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III. TYPE OF FINANCING increments are issued when there is a need for initial to ca A. fonds. Bonds secured by tax incr s p finance public or private improvements. Typically, the bonds are general obligation bonds backed by the full faith and credit of the municipality. As long as at least 20% of the debt service on the bonds is reasonably expected to be paid with tax increments, the bonds may be issued without election. B. Pay As You Go. An alternative to bond financing is a "pay as you go" arrangement with the developer. The developer pays for various TTF- eligible costs initially, and the authority promises to reimburse the developer from tax increment over time as it is generated. The developer (rather than an unrelated bondholder) bears the risk that the increments will be insufficient to repay the costs incurred. IV. LOCAL GOVERNMENT AID PENALTY A. Generally. The penalty applies only to districts requested for certification after April 30, 1990. The penalty is tied to the state school aid formula. When an authority creates a TIF District, the state calculates how much less the school aids would have been had the captured property value been available to the school district. That amount is then deducted from the municipality's local government aid (LGA) and if necessary from the homestead and agricultural credit aid (HACA). B. Amount. The LGA/HACA loss varies, but is usually about 30% of the tax increment collected annually when the maximum penalty applies. Note that the penalty does not change the amount of increment collected; it changes the amount of state aid the municipality receives. C. Penalty Recapture. 1. For districts created between May 1, 1990 and July 31, 1993, the municipality may obtain reimbursement from the developer for lost aid. N9WPDATAICENTERV➢TIF1- 11TIFSEM. Financing Bs' Centerville 5 Tax Increment a tcs -City oJCe tervat �.�