Tax Increment Financing (TIF) is a way for communities to spur private investment and development in targeted areas through economic development. With TIF, the community is able to capture the increase in tax revenue generated by the private development itself. Then, the community can use those very same tax revenues to pay back the private investors that footed the initial bill for the public improvements required to make the new private development a success.
The Finance Authority’s Central Ohio Bond provides that additional security needed to provide TIF bonds access to the capital markets to pay for the required infrastructure improvements. Additionally, depending on the type of asset being financed, the project can be financed tax-exempt, meaning the cost of capital is more attractive than traditional lending. Finally, the Finance Authority can provide longer terms; our term would mirror the term of the TIF out to 30 years.
A separate benefit for the developer is that because the revenues to repay the debt are payments in lieu of taxes, the cost of the infrastructure project is considered to be separate and apart from the financing required to be a part of the private project. Thus the numbers the traditional lenders are reviewing are more attractive in terms of ROI, allowing the project to be more competitive to its lenders.
In most cases TIF Bonds would not be marketable without some additional security that investors can rely on as the source of payment of principal and interest on the TIF Bonds. Additionally, the TIF Bonds may not be marketable because, at the time the bonds are issued, the development that will create the payment in lieu of taxes has not been completed (and sometimes has not even been started).