A tax increment bond is one method of Tax Increment Financing (TIF) that is paid off with “incremental” tax revenue generated from any increase in property taxes or other economic activity. These bonds are often used to finance redevelopment of blighted areas.
Before a TIF project begins, the local government calculates the “base” property tax revenue generated by the property. The government or an associated governmental unit, such as an Industrial Development Board (IDB), may then issue tax increment bonds to finance the project.
Once the TIF project is finished, the debt service on the bonds is paid with the additional, or “incremental,” property tax revenue resulting from the new construction that is generated over the base. Thus, tax increment bonds are a type of revenue bond where the financed project “pays for itself.”