By Kai Van Ginkel

The Daily Record

The city of Omaha and the Omaha Streetcar Authority (OSA) plan to use Tax Increment Financing (TIF) to fund the streetcar line that is currently projected to be built and running by spring 2027. Current plans show it will cost $306 million to fully build and staff the line, with the belief that there will be a $3 billion revenue.

TIF is used by governments when investing in public infrastructure, where they take a loan against their future tax revenue to finance their current projects. For any city to use TIF, they have to hit a few mandatory requirements:

The proposed area must be within a Community Redevelopment Area (CRA) or spot that is eligible to become one, which is defined as “an area where the resident population is economically disadvantaged and the built environment is older, obsolete, and/or showing signs of deterioration”

The project cannot cause a loss of pre-existing tax revenue

The project can only be completed with TIF, and other financial choices do not realistically exist

The project must further the goals of the city at large, such as with job creation/retention; transportation; and/or environmental improvements

TIF is considered one of the most widely used style of financing for cities, often used for massive projects like the streetcar, and has been in use since it was voted into the Legislature in 1978-79 as the Community Development Law, Neb. Rev. Stat. §§ 18-2101 - 18-2157.

TIF has to be paid out within 15-20 years of the project being finished, and can specifically be used for:

Acquisitions and site preparation

Public improvements, which can be anything from repairing or redesigning public streets; utilities; parks; or parking, or bringing things up to current code

Major renovations to existing architecture

Any architecture or engineering fees

Feasibility studies for the proposed project

Should the streetcar not be able to recoup the TIF funds, it would be considered an ‘Underwater TIF’. This can happen because of flaws in the project or proposal, where the feasibility study overestimates how much revenue will be brought back in. Equally, a recession, which current trends show we are entering, can cause property values to fall, which would also limit the tax revenue that the streetcar would bring in, and cause it to fall far short of its $306 million goal, let alone the proposed $3 billion the city believes it will bring in.

If the TIF funding for the streetcar does fail to bring in the money needed to cover costs, the city is not technically required to cover it, but most cities do not allow TIF bonds to default, so it would instead likely become a drain on the city’s finances until the loan is paid off. This, however, is a worst case scenario.

These requirements are why the funding could not be used for anything other than a streetcar, an issue that has been asked of the Omaha Streetcar Authority (OSA) and the Mayor’s office. This is also why there was no vote, as it was only required that the city would sign off on the plan, and because no current tax dollars are being used.

When it comes to the actual future tax revenue that the city is banking on developing, they will only be considering commercial property taxes for repayment of the loan, and the city has promised there will be no property tax or sales tax increase as a result of this project.

Meaning, only businesses in the Omaha Metro will see their taxes being used for this project, while homes will not, and there will not be an increase in sales taxes in stores. However, the Mayor and OSA have promised that these taxes will not be raised.

The city has promised that the streetcar will be free to use for all individuals. As such, the actual cost of maintaining the streetcar, which is estimated to be around $6.4 million yearly, will come from the city’s parking meters and paid garages, as part of their Parking and Mobility Division Enterprise Fund that was created in 2011.

As part of the project, they are also required to assist in the relocation of the library, formally W. Dale Clark Library, to its future location at 72nd and Dodge; the purchase and operation of the 2,200 parking garage that will be in the new Mutual of Omaha Tower downtown, called Project Beacon, to be leased to Mutual during business hours; the purchase of the three (3) parking garages previously owned by Mutual of Omaha at their midtown location; and the care and maintenance of Turner Park at Midtown Crossing.

The idea behind the city covering the operation of so many parking spaces and garages is that the meters will be used to cover the overhead for the streetcar, which seems counterproductive seeing as part of the reason given for creating the streetcar was the city felt there were too many underutilized parking spaces already that would be removed for the building plans.

Part of the City and OSA’s argument for the streetcar line is that it will save money for the individual by being a free method of transportation, thus saving them on paying for a car or to use the bus system. Their statement of the Streetcar's official website is “first, more residents can live and work in the area without needing to pay for a car. This savings will more than offset any potential slight increase in rent.” This implies that the city believes that this streetcar line will take off and raise the property value of the area it is being built in and will likely cause a rise in rent for the homes and apartments therein. They also believe that the revenue that is left over from paying off the TIF bond will be used towards increasing affordable housing in the Metro, mostly focused in the “Urban Core”.

The Nebraska Taxpayers for Freedom (NTF), a nonpartisan organization, created a petition this Spring that managed to gain 2,200 signatures of those who are against the idea of a streetcar being built.

“Though the project will not take away from other current city funding of other projects and other services, it will increase our tax load, in our opinion.  We based our conclusions on streetcar financing problems in other cities,” said Doug Kagan of the organization. Members of the NTF were able to present their petition to the City Council in August and have been attending the monthly OSA meetings. 

But there are darker aspects to this deep attachment. In some states, TIF has clearly become a deeply embedded political payback tool. That is, developers fund the political campaigns of local politicians, and the elected officials return the favor with TIF districts (and other subsidies). Developers, TIF consultants, lawyers and investment bankers create a special interest lobby in some cities and state capitals.

We at The Daily Record would like to hear your thoughts. If you have any questions about the streetcar that you want answered or any opinions you’d like to share, please email us at newsroom@omahadailyrecord.com. You can sign up for updates on the project at omahastreetcar.org/#4. This article is the second of a series on the Omaha Streetcar Project. Find part one here: omahadailyrecord.com/content/omaha-streetcar-project-underway-here%E2%80%99s-what-you-need-know.