Preview of H.397: state buyout program, 10-year municipal reimbursements and local-option tax split draw scrutiny

Senate Government Operations Committee staff and municipal advocates on Friday previewed H.397, a bill focused on flood response and municipal finance that is currently pending in the Senate Government Operations Committee.

“H.397 is currently in Senate Government Operations. They just took additional testimony on the bill,” said Patrick Anderson, legislative counsel, during a committee walkthrough. The draft would direct the Division of Emergency Management within the Department of Public Safety to update the state emergency management plan, provide municipal assistance for all-hazards response, and stand up a voluntary buyout program for flood‑impacted properties.

Why it matters: The proposal touches municipal budgets and state special funds. It would require properties acquired in buyouts to be permanently dedicated as open space, trigger a new 10‑year reimbursement program to offset municipal grand‑list losses, and shift how local option tax revenue is split between towns and the pilot special fund — changes that could put more money in some municipal coffers while altering the state’s pilot surplus.

The bill’s buyout and reimbursement structure

Under the draft previewed for the committee, buyouts performed through the Division of Emergency Management or in coordination with FEMA would require restrictive covenants recorded on the title to keep the land as open space. That permanent dedication would remove taxable structures and create a loss on municipal grand lists — the basis for the bill’s municipal reimbursement mechanism.

Chris Roof, a fiscal staff member who joined the briefing, told the committee the Joint Fiscal Office estimate is that the new municipal grand‑list stabilization program would cost “approximately $550,000 to the pilot special fund each year” during an initial five‑year period and then fall in a subsequent five‑year period. Roof said a $1 million appropriation from the pilot special fund is included in both the governor’s recommended budget and the House‑passed budget to get the program started.

The reimbursement schedule in the draft is time‑limited: municipalities would receive higher payments in the first five years after a buyout, with reduced payments in years six through 10, and a 10‑year total limit for reimbursements.

Other municipal finance provisions

The bill contains multiple measures intended to improve municipal fiscal resilience. It would explicitly authorize municipal legislative bodies to carry forward unexpended general‑fund revenues as an unassigned fund balance (a practice VLCT and auditors commonly recommend), allow emergency borrowing for up to five years or the useful life of the funded asset (up from the current one‑year emergency borrowing authority), and add reporting and needs‑assessment requirements so under‑resourced municipalities can seek legislative attention.

Samantha Sheehan, municipal policy and advocacy specialist for the Vermont League of Cities and Towns, said the league “wholeheartedly support[s]” the package and that the authority to carry forward unexpended funds improves grant readiness and borrowing costs. Josh Stanford, director of intergovernmental relations for the same organization, said the extended emergency borrowing authority would help towns draw down federal grants that require longer repayment periods.

Local‑option tax split, pilot surplus and state budget impacts

A contested fiscal element is a proposed change to the split of local‑option tax (LOT) revenues that currently flow 70% to municipalities and 30% to the pilot special fund. The House amendment in the draft would shift the municipal share to 75% and the state share to 25%; some municipal advocates pressed for an 80/20 split. Committee fiscal staff warned that moving the split to 80/20 could jeopardize the pilot fund’s ability to fully fund pilot payments; they judged 75/25 likely sustainable given current receipts.

The Joint Fiscal Office figures cited during the briefing show an existing pilot special‑fund surplus of about $10.3 million after fiscal‑year 2024 closeout and an expectation that the surplus could grow to roughly $14.3 million by the end of the current fiscal year. Roof and VLCT witnesses noted those balances as context for proposals to return some surplus to municipalities that raised the revenue.

Roof also told the committee the bill extends an existing flood‑abatement provision for education property taxes to cover flooding events in 2024 and that provision would have a small impact on the Education Fund — on the order of about $520,000 in the staff estimate.

Level debt service debate and other items

The draft had included language to allow municipalities the option of level debt service (amortizations that stabilize annual payments) rather than level principal; that provision was removed by Ways and Means. VLCT and the Vermont Bond Bank have pushed to restore the option, arguing it helps large municipal borrowers and school districts stabilize tax impacts from major projects. Committee members requested further detail from the Bond Bank and fiscal staff before deciding whether to reinsert the language.

Other provisions in the previewed draft include authority for the governor to waive certain permits to draw down a dam during an emergency, requirements for municipal all‑hazards mitigation planning (including minimum elements for municipal response and supports), and technical cleanups for municipal charters to ensure towns can take advantage of changed revenue shares.

Next steps

Committee staff said H.397 has moved through prior committees with amendments and could change again. Anderson told members the text had received testimony in Senate Government Operations and that a revised version could arrive at the committee’s desk as soon as the following Tuesday. Advocates asked for additional briefings from the Vermont Bond Bank, Joint Fiscal Office, and the Division of Emergency Management if the bill returns to the committee in amended form.

The bill as previewed would change multiple, interlocking fiscal and emergency‑management rules; committee members and witnesses repeatedly urged more detailed fiscal analysis and agency testimony when the updated draft is formally posted.