Municipal Backed TIF vs. Developer Backed TIF: Making the Right Call for Kansas

Kansas TIF law authorizes two types of bonds: special obligation bonds and full faith and credit bonds. This distinction is the most consequential structural decision in any TIF transaction — and with the passage of HB 2737, the Taxpayer Agreement Act, developer-backed special obligation bonds are now the clear choice for most individual development projects. Here is why.

Full Faith and Credit Bonds: Municipal-Backed

Full faith and credit TIF bonds pledge the city’s general taxing power as additional security. If the increment falls short, the city must cover the gap. These bonds may offer lower interest rates due to the municipal credit backing, but they expose the city to financial risk and may count against debt limitations. For large-scale public infrastructure projects where the municipality is the primary beneficiary, this structure may occasionally make sense. For individual developer-driven projects, it introduces risk that is unnecessary.

Special Obligation Bonds: Developer-Backed

Special obligation bonds under KSA 12-1774(a) are payable solely from pledged revenues — ad valorem increment, local sales tax, franchise fees, and redevelopment agreement payments. The city is not obligated to cover shortfalls from its own resources. With the Taxpayer Agreement Act, the developer now contractually guarantees any shortfall, and delinquent payments are enforceable as delinquent real estate taxes. Conduit bonds issued under HB 2737 go even further — the city has no obligation to advance funds, levy taxes, or appropriate money for repayment.

The Developer Gets the Same Proceeds Either Way

A common misconception is that developer-backed bonds reduce proceeds compared to municipal-backed structures. The bond’s value is determined by the projected increment — which is the same regardless of who backs the bond. What changes is the risk allocation. Under a developer-backed structure, the developer receives competitive proceeds when they sell the bond to Hageman Capital, the municipality carries zero credit exposure, and the project moves forward with the same financial impact. Municipal leaders get what they want, developers get what they want, and the project is greenlit.

When to Choose Developer-Backed

For individual commercial real estate projects — multifamily, mixed-use, retail, office, and industrial — developer-backed special obligation bonds with taxpayer agreements are the appropriate structure. The developer benefits most from TIF assistance and is best positioned to bear the performance risk. Kansas’s multi-revenue-stream framework (property tax, sales tax, and franchise fees) provides additional revenue security that strengthens the bond without municipal credit exposure. The two-thirds supermajority required for project plan adoption reflects the gravity of the decision and ensures the governing body is fully committed.

Hageman Capital Makes It Work

The developer-backed structure works because there is a capital provider willing to purchase the bond. Hageman Capital is that provider. We purchase developer-backed TIF Bonds in Kansas and work with municipal leaders at no cost to help evaluate structures. Connect with our team to make the right call for your municipality.