Most members of the Burlington City Council claim that they want the ballot item establishing a new tax increment finance (TIF) district covering much of downtown to be approved by voters on March 6. But if it fails Council President Bill Keogh knows where to place the blame: on the shadow of doubt and “erroneous conclusions” that emerged from a TIF audit of Milton.
That is why, three weeks ago, Keogh requested fast-track release of Burlington’s waterfront TIF audit by State Auditor Tom Salmon — in hope that the results would be available prior to the vote.
Salmon declared the administration of Milton’s TIF “flawed” in a press release about that audit in January. He estimated that the community owed $3.4 million to the state tax department due to confusion over the handling of statewide education property taxes. No decision has been made about whether Milton should actually pay the money to the state for the Education Fund.
Keogh was concerned about Milton’s bad press, and on Feb. 7, wrote to Salmon saying it was “casting a shadow on Burlington’s TIF now before the voters.” He asked the state auditor to release his findings on Burlington’s TIF before Town Meeting Day rather than later in March.
Salmon, however, passed the audit off to a member of his staff and it looks unlikely that the review will be released before the vote.
Meanwhile, the City Council also became concerned about the upcoming ballot vote. On Feb. 3, led by mayoral candidate Kurt Wright, 10 council members reversed a unanimous December decision to ask for public approval of the new TIF district, which would allow the city to obligate up to $10 million for downtown infrastructure improvements.
Mayor Bob Kiss replied with a strongly worded statement defending the development tool, challenging the legislative branch to educate the public, and informing them that the question would remain on the ballot.
Keogh noted in his request to Salmon that communication within the city has improved lately. But he added that publicity about Milton’s audit had led to “some erroneous conclusions.” Vermont law has been updated since the Milton TIF was created in 1998 to help avoid the type of confusion cited in the audit.
“It is important for the voters to know if the City is in compliance or not,” Keogh continued in a message obtained by VTDigger through a public records request. “Waiting until the end of March to report to the Legislature seems to me to be an undue delay. I would request that the report be made public in advance of the March election.”
Salmon didn’t answer directly, instead passing the request to Tanya Morehouse, a staff member who has been handling the Burlington audit. On Feb. 9 she explained in an email that the work was in its “final stages,” but a draft report was not yet available. Once sent to city officials, she added, they will have two weeks to comment. After that it will take another week to publicly issue the final report. The reply was almost identical to a message she sent to Burlington Free Press reporter Joel Banner Baird two days earlier.
The exchanges suggest that Salmon plans to keep the content of Burlington’s audit under wraps for several more weeks. The correspondence obtained by VTDigger explains the intended scope of the financial review. It also indicates that the process has been actively under way for at least nine months, and that the auditor’s staff had no apparent trouble getting the information they needed.
Salmon and several members of his team were in City Hall last week to explain audit processes and standards at a Burlington Finance Summit. An “Auditing 101” handout, used as an outline for the discussion, noted that one area of common trouble is audit isolation. “It is vital that the audit be an open process, because it gives the audit the sustained attention it deserves,” it explained.
Salmon did not bring up the TIF audit. But after his keynote presentation, a question about Burlington’s current liquidity problem linked that issue to whether having another TIF would add to the city’s financial risk. Burlington has a cash problem, acknowledged Scott Schrader, Burlington’s acting chief administrative officer. But steps are under way to improve liquidity and limit short-term borrowing.
In December 2010 an audit, the Larkin Report, revealed that Burlington Telecom borrowed $16.9 million in city funds over a six-year period that was not repaid. The report concluded that BT’s debt to the city, on top of $33.5 million owed to its commercial lender, cast serious doubt on its viability.
The credit rating for the city and the Burlington International Airport dropped because of BT’s debt to the city, experts say, fueling doubts about the liquidity of the city. The lowered rating reportedly raises the costs of borrowing money and could hinder development plans.
But having a second TIF district would have no impact on liquidity or risk, Schrader said. Salmon and his staff did not disagree.
A case of audit engagement
Tax Increment Financing districts subsidize and stimulate promising redevelopment ideas at locations within a defined area, with a priority on generating taxes to retire the debt and help to fund other projects. In Burlington’s case, a second TIF district would cover much of downtown.
In a period of austerity, TIF could be an important tool to generate revenues beyond normal municipal sources. Both Wright and Democrat Miro Weinberger have mentioned the approach favorably in their mayoral campaigns.
The decision to audit four of Vermont’s five TIF districts was made more than a year ago, following up on legislation passed in 2008. In addition to Burlington and Milton, the State Auditor’s Office decided to look at TIFs in Newport and Winooski. Except for Newport they are in Chittenden County.
Why four, and why now? Seven Days journalist Shay Totten asked that question more than a year back. Salmon turned the answer over to Audit Manager Stephen Vantine, who cited a state law requiring the auditor to review active TIFs every three years. To meet the requirement, he said, “FY 2011 is the first year the districts are to be audited.”
In a Jan. 28, 2011, announcement letter to Burlington officials, Salmon explained “the initial objectives of this engagement.” It boiled down to obtaining clear and documented answers to several key questions: Did Burlington comply with state laws and the city’s own rules? Did it a) retain the appropriate revenue, b) use TIF for eligible expenditures, and c) report to officials in a timely and accurate manner?
Finally, did Burlington monitor the results of its TIF with quantifiable measures that show whether the economic and fiscal goals were actually achieved?
Much of the legwork was assigned to Tanya Morehouse and Jeffrey Keller, who asked assistant city accounting officer Richard Goodwin for an initial list of materials. A “more formalized listing of items” would follow, Keller explained, then an “entrance meeting” in March to share the work plan. For starters, they needed all approved TIF plans, minutes from any related public meetings, and all financing agreements with the state or federal government.
Preliminary discussions and document review proceeded without incident throughout the spring, although the official “entrance meeting” was pushed back to May. Five members of Salmon’s staff attended. Subsequent sessions were held with City Hall staff and lawyers. By the end of October the needed information had been assembled, according to the documents obtained by VTDigger.
On Oct. 28, Salmon had another exchange with Totten. The Newport audit was finished, he wrote, and the other three were “expected in the months ahead.” He also mentioned a “capstone report” that would highlight the common issues.
Milton’s audit was ready in December. In a Dec. 29 letter to Milton Treasurer John P. Cushing and Manager Brian Palais, Salmon presented a draft report titled, “Tax Increment Financing Districts – Town of Milton Appropriately Established Districts, but Its Administration Was Flawed.” The cover letter didn’t discuss specifics, but asked for a response to the report’s findings and recommendations by Jan. 13, 2012.
A Jan. 19 press release from the state auditor announced the findings of the Milton audit, making his findings on Chittenden County town’s TIF management public. Sen. Tim Ashe, one of the county’s six senators, defended Milton’s actions. He argued that the town had acted in good faith, based on what they believed was legal.
A back and forth ensued — Salmon wasn’t happy with Ashe’s characterization of the audit. “What is worrisome is the insinuation that communities have been inappropriately retaining tax payments,” Ashe reportedly said.
“If this is what you meant,” Salmon emailed Ashe the next morning, “note that audits are not insinuations. We audit to the objectives, we evaluate evidence.” He promised that the Burlington TIF “will be free of ‘insinuations’ by all parties.”
Ashe didn’t remember using the word insinuation, but wrote back that Milton’s compliance with what it believed to be proper “should not be interpreted by policy makers as wrongdoing.”
Second thoughts and Keogh considerations
Concerns about the Burlington TIF vote began to swirl up in late January, soon reaching Neighborhood Planning Assemblies in the New North End. Ward 3 Progressive Council Vince Brennan, who recently endorsed Wright, also wrote a letter to other councilors about it.
According to Ward 4 NPA Steering Committee member Lea Terhune, most people who attended the Jan. 31 meeting “were strongly opposed to the TIF ballot question,” at least until “we learn how the audit of the previous TIF district came out.” She said that NPA leaders in both Wards 4 and 7 agreed with the City Council’s effort to remove the issue from the ballot.
“The issue is not time sensitive,” Terhune insisted last week, just as Mayor Bob Kiss prepared to hold a press conference in support of TIF with local business and community leaders. “It can wait until November,” she argued, “when people have had more time to evaluate the commitment we are asked to make to cover up to $10 million in debt instruments yet to be determined for projects yet to be determined.” In emails and letters she claims city officials, not the auditor’s office, are withholding the audit.
Democrat Joan Shannon, who requested the Feb. 3 Special Meeting to take TIF off the ballot, mentioned that questions about the timing were raised by Wright, who represents Ward 4 on the council. On Feb. 2, Salmon testified at the House Government Operations Committee about Burlington’s alleged failure to respond to his request for an internal controls checklist. City officials were being “aloof on the issue of financial accountability,” he claimed.
The day after that testimony the City Council attempted to remove TIF from the ballot. Before the vote Wright, who is also a state representative, mentioned “a big cloud up there [in Montpelier] around this issue.” If the mayor keeps it on the ballot, he warned, “it goes down in flames.”
Burlington Free Press reporter Joel Banner Baird followed up that day with an email to Salmon. Readers were “increasingly concerned about documents that public officials deem protected from disclosure,” he wrote. Baird added that “it would help if you could cite the public records exemption statute that allows you to keep the audit protected.”
Salmon also passed this inquiry to Morehouse, who replied the next week. She utilized the same text in her response to Keogh’s request for an early release of the audit to allay public concerns. The message didn’t cite a statute. It simply stated that “we consider the draft to be confidential because it is subject to change, depending upon the comments of management and whether additional evidence is provided to SAO for consideration and analysis.”
Keogh’s request grew out of a recent conversation with Salmon. Until the attempted removal of the downtown TIF ballot item, he had forgotten about the pending audit of Burlington’s waterfront TIF. Asked about it, he said he hadn’t heard anything. Following up in writing, Salmon expressed shock and compared the situation to his request for an internal controls checklist.
“The technical answers are not as telling as confirming the general lack of financial communication between the board and Administration,” he wrote.
Salmon’s assumption turned out to be inaccurate, however, while prompting Keogh to request the pre-election release of Burlington’s audit. At that point, four weeks before the election, it remained technically possible.
The city’s executive branch may not have kept him fully informed in the past, Keogh added, but “we have come a long way.”
The next day Keller informed Salmon – with email copies to Morehouse and seven other staff members – that Keogh’s “memory must be short. The audit was listed on the City Council’s agenda for 2-7-11,” a year earlier. In other words, Keogh may be forgetful, but their conversation didn’t confirm what Salmon thought.
For more news about the Burlington TIF District, check out the following links:
Seven Days 2/18/11: Salmon Won’t Seek Reelection, Mulls Future
Seven Days 10/26/11: For Sale by Owner
Seven Days 11/30/11: Was Ashe Aware? Did Miro Know?
Burlington Free Press 2/2/12: Council to consider pulling tax increment ballot item
Burlington Free Press 2/3/12: Mayor overrules council vote, keeps Burlington development vote on ballot
Burlington Free Press 2/25/12: Mayor Kiss promoting ballot item on financing downtown projects
Correction: Rich Goodwin was originally listed as the City Attorney; he is actually the Assistant Chief Accounting Officer. Ken Schatz is the City Attorney.
Editor’s note: This story was developed through analysis of 128 pages of correspondence obtained by VTDigger and Greg Guma in response to a public records request. The request was received by the State Auditor on Feb. 10, 2012, and asked for communication between that office and Burlington officials about the Burlington TIF audit. We requested only information that does not deal with the content on the audit. The request was sparked by the City Council’s decision on Feb. 3 to reverse its previous vote on an upcoming TIF ballot item in Burlington.
