City welcomes Auditor’s documentation of improved financial systems, Rejects inaccurate, ideological top findings which are contradicted by bond counsel opinion; Adjustments to accurate findings will have no impact on City operations or tax rates
Burlington, Vt -- Today, Mayor Miro Weinberger responded to the report of State Auditor Doug Hoffer on the recent audit of the City of Burlington’s Downtown Tax Increment Financing District (Downtown TIF). This is the first audit performed of the Downtown TIF since it was created in June 2011. The 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.
However, the City entirely rejects the Auditor’s headline finding that the City committed a “misstep” by securing $4.6 million of bond premiums and disagrees with the Auditor’s assertion that the City exceeded a regulatory cap. The use of bond premiums in 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.
Further, Burlington has used bond premiums previously in its Waterfront TIF district – and the State Auditor’s Office (SAO) did not raise concern or interest in the practice in its audit of the Waterfront TIF just last year. The City has confirmed that other Vermont municipalities have invested bond premiums into projects as well, including TIF projects.
“The headline finding of this audit is bogus and reflects Auditor Doug Hoffer’s longstanding campaign against the State’s TIF program,” said Mayor Miro Weinberger. “It’s reasonable for the Auditor to bring the legislature’s attention to the policy question of whether there is some public interest in establishing new guidelines for the use of TIF bond premiums. It’s completely unreasonable for the Auditor to suggest that Burlington has made a ‘misstep’ and exceeded an approved cap -- especially after failing to note any prior concern about the City’s use of bond premiums last year when auditing Burlington’s Waterfront TIF district. That the Auditor published this opinion without even noting the bond counsel’s clear and detailed objections indicates that this report is more op-ed than audit.”
In the attached opinion provided to the SAO, the bond counsel for the Burlington Downtown TIF District Thomas Melloni, defended the City’s use of bond premiums stating: “Given the plain and clear language in the statute, bonds may be issued at [a premium]. This makes sense given the legislative purpose of the TIF Statute is to stimulate economic development, improve and broaden the tax base, and enhance the general economic vitality of the issuing municipality and the region and the State. Moreover… the general statute for municipal financing of capital assets, provides that the legislative body of the municipality sets the terms and interest rates for its bonds. 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.”
Burlington’s Chief Administrative Officer Katherine Schad stated, “The use of bond premiums in the Main Street project is helping Burlington accomplish generational wastewater, stormwater, transportation, and economic improvements in our downtown core amidst a climate of historic, pandemic-related construction cost and interest-rate inflation.”
Explanation of the TIF premium issue
In August 2022 the City bonded for the Great Streets Main Street project and accepted a bid that included $4.6 million in bond premiums. Bond premiums are used regularly by municipalities when financing infrastructure projects.
- The City's Downtown TIF District was approved by VEPC in June 2011 and the City received voter approval on two occasions to authorize debt (March 2015 and March 2022).
- On June 27, 2022, the City Council adopted resolutions authorizing the issuance of bonds in a principal amount not to exceed $30,122,000 and delegated to the Mayor and Chief Administrative Officer the power to determine final terms and interest rates, subject to certain parameters, including a maximum total all-in interest rate.
- On August 31, 2022, the City issued the Series 20228 Bonds in a principal amount of $30,120,000. It was shared with the Council and the public that the bonds were issued at that time to take advantage of favorable bond rates and terms, as future increases in interest rates were expected, and that the City faced a March 31, 2023 deadline to incur debt for the Downtown TIF District.
- The City selected the lowest cost bid from a competitive process and received proceeds totaling $34,792,187.30 from the sale of the Series 20228 Bonds, of which $4,672,187 was received as premium. The total interest cost (including costs of issuance and bond premium) was 2.9260%, well below the parameters established by the City Council.
- The City intends to use these premiums to complete more approved infrastructure as part of its rebuilding of Main Street which is expected to break ground in February 2024.
- Further, the City used approximately $32,000 of TIF bond premiums in 2018 and the Vermont Municipal Bond Bank has reported to the City that it has done so with prior TIF Bond issuances as well.
SAO Report documents the City’s improved financial systems for TIF projects
On Page 17 of the report, the SAO finds that from FY2017 to FY2023, the City used tax increment financing for allowable purposes only and states, “The success in ensuring only eligible improvement costs were financed with TIF is an improvement on past management of such costs for the City’s other TIF, the Waterfront TIF District, and is the result of processes implemented to track improvement costs and funding sources and to assess which costs could be paid for with proceeds of TIF debt issuances.”
The SAO lists some of those management improvements including:
- fund accounts were established in the general ledger to record improvement costs and funding sources by project;
- the project manager tracked all improvement costs and the funding source used;
- the City adhered to the guidelines in its purchasing manual;
- the City worked with MuniCap Consultants to develop the TIF Construction Cost Procedures to further strengthen its processes related to ensuring TIF debt is used to pay for eligible improvement costs.
Background on Downtown TIF District and Great Streets Main Street
Tax Increment Financing is a State program that allows municipalities to invest in public infrastructure by paying up-front the public costs from the full anticipated increase in tax revenue generated by the project. The City established the Downtown TIF in 2011 to stimulate development and redevelopment by increasing the level of investment and economic activity in Burlington’s core. The TIF District provides and enhances employment opportunities by supporting continued business location and expansion in downtown Burlington. The District’s developments also improve and broaden the tax base by adding housing, commercial, and retail projects to the City’s grand list.
Background on Strengthened City Finances and Accounting Systems
In 2012 the City was downgraded to the edge of junk bond status when an annual audit found 12 material weaknesses and noted particular problems within the City’s capital project accounting, documenting nearly $24 million in deficits owed to the General Fund. Under Mayor Weinberger’s leadership, the City issued a $9 million stability bond in 2012 and after much hard work, has eliminated all of the material weaknesses and long-term deficits to regain its AA credit rating. In September, the Mayor released an annual report showing these improvements in Burlington’s fiscal management systems and restored general fund reserves have saved taxpayers a combined $44 million since issuing the stability bond.
Nonetheless, the City recognized in 2018, following its own annual audit of the fiscal year 2017, that its project accounting systems needed additional improvement, and has taken the following actions since then:
- In January 2019 the City engaged the accounting and management consulting firm BerryDunn to review project accounting practices, procedures, and technology;
- In August 2019, the City created a Public Works project accountant position;
- In February 2020, the City hired the management consultant firm Clifton Larson Allen to develop and implement overall capital accounting policies and procedures for the City and to reconcile past accounts;
- In April 2021, the City hired a Senior Accountant to specialize in project accounting and hired MuniCap, a public finance consulting firm nationally recognized as TIF experts, to help the City manage the finances and administration of the Waterfront and Downtown TIF Districts;
- As of July 2021, the City had fully implemented project accounting for the City’s capital funds allowing Clifton Larson Allen to focus on instituting project accounting for the City’s TIF projects; and
- In August 2022, the City established a Trustee to hold TIF funds and pay invoices on the City’s behalf. This Trustee provides another level of oversight to ensure that TIF administration is handled correctly.
- In April 2023, the City finalized updates to its TIF Cost Procedures that have been in place since the resolution of the Waterfront Audit. These procedures establish a process for the review, payment, and tracking of all eligible TIF expenses.
- In October 2023, the City established Increment Calculation procedures designed to reduce future errors in the calculation of increment retention for both the Waterfront and Downtown TIF Districts.
Full Comments from City Management to the Auditor can be found on page 40 of the report in Appendix VIII.
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