ST. ALBANS CITY — In its Thursday meeting, the Vermont Economic Progress Council (VEPC) approved three substantial changes to the St. Albans City’s tax increment financing (TIF) application while also politely disagreeing, in the same motions, with the findings of the State Auditor’s Office in a May audit of the TIF.

All three changes addressed areas of concern raised by the auditor’s office.

The most consequential of those votes was VEPC’s approval of the city’s use of some of the money received from the TIF bonds as a capital reserve from which it made bond payments in the early years of repayment, before tax revenue had begun arriving from the new developments.

Although the city was explicit about this plan when meeting with the public prior to the creation of the TIF, state auditor Doug Hoffer said that capital reserve plan was not part of the city’s TIF application. Moreover, the auditor’s office had asked the attorney general’s office for a legal opinion on whether or not the reserve was a legitimate use of the bond funds.

The AG’s office said it was not.

However, the staff attorney for the Agency of Commerce and Community Development (ACCD) disagreed. The AG’s opinion was based solely on a reading of Title 24, but TIF districts are also governed by Title 32. In the attorney’s view, reported Megan Sullivan, VEPC’s executive director, there was language in Title 32 allowing the city to have a capital reserve.

Sullivan added that the use of such a tool “would be necessary or allowable to make the TIF district viable,” concluding “that is a tool that should be used.”

Other Vermont municipalities with TIF districts have done the same, said Sullivan.

Councilor Patricia Horn said it “seemed obvious” communities would need such a reserve to make payments in the early years before they begin receiving TIF revenues.

As part of the motion to approve the use of the reserve, Michael Keane noted “this is an acceptable practice in Vermont municipal bonding” and that the “guidance from other state agencies was based solely on Title 24 without regard to Title 32.”

The motion also set aside a previous agreement between the city and VEPC which lowered the city’s approved TIF cap from $23 million to $21 million, restoring the city’s ability to borrow up to $23 million in TIF bonds.

The motion was approved unanimously, as were the other two, with just one member, Rachel Smith of St. Albans Town, abstaining. Smith said she abstained on the original vote on the city’s application and so felt she should abstain on any changes to it.

VEPC also found that the city’s spending on site improvements and utility work at the site of what is now the Hampton Inn was a legitimate use of TIF funds.

Hoffer’s office had identified $250,000 in site improvements and $176,000 in site preparation spending which the auditor’s office believed was for the benefit of the hotel developer rather than the construction of public infrastructure.

In exploring Hoffer’s claims, Sullivan said VEPC staff met with the Dept. of Environmental Conservation project director for the cleanup of the area, which once housed a large parking lot and now holds a parking garage, the hotel and a portion of the new state office building.

There was extensive removal of contaminated soils from the site. That work, said Sullivan, “was not just for the hotel site or the garage site, but the entire site,” including alleyways, sidewalks and greenspace.

No one, she said, had previously asked the DEC project director about the scope of the cleanup at the site.

The audit also questioned the use of TIF funds in the construction of a staircase and ramp that facilitated the use of the garage by the hotel, which leases spaces in the garage. That lease, said Sullivan, “is part of making the garage viable.”

Brownfield cleanup of that lot and the construction of the garage were both part of the city’s initial TIF application in 2012, as was redevelopment of the site.

The auditor’s office had also questioned utility work done by the city at the lot, saying it primarily benefited the hotel. As part of the cleanup of the site, utilities had been removed. “I do believe it would be expected that if the city was going to remove the utilities, it would replace the utilities,” said VEPC chair John Davis.

The city provided a map showing the lines it had installed and the lines installed by the hotel. It’s lines, the city said, were mains, while the hotel developer installed the service lines, as is typical.

Sen. Cheryl Hooker, D – Rutland, is a member of the VEPC board. She asked if the city would have installed those lines even without the hotel development.

City manager Dominic Cloud answered that the city would have because they are main lines.

In moving to approve the use of the $476,000 in spending questioned by Hoffer’s office, Keane noted that both VEPC and voters had approved the use of TIF funds for the hotel project. In addition, Sullivan pointed out that the city had discussed its plans for using TIF funds for the hotel project numerous times with her predecessor and received approval for that use.

Horn sounded what was a recurring theme of the meeting, the need to clarify TIF rules, stating, “I believe they acted in good faith and did their best to abide by the rules. It’s our duty to clarify them going forward.”

VEPC then found that the use of TIF funds to pay the company which brokered the hotel deal was a legitimate use of professional services funds, something Hoffer’s office had questioned.

“It certainly fit within the overall budget of what the city had allocated for professional fees,” said Davis.

Sullivan said VEPC had been asked if the $100,000 the city paid was reasonable. To determine that she asked colleagues what was typical and received an answer of 10 percent of the overall project cost. In this case, she noted, that would have been $1 million, “so $100,000 seems reasonable.”

Poster child’

Before concluding its discussion of the St. Albans City TIF, VEPC discussed the success of the TIF, beginning with Smith, who said, ”Our Main Street now is very vibrant, whereas before the TIF it wasn’t. We’re a destination place, whereas before the TIF it wasn’t.”

Ken Jones, an economic research analyst with the Agency of Commerce and Community Development, said St. Albans was a “poster child” in how to move forward. “We really look at St. Albans as a glowing example of smart growth,” Jones said.

Keane suggested that there needs to be improved communication between VEPC and the auditor’s office.

The council also agreed that there was a need to clarify some aspects of the rules surrounding TIFs, but with a note of caution.

“These things are complicated,” said Councilor Mark Nicholson. “[We] need to make sure we at least have some room to maneuver.”

Councilor Emma Marvin agreed, pointing out that TIFs have a 20-year lifespan, during which a lot can change. There, she said, “needs to be a level of understanding that we can’t be perfectly predictive.”