Guest editorial: Finally, solid research on TIFs
Tucked into H.159, a bill focused on community and economic development, is a provision that would create a pilot program for “project-based” tax increment financing [TIF] opportunities. Unlike the existing TIF programs, the pilot programs would be smaller in size and in number, the intent being to extend the TIF program to more of Vermont’s small, rural communities.
The bill also includes initiatives like paid family and medical leave, unemployment insurance, brownfield vitalization money, etc. Unfortunately, the fate of the TIF proposal is in doubt, a situation in which old beliefs have yet to catch up with Vermont’s present-day needs.
Those who oppose TIFs — and have since the beginning of time — have two concerns; first, that the growth would happen anyway, that public money is not needed to facilitate growth. Second, that the education fund is used as the financing mechanism, a process by which the municipality finances infrastructure projects using future tax revenues. Why, they ask, should we use money needed to educate our children to rebuild our downtowns?
TIFs in Vermont began in the mid-1980s, but it was not until the six years between 2013 and 2019 that the power of the TIFs came into full view. That is when most of the state’s TIF districts were most active, and proponents began to see how TIFs might be tweaked to strengthen other parts of Vermont’s economy, hence the TIFs inclusion in H.159.
But the questions that have dogged the program since the beginning remained. Until last week. The Vermont League of Cities and Towns last year commissioned a study by the University of Wisconsin and Vermont’s Rural Innovation Strategies, Inc., headed by Matt Dunne, to get down into the weeds of Vermont’s TIF program to see what the numbers show.
Does the program work as intended, or doesn’t it?
In sum, the research paper showed the development generated by the TIFs is over and above the growth that would have occurred without the TIFs. It showed that the education fund in 2019 would realize a 68 percent increase in annual tax revenue based on growth that the TIFs had already generated.
The report went on to say: “This is significantly higher than the $13.6 million in annual contributions that would be yielded under the alternative model presented in the 2022 Joint Fiscal Office [JFO] analysis that assumes an 18.7% compounded annual growth rate.”
So TIFs help, not hurt the education fund. A stronger education fund also, by extension, puts downward pressure on the property taxes Vermonters pay. Not a bad thing, right?
The research also slams the door shut on questions about whether the growth would have happened absent the TIF (it would not.)
But the research pushes far beyond the obvious conclusions regarding the “but for” provision and how the education fund is affected. It states the following:
- TIFs also require careful, long-term planning. Communities have to put in place a vision for which investments, or improvements, will yield the greatest return. No other program requires such planning. That’s an invaluable process, one most Vermont communities give short shrift. Think of the data that would be available if a long-term plan for growth were part of each community’s obligation.
- Because TIF programs are sizable, they “produce conditions that allow communities to leverage other assistance” and at levels they would not be able to realize otherwise. Researchers pointed to St. Albans, acknowledging that the size of its TIF allowed it to add another $11.8 million in what the researchers call “capital stacking.” That $11.8 million went to brownfield remediation, transportation, housing, energy efficiency, etc. This would not have been possible without the TIF.
- When TIFs are used, it is important they are properly regulated and that a premium is placed on minimizing the risk associated with TIFs. The research showed that the laws governing Vermont’s TIFs were among the nation’s most restrictive. The report concluded, “Vermont is on the leading edge in terms of state oversight, reporting requirements and frequent audits.”
- When the TIF is compared to other state economic development programs, there is no comparison because the state has so few economic development programs. In addition to the TIF, the researchers looked at the Downtown Transportation Fund, which since 2017 has doled out a mere $2.1 million. They also mentioned the Vermont Employment Growth Incentive [VEGI] and the Downtown Sales Tax Reallocation program. But neither program focuses on downtown development and neither has anywhere close to the range or strength of the TIF program.
In other words, the TIF program is just about the only financing mechanism the state has to help revitalize our downtowns. As the report concludes: “no state program demonstrates the cumulative impact of TIF in both facilitating infrastructure improvements and stimulating private development.”
It’s not that the researchers champion the idea of growth being financed through the education fund. They do, however, recognize the importance of growth and understand that growth happens when we take something that is broken and we fix it. If it’s not the education fund, then some other source of revenue has to be identified. And it has to be of equal, or greater value.
As for the argument that the growth would happen without the need of our TIFs, the research makes it clear it would not by examining programs like the TIF in Hartford and White River Junction, two municipalities competing with New Hampshire for growth.
Further, it’s the planning required by TIFs that adds real power to the TIF argument. It’s important for us to plan where we want development, and it’s this planning that gives hope to the thought that growth can be spread about the state, not concentrated in a haphazard manner. It’s the planning that allows us to decide what is important to our communities and to figure out how to husband our resources to their maximum effect.
This is the potential that the TIF portion of H.159 encourages. Let us hope our legislators recognize that value and support keeping the TIF program in place, allowing it to be reconfigured to help even more Vermont communities.
Note: Emerson Lynn is the former publisher and current editorial writer for the St. Albans Messenger.
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