Joint Fiscal Office briefs Ways & Means on mechanics and fiscal effects of tax increment financing

Tab Barnett, Joint Fiscal Office, briefed the House Ways & Means Committee on April 17 on how tax increment financing (TIF) operates under current Vermont law and on the program—s fiscal implications for municipalities and the statewide education fund.

Barnett said the defining feature of TIF is the incremental taxable value inside a delineated district: "without increment, you don't have TIF. That is really the juice," he told the committee. He illustrated the mechanics using the Killington phase filing and statewide data compiled by JFO and the agency that compiles TIF filings for the state.

The presentation explained three linked steps that determine TIF cash flow: (1) an original taxable value (OTV) is certified for the district at its establishment; (2) future increases in taxable property value inside the district are measured as incremental value above that OTV; and (3) the taxes on that incremental value (the increments) are partially retained to pay district debt and partially remitted to existing funds. Under current Vermont practice, Barnett said, 70% of the education-tax increment is retained to pay district debt for districts created after 2017 (30% remits to the education fund), while the municipal portion typically retains 85% for district debt and remits 15% to municipal general funds. Education increment retention is generally capped at 20 years; municipal retention can continue while bonds remain outstanding.

Barnett walked the committee through Killington's phase filing as an example. Killington—s OTV was listed at $12.5 million in the state TIF report, while a phase-filing table in the town's material used a lower baseline ($3.6 million), a discrepancy Barnett flagged for follow-up. Killington voters originally approved roughly $47 million in bonded debt for the TIF projects; Barnett said grant funding later reduced the bond financing to about $34.1 million. The phase filing projects roughly $295 million in value growth over the baseline across phases; early years produce limited increment and, in the model Barnett showed, an initial cash-flow shortfall that flips to an annual surplus in later years as construction completes.

Barnett stressed practical complications that affect forecasts: how the OTV is chosen and certified (he said the town treasurer typically certifies OTVs), whether local reappraisals are reflected, choices about phase filings and bond timing, and whether other public funding (grants or state loans) is part of the capital stack that produces the same incremental value. He also noted an administrative gap: committee members and Barnett reported difficulty tracking staff and administrative costs tied to TIF projects because local governments do not uniformly code staff time to TIF activity.

The committee discussed the counterfactual problem: how much of the value growth inside a TIF district is genuinely catalyzed by the TIFand how much would have happened elsewhere or anyway? Barnett summarized JFO—s approach: the office models multiple scenarios. One is a "maximum impact" or worst-case assumption for the education fund in which all retained increments are treated as foregone education revenue (equivalent to assuming the development would otherwise have occurred elsewhere in the state). Under that approach, Barnett said, JFO—s consensus estimate for fiscal year 2026 was about $6.5 million in potential cost to the education fund across all active TIF districts.

Committee members raised the program—s distributional concerns: some said TIF can concentrate benefits locally while reducing statewide education revenue flows for up to 20 years. Representative Holcomb said, "what bothers me is it comes from the Ed fund, too," reflecting concern that the education fund bears the short-term reduction while localities capture a larger share of development returns.

Barnett noted statutory clarifications. He said Act 72 of 2023 clarified that once a district is set its OTV cannot be adjusted by moving parcels in or out, and that some long-standing districts (for example, the Burlington waterfront) have retention schedules and parcel sets that differ from newer districts. He also described the role of the state review process for TIF phase filings (Barnett referred to the agency that reviews filings in the transcript as "Pepsi" and to the annual TIF report that compiles district-level increment data), which approves proposed phase filings and the general trajectory before municipalities go to voters to approve bond questions.

Barnett closed by emphasizing that whether a TIF produces a net education-fund cost depends on three main variables: the size of the district—s OTV at inception, the district—s background growth rate before the TIF, and the magnitude of development catalyzed after the TIF is in place. He said the JFO analysis shows both types of outcomes: some districts generate foregone education revenue while others, particularly small OTV districts with large catalyzed growth, can deliver more education revenue than would have occurred under baseline growth.

The committee did not take formal action on TIF at this meeting; members asked Barnett to return with follow-up on several technical items (the OTV certification process, the Killington baseline discrepancy and the statutory citations). Barnett and JFO staff said they would provide the cited JFO TIF reports and additional detail to the committee ahead of a planned follow-up session.

Ending

The Ways & Means Committee scheduled further review of TIF mechanics next week and JFO offered to supply follow-up materials, including the recent JFO TIF report cited during the briefing and the state TIF report Barnett used in his examples.