Funding Tools: HTC, NMTC, LIHTC, TIF, PILOT & Grants - and How They Interact
Community development projects often rely on a combination of public incentives, tax credits, and grant funding. These tools can make challenging projects feasible, but only when they are understood early and structured intentionally. When funding tools are treated as add-ons instead of building blocks, projects become fragile.
Each tool serves a different purpose. None of them work in isolation. The way they interact - and the order in which they are considered - often determines whether a project moves forward or stalls.
How Funding Tools Fit Into Early Planning
Funding tools are not interchangeable. Each one responds to a specific type of gap — whether that gap is in construction cost, operating cash flow, infrastructure, or community benefit. Early-stage planning is where those gaps are identified and matched to the right tools.
When projects are designed first and “funded later,” incentives are often forced into a structure that doesn’t support them. This leads to reworking, delays, or unrealistic expectations about what the tools can deliver.
Strong projects approach funding in reverse:
they first understand the site, the use, the market, and the mission - then identify which tools align.
A Practical Overview of the Core Tools
While every project is different, the most common funding tools tend to play consistent roles within a capital stack.
Historic Tax Credits (HTC) are typically used when a project involves a qualifying historic structure. They help offset rehabilitation costs but come with strict design, compliance, and timing requirements. HTC works best when preservation goals are identified early and incorporated into the project concept from the start.
Low-Income Housing Tax Credits (LIHTC) support affordable housing by limiting rents and incomes in exchange for equity. LIHTC affects nearly every part of a project - unit mix, operating income, financing structure, and long-term compliance. Because of this, housing projects that may pursue LIHTC need to be structured around it early, not adapted to it later.
New Markets Tax Credits (NMTC) are designed to support commercial and community-serving uses in qualifying areas. They can be powerful for mixed-use, nonprofit, or catalytic projects, but they are complex and highly structured. NMTC works best when project uses, ownership, and financing flow are aligned from the beginning.
Tax Increment Financing (TIF) is generally used to support infrastructure or public improvements within a defined area. Unlike tax credits, TIF does not fund a building directly. It supports the conditions that allow development to occur. TIF is most effective when it is coordinated with broader planning and infrastructure needs, rather than tied to a single project in isolation.
Payments In Lieu of Taxes (PILOT) reduce or phase in property taxes over time. PILOTs help close operating gaps, particularly in projects with public benefit or mission-driven uses. Because they affect long-term cash flow, PILOTs must be evaluated alongside financing assumptions, not after they are already set.
Grants can provide flexible capital, but they are rarely predictable. Grant funding often comes with use restrictions, reporting requirements, and timing uncertainty. Grants work best when they supplement a clear capital strategy, rather than serve as the foundation of one.
Why These Tools Must Be Considered Together
Each funding source influences the others. A project pursuing LIHTC will have different operating income than one that is not. A PILOT may improve debt capacity, which affects how much tax credit equity is needed. TIF-funded infrastructure may reduce upfront site costs, changing overall feasibility.
When tools are evaluated together, decision-makers can understand:
which gaps each tool is addressing
how much each tool realistically contributes
what constraints come with each source
how compliance timelines overlap
where risk increases if assumptions change
When tools are evaluated separately, projects often overestimate what incentives can do.
The Risk of Treating Incentives as a Solution Instead of a Tool
One of the most common planning mistakes is assuming that incentives will “make the numbers work” without adjusting the project itself. Incentives do not fix misaligned uses, unrealistic density, or unsupported market assumptions.
When funding tools are introduced late:
projects must be redesigned to fit compliance rules
credibility with partners can weaken
timelines extend significantly
confidence erodes
Early planning ensures that incentives support the project — not the other way around.
How Early Planning Improves Capital Stack Decisions
Early-stage planning allows project sponsors to ask the right questions before pursuing any specific funding source:
What is the true development cost?
What level of revenue is realistic?
What public benefit is being delivered?
Which tools align with that benefit?
What long-term obligations come with each source?
This approach produces capital stacks that are realistic, defensible, and resilient.
How River & Main Approaches Funding Strategy
River & Main works at the intersection of planning, feasibility, and funding strategy. Rather than chasing individual incentives, we help projects understand how different tools interact and what role each should play.
Our approach focuses on:
identifying funding gaps early
aligning tools with project goals and constraints
sequencing incentives realistically
understanding compliance and timing impacts
avoiding overreliance on any single source
creating capital strategies that can withstand scrutiny
Funding tools are most effective when they are part of a clear, early plan — not a last-minute fix.
When incentives are structured intentionally and early, they strengthen a project. When they are introduced late or misunderstood, they often expose weaknesses instead.
The difference lies in early clarity — long before applications are submitted or commitments are made.
Article Sources
NY Times. Access February 2, 2026.
