LOS ANGELES—As local governments face increasing budget pressure, and as tools such as tax increment financing face increasing political hostility, real estate developers should remember that there are many opportunities for private developers to partner with public agencies to finance and build projects. There is certainly a great need for help in rebuilding and upgrading infrastructure and utilities, and the lack of available state and municipal funding for public improvement projects will mean great opportunities for developers through public private partnerships.

One of the most common approaches to public private partnerships is based on tax incentives, such as property or 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 or a portion of its development costs from the new taxes generated by the 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 the levying of assessments by special authorities or districts formed in connection with a project, taking advantage of the exemption from income taxes on interest paid on those bonds. Typically, the local government can form either an existing or a newly formed industrial development authority, transportation development district, or community improvement district, which issues bonds paying low—but tax-exempt—interest, the proceeds of which partially fund the project. The developer gets cheap, long-term financing, and the local government gets a needed improvement.