs, rather than flowing to schools, counties, and other taxing entities that would otherwise receive it.
In practice, a developer seeking TIF works with a municipality to:
What Costs Are Eligible for TIF?
Nebraska law defines which costs may be financed through TIF. Generally eligible costs include:
The costs of private construction, such as building a commercial or residential structure, are generally not TIF eligible, though the public improvements funded by TIF can make the overall project financially viable by reducing the developer's out-of-pocket infrastructure costs.
TIF is not a subsidy in the traditional sense. The municipality is not giving the developer money from its existing tax base. It is allowing the developer to capture future tax growth generated by the project itself to repay the upfront investment in infrastructure and site preparation.
The Blighting and Substandard Area Requirement
A TIF project must be located within an area that has been designated as blighted and substandard under Nebraska law. The criteria for this designation are set out in the Community Development Law and include factors such as deteriorated structures, inadequate infrastructure, environmental contamination, excessive land coverage, and lack of proper street layout. Municipalities conduct formal studies to make blighting and substandard findings before a TIF district can be created.
The "But For" Test
One of the most important legal requirements for TIF approval in Nebraska is the demonstration that the project would not proceed "but for" the TIF assistance. This means the developer must show that the financial gap between project costs and available financing makes the project infeasible without the TIF subsidy. This test is intended to ensure that TIF is used to catalyze investment that would not otherwise occur rather than subsidizing projects that would happen anyway.
Practical Considerations for Developers
TIF projects involve a multi-step approval process that takes time and requires significant preparation. Developers should engage legal counsel early in the process to assess eligibility, navigate the approval process, and negotiate redevelopment agreements that protect the developer's interests. The redevelopment agreement governs the relationship between the city and the developer and sets forth the obligations each party must fulfill for the TIF financing to be disbursed.
The attorneys at Horgan Law Firm assist developers and municipalities with TIF projects and other real estate financing matters throughout Nebraska. If you are evaluating a development project that may qualify for TIF assistance, contact us to discuss the legal aspects of structuring the transaction.
