Vermont Bond Bank urges option for level debt service to ease municipal budget impacts

May 8, 2025 — Michael Gaughn, executive director of the Vermont Bond Bank, urged the Senate Government Operations Committee to include language in H.397 that would allow municipalities to authorize debt with level debt service (equal annual payments) as an option rather than being limited to statutory level principal schedules for bonds.

Why it matters: Under the current statute (as explained in committee testimony), bonds issued under a level‑principal schedule require larger debt service payments in the first year of a project compared with level debt service. Bond Bank testimony estimated first‑year debt service can be roughly 20% higher under level principal, producing a sharp first‑year budget impact for municipalities that undertake infrastructure or adaptation projects. Level debt service smooths annual payments, shifting some interest to later years and reducing near‑term budget stress.

Michael Gaughn told the committee that level debt service is already used in many state revolving loan fund (SRF) financings and is the baseline assumption for rating agencies; the requested change would equalize treatment for all municipalities and avoid ad hoc workarounds. He framed the request as a fairness and budget‑management tool to make adaptation, school and infrastructure projects less painful on municipal budgets.

Committee members asked whether the change would be optional or mandatory and whether prior TIF or education fund interactions could be affected. Gaughn said the language under consideration would give municipalities the option to select level debt service and that the practical budgetary effect on state education fund TIF interactions would be minimal; committee staff said they would seek JFO input on any de minimis effects.

No formal committee vote on this change was recorded in the transcript excerpt.