State public incentive and streetcar project fire up Omaha mayoral race

Yahoo

27-02-2025

The Midtown Crossing redevelopment was among Omaha tax-increment financing-assisted projects reviewed by an accounting and advisory firm the city paid $20,000 to produce a report. This view looks west near 31st and Farnam Streets along the spine of the retail and residential area. (Cindy Gonzalez/Nebraska Examiner)
OMAHA — Omaha's use, or potential overuse, of a longstanding, Legislature-approved incentive to help revive blighted areas again fired up the mayor's race in Nebraska's largest city.
Underlying the latest clash between Mayor Jean Stothert and a challenger, former State Sen. Mike McDonnell, was a critical report from State Auditor Mike Foley in September regarding tax-increment financing and what he said was the rising and sometimes loose use of the economic development tool.
Fueling the flames this week was another McDonnell attack on Omaha's Stothert-backed streetcar, a project with $389 million in city costs to be covered by TIF proceeds.
On Wednesday, Stothert defended Omaha's use of TIF and the streetcar with a pair of studies responding to the State Auditor's report, one the city financed and another from the Greater Omaha Chamber of Commerce.
Omaha officials said its review, done for $20,000 by Forvis Mazars accounting firm, concluded that the city's TIF process complies with state law. The firm delved into a handful of randomly selected active projects and other paid-off projects and did not specifically examine the streetcar.
Chamber president Heath Mello, partnering with researchers at the University of Nebraska at Omaha, said their analysis took a statewide view and affirmed that TIF 'remains a pivotal tool' for Nebraska's continued community revitalization.
During the joint news conference, remarks veered swiftly into the flap with McDonnell, who held his own gathering for reporters Tuesday along the streetcar route, calling for a stop to the project he asserted would leave Omahans in debt.
Said Stothert: 'The streetcar is progressing — and it can't be stopped.'
Stothert, seeking a fourth term as mayor, says necessary public hearings and votes have been held. Contracts for street cars, bridges, maintenance facilities are awarded, and stopping would risk lawsuits and legal costs.
She cited several urban core construction projects whose private developers have said would not rise without the streetcar energy or TIF assistance approved for the respective projects. The streetcar, Stothert said, will lead to more jobs and development, not taxpayer debt.
'Why would we pause?' she asked. 'Why would we stall our momentum?'
TIF is a public financing mechanism that requires approval from a city to leverage future property tax revenue (for up to 20 years) to help pay eligible redevelopment expenses on a project site. State law says the venture must be in a blighted area and deemed not possible to be developed 'but for' the subsidy.
Typically under tax-increment financing, developers of city-approved projects take out a loan. Over the loan span of 15 or 20 years, the property taxes generated by new improvements on the project site go toward paying eligible costs of transforming the area. That means the difference during that time does not go to the usual recipients of property tax, such as schools and local municipalities.
Meanwhile, the value of a site that existed prior to TIF approval is essentially 'frozen' during the TIF loan period, and the fixed property tax revenue generated from it continues to be collected from the owner and distributed to the usual recipients. After the developer's loan is paid off, all property taxes flow to traditional tax recipients. The idea is that the project site would then be worth more.
Since 2015, Stothert said, the city has approved 196 TIF applications totaling $584 million in financing and a projected $4.6 billion in new investment.
While the national tool — used in Nebraska since around 1980 — has been both endeared and criticized, the spotlight brightened locally after Foley's warning to state lawmakers.
He did not advocate for specific legislation, but cautioned that the statutes governing TIF in Nebraska allowed 'inordinate' flexibility that could be seen by some 'as an open invitation to push the boundaries of TIF beyond what is either ethical or beneficial to the citizens.'
On Wednesday, Foley declined to comment on recent developments except to say: 'This is a public conversation between two candidates for mayor. I have nothing to add today on any of this.'
His skeptical look at TIF in September extended to projects statewide and said that when overused or misused, the popular financing tool risks placing further upward pressure on local property taxes. The report highlighted details of Omaha's streetcar, poised to be up and running in 2027.
For example, Foley wrote in a news release related to his letter that some areas within Omaha's TIF financing area are as far as six city blocks away from the proposed streetcar route and do not appear deteriorated enough to fit a 'blighted' designation.
'Nevertheless, those properties are also having a portion of their tax obligations diverted to provide TIF funding for the project,' he wrote.
At the City Hall news conference, Stothert said the Forvis Mazars public accounting and advisory firm was hired following Foley's analysis and McDonnell's subsequent call to 'pause' future use of TIF.
The firm's review focused in part on five randomly selected redevelopment projects approved in 2022 or 2023: Mutual of Omaha's new downtown headquarters; Aksarben Keys at 6952 Grover St.; Blackstone East at 37th and Farnam Streets; and the Digs Apartments and Square Apartments, both just west of downtown.
It also looked at eight TIF-assisted projects that have been paid off, including Midtown Crossing and parts of Aksarben Village, and reported full compliance.
In examining elements including the process for blighted designations, publication requirements, cost-benefit analysis and internal procedures, the firm found two concerns Stothert characterized as minor clerical issues the city already has corrected.
One showed that a cost-benefit analysis for the Mutual headquarters was not posted properly on the city's website. The other said the city lacked a few written internal procedures for staff.
Independent and separate from the Forvis Mazars analysis, the Omaha Chamber launched its own study to counter the Foley TIF review.
Mello offered a summary of that work, which took a broader statewide view, during the Tuesday news conference: During a three-year period through 2023, property valuations of all TIF-assisted projects in Nebraska collectively rose 324%, suggesting that TIF is a benefit to communities.
On Tuesday, McDonnell repeated Foley's earlier remark that the streetcar was 'the largest diversion of property tax dollars for an economic development project in Nebraska history.'
According to the state auditor report, the number of TIF projects in Nebraska nearly doubled during the past decade to more than 1,350 separate ventures totaling more than $6 billion in increased property valuations.
In 2023 alone, it said, nearly $122 million in property tax collections went to pay for TIF projects approved by cities — more than double the annual amount a decade earlier.
'Arguably, much of those resources could have gone to fund public education and local government obligations,' Foley said in his advisory letter to lawmakers.
McDonnell criticized Stothert for not following through on a campaign comment from 2017 that she would allow Omahans to vote on the streetcar. He said the already-underway project would lead to debt and that, if elected mayor, he would allow a public vote.
The mayor has insisted that anticipated development and higher property values sparked by the streetcar should produce enough TIF revenue to pay off bonds without requiring a tax increase
The total cost to prepare the downtown-to-midtown corridor and build the streetcar is expected to be $459 million. City officials say TIF financing will pay off the $389 million in bonds issued by the city. The remainder is to be covered by sources including public utilities.
Of the property tax diversion comment repeated by McDonnell, Stothert said, 'That is assuming that all of this development along the corridor would have happened without the streetcar and without TIF… and it wouldn't be.'
Jasmine Harris and John Ewing also are candidates for mayor. The primary election is April 1 and the top two candidates advance to the May general election.
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