If Mississippi hadn't provided $15 million in bonds and another $20 million in loan guarantees last January to Schulz GMBH to build its pipe factory, some other state would have. In today's economic market, "tax incentives" is the game state and local governments must play to lure big corporate players to put roots down within their borders.

For real estate developers, one incentive game worth playing is TIFs, or tax increment financing. It's a wholly unsexy moniker for incentives designed to lower or eliminate certain development costs, and they're completely sexy if development is your business. When a developer's property is TIFed, taxpayers reimburse him for costs incurred to make "public" improvements to his property—roads, sewer and water lines, parking lots—any projects that become part of the public domain.

"It was basically designed to do something to increase the property values, and take a tax base that's eroded and improve it," said Lucien Bourgeois, a partner in the law firm of Butler, Snow, O'Mara, Stevens & Cannada, PLLC in Ridgeland, and a specialist in economic-development incentives.

Since the first TIF legislation in the mid-1950s, 49 states have adopted TIFs for development financing. They have morphed from a tool for revitalizing blighted inner cities to a big, fat, multipurpose development wallet, providing financial resources to everything from historical rehabilitation to shopping centers, and from high-end suburban residential properties (such as Reunion in Madison County) to multi-million-dollar developments like the proposed Two Lakes, all coming from taxpayer dollars.

Here's how TIFs work: Prior to a project's start, a developer enters into an agreement with a city or county government. The government promises to reimburse a developer for infrastructure—public domain—improvements on his property by issuing bonds.

The whole deal hangs on a couple of premises: First, that a private developer can make improvements faster and cheaper than the government can. The second premise is that the developer's improvements will increase property values and, therefore, generate increased property taxes. Those increased taxes are collateral for the bonds the governmental body issues to repay the developer.

"The bottom line is that the developer builds (the infrastructure), and then the city ... buys it from the developer," Bourgeois said.

Tax revenues from a TIFed property divide into two streams: The first, pre-TIF baseline stream remains static throughout the life of the bonds. The second stream goes to service the bond debt, and is defined by the difference between the baseline and any additional revenue created through increased property values. That's the "increment" in tax increment financing.

TIF properties are generally held by one owner and are limited to infrastructure improvements. Many states, including Mississippi, have statutes on the books to define multi-owner districts and to expand the types of projects eligible for TIF-like financing. In Mississippi, those districts are called PIDs, or public improvement districts. Until 2007, PIDs were limited to one city/one county, and the financing time limit was 30 years.

Since 2007, Mississippi PIDs can include multiple counties, and financing can go for as long as 40 years, an amendment added specifically for projects like Two Lakes or the now-dead airport parkway project.

Public improvement districts operate as quasi-governmental bodies. They are managed by a board (whose members cannot have a financial stake in the district), can buy land, are able to condemn property and exercise eminent domain, borrow money, charge fees and enforce collections.

It's a good deal for developers, who are virtually guaranteed to recoup costs as defined in their agreement with the local government. That is, unless the bonds don't sell, a distinct reality in today's economy, Bourgeois said, or if he can't sell his properties, in which case he's stuck with the property taxes himself.

"The whole idea is that it benefits the landowner. … You're lowering the cost for that developer because he's getting reimbursed for that infrastructure. He's lowering the cost to the potential homeowner, and you and I pay it back over time," he said.

Even if it takes 40 years, developers are not completely dependent on sales; local taxpayers are picking up some of the tab. After all, they reason, if they had not developed the property, the increased tax base would not have occurred.

Opponents of TIF financing disagree. In 2002, the Neighborhood Capital Budget Group of Chicago made a study of 36 of the city's TIF projects. It looked at property assessments for the five years before the properties were TIFed to project the tax increases that would have occurred anyway, and then compared the projections against the bonds' payback of $1.6 billion during their 23-year life span. What they projected was that the taxes would have increased by $1.3 billion even without TIFs.

"The experience in Chicago is important," wrote Reason magazine in 2006. "The city invested $1.6 billion in TIFs, even though $1.3 billion in economic development would have occurred anyway. So the bottom line is that the city invested $1.6 billion for $300 million in revenue growth."

A larger 2006 study by the Lincoln Institute of Land Policy compared Chicago's TIF districts to municipalities around the city. The study found that "property value in TIF-adopting municipalities grew at the same rate as or even less rapidly than in non-adopting municipalities." The same study also found that TIF districts "cannibalized" businesses and development from the surrounding community, amounting to "a significant negative impact on growth" and reduced property values outside the TIF districts.

More important, opponents argue, TIFs are not a good deal for taxpayers. Property taxes going to everyday city and county expenses within TIF districts, and PIDs in Mississippi, are frozen for the life of the bonds. No increase in property taxes go toward anything but debt service, regardless of inflation, increased school enrollment, the need for additional police or fire protection, or higher labor and material costs. Increased public costs within the TIF/PID district have nowhere to go but to taxpayers outside the district.

"A city or county government may have its hands tied by its (TIF) commitments, unable to meet its future expenses for basic police, fire and school service funding," wrote Brandt Milstein in "Developing Real Influence: Real Estate Developers and the New Mexico Legislature," in 2007.

It's a risky game for taxpayers, especially the poor, wrote Ben Joravsky in the Chicago Reader. "As taxes rise, a lot of people will have to choose between borrowing to pay their taxes, selling their property or going into foreclosure."

In opposing a bond issue to finance the Reunion Parkway interchange in 2008, Madison County Supervisor D.I. Smith estimated that $33 million in bond indebtedness would raise taxes by 2.4 to 3 mils of tax levy. For a home valued at $100,000, that increase translates to an additional $240 to $300 in property taxes. On a Mississippi PID property, all of that increase would go directly to the developer, for up to 40 years.