Tax Increment Financing (TIF)

Our firm has core expertise in the use of Tax Increment Financing (TIF) to facilitate high-quality development, redevelopment and infrastructure projects. TIF is a tool that leverages the incremental growth in valuation or tax revenue within a geographic boundary to provide public financing for infrastructure and other improvements that support community revitalization, economic development and elimination of blight.

SB Friedman is a national leader in TIF consulting. Since the mid-1990s, Stephen B. Friedman has advised municipal clients on TIF issues. Practice Leader Tony Q. Smith, AICP, is the national TIF curriculum advisor to Council of Development Finance Agencies (CDFA), recently served as lead editor of CDFA’s Advanced Tax Increment Finance Reference Guide, and is a board member of the Illinois Tax Increment Association (ITIA).

We provide the following key TIF-related services:

Administrative and Analytical Services. We have experience in assisting communities with such “nuts and bolts” TIF issues as tracking revenues over time, reviewing delinquency/collection rates, reviewing parcel lists to ensure accurate revenue capture, reviewing and certifying TIF-eligible costs, estimating the impact of pending appeals, and tracking/projecting assessment ratios, equalizers and tax rates.

Eligibility Studies, Plans and Amendments. The firm has led the establishment of over 50 TIF districts in multiple states under multiple statutes, and has also assisted communities in making “major” and “minor” amendments to existing TIF districts- to add or subtract parcels, expand budgets and for other reasons.

Depending on the specific state TIF statutory requirements and local community policies, these services have included conducting detailed assessments of physical conditions on a parcel-by-parcel, building-by-building basis to establish eligibility and preparing redevelopment plans. These TIF designation processes have also generally included economic evaluations of the proposed TIF area based on trends in property valuation, vacancy rates, building obsolescence and others. In addition, we have managed the public consensus-building process for TIF districts prior to their adoption. Finally, we routinely perform up-front TIF capacity analyses to help clients determine how much investment a proposed TIF may be able to support.

Incremental Revenue Projections. Our firm has prepared TIF cash flow projections for more than 200 districts and projects covering residential, retail, office, research, industrial, hotel, parking, sports facility and other land uses. These projections are based on the incremental values to be added by specific development projects as well as general changes in property value in the district as a whole. Our firm takes a rigorous approach to projecting future TIF revenues based on comparable property research, detailed understanding of local assessment methodology, and studies of trends in tax rates, property appreciation and other relevant indices. Our projections are routinely used in the sizing of revenue and TIF-backed general obligation bonds, as well as privately placed TIF revenue notes.

Pro Forma Financial Analysis and Deal Structuring. We have provided over 150 evaluations of proposed TIF transactions/requests to more than 50 clients. Our municipal clients typically take a “gap analysis” or “but for” approach to sizing TIF assistance. Thus, the TIF assistance package is tied to the specific extraordinary costs and demonstrated need for financial assistance for a given project. Our analyses frequently include deals where TIF is layered and/or interacts with other financing sources such as New Markets Tax Credits, Historic Tax Credits, Low-Income Housing (Sec. 42) Tax Credits, HUD 108 and 221(d)4 loans, Special Assessments, and others. These analyses typically include:

  • Evaluation of the need for TIF assistance based on factors causing the financing gap
  • Review of project costs, including construction, soft costs, developer fees, land acquisition and capitalized interest
  • Review of projected revenues based on area market factors
  • Review of potential returns on investment for both the public and private sides of the deal
  • Assessment of key risks, and how they should most appropriately be allocated between the parties
  • Recommendations as to the level and structure of TIF assistance (grants and/or loans) needed to make the project feasible

TIF Application Services. SB Friedman has assisted many developers through the TIF application and negotiation process. This includes review/presentation of project financials (including project costs, revenues and profit levels), estimate of project-specific and TIF-wide incremental taxes, and preparation of the formal application for TIF assistance. Our presentations clearly articulate the need and rationale for TIF assistance, as well as the appropriate structure for the assistance. We also provide ongoing support for our clients after submittal of the TIF application, as needed, to assist in bringing the deal to full agreement and closing.

Negotiation Support/Term Sheet. The main goal in TIF negotiation is to strike a business agreement that is clear, fair and complete. Often, this agreement is best captured in a Term Sheet that serves as the backbone of the final legal TIF agreement between the municipality and applicant. A well-crafted Term Sheet helps all parties avoid surprises during the closing process, and addresses the key issues where misunderstandings might otherwise arise. SB Friedman has assisted numerous public and private sector clients in crafting term sheets for TIF grants and loans, as well as negotiating an appropriate TIF financing package. We provide analytical support to help our clients articulate their case in negotiations, as well as rigorous term sheet drafting to ensure that the business terms are clear, concise and complete. We also support our clients during the finalization of the Redevelopment/Development Agreement to ensure that the business terms have been appropriately documented.