Vermont auditor: Burlington owes state $1 million in TIF district error
On June 4, 2012, State Auditor Tom Salmon released the results of the third of four planned audits that evaluate the state’s current active tax increment financing (TIF) districts. The TIF audit reports for the City of Newport and the Town of Milton were released in June 2011 and January 2012, respectively. State law requires that the state auditor audit all active TIF districts every four years.
Establishment of a TIF district allows a municipality to designate an area for improvement and earmark expected future growth in property tax revenues (i.e. incremental property tax revenue) in the designated area to pay for debt incurred to finance the costs of improvements. Incremental property tax revenue is comprised of (1) municipal increment and (2) statewide education increment and is calculated as the growth in TIF district property values multiplied by the municipal tax rate and the statewide education property tax rate. The TIF program allows municipalities to retain incremental statewide education property tax revenue rather than remit these taxes to the state.
The auditor’s office found that Burlington adhered to requirements in state statute associated with establishing and expanding its TIF district in 1996 and 1997, respectively. However, certain aspects of Burlington’s TIF district administration were not in accordance with statutory requirements. Of the $8.3 million in incremental property tax revenue used by Burlington, approximately $1.2 million was used for ineligible purposes – to pay refinanced debt associated with land (the Urban Reserve on the Lake Champlain waterfront) that was acquired in 1991, more than four years prior to the creation of the TIF district. Largely because of this error, the city’s determination of the amount of the statewide education increment to retain was not consistent with statutory requirements.
As a result, the city retained $1 million that should have been remitted to the state. The city argues that refinancing the Urban Reserve debt is a legitimate TIF district transaction because it allowed the city to extinguish a purchase option held by the City of Burlington’s Retirement System. However, the Attorney General’s office advised the auditor’s office that TIF districts are authorized for the purpose of funding expenditures such as acquisition of property that will stimulate development or redevelopment within the TIF district. If an investment has already occurred as it has in this instance (with the purchase of the land in 1991) the creation of a TIF district in 1996 does not serve the purpose of motivating the investment.
In response, Mayor Miro Weinberger said in a statement: “TIF is a powerful tool for growing jobs and the economy, and nothing in the audit report undercuts Burlington’s continued ability to use TIF districts to make important public investments in the waterfront and downtown without burdening property taxpayers. As the State Auditor correctly notes, the City does not agree with the audit’s subjective objection to a refinancing transaction that occurred 13 years ago. The City will continue to work cooperatively with the State to ensure that all future TIF funds are properly used to benefit Burlington’s businesses and homeowners.”
The audit recommended that the city cease using incremental property tax revenue for payment of the debt related to the 1991 purchase of the Urban Reserve and work cooperatively with the state to resolve the city’s $1 million shortfall in payments to the state education fund.
“We recognize that the TIF program can be complicated to administer and our report acknowledges this complexity. However, we identified significant matters, including use of incremental property tax revenue to pay ineligible Urban Reserve debt, which we believe compel the city to take corrective action. Although city officials disagree with our conclusion relative to the Urban Reserve debt, based on the evidence we gathered during our audit and guidance from the Attorney General’s office, it is clear that incremental property tax revenue should not have been used to repay the Urban Reserve debt,” said Salmon.
Auditor Salmon added, “Although we had some disagreements with the city, nonetheless I want to thank them for the professional manner in which they defended their position and the overall cooperation that we received.”
The town of Milton is contesting the findings in its audit, released in January 2012, that indicated Milton owed the state $3.4 million. READ TIF STORY
The report “Tax Increment Financing District: City of Burlington Did Not Always Administer Its TIF District According to Statutory Requirements and Did Not Remit All Monies Owed to the State Education Fund” can be found on the auditor’s web site @ www.auditor.vermont.gov.
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