Amid the flurry of last-minute legislating in recent weeks, an important detail about the notoriously complex development tools known as tax increment financing districts, or TIFs, escaped much notice.
After four audits done in 2011 and 2012, the state auditor held that the towns of Burlington, Winooski, Milton and Newport collectively owe the state Education Fund $6 million in TIF-related revenues.
The towns have all repeatedly denied that they owe that money, disputing the accuracy of the audits and the interpretation of the complex law surrounding TIFs.
Gov. Peter Shumlin eventually weighed in, asking lawmakers to forgive the $6 million. The Shumlin administration said that the Legislature should instead focus on clarifying ambiguous statutes and creating mechanisms to resolve future disputes.
But lawmakers approved legislation this week requiring Burlington, Milton and Winooski to collectively pay $462,300 into various funds to resolve the dispute.
That includes $200,000 from Burlington, $22,000 from Milton, and $1,300 from Winooski to the Education Fund, with other monies going to other tax increment funds. Milton’s full tab is $199,000, while Winooski must pay $63,300.
Local legislative bodies, like Burlington’s City Council, must first approve the payments, which appear analogous to settlements between towns and the state. If local legislators don’t approve, then the Legislature will categorize the $462,000 as an outstanding state debt. If the towns don’t pay back on schedule, the state may withhold funds to the town or its school district until the debt is made good.
State Auditor Doug Hoffer previously said he would prefer only a partial forgiveness of the $6 million, setting up a confrontation between his office, the towns, the Shumlin administration and lawmakers.
The Senate later approved a full amnesty, but the House pushed for this resolution instead, backed by the House Ways and Means Committee and House Speaker Shap Smith.
“The idea was that we’d try to figure out the amount of money that recognizes the significance of the auditor’s work, but isn’t an unreasonable burden on the taxpayers in those communities,” said Janet Ancel, D-Calais, House Ways and Means chair.
“The goal is to restore the money to the Education Fund, although it’s not a lot of money relative to the size of the fund,” she said, referring to the $460,000 total.
Ancel said resolving the dispute in the courts or otherwise seemed costly and inappropriate, and added that the towns and the auditor were at the negotiating table, with everyone on board by the time legislation left her committee.
In a news release on Tuesday, the Vermont Mayors Coalition, which includes eight mayors from towns including Montpelier, Burlington, Barre and Rutland, applauded the passage of “meaningful TIF legislation,” but failed to mention the settlement payments entirely.
Burlington Mayor Miro Weinberger emphasized that city taxpayers wouldn’t be on the hook for their $200,000 payment.
“It essentially allows the TIF district to pay, over a five-year period, $40,000 a year to the ed fund, which will come from the TIF district,” he said. “It will not come from the broader general resources of the city or from taxpayer money.”
Weinberger said he was satisfied with the agreement and the legislation, which he described as an acceptable compromise.
“We and the other towns that have TIF districts can now move forward, and use them for the purpose they’re intended: to create jobs and housing opportunities,” he said.
Asked whether he preferred the legislation backed by the Senate and Shumlin, Weinberger said: “Of course, in some sense, to have there be no payment would’ve been better. On the other hand, I’m satisfied that the settlement is modest.”
Milton town manager Brian Palaia, who has been involved in the negotiations, also said the amounts ultimately agreed upon were modest, though he expressed some unease about Milton’s repayments.
“I think there’s a dramatic difference between $3.4 million and $22,000 [to the Education Fund],” said Palaia, referring to the $3.4 million the state auditor first identified as owed. “But for the $22,000, we’re not happy about that.”
“If we hadn’t incurred the $22,000 expense, the very first expense we incurred to get the TIF district going back in 1997, we wouldn’t have created 450 jobs, with an average payroll of $75,000 a year,” he said.
As for the $177,000 in other mandated payments and transfers from Milton, to the Catamount Husky Tax Increment Fund, Palaia indicated that Milton could dispute that payment, and said town officials will discuss it with their lawyer, auditor and the state in coming weeks.
Hoffer said he didn’t first approach the towns about settling the outstanding payments, saying House lawmakers insisted on those payments.
He said the calculated amounts represented how much towns owe after legal changes were applied retroactively to TIF statutes, meaning that if the causes of accounting and administrative errors were later made legal, related amounts were forgiven.
Hoffer said the House version was fairer to the state, the auditor, and the Education Fund, than what the Senate and the governor proposed. He also praised lawmakers’ efforts in a news release.
Lawmakers also decided to bill each town $15,000 toward the state auditor’s costs in conducting the four audits in 2011 and 2012, work Hoffer has described as seriously time-consuming.
The legislation also requires that the state won’t approve any new TIF districts in the future, over and above the nine already in place. It also clarifies TIF laws, improves the administration and oversight of the districts, and sets in place a way to resolve future disputes.
But the ban on new TIF districts worries Palaia, who called it a “negative aspect” of the law. He argued that a ban deprives Vermont towns of a key economic development tool.
“The TIF program is the only program that the state has, for municipalities to partner with the state, to create economic growth,” he said. “How are we going to pay for the infrastructure we need to support economic development?
“It’s a step back instead of a step forward in terms of economic development policy,” he said.
Weinberger, however, also appreciated the concerns driving that provision.
“Given the auditor’s reports and concern about TIFs in recent years, I think I understand why the language is in there,” he said. “I understand where that comes from.”
Both Weinberger and Palaia expect to have the support of their City Council and Selectboard, respectively, for the payments. Newport wasn’t covered under the legislation, because it’s already paid back the $37,000 it owed to the Education Fund.
The original audits of these TIFs can be found here.
An earlier version of this story described the settlement as being between the municipalities and the auditor. The settlements are with the state.