A state auditor’s report on a hotel and parking garage development in St. Albans has found several irregularities and asserts that the city owes money to Vermont’s education fund. But the St. Albans city manager denies that claim and says the auditor, Doug Hoffer, is prejudiced against the financing instrument used for the development.
In a detailed 100-page report released Tuesday, Hoffer said St. Albans made unauthorized use of debt incurred in connection with its tax increment financing, or TIF, district. St. Albans used the TIF, an economic development tool, to build a downtown project with the aim of reviving the district.
In response, St. Albans City Manager Dominic Cloud called the project “the community development opportunity of a generation” and said the city had followed all of the state’s rules regarding the use of TIF financing. Cloud said the city’s TIF district had added $52 million to the city’s grand list and raised tax revenues by $65 million. The report, Cloud said, “reveals the policy biases of the state auditor and demonstrates the need for independent TIF audits by CPA firms.”
With tax increment financing, municipalities designate an area for economic development construction improvements and borrow to pay for the work on the expectation that the work, when completed, will result in an increase in state and municipal property tax revenues.
TIFs are a matter of policy debate in many states, and particularly in Vermont because of its statewide property tax. The tax structure means a municipal project can have an impact on the education fund. Under Vermont law, municipalities must receive approval from the state-run Vermont Economic Progress Council, or VEPC, to establish a TIF district.
TIF critics in Vermont and elsewhere question whether the return on TIFs is worth the investment. Some say projects would have been built whether or not the developer was awarded the tax abatement used as an incentive to create value in an underperforming area. And if the project doesn’t result in the promised higher tax revenues, the public loses – and in Vermont, the education fund loses as well.
“There’s more property tax revenue, so that’s a good thing, is a long-term argument,” Rep. Janet Ancel, D-Calais and chair of the House Ways and Means Committee. “But one of the things it ignores, or may ignore, is the question of whether the development that happened might have happened elsewhere, without the TIF.”
As for the St. Albans project, St. Albans did receive VEPC’s approval for its TIF, and the city strongly denies many of the irregularities outlined by Hoffer. Hoffer himself recommends in his report that VEPC clarify the rules for TIFs.
There are some big outstanding questions.
For example, “neither statute nor rules address whether paying for costs on behalf of a private development are eligible to be financed with TIF district debt,” Hoffer says in the introduction to his report.
Hoffer said in a press release that the errors he found with the St. Albans project could be fixed.
“They are not fatal,” he said. “But instead of seeking to cure the problems, the city’s response has been to deny wrongdoing and seek absolution by requesting the state’s regulator to sanction their actions — sometimes after the fact. Many of the problems we identified stem from city administrators’ expansive and flexible view of statutes and rules to serve their interests.”
To Cloud, the auditor’s report “read like litigation.
“I’ve spent many months trying to understand the dynamic that has been created in this audit,” Cloud said. “My accusation against the state auditor’s office grows directly out of the experience of that audit; they began with the end in mind, and they were seeking evidence to support their position.”
The Legislature is still examining the ins and outs of TIF financing, itself a fairly new method for economic development. Last year, lawmakers asked the economists for the administration and for the Legislature to study and report back on the economic impact of TIFs. The state’s Joint Fiscal Office also completed a study on Vermont’s TIF program in January 2018.
“It’s not to disparage TIFs or call them into question; it’s to be more objective about what the impacts are,” said Ancel.
VPEC is scheduled to take up the matter of the St. Albans TIF at its meeting Thursday at National Life in Montpelier.
Meanwhile, Hoffer denies in his report that he’s anti-TIF. The findings of the audit are based on facts, not “on public perception of negativity or positivity,” he wrote.
