House panels review Ways and Means' CHIP tax-increment changes: 60% retention, $14M annual cap and pilot sunset

Members of the House Commerce and Economic Development Committee and the House General & Housing Committee on Tuesday held a joint hearing to review House Ways and Means’ amendments to the housing bill's tax‑increment financing provisions for the Community and Housing Infrastructure Program (CHIP).

Charlie Kimball, a member of House Ways and Means and reporter for the committee’s amendments, told members the committee tried "to put some meaningful, reasonable guardrails around the use of the statewide education property tax" while still allowing CHIP to support housing development. "What we're looking to do is to put some meaningful, reasonable guardrails around the use of the statewide education property tax," Kimball said.

The Ways and Means changes summarized in the hearing include a required but‑for test, limits on eligible locations, a housing floor‑area threshold, adjusted increment retention rates, explicit caps on total retained increment, and a pilot sunset for later review.

Why it matters: CHIP uses foregone education property tax increment to finance infrastructure that developers then use to build housing. That foregone revenue reduces money that otherwise would flow to the statewide education fund; the Ways and Means package is intended to limit the state’s long‑term exposure while preserving a tool to spur housing investment.

Most important details

- But‑for test: The bill would require an approval body to determine whether the proposed infrastructure and the associated development would not have proceeded, or would have proceeded in a materially different way or with delay, absent CHIP support. Kimball described the but‑for test as "to determine that state funds are necessary for this development to occur." He also acknowledged the test can be hard to audit in some cases.

- Eligible locations: The amendments focus CHIP eligibility on existing designated centers and on "existing settlements" within a half‑mile of a settlement (the hearing cited the 10 VSA settlement definition), and explicitly retain a prohibition on "strip development." Committee staff said the changes remove references to tiers that are not yet mapped and instead rely on current statutory concepts such as existing settlements and Act 181/Act 250 exemptions that remain in force for now.

- Project composition: Ways and Means set a threshold that at least 65% of a project’s floor area must be dedicated to housing. Kimball said the committee chose 65% as an outcome that fits common three‑story redevelopment models (ground floor commercial, upper floors residential) and that detailed application of the percentage would be addressed in rulemaking.

- Increment retention and incentives: The amendment reduced the baseline education‑tax increment retention to 60% of the increment for ordinary projects and preserved an additional retention percentage (bringing retention to 80%) for projects that qualify as middle‑income or otherwise meet a defined affordable covenant. Kimball described the additional retention as an incentive for income‑restricted housing.

- Caps on state exposure: The Ways and Means amendment sets an annual limit on foregone education revenue of roughly $14,000,000 in any single year (Kimball described this as "1p on the tax roll" and rounded the number to $14 million) and a cohort/lifetime cap of $40,000,000 for projects approved in a single year. Kimball said those numbers were chosen to limit potential statewide education tax impacts and that Joint Fiscal Office (JFO) staff provided spreadsheet examples to illustrate how retained increment could relate to total investment.

- Examples and fiscal context: Kimball used an example of an $80 million development to illustrate scale: he said an $80 million project "over 20 years would retain for increments that repay the debt $17,000,000." He also said, working backward from annual and lifetime caps, "you could back into what does that mean in any 1 year for investment" and gave an illustrative range of roughly $145 million to $240 million of total development value in a year depending on assumptions used.

- Pilot and review: The amendment includes a pilot/sunset so the program can be reviewed after some years of operation; committee members discussed possible sunset dates (comments in the hearing referenced dates including 2028 and later extensions to 2030–2031 during back‑and‑forth). Kimball said the sunset was "intentional to try to give us an opportunity to review the intersection of TIF and CHIP and also what effects may be in place of what's going on in the Ed Fund."

Other technical points and process details

- Eligible uses of CHIP funds were narrowed to typical infrastructure closely tied to housing (wastewater/stormwater, streets/bridges, multimodal/transit, public roads), while telecommunication and digital infrastructure were noted as included in the list the committee considered.

- The amendment requires any excess cash flow from a special tax‑increment account to remain in that account, and it allows adjustments to the increment after five years.

- The approval body referenced repeatedly in the hearing (spoken of informally as "Pepsi" in the discussion) will adopt rules and evaluate applications. Kimball and committee counsel said the bill requires some rulemaking and that Pepsi would be asked to adopt rules addressing specific items (and that JFO would review and produce fiscal estimates as needed).

- JFO cautioned that the statutory caps are limits, not cost estimates. Patrick Jitter of the Joint Fiscal Office (JFO) said the caps represent an upper bound on potential exposure to the education fund and that "in terms of actual estimated cost, we're still not able to provide that for you." He added JFO could produce high/low examples if the committee supplied assumed per‑unit infrastructure costs.

Points of debate and concerns raised

- Rural equity: Several committee members raised concerns that the eligibility and evaluation criteria could favor projects in places with higher property values and denser development, potentially disadvantaging smaller or rural towns. Representative Bartlett said she was concerned that "this is not going to help either of my towns" and warned against creating barriers for smaller communities.

- Auditing and but‑for proof: Members and staff acknowledged the but‑for test can be difficult to audit; Kimball said the committee "willing to attest to the fact that it's not always auditable" and that the test will rely on judgements and supporting documentation provided to Pepsi.

- Definitions of "middle income" and affordability: The amendment links the extra increment incentive to middle‑income or affordable units defined in part by housing subsidy covenants; committee members asked whether the definition would be sufficiently clear to developers and applicants. Staff noted the law relies on existing program definitions and that the extra increment is limited to projects that meet the statute’s definitions and the council’s rules.

What's next

Committee members asked for additional JFO modeling and for proposed rule language to clarify how Pepsi will prioritize projects (the application prioritization items mentioned regional equity, verifiable housing shortages, and labor/market need). Staff indicated that rulemaking language and JFO fiscal worksheets will be used to provide more precise examples of how the caps and retention rates translate into infrastructure financing and unit counts.

Ending

Lawmakers did not take votes during the hearing; members used the session to ask detailed questions of Ways and Means and JFO staff about fiscal modeling, eligibility, rulemaking, and how the pilot will be evaluated. Kimball said the session was designed to "keep an open mind" and to make sure lawmakers "leave here with the same understanding of what is actually in the ways and means amendment."