Senate panel reviews H.397: shifts local-option tax split, allows voluntary flood buyouts and changes municipal finance rules

Staff member Chris led the committee through the fiscal note for H.397, an omnibus hazard-response bill that would change how local-option tax revenue is split, authorize voluntary buyouts of flood‑impacted and flood‑prone properties, and make several municipal finance changes.

The most immediate fiscal change described by Chris would alter the current 70/30 split of certain local‑option tax revenue so that towns retain 75% and the pilot special fund receives 25%, effective Oct. 1 at the Tax Department’s request. "This bill would change that allocation to 75 25," Chris said. Chris estimated the full annualized impact at roughly a $2,800,000 shift of revenue away from the pilot fund to towns and warned that moving to an 80/20 split would create a structural deficit in the pilot fund.

Tucker Anderson, Legislative Counsel, described other provisions in the bill. He said the Community Resilience and Disaster Mitigation Grant Program (created in S.03/10 last year) would be amended to make voluntary buyouts of flood‑impacted and flood‑prone properties a permissible use of that grant program. "As part of the program, you've added a discretionary use of the program grant funds, for voluntary buyouts for flood impacted or flood prone properties," Tucker said. The buyouts, as discussed, aim to pay fair market value at the time of the flood event and would require that the properties be converted to open space and not redeveloped.

The bill also includes technical corrections to address education tax overpayments tied to tax increment financing (TIF) districts. Chris and Tucker said two municipalities—identified in the fiscal discussion as owed a combined $621,479 due to prior-year TIF education tax over‑retention—would be reimbursed through a transfer from the general fund to the education fund and subsequent payments from the Tax Department.

Other municipal finance provisions described include: - Allowing municipalities to maintain an unassigned fund balance at year end in a manner that provides more flexibility than current practice. - Expanding emergency borrowing authority so municipal legislative bodies may approve emergency indebtedness for up to five years without town‑wide voter approval (current law permits one year without a vote). - Allowing towns the option to issue level debt service bonds (equal payments each year) rather than the more typical level principal schedule, which can reduce near‑term budgetary pressure at the cost of somewhat higher total interest.

Chris told the committee that the pilot fund still has a surplus and that, under the 75/25 proposal, the committee’s prior appropriations from the pilot fund (about $14 million appropriated in the budget across pilot payments and related programs) should still be coverable by the revised revenue flows. He cautioned that local‑option tax revenue is sensitive to economic and tourism trends and could fluctuate.

Discussion in the committee included questions about the administrative cause of the TIF overpayments (described as related to municipal administration and software vendor errors), the definition and valuation approach for voluntary buyouts (described as fair market value at the time of flood impact), and which dams or owners are covered by the bill’s emergency drawdown and permit‑waiver authority (federal/FERC‑regulated dams were noted as excluded).

No formal roll-call vote on H.397 is recorded in the excerpt provided. At the end of the discussion on the fiscal note, a member moved to accept the finance committee’s report and the committee proceeded to other business.