LOS ANGELES—As local governments face increasing budgetpressure, and as tools such as tax increment financing faceincreasing political hostility, real estate developers shouldremember that there are many opportunities for private developersto partner with public agencies to finance and build projects.There is certainly a great need for help in rebuilding andupgrading infrastructure and utilities, and the lack of availablestate and municipal funding for public improvement projects willmean great opportunities for developers through public privatepartnerships.

One of the most common approaches to public privatepartnerships is based on tax incentives, such as propertyor sales tax reimbursement agreements, tax increment financing,payments in lieu of taxes, and tax credit financing, among others.Under such arrangements, the developer can be reimbursed for all ora portion of its development costs from the new taxes generated bythe completed project or can enjoy tax abatements or tax credits(e.g., energy tax credits) for the project.

Other approaches rely on the issuance of bonds and/or thelevying of assessments by special authorities or districts formedin connection with a project, taking advantage of the exemptionfrom income taxes on interest paid on those bonds. Typically,the local government can form either an existing or a newly formedindustrial development authority, transportation developmentdistrict, or community improvement district, which issues bondspaying low—but tax-exempt—interest, the proceeds of which partiallyfund the project. The developer gets cheap, long-termfinancing, and the local government gets a neededimprovement.