The state is at odds with a couple of cities and towns over revenue generated by a special kind of tax program.
In January, Milton got a report from State Auditor Tom Salmon’s office saying the town owed more than $3 million in unpaid education taxes. In June, Burlington got a similar report saying it owed more than $1 million. Both dispute the audit findings and say they aren’t prepared to pay the bill.
The disputes relate to a complicated economic tool known as "tax increment financing," or TIF.
Municipalities are allowed to create TIF districts to finance public improvements-such as sidewalks or sewer treatment-that will lead to private development.
When a TIF district is approved, a base tax rate is established. As private development is built in the area, it generates more tax revenue. That revenue goes toward paying down the loans the town takes out to make those initial improvements.
Auditor Tom Salmon thinks TIF is a great tool for towns.
"This is a fascinating vehicle to actually keep those taxes locally to pay for the borrowed money in order to launch these projects so that by the end of the TIF period, the entity has this newly developed area, they have increased property taxes, and it was financed through this mechanism."
But since tax increment financing was approved by the Legislature more than 25 years ago, the rules have changed frequently regarding how much of the tax increment towns are allowed to keep and what, exactly, they’re allowed to spend that money on.
Don Turner is a state representative from Milton, the town that the state says owes $3.4 million in education taxes.
"I’ve been in the Legislature for seven years," Turner says, "and I think five of those seven years there’s been some kind of tweaks to the TIF districts."
Turner says Milton acted in good faith in using its TIF money to finance construction projects. But the state says that TIF funds weren’t actually permissible to use for new construction and must be used to pay down debt.
Salmon says he has no doubt Milton officials thought they were acting appropriately, but that doesn’t allow them to break the rules.
"Unfortunately for us, we’re the umpires. We don’t make the rules; we just enforce them. And unfortunately, some of the things in Milton-and I know they’ve been trying to gather information and so forth to support their position-but state rules really don’t grant discretion to agencies or individuals to supersede state law.
Both Turner and Salmon say clearer guidelines are needed. Salmon is recommending that towns with TIF districts designate a municipal official to be in charge of overseeing the financial pieces of the projects and be able to report to the state.
Meanwhile, it remains to be seen whether the disputed funds will be paid back. Vermont’s Tax Department has yet to send out any bills, and officials have said they’ll wait to see how the issues play out in the legislature before making a move.