The Nebraska State Auditor’s office is located in the Capitol. (Paul Hammel/Nebraska Examiner)
LINCOLN — The city of Auburn has returned $658,003 to state coffers after a team of state auditors questioned certain practices used to finance tax increment financing projects, Nebraska State Auditor Mike Foley announced Monday.
The questions were laid out in a 13-page letter from Foley’s office in May to the mayor of Auburn, the city’s Community Redevelopment Authority and the chairman of the Nemaha County Board.
Foley reiterated the core of his concerns in a press release and during an interview with the Nebraska Examiner on Monday.
He alleges that Auburn’s Community Redevelopment Authority collected more tax increment financing (TIF) revenue than was needed for certain redevelopment projects and then used those funds to pay for the costs of various projects, some of which had yet to be developed.
“The purpose of a TIF is to pay for the cost of a specific redevelopment project with the increased property taxes that result from the improvements to that specific piece of land,” Foley said. “The idea is not for developers to collect excess property taxes for a slush fund to fund another endeavor.”
What is TIF?
In TIF projects, which require city approval, property tax revenues generated from new developments are typically used to cover a developer’s eligible costs for up to 20 years, rather than going to traditional recipients such as school districts and local municipalities.
Meanwhile, property taxes on the original site, before improvements, continue to be paid by the owner, but are frozen at that amount. Those payments continue to go to the usual destination for property taxes: schools and local governments.
After the TIF loan is paid off, all property tax revenues on that more valuable property go to the traditional recipients.
No admission of guilt
Crystal Dunekacke, Auburn’s city manager and economic developer, said Monday that the refunded funds should not be viewed as an admission of wrongdoing.
She said the redevelopment authority maintains it has complied with the Community Development Law, which governs tax increment financing. TIF, as the tool is called, is a decades-old financing mechanism used by local governments to spur economic development in neglected areas.
The refunded funds, Dunekacke said, were a “self-imposed action or compromise to address a gray area” of the law.
That gray area, she said, revolved around whether TIF revenue left over from a redevelopment project could be “rolled over” into an account to be used for other projects.
Foley said Auburn officials have their say. “The reality is they’re putting the money back where it belongs.”
Both sides agree that the $658,003 will be distributed among the local government units that traditionally receive the property taxes.
There are concerns across the state
According to Foley, there are still concerns across the state, which were outlined in a separate but related letter to state senators earlier this month regarding TIF growth.
Foley said some communities in Nebraska are being “very creative” with how they tap into TIF and he said certain practices risk further straining local property taxes.
Foley noted, however, that state laws state that the TIF law “must be interpreted broadly.”
“That is an open invitation for, some would say, creativity. Others would say mischief-making,” he said.
On Monday, Foley again pointed out that the city of Omaha has used TIF to cover the $389 million cost of a modern streetcar project that is scheduled to be operational in 2027.
He called the streetcar the “largest diversion of property tax dollars for an economic development project in Nebraska history.”
Omaha Mayor Jean Stothert has said Omaha has followed the law regarding the TIF-approved projects, including the streetcar.
“While the state auditor may have a problem with TIF, the city has followed the law as established by the Legislature,” Stothert said previously.
In the court of the legislature
Foley said his team can report the results of its investigation. It cannot impose a penalty, he said. It would be up to the state legislature, Foley said, to determine whether the law needs to be changed.
“Cities are desperate to clean up neglected areas and stimulate economic development. That’s all good,” Foley said. “We may have reached a point where things are getting a little out of control.”
SUBSCRIBE: GET THE MORNING HEADLINES IN YOUR INBOX