Lawmakers, analysts review TIF rules, financing types and potential impacts on education fund

Lawmakers and fiscal staff on the Ways & Means committee spent a session examining tax increment financing (TIF) program clarifications, outstanding ambiguities in statute and rule, and how TIF districts have affected municipal grand lists and education fund receipts.

The discussion matters because TIF changes affect which local tax revenues are retained for municipal projects and which flows to the state education fund; committee members said they expect formal legislation next week and want rulemaking language and intent to reduce downstream ambiguity.

For the record, Ted Barnett, Joint Fiscal Office, briefed the committee on areas clarified by recent laws and on points still open to interpretation. "I'm not a lawyer. I don't want anything to be construed that JFO is interpreting statute or rule," Barnett said, and focused his remarks on where legislation and rule changes have already created specific clarifications.

Barnett summarized a set of financing issues addressed by prior actions: Act 80 of 2013 clarified that interfund loans may be used in a TIF but municipalities may not charge interest on those loans; Act 72 of 2023 added a statutory definition of "improvements" that permits municipalities to fund interest-only debt service payments for up to two years; and the 2015 TIF rule provides administrative detail on district administration and parcel accounting. He also noted that bond anticipation notes were clarified so they would not be treated as the first incurrence of debt, a determination that affects when retention and repayment clocks start.

Barnett said other recurring ambiguities include whether premium (above-principal) bond proceeds should count toward an approved borrowing cap, how to account for nonproperty-tax revenue sources (for example, parking garage revenue or development agreement payments), and where the line should be drawn between public-purpose infrastructure and private site-preparation costs. On that point he noted statutory examples of public-purpose improvements such as utilities, transportation and public facilities, but said municipalities and developers frequently press the edges of those definitions.

Committee members raised practical concerns. Barnett described an audit case tied to a "Champlain College" outcome in which a property included in a TIF district became tax-exempt after ownership changed and the college paid a development fee instead of generating increment; the council reduced the education increment retention percentage to account for the missing revenue. Barnett also described a software/accounting problem in the NIMREC TIF model that assigned some parcels municipal values lower than education values, causing municipalities to overpay the education fund; he said NIMREC has since been updated and the problem flagged in earlier audits has been fixed.

David White, president of Weidbrooke Bridal Estate Advisors, presented municipal case studies on the finance side and how grand-list growth can be parsed. "The purpose of TIF and CHIP is to stimulate investment," White said, describing his analysis of Hartford and St. Albans. Using changes in municipal grand lists between reappraisals to isolate investment (rather than appreciation), White reported that Hartford moved from years of declining grand-list value into modest annual growth after TIF projects began, and that St. Albans saw a larger share of its municipal growth concentrated inside its TIF district.

White emphasized methodological limits: he said his approach compares pre- and post-TIF growth between reappraisals to approximate investment-driven change and that it cannot prove causation. Committee members pressed him on disentangling broader regional appreciation from TIF-driven investment; White acknowledged that reappraisal timing and regional market forces complicate attribution and that the results are factual descriptions of observed changes, not definitive proofs of causation.

Members and staff also discussed statutory mechanics that limit municipal flexibility and protect the education fund. Barnett reminded the committee that statute requires municipalities to remit at least the aggregate tax due on the original taxable value (the OTP) to the education fund even if district values fall, so municipalities that incur debt remain responsible for bond payments if increment does not materialize. He described how TIF rule and Act 72 constrained adjustments after improvement approval and clarified parcel/span accounting (for example, how original taxable value follows a span number when parcels are split or combined).

Committee members asked staff to ensure that forthcoming bill text include clear legislative intent and guidance for subsequent rulemaking; several members urged restraint in debate until the actual bill language is available. Staff said they will present the formal TIF proposal to the committee next week and that the committee would continue detailed consideration of background growth analysis at a later session.

The committee did not take formal votes during this session. Members asked for additional briefings and municipal case testimony in future hearings, including practitioners who helped implement specific TIF districts.

Less immediate details discussed included municipal accounting practice (restricted versus unrestricted related costs), the typical 70/30 or older 75/25 splits for education retention in some older districts, potential municipal liability if increment does not materialize, and the administrative role of the TIF rule and oversight bodies (as described by Barnett).