Which financial tool can local governments use instead of issuing bonds for infrastructure improvements that are triggered by developers?

Tax-Increment Financing (TIF) is a financial tool that local governments can use to fund infrastructure improvements that are often necessitated by new development. This mechanism allows municipalities to capture the future tax revenue generated from increased property values that result from the improvements made through the TIF. When an area is designated for TIF, the current property tax revenue is frozen for a set period. As new developments increase property values and thus property tax revenue, the incremental increase in taxes can then be used to repay the costs associated with the infrastructure upgrades.

This approach effectively allows local governments to finance necessary infrastructure without issuing bonds, which would require repayment with interest. Instead, TIF leverages anticipated tax revenue from the increased value of properties, making it a more fiscally responsible option for funding improvements that support development. Additionally, this strategy aligns the interests of developers with the needs of the community, as the infrastructure enhancements can lead to further increases in property value and a more attractive environment for future projects.