Tax Increment Financing Report: Program increases Ed Fund and economic opportunity

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Tax Increment Financing Report: Program increases Ed Fund and economic opportunity

Tue, 04/19/2022 - 2:23pm -- tim

Helen Riehle cuts ribbon in front of Allard Square on November 13, 2019, as part of the rapid transformation of the "new downtown" on Market Street in South Burlington. VermontBiz photo.

by Timothy McQuiston, Vermont Business Magazine The Vermont League of Cities and Towns (VLCT) released an independent analysis of Vermont’s Tax Increment Financing (TIF) program Tuesday that concluded that TIF helps Vermont meet its smart growth goals, promotes long-term planning, and contributes to net-growth in the Education Fund. The report comes as the Vermont Legislature considers expanding TIF to smaller, rural communities through “project-based TIF”. 

“VLCT commissioned the report to evaluate if the TIF program was meeting its intent of spurring development and growing tax revenues,” said VLCT Executive Director Ted Brady. “The findings of the analysis support the continued use and expansion of the program. In short, it’s advancing our codified development goals, encouraging communities to think long-term, and growing our tax base.” 

For the full report CLICK HERE

Brady explained that Vermont’s TIF law allows municipalities to incur debt to make public infrastructure investments and repay that debt with a portion of the increased property tax revenue sparked by the new infrastructure. 

The City of South Burlington is currently using the TIF program to finance infrastructure improvements in its new downtown. 

l-r: Fred Kenney, Executive Director, Addison County Economic Development Corporation; Ted Brady, Executive Director, Vermont League of Cities and Towns, Jessie Baker, City Manager, South Burlington, and Eric Osgood, Selectboard Member, Johnson.

South Burlington City Manager Jessie Baker said: “In the six years studied by the University of Wisconsin research team, Vermont’s TIF program paid for $180 million in public infrastructure in 12 TIF districts, generating nearly $685 million in development, nearly 4,000 jobs, and a 68 percent increase in property tax revenue for the Education Fund. The research team found that the Education Fund would be smaller if not for our state’s TIF Districts.” 

The Legislature has been reluctant to expand the TIF program over concerns that it is diverting funds from the Education Fund, meaning that all other municipalities must make up the difference to pay for the statewide property tax.

A Joint Fiscal Office report from January indicates there will be an ongoing cost to taxpayers: "JFO estimates that TIF will cost the Education Fund approximately $5.5 million in 2022, growing to roughly $6 to $7 million per year by the mid-2020s. Because of Vermont’s statewide system for funding education, this means that the average homestead property tax rate will be roughly a penny higher to fund development in TIF towns."

On the plus side, the JFO noted, the focus of the TIFs has been on traditional downtowns, where state policymakers have intended economic growth. On the other hand, some 80 percent has wound up in Chittenden County.

Because of financing costs resulting from the municipality needing to borrow money to fund the projects, the JFO suggests the state might be able to find cheaper underwriting for such infrastructure from other sources, say from the budget surplus or federal funds.

State Auditor Doug Hoffer also has questioned the program at times, wondering if these developments would have happened anyway without the tax incentive and therefore TIFs have been something of a windfall for developers while being a burden on taxpayers.

TIFs also have proven to be complex to implement.

VLCT hired the Hartland, Vermont-based Rural Innovation Strategies (RIS) to complete the analysis. RIS partnered with the University of Wisconsin Oshkosh Center for Customized Research and Services. 

The report included ten key findings:  

  • Vermont’s TIF policy clearly meets the state’s community and economic development goals. 

  • TIF serves as a powerful long-term planning tool. 

  • Measuring the performance of TIF districts is complicated. 

  • The revenue story is equally complicated but suggests TIF districts generate net revenue growth to the Education Fund above naturally occurring growth. 

  • TIF generates a clear rate of economic growth not recognized in previous analyses. 

  • Forecasting a rate of return from TIF is complicated. 

  • TIF produces conditions that allow communities to leverage other assistance. 

  • The combination of safeguards built into Vermont’s TIF statutes maximize its effectiveness and accountability while minimizing risk. 

  • Comparing TIF to other state economic development programs emphasizes the economic and operational benefits of TIF. 

  • Vermont’s TIF policy must change in order for rural communities to use the program.

Johnson Selectboard Member Eric Osgood said he hoped a proposed project-based TIF pilot program in the Senate-passed version of H.159 would become law this year. The proposal would allow municipalities to apply to the Vermont Economic Progress Council for a relatively smaller TIF of up to $5 million to build public infrastructure in a designated growth area or an industrial park. 

Osgood said: “Johnson would be hard pressed to use the existing TIF program. As a selectboard member for a small rural community, I welcome the changes in H.159 that would right size the TIF program and TIF requirements so that Johnson and other rural communities could have the same access to capital that the bigger communities in Vermont have had for nearly 40 years.” 

Governor Phil Scott today issued the following statement on the TIF report.

Scott said:

“Tax increment financing is a powerful economic and community development tool, which is why I have advocated for expanding it to more communities, working with the Legislature to add six more TIF districts in 2017. For Vermont in particular, it allows cities and towns to grow and important projects to come to fruition when they otherwise may not have due to upfront financial costs and barriers. 

“TIF districts and projects create affordable housing, remediate brownfields, update aging infrastructure and make transportation improvements in our downtowns. The result of these projects increases grand list value and statewide education tax revenues, which make them important to our work to grow the economy in all corners of our state. If we bring this program to small rural communities, we can improve the quality of life for Vermonters where they live and work, as well as make our towns more attractive to prospective employers and new workers.

“I appreciate the Legislature’s ongoing collaboration on opportunities to give more communities access to this valuable tool.”

4.19.2022. Montpelier, Vt. – Vermont League of Cities and Towns