St. Albans officials who used tax increment financing for a parking garage project that opened five years ago did not break any rules and properly used debt for the development, the Vermont Economic Progress Council said Thursday.
VEPC — which regulates tax increment financing, or TIF — reversed an earlier decision calling for the city to repay some of the debt proceeds. The council also made determinations in several other areas that were the subject of concerns raised by the state auditor’s office this spring.
In its detailed 100-page report in May, the office of Vermont Auditor Doug Hoffer had asserted that the city owed money to Vermont’s education fund. Hoffer didn’t limit criticism to the project — he also chastised city officials for asking VEPC to review how they had handled the lengthy project.
“Many of the problems we identified stem from city administrators’ expansive and flexible view of statutes and rules to serve their interests,” Hoffer said in his report.
On Friday, St. Albans City Manager Dominic Cloud said he was gratified by VEPC’s findings.
“I’m taking pains to rise above it; it was very personal,” he said of Hoffer’s report. “I staked my career on the St. Albans TIF, and my professional credentials rely on me being credible about what you can and can’t do under state law. So we did get defensive, because we felt pretty strongly that we were right.”
Cloud said the parking garage, which opened in 2014 and led to the development of a new downtown hotel, serves as an example of how other Vermont cities and towns can use similar public-private partnerships to revive their struggling downtown areas. Cloud is often asked to speak about the St. Albans projects at events around the state.
As they were reviewing the St. Albans project, “VEPC board members and staff all made comments like, ‘St. Albans continues to be the poster child for smart growth,’” said Cloud.
The city in June broke ground on another TIF project — a $20 million mixed-use commercial, retail and mixed income housing project across the road from City Hall.
“The St. Albans project is an example to other communities,” he said Friday. “We think we’ve built an innovative model.”
Hoffer responded to the VEPC memo on Friday by saying that he didn’t think his office should be required by statute to audit TIFs — a job that he said consumes 20% of his auditing staff — if VEPC doesn’t honor his findings.
“If we go to the trouble as required by statute to audit all of these town TIFs, which is an immense drain on our resources, and present information to VEPC, and they ignore it, why the heck are we spending so much time and effort?” Hoffer said. “If VEPC makes these decisions in a way that appears to be not objective and independent, I suggest to the Legislature giving someone else the authority.”
Hoffer added that VEPC describes itself as “partner” to TIF towns, which he said is in conflict with its oversight role.
“As we know, it is difficult for the same entity to promote and regulate such development programs,” he said. “I intend to share my concerns with the Legislature.”
TIFs are an economic development tool that have been around for several decades. Through TIFs, 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 often used for projects in areas such as brownfields or underserved areas where no private investor was willing to build without a public partner – such as Winooski and White River Junction, as Cloud noted in a VTDigger commentary March 11.
“These projects don’t just happen because of market forces; they happen despite market forces because of smart public investment through tax increment financing,” he said.
VEPC approved the St. Albans TIF district plan in 2012 and city voters approved a plan to borrow $16 million for the parking garage, brownfield remediation, streetscape improvements, and other measures. Cloud has said the city’s TIF district projects have added $52 million to the city’s grand list and raised tax revenues by $65 million.
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 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 benefitted from the public-private partnership intended to create value in an underperforming area.
If the project doesn’t result in the promised higher tax revenues, the public loses – and in Vermont, the education fund loses as well.
Megan Sullivan, VEPC’s executive director, sent a memo Thursday to city managers around the state with a brief outline of VEPC’s decision. Among other things, Sullivan reported VEPC approved the use of debt proceeds for debt service, reversing an earlier decision that the money would need to be repaid to the TIF fund. VEPC also approved the use of TIF funds to pay for some hotel site improvements and street-scaping in a core brownfield site, Sullivan said – a use the auditor’s report had deemed inappropriate.
VEPC did agree with the auditor’s report that some of the rules governing how the money can be spent need to be less ambiguous.
“Council members emphasized that there needs to be clarity in statute and in the TIF rule on these topics in order to provide clear guidance to all parties,” she said.
City managers are meeting with VEPC August 8 to talk about proposed rule changes. Sullivan’s memo, Cloud said, “provides important guideposts as to what those rules should say.” He added that the decision shows St. Albans didn’t commit any wrongdoing.
“It validates that St. Albans was within the guideposts,” he said. The VEPC decision, and a process to make the rules more clear, will have an effect around the state, said Cloud.
“It matters to the other TIF communities tremendously,” he said.
Hoffer’s office is due to audit TIFs in Winooski, Milton and Hartford this year, the city of Barre next year, and downtown Burlington in 2021. The statute requires the auditor to determine if the towns have retained the appropriate amount of education and municipal tax increment in the TIF district fund and paid the balance to the taxing authorities, and have used tax increment for eligible purposes.
“At first, when they passed the law (requiring the audits), I thought, ‘that’s a heavy responsibility,’ but I thought maybe we’ll find after we do the first two or three that it’s kind of cookie-cutter,” Hoffer said. “But it’s not. Every town is different; these are immensely complex issues.”
