Cindy Gonzalez
LINCOLN — The City of Auburn has returned $658,003 to the public coffers after a state auditor team questioned certain practices used for tax-increment financing projects, Nebraska State Auditor Mike Foley announced Monday.
The questions were laid out in a 13-page letter in May from Foley’s office to Auburn’s mayor, the city’s Community Redevelopment Authority and the chairman of the Nemaha County Board.
Foley on Monday reiterated the gist of his concerns in a news release and during an interview with the Nebraska Examiner.
He alleges that Auburn’s Community Redevelopment Authority collected more tax-increment financing (TIF) revenue than it should have for certain redevelopment projects and then retained those funds to pay the costs of different projects, some of which had yet to be hatched.
“The purpose of TIF is to pay the costs of a specific redevelopment project with the increased property taxes resulting from the improvements to that particular parcel of land,” Foley said. “It is not to allow developers to collect excess property taxes for a slush fund to bankroll some other undertaking.”
What is TIF?
Generally with TIF projects, which require a city’s approval, property tax revenue generated on new development is used for up to 20 years to cover a developer’s eligible costs — instead of going to traditional recipients such as school districts and local municipalities.
Meanwhile, property tax on the original site, prior to any improvements, continues to be paid by the owner but is 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 is to start flowing to traditional recipients.
Not an admission of guilt
Crystal Dunekacke, Auburn city administrator and economic developer, said Monday that the returned funds should not be considered an admission of wrongdoing.
She said the redevelopment authority maintains that it has abided by 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 incentivize economic development in blighted areas.
The returned funds, Dunekacke said, were a “self-imposed action or compromise to address a gray area” of the law.
That gray area, she said, centered on whether TIF revenue that remained from a redevelopment project could be “rolled over” into an account to be used for other projects.
Foley said Auburn officials can have their say. “The reality is they put the money back where it belonged.”
Both sides are in agreement that the $658,003 will be divided among local governmental subdivisions that are traditional recipients of property tax collections.
Satewide concerns loom
Broader concerns remain statewide, Foley said, and were laid out in a separate but related letter earlier this month to state senators regarding the growth of TIF.
Foley said some Nebraska communities are being “very creative” with the way they tap TIF and he asserts that certain practices risk further upward pressure on local property taxes.
Foley noted, though, that state statutes say that the TIF law is to be “liberally construed.”
“That is an open invitation for, as some would say, creativity. Others would say mischief-making,” he said.
Foley pointed again Monday to the City of Omaha’s use of TIF to cover the $389 million cost of a modern streetcar project set to be up and running in 2027.
He has referred to the streetcar as the “largest diversion of property tax dollars for an economic development project in Nebraska history.”
Omaha Mayor Jean Stothert has said that Omaha has followed the law with regard to its TIF-approved projects, including the streetcar.
“While the State Auditor may have an issue with TIF, the city has followed the law as set out by the Legislature,” Stothert said earlier.
In Legislature’s court
Foley said his team can report results of their investigation. It can not enforce a penalty, he said. It would be up to the State Legislature, Foley said, to determine if the law should be changed.
“Cities are desperate to clean up blighted areas and incentivize economic development. That is all good,” Foley said. “We may have reached a point where things are getting a little out of control.”