Using TIF for Down Payment Funding

Developer · Prior Lake, MN · Member since 2010 · 118 posts · 46 votes

I am new to commercial development and I'm looking for some resources on how TIF can be used to help fund a project in Minnesota. I've been having a tough time finding much education on this. Is it possible to use TIF to fund part of the down payment for a new project? How does that work? I understand that TIF effectively freezes the property tax at the pre-project value, but I don't understand how that could be used to fund a down payment on a project. I'd appreciate any insights you all may have on this.

Thanks,

-Jaden

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JD MartinBusiness Member
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Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes
9y
I don't see you being able to use TIF money for your skin in the game. On a big enough project, TIF can be part of the package sold to the lender to fund the remainder, but if you're talking coming with no funds, TIF is usually restricted to public or quasi-public goods - i.e. fixing streets, sidewalks, upgrading water lines, building facades, etc. I am sure it has been liberally applied in lots of places to allow for rehab costs as well, but I can't see how any entity is going to fund a project with their money + tax increment financing + no money of your own. An exception might be someone/company with a long & proven track record of these types of projects, but a newbie investor? No way.
TIF is supposed to allow the rehab of blighted/difficult areas (say an industrial clean-up site) with public (tax) dollars going into the project on the front end that (theoretically) are going to be generated when the place is fixed up and running to full potential. So if the tax value is $100k right now, and the taxes due on the are $1k, and if it were fixed up it would be $1 million with $10k of taxes, the $9k of taxes X some number of years is fronted to the project to help pay for some of the stuff I mentioned. Then, when the project is fixed up and worth $1 million, every year the owners pay their $10k tax bill, $9k of it goes to paying back the original loan until it's paid off.
In essence, the short answer is it can't be used. No public agency is likely to sign off on a no-money-down developer of a project using public funds. If the project goes bust or doesn't generate the proposed value, the public is on the hook for the loan.
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