Committee debates H.397: codified buyouts, reimbursement scheme and pilot‑fund shift draw scrutiny

House Ways & Means on March 18 considered H.397, a bill that would codify an existing voluntary buyout program for flood‑prone properties, create a new municipal reimbursement program for lost property tax revenue, add positions within the Division of Emergency Management and alter how local option ‘‘pilot’’ receipts are split between municipalities and the state.

The bill, presented by legislative staff and discussed at length by committee members and Joint Fiscal Office analysts, would require the Division of Emergency Management (VEM) to run a voluntary buyout program and obligate municipalities, at a property owner’s request, to coordinate with VEM to purchase flood‑prone properties at full fair market value. Under the committee’s report, municipalities that acquire those properties would be required to preserve them as open space by recording a deed restriction; those restrictions are currently required by FEMA when buyouts are tied to FEMA grants.

Committee members and staff emphasized why the buyout and reimbursement language matters. Under the proposal, the Commissioner of Public Safety (VEM) must certify eligible properties to the Commissioner of Taxes by Sept. 1 of a given year. Eligibility is defined for properties acquired on or after July 1, 2023, that have been preserved as open space by covenant or deed restriction. Reimbursement payments would be calculated using the municipal grand‑list value for the year the property was damaged or identified as flood‑prone, multiplied by the municipal tax rates (including submunicipal rates). The bill would provide full annual payments for up to five consecutive years; after five consecutive years of full payments, subsequent eligible years would receive one‑half of that calculation. The statute limits total eligibility to a 10‑year period for each property.

Tim Barnett of the Joint Fiscal Office told the committee the new reimbursement schedule interacts with the pilot special fund that pays existing pilot grants. If the pilot fund balance is insufficient to cover all program obligations, payments under the new reimbursement section would be reduced proportionately. Barnett and other staff modeled the pilot fund’s near‑term outlook and said the amendment before the committee proposes shifting the local option pilot split from 70/30 (municipal/pilot fund) to 75/25. Under JFO’s estimate of local option tax receipts for FY26 (roughly $59.18 million), the 75/25 split would yield a little more than $14 million to the pilot fund, compared with about $16.8 million under current rules; JFO noted the FY26 base pilot appropriation in the governor’s recommendation was about $12.2 million and estimated the new buyout reimbursement program might cost roughly $550,000 in FY26, leaving the math near balance under the proposed split.

The committee also reviewed appropriation items included in the Ways & Means amendment to H.397: two positions in VEM (a municipal grant liaison and an all‑hazard mitigation technician) with an appropriation of $275,000, $950,000 for the state urban search and rescue team, $205,000 for a Vermont Community Radio Grant Program (to support emergency notification capabilities), and $275,000 to the Agency of Natural Resources for procurement of a fire apparatus. Committee staff said effective dates vary; the flood‑related reimbursement portion is retroactive to Nov. 15, 2024, while other sections take effect July 1, 2025, or on passage as specified in the amendment.

A substantive amendment from Representative Waszak and staff proposed striking the clause that would require municipalities to record a deed restriction preserving acquired property as open space in perpetuity. Supporters of that change said removing the perpetual restriction would allow municipalities flexibility to use non‑FEMA funding to acquire properties and then redevelop sites with flood‑resilient structures in some cases. Opponents and counsel warned of two linked risks: without the deed restriction the buyout would not meet FEMA grant requirements (so FEMA funds would not be available for those acquisitions), and the reimbursement program as drafted requires the deed restriction for a municipality to be eligible for the tax‑loss reimbursement. In short, an acquired property could be eligible for a state‑funded buyout but then not be eligible for the municipal reimbursement payments unless the covenant were recorded. Committee members repeatedly asked staff to reconcile those effects and to consult the Joint Fiscal Office before final action.

The bill also adds authority for municipalities to borrow for emergency improvements without a voter referendum in certain all‑hazard circumstances, and it changes local municipal borrowing rules (including permitting level‑principal debt service). Joint Fiscal Office analysts explained how level debt service principal would change the fiscal dynamics of TIF districts: level principal payments can allow municipalities to borrow more in the near term but raise total interest costs and reduce the surplus that would otherwise be remitted to education funds at a district’s closeout.

Representatives and staff pressed for more information on funding sources, including whether the buyout program would rely on FEMA, pilot special fund revenues, or a dedicated state appropriation. Staff repeatedly recommended consulting JFO and departmental finance officers; the committee deferred a final vote and scheduled more work ahead, with members planning to return to the bill the following morning.

Despite debate on funding and the covenant question, committee leadership signaled an intent to move the bill quickly: members were told the committee has a vote warrant and several bills must clear appropriations by Friday. No final vote on H.397 was recorded at the March 18 meeting; staff said they would return with revised language and fiscal analysis.

Ending: Committee members asked staff to rework language addressing the covenant/eligibility tension, to confirm pilot fund math with JFO and to consider moving the TIF‑related debt language into a separate TIF bill for fuller review. The bill remained under active consideration with a planned vote in the next committee session.

Speakers quoted or cited in this article appear in the accompanying speaker list below.