The state auditor issued a report on Wednesday that alleges the City of Burlington should have sent $1.2 million to the state education fund.
Instead, the city used the money made available through a state-authorized Tax Increment Financing district designation for “ineligible purposes,” according to the audit.
Tom Salmon, state Auditor of Accounts, says the city inappropriately used the money to pay for debt owed on a lakefront property purchased more than four years before Burlington created Tax Increment Financing districts.
Burlington Mayor Miro Weinberger disputes Salmon’s assessment. He says the city will continue to use TIF districts as an economic development tool. In March, city voters approved $10 million in additional infrastructure improvements for the Burlington Downtown TIF.
Whether the state will take steps to recoup the money for the Ed Fund is an open question. Under state law, there are no penalties for communities that improperly administer TIF districts.
Tanya Morehouse, chief auditor, said Burlington should have remitted $1 million to the state Ed Fund, but there is no mechanism in place to require municipalities to pay what they owe under the TIF statutes. “That’s something,” she said, “that needs to be addressed by the Legislature.”
Two other communities — Newport and Milton — have also been audited this year. Both owe the state money, according to Salmon. Newport came up $42,000 short in its contribution to the Ed Fund. Milton owes the state $3.4 million. Like Burlington, both of these communities made mistakes in administering their TIFs, according to the auditor.
TIF districts are designed to encourage economic development. As of January, the Vermont Economic Progress Council had designated nine communities that can create TIF districts and two more municipalities have applied for approval, according to the Milton Independent. The designation helps municipalities bond for investments in downtown infrastructure improvements that are designed to increase the value of properties in the district. Under the special arrangement, the state allows municipalities that would otherwise have to pay more in statewide property taxes as a result of higher property values to use that money for bond payments over a set period. In other words, if a city property is assessed at $10 million and improvements bring the value up to $12 million, the tax assessment on the difference — $2 million — can be used to pay for the bond.
The trouble in Burlington started, according to the auditor, when the city refinanced the purchase of the Urban Reserve and then assumed the property could be incorporated into the Burlington Waterfront TIF. The purchase of the Urban Reserve took place in 1991, more than four years before the city created Tax Increment Financing districts in 1996 and 1997. The refinancing took place after the district was formed.
The auditor argues that the Urban Reserve parcel is ineligible for incremental financing because the purchase was made before the refinancing occurred and the TIF district was established.
Weinberger disagrees with Salmon, and accuses the auditor of making a “subjective objection to a refinancing transaction that occurred 13 years ago.”
“TIF is a powerful tool for growing jobs and the economy, and nothing in the audit report undercuts Burlington’s continued ability to use TIF districts to make important public investments in the waterfront and downtown without burdening property taxpayers,” Weinberger said. “The city will continue to work cooperatively with the state to ensure that all future TIF funds are properly used to benefit Burlington’s businesses and homeowners.”
