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As tax increments are deposited into the account dedicated to a TIF infrastructure project, they become available for expenditures. Under typical circumstances, incremental tax revenue will be minimal during the early period of a TIF and become more substantial with each passing year. Therefore, if the TIF infrastructure project is being funded on a pay-as-you-go basis, the project manager will need to align spending plans with the availability of incremental revenues during the duration of the TIF.
Depending on Federal and State requirements, the use of tax increments to match State or Federal funds could be accomplished either on a pay-as-you-go basis or on a financed basis. State and/or Federal program requirements will dictate when matching funds must be available. If the cash flow of the tax increment does not meet those requirements and/or an alignment between the timing of matching funds and the timing of the tax increment cannot be negotiated with the funding agencies, then alternative funds could be identified to provide the local match on a schedule that satisfies the funding agencies. If permitted by the TIF ordinance, these alternative funds could be reimbursed by the tax increment as incremental revenue becomes available.
If the spending plan calendar requirements for the TIF transportation infrastructure project (project expenditures and/or matching fund requirements) require the availability of funds before the tax increment becomes available (or becomes available in sufficient amounts), then loans can be obtained or revenue bonds sold to raise the necessary cash in the short term. However, the tax increment over the term of the TIF needs to satisfy the payment of both interest and principal. Two Federal innovative financing programs may be used for this purpose: State infrastructure banks (SIBs) and the Transportation Infrastructure Finance and Innovation Act (TIFIA) credit program.
A SIB is a revolving fund that is established and operated by a State (usually a State DOT). It has the capacity to offer direct loans and various types of credit enhancement products to help finance surface transportation infrastructure projects. Federal and State funds are used to capitalize the SIB. A percentage of Federal funds are transferred from specific modal accounts, and these funds are matched with State money in a prescribed ratio. SIBs are able to offer loan guarantees or pay bond insurance premiums. These credit enhancements enable lenders to reduce interest rates for debt. SIBs also are able to offer below-market interest rates to loan applicants.108
The TIFIA program provides credit assistance for qualified projects of regional and national significance. Many large-scale surface transportation projects―highway, transit, railroad, intermodal freight, and port access―are eligible for assistance. Eligible applicants include State and local governments, transit agencies, railroad companies, special authorities, special districts, and private entities. Among other tasks, the TIFIA credit program is designed to fill market gaps and leverage substantial private co-investment through supplemental, subordinate investment in critical improvements to the Nation's transportation system. TIFIA credit assistance is often available on more advantageous terms than in the financial market, making it possible to obtain financing for needed projects when that financing might not otherwise be available.109 The total Federal assistance provided for a project receiving a loan under the TIFIA program cannot exceed 80 percent of the total project cost.110
As mentioned in sections 5.7 and 5.8, there are steps that may minimize TIF risks, both on the revenue side and on the expenditure side. To the extent that these steps are perceived as reducing risk, lenders and bond purchasers may lower the associated interest charges accordingly.
108 Federal Highway Administration. State Infrastructure Banks (SIBs). https://www.fhwa.dot.gov/ipd/finance/tools_programs/federal_credit_assistance/sibs/.
109 USDOT. TIFIA: Program Overview. https://www.transportation.gov/buildamerica/financing/tifia/program-overview.
110 23 U.S. Code 603(b)(9)(A).
