Committee hears sweeping CHIP update: caps, affordability incentives and TIF sunset considered

John Gray of the Office of Legislative Counsel briefed the Senate Economic Development, Housing & General Affairs Committee on May 13 about the latest public draft of S.127, the Housing Infrastructure Program (CHIP) and related changes to tax-increment financing (TIF).

Gray said there is not yet a final Ways and Means version but summarized major changes in the most recent public draft: broader project definitions to include rehabilitation and renovation, a narrower definition of the housing development site (limited to parcels where construction occurs), an exhaustive list of infrastructure improvements eligible for CHIP financing, a 65% minimum floor-area threshold for projects to qualify as housing-focused, and a system of incentives for affordability.

Why it matters: the plan would replace new TIF district applications with a CHIP program that channels education and municipal property-tax increments to housing-related infrastructure. The draft adds a new administrative board (referred to as the CHIP board) composed of housing and fiscal stakeholders to review and confirm applications, sets a proposed annual approval cap equal to $40 million in aggregate lifetime education increment (designed to limit statewide education property-tax impact to about one penny), and creates an affordability bonus that raises the statewide incremental retention from 60% to 80% when at least 20% of units are subject to a perpetual housing-subsidy covenant.

Key program mechanics described at the hearing: CHIP would require municipalities to include in housing-development plans a statement that a proposed project furthers the program purpose; housing produced under the program would be offered as primary residences (the draft ties that requirement to terms in the housing infrastructure agreement rather than to a single enforcement mechanism); the location criteria at program start would be limited to certain priority tiers (tier 1a/1b and a 1/2-mile radius for existing settlement), with tier 2 becoming eligible on Jan. 1, 2028; and the draft channels at least 85% of municipal property-tax increment to the municipality while the statewide education increment retention varies by affordability outcome.

Committee members raised policy concerns about the 65% floor-area test, pointing out that basing eligibility on floor area could incentivize large single-family units rather than multifamily density. Members also flagged the practical and fiscal implications of perpetual affordability covenants and said they need more analysis on how perpetual affordability would be financed and monitored. Several members said they want more testimony and time to review the draft before any committee vote.

Other administrative and reporting changes the draft adds: a requirement that the CHIP board develop prioritization rules (needed if applications exceed the annual cap), a rulemaking review step to the Joint Fiscal Committee before final rules are filed, expanded annual reporting including expected or actual sale and rental prices and the number of units known to be occupied other than as primary residences, and a five-year check-in provision allowing adjustment of retention percentages if local revenues suffice to cover debt service.

The draft would also sunset new TIF district applications (a proposed effective date raised in the discussion was July 1, 2025) but not affect existing districts. Committee members asked counsel to return with additional detail and to coordinate further stakeholder testimony; no committee vote occurred on S.127 at the May 13 meeting.