Burlington Mayor Miro Weinberger and Winooski Mayor Michael O’Brien are amenable to more state oversight of tax increment financing (TIF) districts, along the lines of a recommendation made by a recent state audit.
An audit report from late December recommends that a state body like the Tax Department or the Vermont Economic Progress Council resolve disputes between the state and towns, and hold authority to interpret and enforce the messy legal statutes regarding TIFs.
The Auditor’s Office has long maintained that some towns owe money to the state’s education fund, because of financial miscalculations about what’s owed under TIF statutes. According to the Auditor’s Office, the shortfall in payment for Burlington is said to be $1 million, and for Winooski, $1.5 million. Both cities dispute that claim vigorously.
Testifying before the House Ways and Means Committee, Weinberger and O’Brien said that oversight could be helpful if implemented carefully, adding that extra legal clarity is needed. They both said that TIFs, which help municipalities fund downtown infrastructure improvements to spur development, remain a vital economic development tool.
“The idea of some kind of oversight that on an annual basis is making, in real-time, binding decisions for both the municipality and the state … is something that should be done,” Weinberger told lawmakers.
“We do think this regulatory role shouldn’t be set up to be a situation where it’s litigious from the start, where there is built-in incentives for dispute from the start,” said Weinberger.
“I think there should be oversight by someone or some entity that is well-defined, and works with the communities on a timely basis,” O’Brien told VTDigger after the meeting. “Right now I think it’s every four years, they’re supposed to audit the TIFs. Well, that’s too long.”
Even without a neutral arbitrator, however, neither thought the matter would eventually make it to the courts. The auditor’s report says that’s part of the problem: “In the event of municipal noncompliance with statutory requirements, there is no statutory remedy with which to require corrective action. This means there is no mechanism to recoup the $6 million our audits determined are owed to the education fund.”
Asked if the matter could eventually be litigated, O’Brien said: “I don’t think so. We obviously strongly dispute that we owe $1.5 million. I don’t think there’s any tool or any ability of the state to make us pay that if we say ‘No’.”
Top tax lawmaker Janet Ancel, D-Calais, chair of the House Ways and Means Committee, also pointed to the need for a formal system to govern these disputes.
“That’s one of the things that we struggle with,” said Ancel in committee. “The situation we’re in isn’t good for anybody. And so we need a mechanism, short of coming in here — we’re not equipped to decide who’s right about these things. … We need a system able to resolve these issues. And we don’t know what it would be.”
New state Auditor Doug Hoffer has no interest in reviewing TIF districts again until he’s mandated to under statute, which is once every four years. He said the five TIF reports in recent years were “immensely time-consuming.”
Hoffer stands by the December audit report, though it was produced by former state Auditor Tom Salmon. He added that the Legislature’s priority should be forward-looking, towards new oversight and remedies for future disputes, rather than recouping the $6 million allegedly owed.
Meanwhile, lawmakers are wracking their brains to find new funding sources for these special districts, instead of relying on property tax revenue, but are a long way from any conclusions.
Partly using a local option tax such as a sales tax was floated, but shot down by Weinberger as too “weak” to fully fund municipal infrastructure alone.
Ancel said she was concerned that the TIF district helps out a local municipality by tapping into a statewide tax.
“The difficulty with TIF financing is that what we’re using to pay off the debt is a state tax. To me that’s the crux of the problem,” said Ancel in committee. “We wouldn’t be sitting in this room if we weren’t using a state revenue source to pay off the TIF debt. … We’d all be happy. But we’re not happy, because we have all these issues, and here we are.”
A TIF district is a special zone created by a city or town and approved by the state, which allows municipalities to leverage statewide property taxes to help pay for public infrastructure geared to further economic development.
By raising the value of downtown property through public infrastructure improvements, the municipality then keeps some extra tax revenue which otherwise would not have been created, to pay for its infrastructure debts, instead of remitting the tax revenue to the state.
Downtown Winooski’s property tax base grew from $25 million at the start of its TIF district many years ago, to more than $70 million now, said O’Brien. Burlington’s waterfront property tax base grew from $42 million to $123 million.
