Nuances of Developer Backed TIF Deployment in Tennessee

Tennessee’s economic development landscape shifted meaningfully during the 2026 legislative session with the passage of SB 1760 and its companion bill HB 1892. These bills amend the Uniformity in Tax Increment Financing Act of 2012 to introduce taxpayer agreements — a new mechanism that allows municipalities and developers to structure TIF Bonds with enforceable, developer-backed guarantees. For municipal leaders across the state, this legislation opens the door to a more flexible, lower-risk approach to incentivizing commercial real estate development.

What the New Legislation Changes

Tennessee has used Tax Increment Financing for years through two primary TIF agencies: Housing Authorities and Industrial Development Boards (IDBs). Housing Authorities can allocate tax increment revenues for up to 30 years and focus on redeveloping blighted areas. IDBs can allocate increment for up to 20 years and have broader authority to support commercial, industrial, and retail projects — though they require state approval for spending TIF proceeds on private property improvements that do not qualify as public infrastructure.

What SB 1760 adds to this framework is the taxpayer agreement. Under this new provision, a TIF agency can enter into a contract where the property owner or developer guarantees, enhances, or otherwise secures the bonds or lease obligations of the TIF agency. If the tax increment revenues generated by the project fall short of the debt service payment, the developer makes up the difference — a mechanism the legislation calls a “taxpayer direct payment.” This is a binding contractual obligation, not a handshake promise.

How Developer-Backed TIF Bonds Compare to Other Incentives

Tennessee municipalities already have access to a robust incentive toolkit. PILOT agreements, administered through IDBs, allow developers to pay a negotiated reduced sum instead of full property taxes. The FastTrack Infrastructure Program provides state grants for public infrastructure supporting job-creating projects. Tax abatements offer temporary reductions in property tax obligations.

Each of these tools has its place, but developer-backed TIF Bonds offer a combination of advantages that other incentives do not match. TIF does not create new taxes or raise existing rates — it captures only the incremental revenue that would not exist without the development. Unlike PILOT agreements, which reduce near-term property tax revenue for schools and services, TIF preserves the full base amount for all taxing jurisdictions. Unlike state grants, TIF does not depend on appropriation cycles or competitive application windows. And unlike traditional municipal-backed TIF bonds, developer-backed structures remove the municipality’s credit exposure entirely.

Municipal-Backed vs. Developer-Backed: Understanding the Distinction

Under traditional TIF structures, the municipality or its TIF agency may issue bonds backed by its own credit or general obligations, pledging future tax increment revenues to repay bondholders. If the increment falls short, the municipality may bear some financial exposure depending on how the bonds are structured.

Developer-backed TIF Bonds flip this dynamic. The TIF agency issues the bond to the developer, who then assigns it to a capital provider — such as Hageman Capital — in exchange for upfront cash to fund construction. The bond is repaid solely from the tax increment, and the developer’s taxpayer agreement guarantees any shortfall. The taxpayer agreement lien carries the same priority as property tax liens, runs with the land, and takes precedence over any existing or subsequent mortgage. The municipality serves as a conduit issuer with no obligation to advance funds from the general fund.

Evaluating Project Feasibility

Before committing to any TIF structure, municipalities should conduct a thorough feasibility analysis. This includes estimating the increase in assessed property value once the project is complete, projecting the annual tax increment and verifying it can support the proposed debt service, evaluating the developer’s financial capacity and track record, and confirming the project meets the “but-for” test — the demonstration that the development would not proceed without TIF assistance.

Tennessee’s process requires preparing either a redevelopment plan (for Housing Authority projects) or an economic impact plan (for IDB projects), holding public hearings, and obtaining legislative approvals from all affected governing bodies. For IDB projects involving private property improvements, state approval from the Comptroller and Commissioner may also be required. These procedural steps exist to protect the public interest and ensure transparency.

Working With Developers to Secure Favorable Terms

The redevelopment agreement is the central contract governing any TIF transaction, and it is where municipal leaders have the most leverage. Key provisions to negotiate include the developer’s construction timeline and performance milestones, a detailed list of eligible costs and maximum reimbursement caps, the taxpayer agreement terms including the shortfall guarantee mechanism, financial reporting and disclosure requirements, and remedies for default by either party.

Tennessee’s new legislation also specifies that any provision in a deed of trust or mortgage requiring acceleration solely because the property owner entered into a taxpayer agreement is unenforceable. This removes a potential barrier that could otherwise discourage developers from signing taxpayer agreements, making the structure more practical for real-world transactions.

The Bigger Picture: TIF as a Community Growth Engine

Developer-backed TIF Bonds do more than close individual deals. They create a repeatable framework for attracting investment, expanding the tax base, and funding public infrastructure — all without exposing municipal finances to risk. Every completed TIF project adds assessed value to the tax rolls that, once the TIF period ends, flows entirely to all taxing jurisdictions. Jobs created during and after construction generate economic activity that extends well beyond the project boundaries.

Hageman Capital is the capital provider that purchases developer-backed TIF Bonds, giving developers the upfront cash they need to break ground. But we are also a free resource for municipal leaders across Tennessee who want to understand how this new legislation applies to their community. From evaluating project feasibility to structuring taxpayer agreements and navigating the statutory approval process, our team is available to help at no cost. Connect with our team and let’s explore what developer-backed TIF Bonds can do for your city.