What are TIFs?
A helpful factsheet
By COURTNEY LAMDIN | Staff Writer
courtney@miltonindependent.com
Tax increment financing districts are economic development tools, established in Vermont in 1985, used to spur growth in a particular area.
Generally, a TIF district uses municipal and state tax money to pay off debt incurred by building infrastructure in the district. Vermont has two types of property tax: Municipal taxes add to the town’s general fund, and state education taxes fill the Education Fund, which is then distributed to all towns.
There are eight TIF districts in Vermont: Burlington Downtown, Burlington Waterfront, Colchester, Hartford, Milton North/South, Milton Town Core, Newport and Winooski. South Burlington and Williston have applied for TIF districts.
How do TIF districts work?
When a TIF district is established, the lister’s office calculates the original taxable value, or the total of the assessment values of all properties – residential and commercial – in the district. This base is used to calculate the increment, or the increased value in property taxes multiplied by the tax rate, each year of the TIF’s 20-year lifetime.
The town then takes on debt, usually in the form of a bond, to build the needed infrastructure to attract development. This could be anything from sidewalks or new lighting to a sewer system or parking garage.
Once in debt, the town can begin retaining the state tax revenue. Improvements are built, and development comes in, increasing the tax revenue and the increment, which is then used to pay down the debt.
The town keeps no more than 75 percent of both state and local municipal taxes to pay for improvements. State taxes generate about three times more revenue than local taxes and can only be used to finance debt incurred in the first five years after the TIF is created.
How do towns create TIF districts?
In Vermont, municipalities create TIF districts through VEPC – the Vermont Economic Progress Council, an arm of the Vermont Department for Commerce and Economic Development.
The board is made of nine members appointed by the governor and two appointed by the legislature. There are also two non-voting representatives from each region in the state.
A lengthy application process ensues, but basically, towns have to prove that creating a TIF district will promote public good. The application has to meet six criteria, summarized here:
1. But for: Without these extra property taxes, this development would not occur.
2. Process: Towns hold public hearings and write plans that show how they’ll pay for projects, how much they’ll likely cost, how much revenue will be generated and what development could occur as a result.
3. Location: Districts must be located in one of three locations: (a.) in/near existing industrial areas, (b.) in approved designated growth centers, villages or downtowns (c.) or in economically distressed areas.
4. Project criteria: Must meet three of five: (a.) Development requires substantial investments, (b.) includes affordable housing, (c.) will redevelop a brownfield, (d.) will include one new business or an expansion of one and will provide new jobs or (e.) will enhance transportation.
5. Nexus and proportionality: The infrastructure built must serve the district. For example, Milton’s water tanks are not physically located in a TIF district but provide capacity for the Husky and Catamount Industrial Park TIFs, therefore making them eligible to use TIF funds to pay debt for their construction.
6. Financing plan: VEPC approves this document, which includes the estimated tax revenues, bonded debt, funding sources and more.
If approved by VEPC, the town must hold a public hearing on the financing plan. Voters must also approve a “debt ceiling” for TIF borrowing and must approve all bond expenditures for TIF projects on ballots.
TIFs are considered somewhat controversial because they divert tax revenue from the state Education Fund to the town to help pay for local improvements.
Proponents, however, note that the increased revenue wouldn’t have happened without the infrastructure improvements. TIFs can also help manage development to infill downtowns and industrial parks.
Information from Vermont statues, 2009 Joint Fiscal Office/Dept. of Taxes report on TIF and interviews with Fred Kenney, Vermont Economic Progress Council executive director; Brian Palaia, Milton town manager, and Carrie Violette, Milton planning director.
Read more on TIF districts:
Turner on audit: 'Outrageous'
Audit: Town owes $3.4M
Where are Milton's TIF districts?
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