Senate Finance reviews H.397 changes to flood response, municipal borrowing and local-option tax split

The Senate Finance Committee on May 21 reviewed H.397, a bill that would revise emergency-management rules, add voluntary buyouts for flood‑impacted properties, authorize new municipal borrowing tools and change the local‑option tax (LOT) revenue split between towns and the state.

Tucker Anderson, legislative counsel, led committee members through the bill text and section summaries. "In subsection c related to the administration of this grant program, Senate Government Operations has amended subdivision 1c to add voluntary buyouts for flood impacted or prone properties, as an acceptable use of this grant program," Anderson said. He said the change aligns with the budgeted Municipal Grand List Stabilization Fund and related buyout programs.

The bill would let municipalities carry forward unexpended line‑item budget dollars into a new unassigned fund-balance (Title 24 language noted in the draft), allow short‑term emergency borrowing tied to an all‑hazard event for terms up to five years or the useful life of the purchased asset, and add an option for level debt‑service repayment schedules for municipal borrowing. Anderson described a limit on emergency indebtedness and the five‑year example as a way to bridge towns while they wait for federal reimbursements such as FEMA public assistance.

Joint Fiscal Office staff summarized fiscal implications for the LOT change and other municipal provisions. Chris (Joint Fiscal Office analyst) said the proposed change in the pilot split—from the current 70% local / 30% pilot special fund to 75% local / 25% pilot—would shift about $2,400,000 in FY2026 to municipalities and annualize to roughly $2,800,000 per year. "We do think that going from 70/30 ... we'll still have enough money going into the pilot special fund every year to fully fund pilot payments," Chris said, while cautioning that an 80/20 split would create a structural shortfall of more than $1 million under current modeling.

Municipal representatives told the committee the bill addresses urgent local needs following the 2024 floods. Samantha Sheehan, municipal policy and advocacy specialist for the Vermont League of Cities and Towns, said communities remain burdened by flood‑related debt and that the unassigned fund‑balance and emergency borrowing provisions would help towns manage FEMA timing and local obligations. "These are significant strains on local resources," Sheehan said about municipalities carrying flood debt pending federal reimbursement.

The bill also includes an emergency‑powers provision to allow preparatory drawdowns of dams before anticipated heavy rains by waiving certain environmental permits after consultation with the secretary of natural resources and a determination by the director of the Division of Emergency Management. Anderson said the waiver would be issued only after a formal determination that a severe flooding event is likely and the dam owner has a drawdown plan.

TIF (tax increment financing) items and refunds are in the draft as well. The bill contains language to refund prior overpayments (the draft lists a refund for the City of Barre and a separate refund for the Town of Milton) and committee members discussed adding an extension for a specific TIF district. Joint Fiscal Office staff offered a preliminary estimate that extending the Barry/Barre TIF retention period two years would cost roughly $770,000 total (about $380,000 per year at the 75% retention rate) in the modeled timeframe.

Several committee members pressed departmental and JFO witnesses on the pilot fund balance and how recent revenue gains (including online sales, cannabis taxes and short‑term rentals) affect the fund's surplus. JFO staff noted the pilot special fund was carrying a surplus (JFO cited an end‑of‑year surplus of roughly $10.3 million and projected it could exceed $14 million before FY26 appropriations) and that the FY26 budget already appropriates roughly $12.4 million for pilot payments plus about $1 million for a Grand List Stabilization program and $1.15 million for Town Highway nonfederal disasters.

Jordan Ganda, general counsel for the Vermont Department of Environmental Conservation, asked for clarity about a separate Administrative Procedures Act amendment in the draft that would expand agencies' authority to adopt emergency rules if abrupt federal regulatory changes would create gaps. Ganda said the department would prefer the change be coordinated with Government Operations, which has primary rulemaking jurisdiction.

No final committee vote on H.397 occurred during the session. Committee members asked legislative counsel and staff to draft technical amendments, including the requested TIF‑extension language, and planned to return to the item later in the day so the bill could move to the next steps of the process.

What’s next: committee staff and the bill sponsor will circulate amendment language (including the TIF extension request) and the committee expected to consider technical fixes and a floor amendment before transmitting the bill to other committees, including Senate Government Operations and Appropriations. The committee did not adopt final action on H.397 on May 21.