Tax Increment Financing: The $350 Million Question
The saga of Omaha’s Midtown Crossing has been a rocky one. From the beginning, it was a massive mistiming: a luxury real-estate development that opened for business in the middle of a historic housing market collapse. The development has repeatedly struggled on the residential side, but reports on the project have been unrelentingly bullish. Even a 2013 article in the Omaha World-Herald that admits a change in demographic — from the young professionals initially promised, to affluent empty-nesters from West Omaha or out of town — and a perennial struggle to attract tenants, conveys an almost parodic cheeriness about another round of aggressive marketing by quoting the project’s developers and financiers exclusively. This type of coverage has remained the standard, with an article from two months ago asking readers to trust the word of a condo-owning banker, the development’s own vice-president of marketing, and an executive at a marketing firm, to support the notion that the continually embattled development is “a great urban space”.
On the retail side, things are even shakier. The retail spaces in Midtown Crossing’s mixed-use buildings have been home to trendy establishments with the staying power of tumbleweeds. The development’s first non-residential space, the “upscale,” “sophisticated,” Marcus Midtown Cinema, seems poised to close this year after consistently getting the worst box-office sales of any multiplex in the metro area. Another long-time tenant, Three Dog Bakery and Spaw, a bakery and spa for dogs, also announced the closure of all retail locations early this year. A far more lurid and public collapse has been properties owned by Brix, who are closing their Midtown Crossing bistro and whiskey bar after multiple lawsuits, including suits from the development’s landlord and bank seeking over $540,000 in past-due rent and defaulted loan payments. Other Midtown Crossing establishments that have fallen by the wayside: Ingredient, a restaurant closed after 21 health code violations, Parliament Pub, an Old English-themed bar, Pana 88, a trendy pan-Asian restaurant, Atomic Bombshell, a trendy retro/vintage clothing shop, The Importer, a Persian rug shop, et cetera.
In response to these and other recent closings, Midtown Crossing marketing executive Molly Skold told WOWT that “Retailers come and go. This is the nature of retail leasing.” That may be true, although it’s hard to remember a retail development that has been as consistently plagued as Midtown Crossing. If Skold is correct, and retail is an inherently volatile and undependable sector, to say nothing of the development’s perennially disappointing residential performance, why has the project been funded to the tune of over $18 million by the city as a part of a Tax Increment Financing scheme? What business does the city have in investing tax revenue that ordinary taxpayers will later foot the bill for in luxury condos and craft cocktail bars that are continually closed, foreclosed, replaced or deprecated?
Far from holding back as Midtown Crossing fumbles into another year of closures and managed expectations, the city is doubling down on its midtown shenanigans, reportedly committed to building a $6–8 million parking garage as a gift to the developers of a hotel and apartment complex just east of the Midtown Crossing development.
Midtown Crossing is a small part of the city’s involvement in Tax Increment Financing, or TIF. The total sum of tax revenue that the city has refunded private developers under the scheme since the late 90s has ballooned to over $350 million. That $350 million deficit in city funding has to be found somewhere, and if the private developers aren’t paying, it’s the ordinary taxpayers who must foot the bill.
When I interviewed him earlier this year, Jack Dunn, of the Policy Research & Innovation research organization, elaborated on what, exactly, TIF entails. Tax Increment Financing, Dunn explained, “is a way to return some property tax money to a real estate developer because the project being developed benefits the public.” While Dunn mentioned a few obvious examples of projects that would benefit the public, “homeless shelters, drug abuse rehabilitation centers, low-income housing,” the projects actually financed under TIF are not always as clear-cut.
Dunn explained that the statutes enabling TIF don’t do a good enough job of regulating the practice. “According to the enabling legislation, TIF monies must be allocated in areas that are blighted or substandard. However, the definition of blighted or substandard as found in the statutes is so broad that the City of Omaha recently tried to declare blighted the richest neighborhood in the city because its mansions were over 40 years old.” In an audit conducted late last year, State Auditor Charlie Janssen discovered several problems with TIF as it is practiced statewide, including an uncertain idea of what constitutes “blight”. According to the report, “a wide array of conditions, accompanied by a lack of specificity regarding the degree to which any of them must be present, allows for a broad range of areas in a city to be considered blighted.”
Of the 22 TIF-financed projects studied, the audit found that 14 projects “did not maintain adequate supporting documentation detailing the project expenses,” three projects “received the incorrect amount of taxes from the county,” six projects “failed to meet the statutory requirements for the property to be considered blighted,” and seven projects “failed to meet the statutory requirements for a redevelopment plan.” “Overall,” the audit concluded, “TIF is subject to remarkably little monitoring and oversight.”
Several bills were introduced in this year’s state legislative session dealing with TIF, including a promising bill from Sen. Sue Crawford that would increase transparency and local community oversight of TIF projects. According to Crawford’s office, however, it appears that the Urban Affairs Committee will be effectively tabling all TIF bills for this session, opting instead for another study over the interim.
None of the projects studied under the state audit were the big-money Omaha developments like Midtown Crossing, but the developments the city chooses to finance with TIF fall into a certain pattern. “Quite a bit of TIF money has gone to developers of Downtown Omaha to promote the downtown as a dazzling ‘image center,’” Dunn said, but he also mentioned several examples outside of downtown, like the developments in Aksarben. “The city criterion for granting TIF seems to be … how much money is behind a project.” Not, apparently, any sort of public good.
Dunn and PRI collaborate with Jay Hannah, a self-described “code monkey” with civic technology endeavor Open Nebraska, on an ongoing online visualization of statewide TIF expenditures. Dubbed simply “Nebraska TIF Report,” the database tracks TIF projects by county and year, and shows how much has been refunded to developers for each project. The project is meant to spark conversation among communities about TIF.
In a podcast episode recorded late last year, I discussed the project with Hannah, who was disappointed in the lack of attention the database had received. “I thought that if you created an easy resource for people to go in and see where their tax dollars were specifically going, to this corner in their neighborhood, that they’d be really interested and engaging with it,” he said. “I would say that discussion has not happened … I went into the city that I pay taxes in, in Sarpy County, and found what I thought was incendiary information about how our tax dollars were spent in our neighborhood … and nobody cared.”
Hannah has since updated the database with the latest TIF data, and the database remains operational, displaying all TIF project information in an easy-to-use form.
With the database, one can see exactly what developments the city, and all Nebraskan cities, see as a priority over “blighted” existing developments. For Omaha, the largest expenditure overall has been the First National Bank Tower, with a total of over $40 million in TIF funds allotted to it since 2001. It’s difficult to see how a skyscraper office building really contributes to the public good. How many of these office spaces are filled by one of the 16.8% of Omaha citizens who lives below the poverty line? How many of those suffering from food deserts in the city will be patronizing the trendy restaurants their tax dollars went to build in Midtown Crossing? Omaha is home to many problems, but when it comes to public good, city governors should be more concerned about the actual experience of everyone who lives in it, not just the “image” the city enjoys among the privileged few.
