Committee reviews CHIP draft that would cap lifetime education tax increment at $40 million

House Ways & Means staff on Wednesday walked committee members through a rewritten draft of the CHIP (Community Housing Infrastructure Program) proposal that would limit the amount of education property tax increment that may be retained under the program to an aggregate $40,000,000 and change application and oversight procedures.

Committee counsel John (staff member) described the cap as tied to lifetime education property tax increment retention for each approved project rather than an annual per-project amount, saying, “FEPC shall not annually approve more than $40,000,000 in aggregate lifetime education property tax increment retention.”

The draft reorganizes several definitions — including what qualifies as an “improvement” (now explicitly naming digital or telecommunications infrastructure) and renames parts of the housing eligibility definitions to “middle income housing” and “middle income housing development” to clarify which projects may receive the larger increment retention. The bill creates a defined “lifetime education property tax increment retention” concept so the $40 million cap is measured against total retention over a project’s life rather than a single-year figure.

Staff said the draft also changes the board review step to make the board’s approval presumptive: the board would accept the recommending body’s application recommendation unless it actively determines the application fails to meet the subchapter’s purpose or statutory standards. The draft inserts a five-year review point (a “check-in”) where the approving entity may lower the percentage of increment retained for a project if the municipality can still meet remaining debt obligations.

Why it matters: committee staff explained the $40 million cap is intended to limit the program’s impact on the statewide education property tax fund (the “ed fund”). Staff presented spreadsheets showing how lifetime retention for multiple cohorts of projects could add up over two decades, and how the $40 million lifetime cap for each cohort maps to a single-year exposure that staff estimated to be roughly the scale of a penny on a property tax rate in high-uptake scenarios.

Key provisions and process changes described

- Cap: The draft text would prohibit the approving body (FEPC) from approving more than $40,000,000 in aggregate lifetime education property tax increment retention in a single year of approvals (the language treats that $40 million as the cap on lifetime retention that can be approved across applications reviewed in that year).

- Lifetime retention: The bill creates a definition of “lifetime education property tax increment retention” so the cap applies to total retained increments across a project’s lifetime rather than implying an annual amount is being reserved permanently.

- Location criteria and definitions: The draft removes references to statutory “tiers” and instead ties location eligibility to “existing settlements” and “designated centers” (examples enumerated in the draft include downtown development districts, village centers, new town centers, growth centers, Vermont neighborhoods, and neighborhood development areas under Title 24, Chapter 76A).

- Board approval standard: The board would review and generally accept the staff/council recommendation unless the board concludes the application fails to satisfy the subchapter’s purpose or the statute’s standards, creating a presumptive deference to the recommending review body.

- Five-year adjustment: The draft inserts a five-year administrative review modeled on current TIP practice to allow percentage adjustments downward if remaining debt can still be serviced.

- Reporting and oversight: The annual report compiled by staff would be expanded to include, among other items, an “evaluation of the amount of public funds flowing to private ownership or usage.” The bill also directs the board to submit a recommended application-review process to committees of jurisdiction by December 2025.

- TIF sunset extension: The draft extends the final-application deadline for new Tax Increment Financing (TIF) districts to July 1, 2028 (the presentation clarified the 2028 date), and staff said the change would not affect existing TIF districts.

What committee members raised

Members asked how applications would estimate lifetime retention and whether applicants could understate increment to avoid hitting the cap. Staff said applications must include a tax-increment financing plan with estimated assessed values and projected tax increments across the financing period; staff also said there is competing pressure against understating increments because credible financing plans are necessary to secure approval.

Legislators also asked whether the cap applies only to CHIP projects and not to other TIF or municipal uses. Staff said the draft’s defined term ties the cap to increments generated for housing infrastructure projects under the subchapter, and therefore the cap is specific to CHIP.

No committee motion or vote on the CHIP draft was recorded during the session. Staff identified remaining rulemaking and administrative steps, including PEPC staffing of the program, the board’s timeline for responses to recommendations (45 days in the draft), and planned rulemaking to accompany implementation.

Ending note

Staff said the draft aims to balance a municipal financing tool to encourage housing production with protections for the statewide education property tax base. The discussion will continue as staff and counselors refine definitions, assumptions in the financial examples, and rulemaking steps ahead of any committee vote.