Code of Vermont Rules
Agency 11 - AGENCY OF COMMERCE AND COMMUNITY DEVELOPMENT
Sub-Agency 030 - DEPARTMENT OF ECONOMIC DEVELOPMENT
Chapter 002 - TAX INCREMENT FINANCING DISTRICTS
Section 11 030 002 - TAX INCREMENT FINANCING DISTRICTS

501. Applicability of the rule to Districts created prior to January 2006: This rule identifies issues that require corrective action on the part of the municipalities with Districts that were created prior to January 2006 and were the subject of performance audits conducted by the State Auditor of Accounts in 2011 and 2012. From the date of adoption of this rule, municipalities with Districts in existence prior to 2006 must abide by this governing rule and any other provisions of the law in force. However, this rule also indicates which specific provisions are not applicable to those Districts in existence prior to January 2006 and specifies rule provisions that are applicable to only those Districts or only to individual Districts created prior to 2006. Any issues identified in the Auditor's reports that remain unresolved and continue to result in disputed underpayments to the Education Fund shall cause an accumulation of underpayments commencing only upon adoption of this rule and shall be subject to all of the provisions contained in statute. [7]

502. Submission of payments and transfers by municipalities required by law [8]: The Council will prescribe a process for municipalities to notify Council staff that the required payments and transfers have been approved by the municipal legislative body, for submitting the payments electronically, and for certifying and providing notification of the payments and transfers. The process will require certification that the payments and transfers are from the funds prescribed by law. Council staff will monitor the timeliness of the submission of approvals, payments, and transfers and report on the status of compliance with these requirements in writing to the General Assembly.

503. Failure to submit evidence of approval of payments or failure to submit payments or make transfers: If a municipal legislative body fails to approve the payments or a municipality fails to make a payment or transfer within 60 days of the dates prescribed, the Council will notify the General Assembly, in writing, through the Joint Fiscal Office. The General Assembly will consider any amounts identified as owed to the Education Fund and may withhold such amounts from any funds otherwise payable by the state to the municipality or a school district in the municipality or a school district of which the municipality is a member. [9]

601. Districts authorized: The following eleven Districts in Vermont have been approved, either by direct legislation or legislation authorizing the Council to give such approval, to utilize incremental education property tax revenue to finance District improvements:

602. Limitation on authorizations: In accordance with statute, [10] the Council is not authorized to approve any additional Districts to utilize incremental education property tax revenue to finance District improvements. If any District is terminated in accordance with statute, [11]the Council does not have the authority to approve any additional Districts in place of terminated Districts. [12]

603. District Finance Plan: Municipalities filing applications with the Council after 2006 must file both a District Plan and a District Finance Plan. A municipality may seek approval of a District Finance Plan concurrently with consideration of a District Plan. In these cases, the Council will require a level of financial detail sufficient for the Council to make the viability and consistency determinations required by statute. [13] Alternatively, a municipality may submit a District Finance Plan after approval of the District Plan. In either case, the District Finance Plan must be submitted to and approved by the Council before the municipality seeks a public vote to pledge the credit of the municipality and the District Finance Plan must be submitted to the Council on a form prescribed by the Council.

604. Requirement to file revised District Finance Plans: The District Plans and District Finance Plans approved by the Council after 2006, but before 2013, were all based on the statute in place at the time, which limited the period to incur debt to five years. In 2013, the limit on the period to incur debt was extended to ten years. In order to more accurately reflect the new ten-year period allowed to incur District debt, any District that had a five-year District Finance Plan approved by the Council after 2006 must, within six months of the adoption of this rule, submit an updated ten-year District Finance Plan using the Substantial Change process. This requirement only applies if the municipality will extend its plan to a ten-year debt period and will therefore incur debt beyond the five-year period previously approved. The Milton Town Core District is exempt from this requirement. [14]

Any District which has had a District Plan approved by the Council but which has not yet submitted a District Finance Plan for approval, shall submit a ten-year District Finance Plan to the Council for consideration on a schedule that takes into account the application due dates incorporated into the Council's monthly meeting calendar.

605. Requirement to file a District Reconciliation: Unless a waiver is granted from this provision, any District in existence prior to 2006 must, within six months of the adoption of this rule submit to the Council a District Reconciliation, which includes the following information:

-- After an analysis of the boundary and parcels by the Department of Taxes/PVR, a listing of properties within the District upon creation and including the municipal original taxable value and the education original taxable value indicated by homestead and non-residential;

-- A detailed map of the District, including shape files;

-- Data and information regarding debt incurred and anticipated, including information on debt instruments, interest rates, terms, payments of principal and interest, payment schedule, and balances;

-- An accounting of the District fund to date;

-- Information and data regarding infrastructure improvements completed and anticipated;

-- Information and data on non-TIF revenue utilized and anticipated to pay for or finance improvements.

-- Information and data regarding development and redevelopment that has occurred and that is anticipated;

-- Information regarding the benefits accrued to the municipality, the region, and the state due to the creation of and improvements within the District.

The District Reconciliation shall be approved and certified by the municipal legislative body before being submitted to the Council and will serve as the basis for performance indicators and potential Substantial Change requests for the Districts created prior to 2006.

606. Performance Indicators: After 2006, when approving Districts to utilize incremental education property tax revenue to finance District improvements, the Council determined that certain criteria for approval were met by the municipality, the application, and the District Plan/District Finance Plan. Other criteria were approved based on actions or activities that were proposed and projected to be carried out during implementation of the District. The information and data provided in the District Plans and applications that address these criteria, and any statutory purposes or goals, will be utilized as performance indicators for each District.

For Districts in existence prior to 2006, any statutory purposes or goals in place when the District was created and any other goals subsequently added to statute with specific reference to the District, plus the District Reconciliation submitted in accordance with this rule, will be the basis for performance indicators.

The Council will develop a set of performance indicators for each District for which the municipalities must include data and information as part of the Annual Report by municipalities required by statute [15] and Section 1004.2 of this Rule The indicators will be subject to the monitoring and oversight activities of Council staff.

607. Departures from and Substantial Changes to approved District Plans/District Finance Plans or District Reconciliations: For Districts created after 2006, the information and data contained in the District Plan/District Finance Plan were presented at a public hearing and approved by the municipal legislative body and the Council and serves as the basis for implementing the District. For Districts in existence prior to 2006, the District Reconciliation will serve this role.

Municipalities must include corrections or minor changes to the approved District Plan/District Finance Plan or District Reconciliation in the Annual Report required by statute [16] and Section 1004.2 of this Rule. Departures from the approved District Plan/District Finance Plan or District Reconciliation that meet the definition of a "substantial change" must be presented at a public hearing prior to approval by the municipal legislative body and then be submitted to the Council for consideration and approval. Any substantial change request must be filed in the format required by the Council. See Section t 003 of this Rule for further detail.

701. Creation of a District: To create a District, a municipal legislative body must have determined that such a District will serve the statutory public purposes. [17] The municipal body must describe the District in a District Plan and hold one or more public hearings, after providing public notice, on the proposed plan. Following the public hearing(s), the municipal legislative body must adopt the District Plan and the Plan must be recorded with the municipal clerk and the listers or assessor.

The District is considered created and active at 12:01 a.m. on April 1 of the calendar year in which the municipal legislative body voted to adopt the District Plan. Even if the vote occurs between April 2 and December 31, the life of the District starts on April 1 of that calendar year. The creation date of each of the existing Districts is as follows:

702. Properties within the boundary of the District: For Districts created after 2006, the District Plan includes a listing of the properties contained within the District boundaries, with their assessed and taxable values, and describes and illustrates on a map the boundary of the District. In accordance with statute, [20] the boundary must not divide or bisect a parcel; the parcel must be included wholly within the District or be wholly outside the District. After approval of the District Plan by the Council, any proposed change to the District boundary must be considered as a substantial change request.

For Districts in existence prior to 2006, this information must be included in the District Reconciliation due no more than six months after the adoption of this rule. That document will serve as the basis for any substantial change request.

703. Coordinating Agency: Municipalities with Districts may designate an entity from outside the municipality's departments or offices as a District coordinating agency. Such designees may include regional planning commissions, regional development corporations, consultants, or other entities. The municipality may claim the costs of the services paid to such an entity as related costs, if such costs are approved by the voters. The coordinating agency is meant as an administrative entity working on behalf of the municipality and cannot be authorized to enter into any agreements or make any covenants on behalf of the municipality or otherwise act to commit the municipality.

704. Improvements: Statute [21] provides a specific definition of improvements that may be paid for or financed using incremental District revenue. Eligible improvements generally are the installation, new construction, or reconstruction of infrastructure that will serve a public purpose and fulfill the purpose of the District. Eligible improvements may include, but are not limited to the following:

-- Utilities, such as power transmission lines, telecommunications lines, telecommunications towers, and power or telecommunications equipment; wastewater, storm water, water dispersal, collection, and treatment facilities and treatment equipment including force mains, pump stations, sewers, lift stations, and related wastewater, storm water and water equipment.

-- Transportation improvements such as public roads, streets, bridges, parking lots, facilities, garages, and structures, multimodal facilities, public transit stop equipment and amenities, street and sidewalk lighting, sidewalks, streetscapes, way-finding signs and kiosks; traffic signals, medians, turn lanes, and property acquired or used for right of way.

-- Civic facilities and amenities such as hiking and biking trails, parks and green spaces, pathways to facilitate multimodal transportation, bicycle and pedestrian lanes, paths, and bridges, playgrounds, street furnishings, and civic structures such as libraries, town/city hall and offices, public safety facilities and recreation facilities.

-- Land and property acquisition, property demolition, and property improvements.

-- Site preparation for development or redevelopment including acquisition, demolition, and environmental remediation of contaminated property.

Statute [22] and this Rule ( Section 400 ) are clear that the improvements must serve the District. This means that the improvements do not necessarily have to be located within the District, but must serve the District. For Districts created after 2006, the amount of the total improvement costs that can be paid with District incremental revenue is limited by the proportionality set during the District application process.

The meaning of "improvements" as provided by statute [23] and this rule does not mean annual municipal operating costs, public transportation operating costs, annual maintenance or repair costs, nor the purchase of vehicles, interior furnishings, operating equipment or apparatus, nor other expenditures for non-capital assets.

705. Related Costs: As of 2006, statute authorized municipalities with Districts to assign certain costs, other than the actual costs of constructing and financing infrastructure improvements, to the District as related costs and pay for these costs with District incremental revenue.

Related costs may include, but are not limited to:

-- Cost of plans, studies, or reports that are specific to preparing a District Plan, a District Finance Plan, application to the Council, or subsequent filing or reporting required to maintain the District.

-- Costs of providing public notification about, and obtaining public approval for, a District Plan, a District Finance Plan, application or subsequent filing to the Council.

-- Costs such as consulting, design, architects, engineering, accounting, legal, project management, or other professional services incurred during preparation of a District Plan, District Finance Plan, District application, or Substantial Change Request.

-- Soft costs such as consulting, design, architects, engineering, accounting, legal, project management, or other professional services directly related to the implementation and construction of eligible District improvements.

-- Municipal employee and staff costs directly related to the District; however, these costs may only be paid with municipal increment generated beyond the required municipal share to service debt and related costs that are not municipal employee and staff costs (See Section 706 ).

-- Administration fees paid to a coordinating agency designated by the municipality.

-- Application fees charged by the Council for third party analysis of District Plans, District Financing Plans or subsequent filings.

-- The cost of audits by the State Auditor of Accounts required by statute, [24] including costs billed back to the municipality by the State Auditor of Accounts and any audit-related costs incurred by the municipality during the conduct of those audits.

-- The District-related costs of the independent annual municipal audit required by statute. [25]

Related costs do not include:

-- The direct costs of improvements such as construction costs, financing or debt costs or costs related to financing (If eligible, these costs can be paid with District incremental revenue, but are not related costs).

-- Any costs incurred by private entities undertaking development or redevelopment within a District.

-- Municipal operating costs, public transportation operating costs, annual maintenance or repair costs, the purchase of vehicles, furnishings, equipment, or apparatus.

-- Capitalized interest, underwriter's discounts, or funding of reserves.

-- Time or services provided by employees of the municipality in the normal course of their municipal duties which are unrelated to the District creation or implementation.

-- Expenditures for annual independent audits performed in accordance with statute, [26] except for the specific costs incurred due to the District-related requirements in statute. [27]

Related costs may be incurred starting with the process to establish the District and may continue to be incurred until the life of District ends or the District is terminated. Related costs may only be reimbursed to the municipality or directly paid if they have been approved by the voters. In each year, the priority of the application of incremental revenue shall be first to service debt and other improvement financing, then to pay related costs.

The municipality must retain receipts for and maintain an accounting of all related costs., The accounting must include a description of the cost; the amount; the date(s) it was incurred; an explanation of how the cost relates directly to the creation, implementation, administration, or operation of the District; the date(s) cost was reimbursed or paid with District increment; and the date(s) the related cost was approved by the voters.

When the municipality seeks voter approval for District financing and a portion of the proceeds will be used to reimburse the municipality for related costs previously advanced or for projected related costs, the notice to voters required by statute [28] must include the amount of the related costs and types to be reimbursed, and an estimate of the amount and type of related costs to be paid in the future with the financing proceeds under consideration by the voters.

706. Restriction on use of education increment for certain related costs: In accordance with statute, [29] costs incurred by the municipality to create, operate, administer, or implement a District, which are normally considered internal municipal operating costs, such as departmental or personnel costs, may be accounted for and reimbursed or paid from District increment as related costs with the following restrictions:

-- The personnel time or other departmental costs meet the definition of related costs;

-- The costs may only be reimbursed using incremental municipal property tax revenue; and,

-- The municipal increment that may be used for these restricted related costs must be above and beyond the municipal increment committed to service the District's financing and unrestricted related costs.

For example, if the District was approved to utilize 75% of the annual Education Property Tax incremental revenue, the municipality must utilize at least 75% of the annual municipal incremental revenue to service debt and pay non-restricted related costs. Only municipal incremental revenue generated beyond the 75% may be retained and used to pay restricted related costs, if approved by the municipal legislative body. If the municipality votes to allow the District to retain more than the minimally required level of municipal incremental revenue, the additional municipal may be used to pay for restricted related costs.

The Burlington Waterfront and Winooski Districts are exceptions because they are authorized by statute to retain 100% of municipal increment for debt and related costs and therefore, none of the related costs are restricted.

707. Requirement to incur first District debt within five years after creation of District: Each District approved by the Council after 2006 must incur District debt that has been approved by the voters at least once before the fifth anniversary of the District creation date, or the municipality is required to obtain an extension of the debt period by application to the Council; otherwise the District is terminated. [30] To qualify as a first instance of debt incurred for the District, the municipality must intend to use District increment to finance all or any part of the debt or use the approval to make a direct payment for improvements. The financing or direct payment must also have been approved by the voters. However, such public vote and subsequent notification of the Council of the vote, do not satisfy the requirement to incur debt. The debt instrument or direct payment must be executed to satisfy the requirement to incur debt within five years.

Incurring expenses which are considered related costs that will be reimbursed by future voter-approved financing, or incurring pre-development costs or short-term debt (i.e. BAN) that will be subsumed in future voter-approved financing, or incurring debt that will not be financed in any part with District increment, even if the debt is for District improvements, does not constitute incurring debt under this requirement.

708. Procedure for Obtaining an Extension of the Five-Year Requirement to Incur First District Debt: If a District approved by the Council after 2006 does not incur District debt by the fifth anniversary of the District creation date, to avoid termination the municipality may submit a five year extension request to the Council.

An extension request is considered a substantial change. Therefore, prior to submitting the extension request to the Council, the municipality must:

-- Prepare an updated Executive Summary of the approved District Plan and update the District Finance Plan;

-- If a District Finance Plan had not been previously filed, the updated District Plan shall include a pro-forma District Finance Plan;

-- Properly notice and hold a public hearing on these updates;

-- Receive approval by the municipal legislative body for the substantial change;

-- File the updated District Plan and updated District Finance Plan with the municipal clerk; and

-- File the extension request with the Council.

The extension request must be received in accordance with the Council's monthly meeting application deadline schedule so that the request can be considered prior to the fifth anniversary of the District creation date. However, if consideration and approval by the Council cannot be completed prior to the fifth anniversary of the District creation date, the submission shall serve as a stay of termination of the District until the Council has approved or denied the extension.

The Council will review the updated District Plan executive summary and the District Finance Plan and determine if the plan has continued viability and remains consistent with the approved District Plan. If the Council makes such a determination, the new District Finance Plan is approved and the District is granted a five year extension in which to incur District debt. If the approval occurs after the fifth anniversary of the District creation date, the approval is retroactive to that date and the extension is for no more than five years from the fifth anniversary of the date the District was created.

709. Termination of a District due to failure to incur District debt: If a District approved byB7 the Council after 2006 does not incur District debt by the fifth anniversary of the creation date, and no extension request is filed, the District is terminated and no longer has the powers conferred by Vermont statute.

710. Ten-year limitation to incur all District debt: A District approved by the Council after 2006, which has incurred District debt for the first time within the five-year limitation, or which has been granted a five-year extension by the Council, must incur all District debt within ten years from the creation of the District. Any debt incurred after the ten-year limitation may not be financed, serviced, or in any way paid for using District incremental revenues.

711. Equal Share of incremental revenue required: [31] For the Districts created after 2006, during approval of the District Plan the Council set the maximum share of the education property tax incremental revenue that may be retained each year to service District debt and pay related costs, which also sets the minimum share of the municipal property tax incremental revenue that must be retained. The share is expressed as a percentage of the total increment and will be based on the financial data provided in the District Finance Plan. The share will ensure the retention of incremental education and municipal property tax revenue sufficient to service the proportion of District improvement costs and related costs approved by the Council. The share of education property tax incremental revenue that can be retained shall be no more than 75 percent. The share of municipal property tax incremental revenue that can be retained shall be no less than an equal percent, but may be higher. These are the shares of the education and municipal incremental revenues that are to be segregated in the District fund and committed to service District improvement financing and related costs. Until the first instance of District debt is incurred, triggering the increment retention period, any incremental revenue generated due to increases in property values within the District continues to be paid in full to the taxing authorities.

For Districts created prior to 2006, the share was established by statute. See Section 716 for detail.

In accordance with statute, [32] the incremental revenues generated by applying all municipal tax rates against the increase in value when compared to the OTV must be shared between the District and the taxing entities. This applies to all municipal tax rates, even if the rate was approved for a special purpose and even if that purpose is included in the municipal charter.

712. Twenty-year retention period for incremental education property tax revenue: When a municipality with a District approved by the Council after 2006 incurs the first District financing that has been approved by a public vote, a twenty-year education property tax incremental revenue retention period is triggered. The first education property tax increment to be retained will be calculated using the education taxable value as of April 1 of the calendar year in which the first District debt is incurred, regardless of when during the calendar year the first District debt is incurred. If the education taxable value of the grand list for the first year in which District debt is incurred is not greater than the education OTV and therefore does not generate an increment, the twenty-year retention period is still triggered. For that year and for twenty consecutive years, the approved share of education property tax incremental revenue must be segregated into the District fund.

713. Retention period for incremental municipal property tax revenue: When a municipality with a District approved by the Council after 2006 incurs the first District financing that has been approved by a public vote, the retention of incremental municipal property tax revenue is also triggered. The first municipal property tax increment to be retained will be calculated using the municipal taxable value as of April 1 of the calendar year in which the first District debt is incurred, regardless of when during the calendar year the first District debt is incurred. If the municipal taxable value of the grand list for the first year in which District debt is incurred is not greater than the municipal OTV and therefore does not generate an increment, the retention period is still triggered. For that year and until all debt and related costs are retired, the approved share of municipal property tax incremental revenue must be segregated into the District fund.

714. Use of incremental municipal and education property tax revenue: The amounts held apart in the District fund must be disbursed only for payment of District financing approved by a public vote and incurred during the ten-year period following the creation of the District and for the reimbursement or payment of related costs approved by the voters. Once in the District fund, the increment may be disbursed for these purposes until all financing and related costs are retired.

715. Adjustment of equal share percentage: [33] During the tenth year anniversary of any District created after 2006, by which time all District debt will have been incurred, the municipality must submit an updated District Finance Plan to the Council. The update shall include updated data and information sufficient for the Council to determine, based on actual District debt incurred and related costs incurred and planned, the real property development that has occurred or will occur, and the history of increment generated during the first ten years, whether the approved shares of incremental revenue to be retained each year should be continued or adjusted to a lower percentage for the remainder of the retention period. The Council will not adjust to a lower percentage unless the lower percentage continues to provide sufficient municipal and education incremental revenue to service the remaining debt and related costs. In no case will the share be lowered if to do so would impair the municipality's ability to service debt, pay related costs, or impair a covenant or agreement with a lender.

716. Statutory retention periods, debt periods, and share for Pre-2006 Districts: The retention periods, debt periods, and shares of the incremental revenues to be retained by the Districts created prior to 2006 vary and were established by statute as follows: (Share refers to the share retained by the District)

717. Proportionality: [38] Proportionality refers to the portion of the cost of an improvement that will serve the District because a determination has been made that there is nexus between the improvement and the expected real property development. Only that portion of the total improvement cost that is approved thr`ough the proportionality determination by the Council may be paid using municipal and education incremental revenue.

For the Districts created prior to 2006, no proportionality requirements were included in statute because only improvements located wholly or partly within the District could be financed with District increment. No improvements made by the Districts created prior to 2006 are subject to the proportionality rule.

In 2008, statute was amended [39] effective retroactively to Districts approved after 2006, to allow financing of an improvement made outside a District as long as the improvement serves the District and limited to the proportion of the improvement cost that will serve the development within the District. This proportion is determined by the Council for each planned improvement at the time of approval of the District Plan and/or District Finance Plan, or Substantial Change request.

The designated proportionality may be met either by applying the proportion to each individual cost factor within the total cost of the improvement or related cost, or by grouping individual cost factors together to meet the approved proportion of the total cost. Increment may not be used to pay for more than the proportion of the total cost that was approved. If the total cost of an improvement increases, the proportionality remains the same. The actual cost and application of the approved proportionality will be monitored through annual reporting.

718. Public Vote Required for All District Financing: [40] For all existing Districts, notwithstanding any provisions of any municipal charters, the municipal legislative body must obtain authorization from the voters to pledge the credit of the municipality, borrow, make a direct payment for, or to reimburse the municipality for or pay future related costs. Prior to a public vote on District financing, the municipality must provide a detailed informational notice to the voters. [41] The vote must also be preceded by an appropriately warned public hearing at which the detailed information is presented to the voters by the municipality, followed by a vote or resolution of the municipal legislative body to approve the ballot item. The public vote must be by a majority of all voters present and voting on the question at a special or annual municipal meeting properly and duly warned for the purpose.

The ballot question must include the amount of financing and related costs to be approved by the current vote and, after the first instance of District financing is approved, any subsequent vote must include in the ballot question the amount of District financing and related costs to be approved by the current vote and a cumulative amount of outstanding District debt and related costs approved by the voters to date.

719. Life of a District: A District is considered created and active at 12:01 a.m. on April 1 of the calendar year in which the municipal legislative body voted to create a district. The District life continues and the District is active until the date and hour that all District debt and related costs are retired, or (only for Districts created after 2006) five years following the District creation date if no District debt is incurred by the fifth anniversary of the District creation date and no extension of the period to incur debt is requested or granted.

801. Incurring District Debt. For Districts created after 2006, following the creation of theB7 District and approval of a District Plan and a District Finance Plan by the Council, a municipality may incur indebtedness against revenues of the District for up to ten years from the creation date of the District, if the first such debt is incurred before the fifth anniversary of the District creation, or an extension has been approved by the Council.

The municipality must seek the approval of the legal voters to incur any form of District debt included in the definition of "financing" [42] and as further defined in Section 300 of this Rule.

Regardless of when the District was created or the type of financing to be utilized, including a direct payment for infrastructure improvements, the incurrence of debt or direct payment must be preceded by a public vote. The public vote provides the municipality with the authority to pledge the credit of the municipality, borrow, make direct payment for improvements, or otherwise secure the debt for the specific purposes that implement the District Plan, as warned to the voters.

The public vote does not incur District debt for the purposes of satisfying the five-year deadline to incur first debt, nor does it trigger the twenty-year increment retention period. Debt is incurred for these purposes when a municipality executes the actual financing or payment mechanism.

The financing vote may include sufficient funds, in addition to those needed for improvement costs, to reimburse the municipality for related costs that have already been incurred and related costs that will be incurred after the financing is approved and executed. The financing may also assume pre-development costs and short-term debt incurred after the creation of the District, but these costs must be included in the information provided to the voters at the time of the public vote to incur debt.

If the form of District debt proposed by the municipality to be approved by the voters is a direct payment for an improvement rather than the execution of a debt instrument, the municipality must diligently and completely document the transactions. For Districts created after 2006, use of a direct payment from the increment accumulated in a District fund as the first occurrence of incurring District debt is not possible as no increment will accumulate until after the first debt is incurred. Making a direct payment from the TIF increment in subsequent years is possible, but the municipality must document that the incremental revenues to be used for the payment are sufficient and available in the District fund and are not committed to service other District debt previously incurred.

If the form of District debt proposed by the municipality to be approved by the voters is an inter-fund loan, the notice to the voters must include documentation of the terms and conditions of such loan. Statute prohibits charging interest on inter-fund loans for District improvements. [43]

If the municipality intends to utilize interim or short-term financing (such as bond anticipation notes), or borrow against proceeds anticipated from the debt instrument that is the subject of the public vote, that information should be included in the information provided to the voters.

Refinancing of existing District debt to take advantage of improved rates or terms does not constitute incurring new debt and therefore does 'not require a public vote or prior notification of the Council. Such refinancing should be reported to the Council in the Annual Report required by Section 1004.2 of this Rule.

802. Triggering Ten-Year Debt Period and Twenty-Year Retention Period: A District is created as of April 1 of the calendar year during which the municipal legislative body voted to create the District.

For Districts created after 2006, the creation of the District triggers the five-year period during which the first TIF debt must be incurred or a request for a five-year extension must be filed. If first debt is incurred before the five-year anniversary of the District creation date or an extension is approved, only District debt incurred prior to the tenth-year anniversary of the District creation date may be financed or paid with District incremental revenues. The debt incurred during this ten-year debt period may be serviced until paid from the incremental revenues held apart in the District fund.

The date on which the first District debt is actually executed, after being authorized by a public vote, is the date the first District debt is incurred. The first-year education and municipal property tax increments to be retained will be calculated using the taxable value filed as of April 1 of the calendar year in which the first District debt is incurred; regardless of when during the calendar year the first District debt is incurred. For that year and for twenty consecutive years, the approved share of education property tax incremental revenues must be retained and segregated in a District fund. For that year and for the period approved by the municipal legislative body, the approved share of municipal property tax incremental revenues must be retained and segregated in a District fund.

803. Ineligible financing: For all Districts, any debt incurred prior to the creation of the District (including any debt incurred prior to the creation of the District that is then refinanced during the life of the District), or any debt incurred after the ten-year anniversary of the District creation date, or after the statutorily limited debt period, even if for improvements related to the District, is not eligible to be serviced with any District incremental revenues.

Additionally, any financing (for District improvements) which has not been approved by the voters, is ineligible to be serviced using District increment, the exception being short-term or interim financing incurred after the creation of the TIF District which is then subsumed into a debt instrument approved by the voters.

804. Duration of District indebtedness: The duration and terms of District financing may be authorized by the municipal legislative body, except that interest on inter-fund loans is prohibited. [44]

For the Winooski District, the duration of bonds issued to finance District improvements is limited to twenty years. [45]

For the Burlington Waterfront District, education property tax increments may be used for no more than 20 years from the date the debt was incurred for financing of any certificates of participation or HUD Section 108 debt issued between April 1, 1996 and March 31, 2006. [46]

901. Original Taxable Value (OTV): Immediately following the creation of a District, the listers or assessor for the municipality must certify to the municipal legislative body the original taxable value of the District, which is the aggregated taxable value of all properties within the boundaries of the District as of April 1 of the calendar year in which the District was created. This is the base value which determines the amount of property taxes that will continue to be paid to the municipal general fund, other municipal funds, and the Education Fund each year, based on the tax rates for each year. The value used to determine the amount of tax collected when the appropriate tax rate is applied stays the same regardless of the status of the parcel in a future year (see exceptions in Section 905 ). It is also the base value of the District from which any future increment will be determined by comparing any annual changes in value to the OTV.

The OTV shall be accounted for as follows:

902. Documentation of OTV: For Districts created after 2006, municipalities included estimated OTV listings in the TIF District Plan and application, but such listings may not have detailed the OTV into the three required categories. For Districts created prior to 2006, no documentation of the OTV was ever required. Therefore, for all TIF Districts, the Council will prescribe administrative steps to obtain the municipal and education OTV listings from each District in accordance with Section 901 of this Rule and have the OTV, including a parcel listing, values, and acreage, certified by the municipality, the Council, and PVR within three months of adoption of this rule.

Municipalities may file a substantial change request to amend the OTV only if the event or error causing the change occurred within the same grand list year in which the District was created and results in a change to the grand list on which the OTV is based (i.e., the successful appeal of a property value by the property owner in the year in which the TIF District was created). Parcel survey adjustments are considered administrative and do not require a substantial change, but must be reported in the Annual Report required by Section 1004.2 of this Rule.

903. Increase/Decrease in Assessed Valuation: Each year following the year of creation, the listers or assessor shall certify to the municipal legislative body the amount by which the total assessed valuation of taxable properties within the TIF District has increased or decreased compared to the municipal and education OTV. Prior to providing the certification to the municipal legislative body, the listers or assessor shall have the calculation of the increase or decrease, including an examination of the disposition and tax status of each parcel within the District, verified by a second party. Selection of the second party is up to the municipality and may be an individual within or outside of the municipal government. However, the individual should be familiar with parcel listings and valuation, property tax status, and the concepts of OTV and District increment. A copy of the certification of the value and the increase or decrease must be included in the Annual Report required by Section 1004.2 of this Rule along with a certification that a second party reviewed the information. The Council will provide a form on which to provide this certification.

904. Tax Increment: In each year after the district is created, the municipal officials shall do the following:

905. Special Situations Applicable to All Districts:

906. Taxation status of a parcel: Whether or not a parcel is subject to the education property tax for purposes of the OTV listing or annual calculation of the increment depends on the Vermont property taxation statute in force at the time of creation of the District for the establishment of the original taxable value and each year thereafter for the valuation of the property in order to calculate the increment. Properties built by the municipality, financed with District increment, or owned by a non-profit may be subject to taxation due to the use of the property or other reasons. Listers/assessors must thoroughly examine Vermont statute and should confer with the Council and Vermont Department of Taxes/PVR regarding any questions regarding the taxation status of a property.

907. Reporting Increment: Each year, municipalities shall report assessed values, changes in assessed valuation, and education property tax increment for all properties in the District to the Property Valuation and Review Division of the Department of Taxes using the reporting process specified by the Director of the Property Valuation and Review. Currently, this reporting occurs through the software provided to municipalities by a State of Vermont contract with the New England Municipal Resource Center (NEMRC).

908. District Fund: The municipal and education property tax incremental revenue retained by the municipality, limited by the required share and the amounts committed to debt and related costs, shall be accounted for by the municipality in a designated District Fund until all District debt and related costs are fully paid. The municipality shall maintain records and file such reports as required by statute [51] and Section 1 000 of these rules.

909. Limitations on use of education property tax increment: The incremental education property tax revenue generated by an approved District, and retained in accordance with relevant statutory provisions and these rules, shall remain available to the municipality until the District debt and related costs are retired. The availability of the incremental revenue shall be restricted only to the extent that the real property development generating the incremental revenue fails to occur. [52] However, the availability of the incremental revenue may also be limited by the enforcement provisions of statute. [53] Further, statute [54] limits the use of any incremental revenue held in the designated District Fund to pay District debt financing and related costs and prohibits loaning or utilization of the incremental revenues for any other purpose by the municipality.

910. Interest: Any interest earned by a municipality due to incremental municipal or education property tax revenue retained in municipal accounts for the District Fund shall be kept in the District Fund and not used for any other purposes. When any excess increment is distributed in accordance with statute [55] and Section 912 of this rule, the accumulated interest shall be distributed in the same manner.

911. Use of Income Generated by District Infrastructure: If the District Plan or District Finance Plan approved by the Council included the utilization of income generated by infrastructure financed with District increment to ensure the viability of the District (such as parking garage leases or fees), that income must be utilized in accordance with the District authorization document issued by the Council.

912. Distribution: In any one year following the ten-year period during which debt may be incurred, the balance of the District Fund may not exceed the total amount committed [56] by the municipality for the payment or financing of District improvements and related costs for that year and any future years. The municipality may utilize excess municipal and education property tax increment in the Fund for the following permitted uses:

-- Prepayment of principal and interest on District financing;

-- Future payments of District financing and related costs; or

-- Defeasance of TIF District financing.

If the municipality chooses not to retain any balance for these permitted uses or there is a balance remaining after the funds are committed for permitted uses, any balance remaining shall be distributed to the municipal general fund and the Education Fund in proportion to the rates that generated the increment.

913. Final Debt Payment: The municipality shall report the final payment of District debt and related costs to the listers or assessor and the Council. Such notification terminates the District and for all years thereafter, all tax rates are applied against the entire assessed valuation of the properties in the District and the resulting tax revenues shall be remitted in full to the taxing entities.

1001. District Plan Approval: After 2006, authorizing a municipality to utilize incremental education property tax revenue to finance District improvements became one of the Council's central responsibilities. [57] The Council is also charged with oversight and monitoring of all Districts, regardless of the date of creation and, together with the Department of Taxes (Property Valuation and Review), is responsible for providing an annual report to the General Assembly regarding all existing Districts. To enable the Council to determine progress on performance indicators, meeting the goals of District Plans, and meeting the purpose of Districts as stated in statute, municipalities are required to report certain information to the Council and the Department of Taxes on a form prescribed by the Council.

The Secretary of Commerce, based on recommendations from the Council, has the authority to issue decisions in regard to compliance with statute and these rules. [58] To ensure a foundation of information regarding each District upon which progress can be measured and compliance decisions can be made, this rule requires that each existing District submit an updated or original District Finance Plan or a District Reconciliation.

For the Burlington Waterfront, Winooski, Newport, and Milton North/South Districts, the level of recordkeeping and accounting expected for the years prior to this rule is dependent on statutory requirements for that period and extenuating circumstances impacting the ability of the municipality to comply with these new requirements.

For the Town of Milton, for purposes of accounting and reporting, the two Districts known as the Husky (or North) District and the Catamount (or South) District will be treated as a single district. [59]

1002. Recordkeeping. Municipalities with Districts must maintain a separate fund for the District and segregated records to account for the District's incremental revenue and expenditures. This includes segregating the accounting and records of the District from other municipal designations, areas, or districts, even those that may overlap such as Designated Downtowns, Designated Growth Centers, New Town Centers, Designated Village Centers, New Neighborhoods, Historic Districts, Urban Centers, or Downtown Development Districts.

The District Fund recordkeeping must include, at a minimum, the following:

-- An accounting of the real property within the District boundaries; the assessed and taxable value of each property, the original taxable value of the properties for municipal and education purposes, and the total municipal and education OTV of the District, any changes in ownership or value for those properties and the taxable value of each property for each year through the life of the District. Any lists of parcels or parcel values within the District must indicate whether a parcel is homestead or non-residential and any aggregation of the parcels must include subtotals by homestead and non-residential categories.

-- An accounting of all municipal and education tax revenue generated when all tax rates are extended against the assessed valuation, the resulting increment, and all the rates that were applied.

-- An accounting of the municipal and education property tax increment generated each year following the District creation date, the amounts credited to the fund each year due to the appropriate share retained, debits to the fund for servicing District debt or making direct payments or paying related costs, and the balance of the fund.

-- An accounting of any interest earned due to increment held in the District Fund, the utilization of the interest and distribution of interest in accordance to the established share.

-- An accounting of any income generated by infrastructure financed with District increment if the District Plan or District Finance Plan approved by the Council included the utilization of such income to ensure the viability of the District (such as parking garage leases or fees), and an accounting of the utilization of that income.

-- An accounting of all District improvements, including total cost, and a breakdown of the cost factors (design, engineering studies, project management costs, actual construction costs, etc.), how the approved proportionality was applied to the improvement cost, and the amount of infrastructure work (including non-construction costs) that was performed by Vermont firms.

-- An accounting of all related costs incurred, including receipts, for the life of the District. The accounting must include a description of the cost, an amount, when it was incurred, an explanation to substantiate how the cost relates to the creation, implementation, operation, or administration of the District, whether and when the cost was reimbursed or paid with TIF increment, and when the reimbursement or payment was included in a public vote.

-- An accounting of all District debt incurred and any direct payments made for District improvements, including the debt terms and duration.

-- An accounting of any other sources of revenue utilized for District improvements, such as grants, fees, municipal general fund revenue, or revenues gained from District improvements (i.e. parking garage revenues), regardless of whether or not these revenues were applied to the TIF or non-TIF proportion of the improvement cost.

-- An accounting and description of the real property developments and redevelopments that occur because of the District improvements, and a description of other benefits and outcomes that accrue to the municipality, region or the state because of the improvements and development, including less measurable outcomes such as ''walkability" and "connectedness."

-- An accounting of the public good outcomes that were factors in the determination that a District Plan met the Project Criteria approval requirements, [60] which are included in the performance indicators specific to each District, such as: new housing development and data to determine the affordability of such housing; the remediation and redevelopment of contaminated property; the addition of new businesses or business operations or expansion of an existing business(es), the new jobs created by these businesses, and the average wages for such jobs; and enhancements to transportation due to improved traffic patterns and flows and/or improvements to public transportation systems.

-- An accounting of any other performance indicators developed by the municipality and the general performance requirements mandated by statute, [61] including the number of jobs created in the District each year following creation and the sectors experiencing job growth within the District.

1003. Notifications

1004. Annual Reporting

1101. Oversight and Monitoring. The Council will conduct oversight and monitoring of all active Districts to include on-going communication with municipal officials and semi-annual staff tours of the Districts and visits with municipal officials. Such visits will include inspection of recordkeeping, evaluation of municipal documentation of the District implementation, compliance with approved District Applications, Plans, and Reconciliations, verification of information included in notifications and annual reports, and documentation of progress made to implement the Districts. Prior to initiating oversight and monitoring, every effort will be made by Council staff to work with municipal officials to ensure an understanding by the municipalities of the statute, the rules, and compliance requirements and assist the municipality to set up recordkeeping and information systems that function efficiently and effectively for all parties.

Council staff will also provide an efficient system for municipal communications regarding District statute, rules and compliance questions. The system will require the designation of a single point of contact in each municipality with an active District. Only the District single point of contact may communicate with Council staff regarding District issues and Council staff will communicate with only the single point of contact. All communication must be conducted in writing (including email).

1102. Issue Resolution and Non-Compliance Enforcement. Inquiries and questions must be posed in writing by the municipal Single Point of Contact to Council staff, who may confer with Agency of Commerce and/or Department of Tax counsel, the Council Chair, and others as appropriate, prior to issuing a written response to the municipal Single Point of Contact.

However, if District oversight, monitoring, or annual reporting identifies non-compliance with District statute or rule, or inconsistencies with an approved District plan or District Reconciliation, or if after receiving a written response from Council staff a municipality files a formal inquiry with the Council because the municipality chooses to dispute the staff response, staff will initiate the formal process to issue decisions pursuant to statute. [75]

Examples of non-compliance, include, but are not limited to:

-- Municipality fails to provide required notifications to the voters or the Council.

-- Municipality incurs District debt without a public vote.

-- Municipality uses increment to fund improvements not included in approved District Plan or a TIF Reconciliation without appropriate approvals.

-- The District, as implemented, does not carry out the approved TIF Plan or TIF Reconciliation.

-- Absent a substantial change request and approval, the District, due to actions taken by the municipality, does not meet the required approval criteria outcomes as set in the Council's approval of the District.

-- The municipality retains more than the approved percentage of education or municipal property tax increment.

-- The municipality exceeds the approved proportionality to an improvement cost.

-- The municipality uses incremental revenue improperly or for purposes not allowed by statute or this rule.

-- The municipality fails to maintain the recordkeeping required by this rule.

-- The municipality fails to create and maintain the District fund required by statute.

1103. Process for issue resolution and non-compliance enforcement: