What is a Synthetic Project Development Financing (aka Synthetic TIF)?

<p>Merriam-Webster’s online dictionary defines “synthetic,” among other things, as “devised, arranged, or fabricated for special situations to imitate or replace usual realities.” As the definition suggests, a “synthetic project development financing” (more commonly referred to as a “synthetic tax increment financing” or “synthetic TIF”) is a local government borrowing scheme that is “fabricated” to “imitate” a real TIF. If that does not totally clear things up for you read on….</p> <p>What is a Project Development Financing/TIF?</p> <p>A project development financing (more commonly known as a tax increment financing or TIF) is a type of debt financing in which a local government establishes a district and borrows monies to fund public infrastructure projects that will benefit (and incentivize) new private development in the district. The unit pledges as security for the loan (and uses as funds to repay the loan) the incremental increase in property tax revenue generated within the district due to the increase in property valuation caused by the new development. For more information on TIFs in North Carolina click here.</p> <p>How does a Synthetic TIF compare to a TIF?</p> <p>A “synthetic TIF” is similar to a TIF in that it is type of debt financing in which a local government borrows money to fund public infrastructure projects that will benefit (and incentivize) new private development in a defined area. A synthetic TIF differs from a TIF, however, in the nature of security pledged for the loan. In a synthetic TIF the unit pledges as security for the loan the asset (or a portion of the asset) that is being financed [...]</p>