Despite the governor’s pledge to hold harmless the towns charged with shorting the Education Fund, the municipalities identified in last year’s tax increment financing district audits all owe a sum back to the state, legislation passed this session states.

Much reduced from the original $3.4 million, the town of Milton owes $22,000 to the Education Fund by December 15 and must complete $177,000 in internal transfers, the majority over five years.

“It was a compromise on all parts, and I think it was a fair resolution,” Deputy Auditor Susan Mesner said.

If the selectboard does not ratify this agreement, the bill says, the town is on the hook for the original amount, and the state can withhold municipal and education funding.

The bill, S.37, was hammered out in the final 10 days before session’s end, House Minority Leader Don Turner (R- Milton) said.

The Senate’s version – which saw five drafts in two months – agreed with Gov. Peter Shumlin on awarding amnesty, but “it became very clear” the House Ways and Means Committee didn’t, Turner said.

Acting as the town’s agent, Turner met with Auditor Doug Hoffer and Mesner to hammer out the settlement, which fellow Milton Rep. Ron Hubert said is “decent and fair.”

“I’m hoping the selectboard sees it that way and agrees,” he said.

Milton’s tab

“To say TIFs are very hard to understand is an understatement,” Hubert said. “But unfortunately, they are the best economic tool the state has.”

TIF districts allow municipalities to retain equal portions of municipal and state education taxes for infrastructure towns couldn’t otherwise afford.

The audit said Milton kept $3.4 million more increment than allowed, with $3 million used for ineligible TIF expenses, including direct construction costs.

The $22,000 payment dates back to the Catamount/Husky district’s formation in 1998. Town Manager Brian Palaia said the town obtained financing from the State Revolving Loan fund to engineer the wastewater plant and sewer lines. Voters authorized this, but the town spent it before the district itself was approved.

“[The auditor’s office] argument seems to be that because the expense predated the establishment of the district that it should be considered ineligible,” Palaia said. “Of course, our attorney differs with them on that.”

Mesner said she understands the disagreement – the debt was for TIF expenses, after all – but TIF debt can only be repaid with TIF money, and there was technically no district at the time.

“There was a lot that happened very fast,” Mesner said, acknowledging there was a strong push, from state officials, too, to get the Husky district up and running.

Palaia said start-up money has to come from somewhere. In the case of the Town Core TIF, activated in 2011, that came from Husky/Catamount TIF funds; for that transfer, Milton owes itself $17,000.

Palaia said VEPC OK’d former town staff to do the interfund loan with the caveat if the Town Core TIF financing plan or debt ceiling weren’t approved, the general fund would be charged the balance.

“We don’t disagree about the $17,000; we agree that needs to be accounted for,” Palaia said, noting it hasn’t yet only because the town hasn’t finalized its loan agreements with the bond bank. This should happen in June or July, he said.

But officials somewhat disagree in interpreting the remaining $160,000, owed to the town’s wastewater enterprise fund.

Around when TIF-funded Catamount/Husky sewer lines were built, the town got a $320,000 federal grant for a pump station on Route 7 near CVPS Park.

But instead of using wastewater funds, the town paid with accrued TIF money and later reimbursed the TIF only half the balance, said Town Clerk/Treasurer John Cushing, the only remaining official from that time. The pump station does not serve the TIF districts, making it ineligible for TIF funds.

“It was sewer-related; I never gave it a thought,” Cushing said.

Turner said the project needed to be done: “Maybe [the town] pushed the envelope,” he said. “If they did, they did. But they used this money to save taxpayers money.”

Rep. Hubert analogized it to withdrawing from a checking account instead of a savings:  “It’s an understandable situation,” he said. Now, “we’ve taken a very hard, tough problem, and we’ve resolved it.”

But Palaia isn’t entirely convinced Milton used TIF monies; he’s found documents he says show the project was entirely grant-funded.

He wants the town’s bond attorney, Paul Giuliani, and his hired auditor, Ron Smith, want to look into statute governing enterprise funds before OK’ing a transfer, which could affect ratepayers.

“It’s very possible we’ll have to raise rates,” Selectboard Chairman Darren Adams said, noting he’d prefer a way without that negative impact.

Palaia isn’t sure where to expense the $22,000 owed to the Ed Fund. As for the inter-TIF accounting, Palaia said the town could end up creating two TIF accounts to avoid confusion.

Adams says there’s no rush to approve the TIF bill language, despite the concrete consequences it contains. He said it will take time to verify the state’s numbers, ones that haven’t been reliable since the audit came out.

“Just because they legislated it doesn’t arbitrarily mean we can say, ‘OK, it must be right,’” Adams said. “We have to do our homework on this to make sure it is appropriate.”

Adams estimated the board will decide by July.

Cushing said, “Let’s fix it, and let’s move on” and urged better-documented communication with the state going forward.

The town has already spent nearly $21,000 in TIF-related legal fees since September 2011, town records show. Palaia billed the TIF fund for those costs, he said.

The town manager devoted 15 hours weekly the last three months to resolve the bill, which he gave mixed reviews: While it formally names the Agency of Commerce and Community Development and VEPC staff as point people and sets up an appeal process for TIF disputes, the bill caps the number of TIFs allowed at 11.

“That’s the only program the state has to partner with municipalities to do economic development,” Palaia said.

Without Milton’s TIFs, the industrial park and Husky wouldn’t have brought 850 specialized jobs, many in manufacturing, to town, Palaia said.

“If $22,000 from the town is what it’s going to take to support [those jobs], that’s a decision we can support,” he said.

Mesner said the audits highlighted statute provisions that were “if not contradictory, at least ambiguous.”

“Everyone works for the better if they know what the ground rules are and understand what the law means,” she said.

Turner, Hubert and Adams all said the bill battle was a worthy one: “There’s never going to be perfect language, but there are checks and balances,” Turner said.

Cushing was confident the townspeople won’t lose trust in officials, who he said “did nothing but what they thought was the right thing to do.

“It was certainly for the good of the people of Milton,” he said. “I can say that with my hand on a stack of Bibles.”

A clean slate?

All municipalities identified in 2012’s TIF audits saw reduced bills after S.37 passed this legislative session. Here’s how the amounts owed to the Education Fund now compare to former Auditor Tom Salmon’s report.

Audit said: $3.4 million
Bill said: $22,000 to Ed Fund, $17,000 to Town Core TIF fund, $160,000 to wastewater enterprise fund

 Audit said: $1.2 million
Bill said: $220,000

Audit said: $1.5 million
Bill said: $1,300 to Ed Fund, $62,000 to TIF fund