‘Consequential mistakes’: Vermont auditor finds overspending in Burlington redevelopment

State Auditor Doug Hoffer found in an audit of Burlington's Downtown TIF District that the city exceeded a regulatory spending cap on a $30.1 million bond issued in August 2022.

Hoffer said Burlington spent $4.6 million more than approved by the Vermont Economic Progress Council (VEPC), using bond "premiums," which will result in estimated interest costs of $12 million over the life of the bond, or $8 million more than approved by VEPC.

"The audit found numerous consequential mistakes, and revealed interest payment levels that are considerably higher than what voters had been told to expect," Hoffer said in a statement.

Mayor Miro Weinberger dismissed Hoffer's finding as "bogus," in a statement issued soon after the audit was released on Tuesday, and said it reflected Hoffer's "longstanding campaign against the State's TIF program."

A TIF, which stands for tax increment financing, is a mechanism by which a municipality can pay for infrastructure improvements by using a portion of the property taxes generated by new development, which would normally go to the state's Education Fund and the municipality.

Nothing to see here, city says, bond spending is legal and follows 'best practice'

In the news release from Weinberger's office, the city said the use of bond premiums for publicly financed infrastructure "is both legal and an industry best practice."

"In contradiction to the Auditor's opinion, Burlington's outside bond counsel has stated the City was well within its statutory authority at the time of bonding," the news release stated.

Premiums are common in bond financing, resulting in a bond valued at more than the original face value − in this case $34.79 million.

Burlington voters approved the Downtown TIF district in an election on March 1, 2022, with 62.3% of nearly 10,000 residents voting "yes."

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According to the news release, the outside counsel, Thomas Melloni, provided an opinion to the State Auditor's Office defending the city's use of bond premiums, stating: "The general tenor of the TIF Statute provides the legislative body of the municipality with authority and significant flexibility in funding TIF development projects. This makes sense given the legislature's stated purpose of the TIF Statute of promoting economic development, economic vitality and job creation."

Weinberger's office referred questions from the Burlington Free Press to its news release and other documents connected to its response to the audit.

Hoffer: City is missing the point of the Downtown TIF audit

In an interview with the Burlington Free Press, Hoffer said Weinberger and the city are missing the point, whether intentionally or not. He said he's not challenging spending the bond premiums; he's challenging spending the premiums without the approval of the Vermont Economic Progress Council.

"What the mayor and some others are missing is we never challenged their authority to structure financing that way," Hoffer said. "What you did wasn't approved. Every TIF town has to submit and get approval for a plan, the core (of which) is how much are you going to spend? Everybody knows borrowing money is not cheap. They exceeded the cap, period. That is a fact. That's all we said."

Governing board has yet to form an opinion on Burlington's TIF spending downtown

Jessica Hartleben, executive director of the Vermont Economic Progress Council, responded to a request for comment with an email saying the VEPC will "independently review information we expect to receive from the City of Burlington now that the State Audit has been released."

John Russell is chair of the VEPC, which includes nine Vermonters appointed by the governor and two appointed by the General Assembly. The independent board serves as "an approval and authorization body for the Vermont Employment Growth Incentive (VEGI) program and the Tax Increment Financing (TIF) District program," according to its website.

"VEPC Council led by Chair Russell has no opinion on Burlington's Downtown TIF District at this time and is not making any comments," Hartleben wrote. "VEPC council will examine the relevant information to be submitted by the City of Burlington, conduct an independent review, and make an independent decision now that the Audit is completed."

The city of Burlington has 90 days from the release of Hoffer's audit on Jan. 16 to submit its "relevant information" regarding the audit to the VEPC.

More: Burlington owes over $1M as audit shows errors in handling of waterfront project funding

Hoffer has called for the VEPC to:

• Determine an appropriate remedy for the City's failure to adhere to the VEPC-approved District Finance Plan, including the cap on TIF-funded improvements.

• Amend the TIF Rule to explicitly require disclosure of bond premiums and associated increased debt service in both District Finance Plans and public informational notices.

Hoffer offended by 'personal nature' of Weinberger's response to audit

Hoffer said he was disappointed by the "personal nature" of Weinberger's response to the audit, accusing Hoffer of waging a campaign against TIF financing.

"Frankly I'm offended the mayor would suggest the findings of an audit report were influenced by my view of a program," Hoffer said. "We have a professional standards manual. We always pass our peer review with flying colors. We also have sufficient evidence. Politicians can say what they like, but facts on the ground cannot be controverted."

In its news release, the city also notes that Hoffer's report "commends several improvements the Administration instituted in recent years to track and control eligible costs and reimbursements and found that from FY2017 to FY2023, the City used tax increment financing for allowable purposes only."

"Following a final review of the Auditor's recommendations, the City will take action to correct some ledger errors uncovered in the audit which will have no impact on the City's operations, nor will they trigger a need to increase tax rates," the news release states.

Burlington penalized for handling of Champlain College development fee

Among the other findings of Hoffer's Downtown TIF audit were:

• The City failed to consistently contribute a Champlain College development fee into the Downtown TIF fund, resulting in a total omission of $1,040,000. As a result, VEPC has reduced the percent of education tax increment that the City may keep from 75% to 69% for the remaining 13 years of the tax increment retention period.

• A series of errors resulted in the City owing $95,363 of TIF funds to the state Education Fund, and the City's General Fund owing $259,331 to the Downtown TIF Fund.

Contact Dan D’Ambrosio at 660-1841 or ddambrosi@gannett.com. Follow him on Twitter @DanDambrosioVT. This coverage is only possible with support from our readers.

This article originally appeared on Burlington Free Press: Vermont Auditor says Burlington exceeded spending cap on downtown TIF