At the same time, TIF projects usually carry a high price tag because the default risk is transferred to the holders of the bonds rather than the municipality (the taxpayers). With TIF projects, debt repayment and servicing depends entirely upon future increments in property tax revenues. In other words, the City has no obligation to pay the bondholders if the project does not generate sufficient increment taxes. Some U.S. municipalities pledge other revenue sources in the district - such as increment sales taxes - in addition to increment property taxes to help circumvent this risk and reduce the cost of borrowing. But this still leaves debt repayment under serious risk if the tax base does not expand as expected. Because of this, TIF bonds (otherwise known as revenue bonds) carry a hefty risk premium compared to general obligation borrowing, which is backed by the whole municipal operation. In the U.S., revenue bonds for TIF projects can carry a risk premium in excess of 300 basis points over comparable general obligation bonds.
In order to reduce the cost of financing, many municipalities will include a "full faith and credit" provision, which essentially securitizes the revenue bonds against the whole source of municipal finances. However, by doing so, the financing for TIF projects starts to resemble a conventional, general borrowing program and defeats a critical purpose of revenue bonds, which is to transfer financial risk away from the taxpayer.