House panel hears details of CHIP pilot to use project-based tax increment financing for housing

The House Appropriations Committee spent the bulk of a May 15 session on S.127’s proposed Community and Housing Infrastructure Program, or CHIP, a pilot program that would let municipalities, developers or approved third parties use project‑level tax increment financing to pay for infrastructure tied to new housing.

"The basic way to think about tax increment financing," said John Gray, Office of Legislative Counsel, "is you fix the original taxable value, and you retain the property tax on future increases to finance infrastructure." Gray walked the committee through differences between existing TIF districts and the CHIP project‑based approach, including a sponsor concept that allows three kinds of sponsors: the municipality, the developer or an approved third‑party sponsor.

The CHIP proposal would require a local housing development plan, a map of the housing development site and public hearings before an application to the Vermont Economic Progress Council (VEPC). Gray said the program is explicitly a pilot: applications would be accepted through 2031 and approved projects could retain an education property tax increment for up to 20 years.

Ways and Means staff described the program’s incentive and cap structure. Under the draft language presented, projects that do not meet a specified middle‑income affordability threshold could retain up to 60% of the education property tax increment; projects that reserve at least 20% of units for a middle‑income housing covenant could retain up to 80%. Committee staff and the Joint Fiscal Office described a per‑year approval cap of $40 million in lifetime education‑tax increment retention and a $200 million aggregate cap across the life of the pilot. Officials noted those figures represent an upper bound based on assumptions about timing and property‑value growth.

Pat/Brady and the Joint Fiscal Office said the $40 million figure is a ceiling on approvals in a single approval year — not a single‑year cash outlay — and that program cohorts would cause retention to accumulate across years as projects come online. The committee’s fiscal advisers displayed a table modeling five approval cohorts, debt‑incurrence windows and expected peak annual foregone education revenue when multiple cohorts overlap.

Committee members and presenters also discussed application standards. The bill includes a "but‑for" test requiring applicants to show a project would not proceed without CHIP assistance. Gray and committee members described review roles: VEPC would conduct the primary application review and make recommendations; a new CHIP board would be organized to provide housing and finance expertise and make an up‑or‑down decision on VEPC‑recommended applications within a short review window.

Supporters argued the pilot targets infrastructure barriers that prevent housing from being built in some locations. Critics in the hearing asked whether the program would favor larger developers with capacity to manage complex finance and compliance; staff and committee members said CHIP would not be appropriate for every project and that rulemaking and reporting requirements are intended to limit unintended outcomes.

The draft also includes reporting requirements and a scheduled program evaluation. VEPC would report annually to the Legislature on approved projects and expected versus actual sales and rental prices; a formal evaluation of the pilot’s effectiveness was set to be due by Jan. 15, 2030.

The committee did not vote on CHIP during the hearing; members asked for additional materials and modelling from staff and JFO and signaled follow‑up questions before any committee action.