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City of Lincoln Urban Development Department Mayor's Neighborhood Roundtable Meeting Agenda and Summary July 2008

Chairperson Tracy Corr called the meeting to order at 5:34 P.M., Thursday, July 10, 2008, in the Mayor's Conference Room, County/City Building, Lincoln, Nebraska. Eighteen attended.

Tracy Corr, 40th & A St. Neigh. Assoc.	Rick Noyes, Downtown Neigh. Assoc.
Dianna Wright, Highlands Neigh. Assoc.	Beth Baldwin, Indian Village Neigh. Assoc.
Ed Patterson, Malone Neigh. Assoc.	Bill Vocasek, West A Neigh. Assoc.
Larry Frisch, Witherbee Neigh. Assoc.	Randy Smith, Woods Park Neigh. Assoc.
Kurt Elder, Free to Grow	Russell Miller, Lincoln Neigh. Alliance
Jennifer Buxton, NeighborWorks-Lincoln	Harry Heafer, Health Dept.
Lin Quenzer, Mayor's Office	Jon Carlson, Mayor's Office
Nancy Engel, Urban Development Dept.	Wynn Hjermstad, Urban Development Dept.
Dave Landis, Urban Development Dept.	Mayor Beutler

WELCOME AND INTRODUCTIONS
Ms. Corr opened the meeting and asked the participants to introduce themselves. A sign-in sheet was provided for check-in.

Tracy announced the Substance Abuse Action Coalition (SAAC) and the Lincoln Police Department are offering prevention education to reduce the demand for methamphetamine. These no-cost presentations are available after August 1, 2008. Call Erin at 441-4942 to schedule.

MAYOR'S COMMENTS
Mayor Beutler said Lincoln Electric System announced they will request almost a 12% rate increase shortly. This equates to a $108.00 electric bill increase for the average homeowner. In response, the Mayor explained that he no longer can support the proposed $15.00 property tax increase because the combination of increases would be too much for the citizens of Lincoln. Instead, the Mayor will ask the City Council to use one-time appropriations to fund all items in the budget that would have been funded through the property tax increase. Mayor Beutler said he dislikes using one-time money for ongoing budget obligations because it does not solve the underlying budget shortfall. However, the Mayor will use $1.5M of one-time funds to save library, park, and pool programs this year because they are too important. He does not want the City Council to cut them. Those negotiations with the Council will begin soon.

The Mayor fielded comments from the Roundtable.

TAX INCREMENT FINANCING
Dave Landis, Director of Urban Development Department, spoke about Tax Increment Financing (TIF) using a Power Point presentation. Recently, the City Council asked the Urban Development Department for a briefing on TIF history, uses in Lincoln, and impact. This presentation is the information given to the Council.

The TIF concept started on the east coast. Originally a community development tool, TIF aimed at the ghetto, the barrio, etc. TIF tried to create a mechanism to make doing business in those areas easier than normal therefore inducing growth in an area that had difficulty attracting growth. The difficulty of the tool is it has not cleared slums, defeated the ghetto or the barrio. It has had modest, but tangible, success as a community development tool. But, even as a community development tool, and because it was available, people thought, "Can't we use this in broader and broader applications?"

TIF has morphed over time to include a number of economic aspects guiding people to make economic development choices. Cities in Nebraska have joined the general trend around the country toward making TIF a general, pro growth tool, beyond what was designed to be a strictly community development tool to clear out dilapidated buildings and replace them with something better. Lincoln has been slower to adopt that, but we are on the cusp of using it in that way, we have used it in that way, and have pressure to continue to use it that way.

Here is the mechanism of TIF. The owner of an existing property pays taxes. That's the existing tax base. City/County, schools and agencies receive the revenue. Then a TIF project is created in which some kind of development will occur on this property. The city plans ahead and makes an agreement for 15 years creating a period of time during which the property will be treated in a new way. Throughout the entire time-frame, the property taxes from the existing tax base is paid and is disbursed as they were before the TIF project. However, because the developer built a new building, or created a more valuable piece of property, a bump occurs in the value of this property.

That bump is the tax increment -- the difference between the existing tax base and the value of the new tax base after the TIF project. For 15 years, that new set of taxes is generally used to pay the public sector cost and benefits for the existence of the project. In Lincoln, the bond created with TIF is for 80% of the tax increment because the City stands behind the bond. We do not want the bond to be imperilled so the City is conservative on the amount of the bond backed. Locally, we refer to the difference between the tax increment and the bond for 80% of the increment as the "20% haircut".

However over the 15-year period, property values are expected to increase across the area surrounding the TIF project. This additional property value increase creates a Spill Over effect that may be used for neighborhood areas, streetscapes, etc., within the project area. The amount of the tax increment not set aside to pay off the bond grows and provides additional opportunities. At the end of the 15-year period, the entire new tax base goes on the tax roles.

TIF projects may only occur in a blight-designated area. Blight is: unsafe, insanitary, inadequate, or overcrowded condition of the dwelling; inadequate planning of the area, or excessive land coverage by the buildings thereon; lack of proper light, air, and open space; defective design and arrangement of the buildings thereon; faulty street or lot layout; congested traffic conditions; or, economically or socially undesirable land uses. Additionally, ten more factors make up blight.

As you can see, TIF is designed to attack problems in urban, dilapidated areas. Normally, the City establishes blight in a two-part process. First, a consultant conducts a blight study showing some of the above factors exist. Second, the blight study goes before the Planning Commission and the City Council along with a map and they designate the area blighted. Cities may blight up to 35% of their area. A number of cities in Nebraska have done that. Smaller towns may blight the entire town. Some cities have blighted their entire community -- that tells you TIF has lost its community development function in that kind of town. That town wants growth anywhere. That's an example of how TIF has changed over the years. Lincoln has designated blight for 12% of the city.

In the context of the State of Nebraska, the City of Lincoln has 23 active TIF projects. Omaha has 122. Omaha is a little more than twice the size of Lincoln and has six times the number of TIF projects. Gothenberg, a city about 1/15 the size of Lincoln, has 19 active TIF project. In other words, particularly among First-Class Cities and Omaha, other cities are using this tool more frequently that Lincoln. By comparison, Lincoln uses TIF less than most of urban Nebraska.

Lincoln has retired bonds on 16 TIF projects where the 15-year period has finished. These properties are now on the tax role and earning Lincoln money in the normal disbursement of taxes. Some of the 16 retired TIF bonds include: Cornhusker Square, Gold's Galleria, Northeast Radial, West Radial/Malone East, the Haymarket, Apothecary/Ridnour, Centerstone, Hardy's and Buck's, University Square, Block 35, Lincoln Station, 12th Street Theater, and Grainger.

Fourteen of the 16 retired TIF bonds could be readily calculated with a starting tax number and an ending (new) tax figure. Two of the projects did not lend themselves to this determination because they included many different properties. The existing tax base on those 14 projects was $14.5M. After the 15-year period, that existing tax base grew to $104.8M $90M of growth because of those 14 projects. The other two projects grew in value by $49M as of 1994 (the first half of the 15-year period). Therefore, the growth for the 16 retired TIF bonds was $139M. Obviously, the growth has been significant.

In the past, the City has used a narrower interpretation of the statute (Nebraska Rev. Stat. §18-2101, §18-2154) compared with other Nebraska communities.

• Nothing in the statute requires a blight study. The law does require TIF projects occur only in a blighted area, but a city council could simply designate an area as blighted and, if challenged in court, would have to show blight by those standards. Lincoln requires a blight study. That's how Lincoln has always done it and Mr. Landis does not envision changing.
• Lincoln does not use TIF for creation of new residential housing with one exception. TIF has been used in housing, but the City has not used TIF in a new subdivision of housing. Some cities have.
• Also, the Lincoln does not make a habit of using TIF for retail development, although retail has been supported in some circumstances because of a compelling reason. This practice is rare for the City of Lincoln, but is common for others.

Another narrower approach Lincoln uses is to ask the developer for a list of specific uses of the TIF funds. The developer's specifics confirm a public benefit, i.e., a new sidewalk, move a utility, demolish a dilapidated building, acquire blighted land that will be improved. Some cities do not require specifics from the developer. Their approach is anything the developer does to the property is a public benefit because it will improve a currently blighted property, e.g., Omaha. Further, Lincoln shows fiscal responsibility by using the 20% haircut.

Lancaster County has $18.3 billion in total tax valuation. Lincoln has approximately $16.3 billion. Of that total tax valuation, $168 million is in the existing 23 TIF projects, or 1.045%. So, about 1% of the City's total tax budget is in TIF. The statewide average of total tax budget involved in TIF is 1.355%; Hastings is 2.027% and Omaha is 2.736%. The City of Lincoln is coming to this tool later than other parts of the state and somewhat more abstemiously [moderately, sparingly] than other communities.

Each year, TIF spends $3.37 million in taxes for public benefits associated with the 23 TIF projects. If the project had been completed without TIF -- not an accurate assumption to make, but for argument sake -- the City's share of that expenditure is $505,792. The City is foregoing $0.5 million in general revenue in exchange for the 23 current TIF projects. The majority of the $3.37 million is the schools' portion. However, the schools receive about 80% of those funds made up through the state school-aid formula. Currently, Lincoln contributes more sales and income tax dollars into the aid formula funds than it receives. An analysis of all aid formulas for cities and counties and schools reveals the City of Lincoln contributes $53 million more than it receives. So, getting some more state aid out of sales and income tax dollars -- that we paid already and would not get back, except for TIF -- is not a bad deal.

TIF methods include:

• a public bond sold/traded publicly;
• a public bond sold/placed privately, e.g., a retirement fund buys the bond;
• a small TIF funded by the City; or,
• a developer-purchased TIF bond.

In the last method, a TIF bond is created and the developer buys their own bond. The developer stands behind the bond and receives all their money up front paying off their obligation to their bank with their taxes. In this method, the 20% haircut is not used because no public liability exists. Omaha uses the developer-purchased TIF bond exclusively. The developers like this method and regard it as business friendly. Historically, Lincoln has used the first three methods and only recently began to use the fourth.

The Spill Over realized because property values have continued to increase through the 15-year period may be used in two possible ways: designated (for the developer's site) or undesignated (used away from a TIF project, but for public benefit).

• An example of the designated Spill Over TIF is the 48th & O Street HyVee. Because they have a special assessment for the 50th Street construction and the primary TIF is for the rest of the project, they requested the reimbursement of that special assessment using Spill Over TIF.
• North 27th Street is a good example of undesignated Spill Over TIF: Center Team Police Station; Northbridge Community Center; Sterling Village; Walgreens/McDonalds; Bike/Pedestrian Bridge; Heartland Optical; People's Health Center; CenterPointe; Potter Street Parking; Pentzer Park Improvements; streetscape; and the purchase of deteriorated housing for future redevelopment. Another example of undesignated Spill Over is the streetscape improvements on 8th Street in the Haymarket.

TIF must be used in a blighted area. The City of Lincoln has added areas outside the core of the city to support Primary Employment, but within a designated blighted area. The 2008 TIF Policy is online.

The Seng administration used the 1950 City limit boundary as the core area. The Beutler administration amended the map of the core area to include the 1950 population plus any known low- and moderate-income areas. Not all the area designated for TIF is currently available for TIF because not all that area has been designated as blighted. Outside the core area, TIF will be used for creation of Primary Employment. This means more than 50% of a company's work is outside Lancaster County and the entry wage is 105% of the county average entry wage (currently $18,645 annually). Primary Employment brings money from other cities to Lincoln which has a higher multiplier effect than passing money around inside the city -- it injects new money.

The City of Lincoln requires a developer to show a public purpose for the funds. The City recognizes the following expenditures as public purpose:

- site/right-of-way acquisition	- environmental clean up
- easements	- relocation expenses
- demolition	- site/area studies
- site preparation	- extension of public utilities
- rehabilitation of existing public facilities	- streetscapes
- street improvements	- green space-park-trail facilities and improvements
- public/pedestrian plazas	- lights and police call buttons
- public transportation and parking facilities	- bus shelters and signs
- rehabilitation of existing buildings to be used as public spaces/buildings
- design and construction of private spaces as they relate to the protection or support of a public use/safety

The following are recognized as nonspecific public purposes that are reimbursable:

- progress toward Comprehensive Plan goals, e.g., remove blight, promote home ownership;

- commitment to exceed legal minimums (energy efficiency or greener community).

Part of the public law says TIF has to be used for a project that meets a "but for" test. The project must conform to the Comprehensive Plan. The project would not be economically feasible without TIF. Also, the project would not occur in the community development area without TIF. This test has been interpreted to mean if the developer does not receive TIF the project will be accomplished in a different form than if they had TIF. The "but for" has not been legally challenged. Many cities simply say the "but for" test has been met. The City Council and the Law Department for the City of Lincoln believe the City can do better. In the future, developers probably will be required to positively identify to the City how the "but for" test is satisfied.

The TIF Power Point presentation is available online (see the last bulleted item in the introduction).

Dave Landis fielded questions and comments from the Roundtable.

ROUNDTABLE MEETING TIME
Tracy received a request to change the meeting time of the Mayor's Neighborhood Roundtable. After a brief discussion, the Roundtable agreed to leave the meeting time unchanged.

NEIGHBORHOOD RESEARCH
Kurt Elder briefly discussed neighborhood research he has undertaken, relating crime and social capital. He requested the assistance of neighborhood associations as stated in his paper. Kurt is willing to speak to associations. Contact him at kurtelder@gmail.com or 308-882-8605.

SET AUGUST AGENDA
The next meeting of the Mayor's Neighborhood Roundtable is scheduled for August 14, 2008, 5:30 p.m., in the Mayor's Conference Room, County/City Building, 555 South 10th Street, 2nd floor. The August agenda will include a presentation on the City budget focusing on the cuts over the last two years.

Submitted by: David G. Ensign
Urban Development Department

Urban Development Community Development Division Mayor's Neighborhood Roundtable