Committee debates CHIP bill caps, board and education-fund tradeoffs

The House Committee on Ways & Means spent Thursday, May 8, continuing work on S.127 — the bill creating a Community Housing and Infrastructure Program (CHIP) — and focused on three core questions: whether to cap the amount of education property‑tax increment that CHIP can retain, how to structure and staff a new CHIP board, and how the program would affect the state Education Fund.

The debate centered on fiscal tradeoffs between directing property‑tax increment toward housing infrastructure and preserving revenues now dedicated to the Education Fund. Several committee members argued for a statewide aggregate cap — several invoked a proposal equivalent to a 1¢ change on the education tax rate as a possible compromise — while others urged a more permissive approach so the program can scale where housing needs are greatest, particularly in rural areas.

Why it matters: CHIP would use retained education property‑tax increment (similar in concept to tax increment financing) to pay for infrastructure that supports housing development. Committee members and state staff warned that, absent strict limits or prioritization rules, the program could divert a measurable portion of the Education Fund base and place upward pressure on property tax rates elsewhere in the state.

Most important facts

- Caps and math: Committee staff presented two modeling summaries. One showed an illustrative average annual retained increment of about $7.6 million under the draft allocation rules; another translated a proposed aggregate cap into a rule‑of‑thumb equivalent of roughly $13.9 million retained in total per year (the staff framed that number as comparable to imposing about a 1¢ uniform change on both homestead and non‑homestead education rates). Staff cautioned those are averages across program years and could produce year‑to‑year volatility without additional annual or multi‑year limits.

- Geography and prioritization: Members debated whether caps should be statewide, county‑by‑county, or tied to county targets to protect rural access. Several legislators urged language to prioritize projects in underserved/rural counties so larger early projects in high‑demand areas would not exhaust available increments.

- Eligibility and program design constraints: Committee members discussed tightening eligibility to projects whose built area is a housing majority (a suggestion floated to require 50%+ housing) and limiting allowable uses to infrastructure rather than direct improvements to private property. Other suggested limits included excluding contiguous parcels that are not being actively developed from the project area so owners are not rewarded for undeveloped land.

- Board composition and conflicts: Lawmakers expressed concern about standing up a new CHIP board with members who both promote and decide funding for projects. Several urged changes to membership to include housing expertise (for example, removing or replacing members they viewed as potential conflicts of interest and adding a representative from the Vermont School Boards Association to reflect Education Fund impacts).

- Timing and permitting: Members raised the question of whether permitting must be fully completed before a project can access program benefits. Staff clarified that, under current drafting, having permits in hand is required to access certain location‑based price periods and activation steps; the committee discussed whether to refine that requirement to reduce developer uncertainty.

- 'But‑for' test and auditability: Some members opposed a statutory "but‑for" requirement (a test that a project would not proceed but for CHIP funding), arguing it would be subjective and hard to audit. Others said a but‑for requirement helps ensure the program captures only projects that need the subsidy.

What state staff said

Julia, a state fiscal staff member who described how JFO and Treasury modeling treat the grand list and Education Fund, emphasized that the state's yield modeling treats grand‑list growth as two components: new building ("sticks and bricks") and appreciation. She warned that "If there are pieces that are no longer remitting education fund property taxes to the state because they are being used for the CHIP program... then there is less base in the Education Fund against which property taxes need to be applied, which then means that property taxes will need to go up in the other corners of the state to make up for that." Julia also explained that a uniform 1¢ change on education rates is roughly $14 million in revenue statewide and that an aggregate cap can be framed either as a total over the program lifetime or as an annual limit; both choices have different implications for year‑to‑year tax volatility and prioritization.

Points of disagreement and open questions

- Scope vs. protection: Some members said CHIP must be broad enough to be an effective housing tool, arguing that overly restrictive county caps or tight eligibility would undercut the program. Others said a cap is necessary to protect the Education Fund and local school budgets; one member noted recent school budget advice that an unchecked program could force large reductions in school spending.

- Measurement and enforcement: Members asked for clearer definitions and drafting on how to calculate original taxable value, whether to allow different assessment dates (for instance to capture brownfield cleanup timing), and how a 10‑year statutory check‑in (allowing reduction of retention percentage if the project no longer needs it) would be operationalized.

- Long‑term outcomes and covenants: The committee discussed how affordability covenants and financing covenants tie to long‑term outcomes. Staff noted that affordability covenants required by other affordable‑housing financing tools would remain in the contractual agreements and that paying off financing early would generally terminate the increment retention for that site.

Next steps

The committee paused for a short recess and planned to return with further technical testimony, including a later presentation from Tom Cavett on modeling and projections. Members asked staff to return with draft language options for caps (annual vs. aggregate), county prioritization mechanisms, clearer permitting rules, and revisions to board composition and conflict‑of‑interest safeguards.

Ending note

Lawmakers left the hearing with a clear tradeoff in focus: how to design CHIP so it meaningfully accelerates housing and infrastructure where needed while limiting the short‑term fiscal hit to an Education Fund that, staff modeling shows, depends on both building activity and appreciation across the state.