Tax Increment Financing (TIF) is a means of public financing to help fund private property development or redevelopment projects. In general, TIF is intended to encourage projects that are desireable to the jurisdiction, but cannot attract developers without monetary incentives. These are used primarily for redevelopment in economically challenged areas.
By employing TIF, a local government issues municipal bonds in the name of the project and dedicates future property tax revenue from the proposed project to pay all interest and return of principal to the debt holders of those bonds. The local government is not further liable for the bonds beyond the dedicated property tax revenue stream; the developer is responsible. A project failure may, however, negatively impact the county’s bond ratings.
The TIF funding is intended for use on public purpose portions of the project, usually road improvements, water and sewer, utilities, parks, etc, both inside and outside of the project’s borders. These things are legitimately the developer’s responsibility to pay for and accomplish and usually become part of the purchase or rental costs of those moving into the project area. For example, a home purchaser would see it as an invisible part of the cost of his home purchase price, usually added to his mortgage payments. Under TIF, those costs become essentially free to the developer because they will be paid out of the annual property tax stream of the ultimate property owners.