Voters in Burlington, SoBu Face Complicated TIF Decisions | Development | Seven Days | Vermont's Independent Voice

News + Opinion » Development

Voters in Burlington, SoBu Face Complicated TIF Decisions


Published November 2, 2016 at 10:00 a.m.
Updated November 4, 2016 at 12:23 p.m.


When voters in Burlington and South Burlington go to the polls next week, they'll see a three-letter acronym on the ballot — TIF.

Tax increment financing, a mechanism to fund public infrastructure related to private projects, is a little-understood economic development tool under consideration in both cities this year. Supporters contend that TIFs essentially generate free money. Critics say they are welfare for developers who should foot the bill for the streets and sidewalks that enhance their projects.

TIFs have been used in some of Chittenden County's most complicated — and most successful — redevelopments, including the makeover of downtown Winooski and the Burlington waterfront.

The basic premise: A municipality takes out a loan for infrastructure improvements in a designated area on the promise that new property taxes from the future development will pay back the debt. The city's general fund misses out on most of the new revenue for a period of time, and in Vermont, which has a statewide education funding system, so does the state.

The $21.8 million TIF bond request on Burlington's ballot would pay for public amenities in the eight blocks impacted by the makeover of the Burlington Town Center — new, wider sidewalks, public art, better lighting, granite curbs, benches and a small but complicated street construction project. Burlington Town Center owner Don Sinex is planning a $250 million mall redevelopment, which would reclaim Burlington's "lost blocks" of Pine and St. Paul streets between Bank and Cherry.

In South Burlington, officials are asking voters to approve a $5 million TIF bond to reconstruct Market Street, improve Dumont Park and build other infrastructure for the proposed city center that has long been on the drawing board in the suburban community. Property tax revenue from new offices, stores and apartments would pay back the bond.

City leaders in both communities support the TIF ballot items. But some voters are skeptical, and the spotty records of TIFs around the country — as well as questions about their performance here — could make them a hard sell at the polls.

Winooski's TIF experience is a cautionary tale.

More than a decade ago, TIF funds paid for new streets, sidewalks and a parking garage in the Onion City. That played a role in rejuvenating its once-moribund downtown. But it took 12 years for expected gains in property taxes to materialize.

Property value actually dropped during the first two years of the TIF payback schedule as a number of buildings in the TIF zone were torn down. New ones went up, but some of the new structures were owned by nonprofits, which are exempt from regular property tax payments — something the city failed to consider in its original calculations.

"The timetable that they had envisioned in the beginning wasn't realistic," said deputy state auditor Susan Mesner, who helped audit Winooski's TIF.

To pay off TIF debt, Winooski crafted payments-in-lieu-of-property-tax agreements with the nonprofits and used revenue from leases and the parking garage it built. Those funds might have been used for other things, such as garage maintenance, but the debt is on track for retirement in 2024 as scheduled, according to Mayor Seth Leonard.

"It did work, and we did get that private investment. The success is kind of speaking for itself now," Leonard said. New condos, offices and high-end restaurants have sprung up in the old mill town now known as the "Brooklyn of Burlington."

This year, the "incremental" property taxes are expected to meet, and slightly exceed, the debt service for the first time since the TIF payback started in 2005.

Though it's taken time for new property tax revenue to materialize, Winooski leaders point to one big number to prove the program is a success: The value of property in the TIF zone has soared to $103 million, more than quadruple what it was worth in 2005.

The standard lifespan for a TIF in Vermont is 20 years, but extensions happen. Burlington's waterfront TIF — which already includes the mall property — was approved in 1996. The state legislature has since agreed to stretch the payback schedule to 2035.

Once the debt is paid off, TIF zone property reverts to normal taxation.

In proposing another $21.8 million bond, Burlington doesn't intend to copy Winooski's bad math. The Queen City won't borrow the money until Sinex has completed the street work and improvements to the mall have started to generate new property tax revenue to pay off the debt, according to Mayor Miro Weinberger. "We're aware of what some of the pitfalls can be, and we've structured this very carefully to insulate ourselves from potential risks," he said.

California pioneered the TIF concept as a way to spur development in blighted areas in the 1950s. Since then it has been used in many states — and not just for streets and sewer lines. TIFs have funded big-box stores, high-end condos and hotels.

Chicago had more than 150 TIF zones under former mayor Richard Daley, prompting the Chicago Tribune to editorialize in 2010 that he used them as slush funds in an "off-the-books bonanza."

"If it's used correctly and it's controlled, it's a good tool," said Fred Kenney, executive director of the Vermont Economic Progress Council, the division of the Vermont Agency of Commerce and Community Development that oversees most TIFs in the state.

Vermont arrived relatively late to the TIF party. Among the first proposals was a $6 million TIF bond to redevelop the Burlington waterfront in 1985. The so-called Alden Plan included a hotel, parking garage and several hundred condos in what is now Waterfront Park.

Opponents called it a giveaway to developers. The city school board worried that the TIF would siphon off school taxes. Voters rejected the bond.

But 11 years later, in 1996, Burlington voters approved a large TIF bond for the same area, which was used to reconstruct Lake Street and for other improvements. Newport followed with a TIF district the next year, and Milton and Winooski got in on the action after that. Today Vermont also has TIF districts in Hartford, St. Albans, Barre and South Burlington. Colchester won permission for a TIF, too, but never used it. It has since expired.

There won't be any more than the current nine — Burlington and Milton each have two TIF districts, and Newport's TIF has run its course and been retired — unless the legislature warms up to the idea of expanding the program. Concern about improper management of TIFs and loss of state education revenues prompted lawmakers to put a moratorium on new ones in 2013.

State audits of TIFs in Burlington, Newport, Milton and Winooski found that they all owed money to the state education fund, but in some cases it was clear that a maze of rules contributed to the problems, according to Mesner, the deputy auditor.

"There were a number of instances where the law wasn't followed, the rules weren't followed and that money was owed back to the state as a result," Mesner said.

While Vermont's earliest TIFs received little state oversight, all of that changed in the late 1990s after the adoption of a state school funding system. The state gradually increased scrutiny and control to make sure TIFs didn't take too much money headed for the state education fund. Newer TIF districts can generally retain no more than 75 percent of the school taxes they collect.

Confused yet? That's why state law subjects TIFs to the ultimate test: Local residents have to vote on them. It's up to the municipalities to manage their TIFs and make sure they meet revenue projections, said Kenney. If not, he tells municipal officials, "Your local voters are responsible for any debt you incur."

South Burlington and Burlington city leaders have assured taxpayers that they won't pay off TIF debt by raising property taxes. The mall infrastructure will be paid for by "new, incremental future taxes generated by the redeveloped Burlington Town Center — not by you," read fliers published by Partnership for Burlington's Future, which is helping Weinberger stump for the mall ballot items.

Opponents see the TIF bond as a tax break for a wealthy developer. The citizen group Coalition for a Livable City says that Sinex should pay for the streets himself.

Supporters have a different view. Jane Knodell, president of the Burlington City Council and a Stanford-trained economics professor at the University of Vermont, acknowledged that TIFs have a mixed record. But she strongly supports the Burlington TIF.

"I think there's good stories and bad stories, and I think this is a good story," Knodell told Seven Days.

Sinex has compromised and shown himself to be a good partner with the city, Knodell said. She's convinced the TIF will jump-start downtown revitalization.

"This is a powerful instrument to support the financing of public infrastructure so the taxpayers aren't left holding the bag," said former Burlington mayor Peter Clavelle, who is supporting Weinberger and the TIF bond. "I almost chuckle when people say this is a giveaway for the developer. No," he insisted.

"Much of the stuff that people enjoy in Burlington today has been financed by TIF," Clavelle continued. He was mayor when the first one passed in 1996. It has since been extended and expanded, recently helping to finance the new skate park and bike path improvements.

The sales push from Sinex and Weinberger is misleading, according to Burlington resident and Coalition for a Livable City member Michael Long, who opposes both.

They make the TIF bond sound almost free, like "we've got no skin in the game, really," said Long, a retired teacher and former Burlington Development Review Board member. "But in reality those are tax dollars that are going to be diverted for decades to pay off the debt."

He added: "In my view, it's a subsidy for private development — public money for private profit."