Tax Increment Financing

Application: New construction projects

Benefit: Financing certain public infrastructure improvements, and in some cases, certain private improvements

Tax Increment Financing (“TIF”) is a mechanism to use the future increase in property taxes (technically “PILOTs,” as described below) from a project or group of parcels to finance certain public infrastructure improvements that directly benefit the project or group of parcels. In some cases, TIF can be used to finance certain private improvements.

A TIF is put in place by an ordinance of a city council or a village council or by a resolution of a township board of trustees or board of county commissioners. The ordinance or resolution provides an exemption from property taxes on the increased value of a project or group of parcels. The exemption only applies to the increment. In lieu of the increased property taxes, the owner of the property makes “service payments in lieu of taxes” (commonly referred to as “PILOTs”) in the same amount and the same manner that the property owner would otherwise pay the increased property taxes. The PILOTs are then used to pay for public infrastructure improvements that directly benefit the project or group of parcels, and in some cases, the PILOTs can be used to finance certain private improvements. A TIF program can be structured to pay for these public or private costs as they are incurred, to reimburse the developer or community for costs already incurred, or to pay debt service on bonds issued in connection with the TIF program.

The Clinton County Port Authority (CCPA) can work with the governmental entity granting the TIF exemption. The CCPA can also issue bonds secured by the PILOTs in order to monetize the anticipated revenue stream upfront. The CCPA is a preferred issuer of debt because our participation allows governments to invest alongside the private sector on projects with economic benefit with less risk to the governmental entity.

TIF bonds are backed by some form of security in addition to the PILOTs. The form of this security varies depending on the structure of the deal, but it can take the form of a reserve fund, a minimum service payment agreement with the developer, a letter of credit provided by a bank, and/or a special assessment or community development charges. Special assessments and community development charges often are collected only if PILOTs are not collected in sufficient amounts to pay debt service on the bonds.