Senate panel debates S.127 CHIP changes on affordability, short‑term rentals, and tax‑increment rules

MONTPELIER, Vt. — The Senate Economic Development, Housing & General Affairs Committee met May 28 to review differences between the House and Senate versions of S.127, the Housing Infrastructure Pilot (CHIP), and discussed changes the Senate plans to carry into conference with the House.

The discussion centered on three immediate changes the Senate staff summarized: separate definitions for “affordable housing development” and “moderate‑income housing development” with minimum unit thresholds (15% and 25% respectively), higher education property tax increment retention for qualifying projects (up to 85% for affordable projects, up to 75% for standard projects), and tying program capacity to a Department of Housing, Community Development (DHCD) certification that state housing needs have been met rather than a fixed dollar cap.

Why it matters: committee members and outside witnesses said the changes will affect small, rural municipalities’ ability to plan and secure financing. Jessica Hartleben, executive director of the Vermont Economic Progress Council, told the committee, “stability and consistency are super important when you are creating a housing infrastructure bill given the volatility in the current market.” She urged alignment with existing TIF guidance to speed program launch and reduce duplicate rulemaking.

Key changes and details

Definitions and affordability thresholds: John Gray of the Office of Legislative Counsel walked members through new definitions. The draft cites Title 24 definitions for affordable housing and sets an “affordable housing development” as a development with at least 15% of units meeting the affordable housing standard; a “moderate‑income housing development” must dedicate at least 25% of units to that higher‑income target. The text ties affordability requirements to covenants that “preserve their affordability until all indebtedness for that project has been retired,” language Gray said is modeled on existing revolving‑loan provisions.

Duration tied to indebtedness and short‑term rental limits: The Senate draft replaces a proposal for perpetual affordability with a covenant tied to the length of project indebtedness. On short‑term rentals (STRs), the draft forbids offering a unit as an STR while the project indebtedness remains outstanding; senators debated whether the statute should also require that units be occupied as a primary residence for the duration of indebtedness. One committee member said, “I don't want public dollars going to anybody buying this second home,” and pushed for stronger language, while staff noted monitoring and enforcement challenges.

Tax increment retention, caps and deadlines: The Senate draft raises proposed education tax increment retention to as much as 75% for standard projects and up to 85% for projects meeting the affordability criterion (the House had proposed 60% for standard projects). Where an earlier House draft included a $40 million cap plus a $5 million contingency, the Senate language removes the hard cap and instead conditions further approvals on DHCD certification that state housing needs have been met. The final application deadline in the Senate draft is extended to the end of 2035 and a 45‑day statutory deadline for agency approval was removed.

Application and “but for” (buffer) test: The Senate draft narrows prescriptive “but for” metrics; specific items previously listed for review were removed in favor of a more general buffer test. Jessica Hartleben proposed a transparent municipal analysis showing that a project meets a community need, would be unlikely to occur (or would occur in a less desirable manner) without CHIP, and that the increment requested is necessary to make the project financially viable. The committee discussed relying on the council’s fiscal review and executive‑branch economist support for feasibility modeling.

Scope of improvements and alignment with TIF: Committee witnesses urged aligning CHIP’s eligible improvements and guidance with existing TIF definitions and rules (the discussion referenced existing TIF rule language on installation, construction, or reconstruction of infrastructure and related utilities). Samantha Sheehan of the Vermont League of Cities and Towns said the ability for a municipality to use future increment for technical assistance is essential and warned small towns need realistic timelines for local decision making and application review.

Project criteria and reporting: The Senate draft removed a prior 65% floor‑area threshold; projects now need only include housing. Reporting requirements were narrowed to require reporting of sales prices for initial offerings; a prior House provision requiring reporting of rental prices and occupancy as a primary residence was removed. The draft adds an evaluation requirement to distinguish background grand‑list growth from growth attributable to a housing development.

Enforcement and appeals: The Senate draft builds CHIP enforcement consistent with TIF practice: if the secretary finds noncompliance, the secretary may request the state treasurer to bill the municipality for identified underpayments; if the municipality does not pay within 60 days, amounts may be withheld from other state payments. The secretary may also refer matters to the attorney general for civil action. Contested‑case appeals would be adjudicated under the Administrative Procedure Act with hearings conducted by the secretary or a hearing officer.

Board membership and sunsets: The draft changes certain agency participants on the approval council from voting to nonvoting members for CHIP purposes and removes a prior CHIP district sunset provision that the House had proposed (the House version had included an earlier sunset date).

Committee direction and next steps: Committee staff said the Senate will appoint its conference committee members at 10:00 a.m., then request the House do the same and meet in conference. Members asked staff to work with witnesses and agency staff to refine guidance language, especially to align eligible improvement definitions with existing TIF rules to expedite program launch and minimize administrative burden. John Gray and Jessica Hartleben were asked to coordinate on guidance language and improvements definitions prior to floor action.

Who spoke and where: testimony and discussion occurred during the committee’s review of S.127; the committee scheduled a conference committee once the House appointed members.

What remains undecided: whether covenants should require units be a primary residence (not just prohibit STRs during indebtedness), the precise wording and scope of a “but for” test that is administrable, and whether more prescriptive eligibility language is appropriate for small rural municipalities.

The committee will move the Senate version to conference and continue to refine guidance language with stakeholders and agency staff before the conference convenes.