Editor’s note: This op-ed is by Karen Horn, the director of public policy and advocacy for the Vermont League of Cities and Towns.
Local governments welcome the recent announcement that there will once again be a free-standing Department of Economic Development in the Agency of Commerce and Community Development that will focus on Vermont’s economic future. While businesses and employment opportunities continue to slowly grow in Vermont, a concerted effort to help those intrepid investors in the economy will benefit every Vermonter by providing revenue streams to address other pressing priorities such as a healthy transportation network, vibrant downtowns, attractive sites to grow the creative and diversified agricultural economies that are ready for private investment, effective stormwater management, job training, and economic opportunity for young Vermonters.
Local governments are key partners in economic development and have done much to encourage reinvestment in our communities. With active and focused assistance from the administration, local officials can do more. The value of one’s property is a primary indicator of economic well-being, and increasing property values as represented in a municipality’s grand list are a sign of investment, vitality and potential. The grand list establishes the values for property on which property taxes are assessed. A flat or shrinking property value is a sign of stagnation, divestment and increasing irrelevance. A flat grand list requires decisive action; the longer it continues, the harder it is to reverse.
It’s no secret that in many of our downtowns and cities – the very places policymakers seek to direct growth – property values struggle to keep pace with inflation – in some places, they have even moved backwards. Since all communities’ tax bases combine to form the statewide Education Grand List on which education property taxes are assessed, this is a problem not just for individual communities but also for the state as a whole. Years ago the Vermont Legislature created an innovative tool for local officials seeking to address the problem of declining grand list property value. That tool is tax increment financing, or TIF.
State law defines the public improvements that can be funded this way – generally infrastructure that is either cost-prohibitive or inappropriate for the private sector to undertake – but is critical to a project moving forward. Structured parking, wastewater facilities, brownfield remediation and transportation improvements are the most common examples.
TIF is widely used across the country to attract economic development projects to areas where they otherwise would not occur. It has been critical to the redevelopment of downtown Winooski and the Burlington waterfront. St. Albans and Barre are poised to implement TIF programs. TIF is ideally suited for driving development into the compact settlements that are the focus of state goals – our cities, historic downtowns, and new smart growth developments seeking to emulate traditional downtowns such as Colchester’s Severance Corners.
Here is how it works. A municipal legislative body votes to establish the boundaries of a TIF district – for instance, St. Albans City’s downtown area. Local officials then go through an extensive planning, public engagement, and application process to secure approval from the Vermont Economic Progress Council for the TIF. Once the TIF is approved and investment projects determined, a municipality holds a town-wide vote for voters to authorize the municipality to incur debt to finance infrastructure projects – such as sidewalks, water and wastewater improvements, streetscapes, and improvements to public parks – within the TIF district boundaries. During the life of the TIF, the municipality may use up to 75 percent of the increment of new education and municipal property taxes generated as a result of investment in the TIF district to repay the debt.
This arrangement lasts for 20 years, after which the local grand list and the statewide Education Grand List receive all of the new property taxes generated by the development that otherwise would not occur, or would not occur in the areas in which the state wants to direct development. State law defines the public improvements that can be funded this way – generally infrastructure that is either cost-prohibitive or inappropriate for the private sector to undertake – but is critical to a project moving forward. Structured parking, wastewater facilities, brownfield remediation and transportation improvements are the most common examples.
Without TIF, many sites will linger as blighted properties and drag down property values, a community’s grand list, and its overall economic well-being. With TIF, those properties can be redeveloped, helping to increase both the community and the state’s economic opportunity, vibrancy and revenue.
During the recent campaign for state auditor, both candidates suggested that the TIF program needs fine-tuning during the upcoming legislative session. If we are serious about directing economic development into our cities, downtowns and growth centers, if we are concerned about the overall size of the tax base that serves our schools and local governments, and if we are seeking to initiate development projects that are good for Vermont, there are few better tools than tax increment financing.
Municipalities are eager to work with the Legislature, the administration and new state Auditor Hoffer to make the TIF program more effective. Let’s start this conversation with a clear understanding of the policy goal of tax increment financing – namely, to increase the local tax base, which in turn increases revenue to the state Education Fund. By that measure, the TIF program has been successful and is a model of collaboration among state, local government, and the private sector. We look forward to making it even better in the upcoming legislative session.
