Lawmakers Hear Split View on CHIP: Infrastructure TIF Could Unlock Housing but Auditor Warns of Vague Goals and Little Oversight

Montpelier — The Vermont House Ways & Means Committee heard three hours of testimony May 7 on S.127, a proposal to create a site-level tax-increment financing tool for infrastructure intended to unlock housing development.

Polly Major, director of policy and special projects for the Vermont Housing and Conservation Board, told the committee the program could stretch state housing dollars and “there's a lot of promise here in in this program.” Major urged measures to ensure the resource advances homes affordable to low- and moderate-income Vermonters, saying the bill should require a portion of units be reserved as affordable in mixed-income projects.

The measure, commonly discussed during the hearing as CHIP, would let municipalities retain a share of the statewide education-fund tax increment generated at a project site to pay municipal debt for infrastructure. The bill as presented includes a baseline retention of about 70% of the increment for the host municipality, with an enhanced eligibility of up to 80% if a development sets aside 20% of homes as affordable.

Why it matters: Supporters said the subsidy fills a financing “gap” that often prevents projects from “penciling” for developers — especially smaller or mixed-income projects — and could be used to lower rents, add accessibility features or fund energy upgrades. Critics and the state auditor warned that the proposal’s purpose language, reporting requirements and program guardrails are under‑specified and that the Education Fund (the state’s K–12 school tax base) could face substantial foregone revenue without prompt, regular oversight.

Key details and testimony

Polly Major (Vermont Housing and Conservation Board) framed the affordability definitions discussed in the bill around HUD area‑median‑income (AMI) thresholds. She said the bill’s low-income threshold aligns with HUD’s 80% AMI standard and described a three‑person household at that level as having an income “about $80,000” and able to afford rent “about a little over $2,000 a month.” Major said homeownership targeted at moderate income in the bill is intended to reach roughly a $400,000 sales price. Major recommended an inclusionary requirement that would make 20% of a project’s homes affordable (rent up to 80% AMI, ownership up to 120% AMI) for projects over a modest size threshold, suggesting 15 units as a possible floor.

Kelly Stoddard Thorpe (AARP Vermont) and Smart Growth America staff presented a capital‑stack analysis prepared for AARP. Katharine Burgess (Smart Growth America) described the nonprofit’s interest in connecting housing, transportation and services so older Vermonters can “age in place.”

Dr. Michael Rodriguez (Smart Growth America) summarized modeled examples showing CHIP’s effect on developer returns: at the project scale CHIP funding could reduce developer equity requirements and raise project internal rates of return by a few percentage points — “That can be the difference of a project being viable, of happening, or not,” he said. In the group’s sample 60‑unit model, CHIP contributed roughly 8% of total project cost and produced a roughly 2–4 percentage point lift in projected returns; in a smaller real‑world 4‑unit example presented, CHIP filled about 20% of the financing gap and boosted returns by about 4–6 points.

Dominic Cloud, city manager of St. Albans, described municipal uses of tax‑increment financing in his city and urged the committee to view CHIP as a practical tool for towns that can borrow more cheaply than private developers and handle predevelopment work. “TIF is the closest thing to a silver bullet that you have for addressing the housing problem,” Cloud said, and he gave local examples where municipal investment in land assembly, parking and remediation later attracted private building and multiplied assessed value (one example: about $14 million invested that later supported roughly $40 million in assessed property value).

State accountability concerns

The state auditor (listed in the hearing as the auditor) said the bill’s purpose statement is “as broad and vague as I've ever seen” and flagged three areas the committee should fix before advancing: 1) measurable program goals and routine reporting so the legislature can evaluate performance, 2) clarity on whether affordability must be permanent and how to enforce it (income verification vs. price/rent verification), and 3) explicit limits or legislative review triggers tied to the Education Fund exposure. The auditor recommended annual reporting of obligations from the Education Fund rather than the five‑ or ten‑year lookbacks discussed elsewhere, and he urged including statutory review points or sunsets so the legislature can calibrate incentive levels.

Other technical questions from committee members covered bedroom‑mix and AMI sizing (Major explained AMI thresholds are adjusted by household size), enforcement and compliance approaches (Major said VHCB emphasizes permanent affordability where statute requires it and that compliance can be enforced either by income verification or by price/rent verification tied to program definitions), and the assumed CHIP retention rate used in Smart Growth’s models (Rodriguez said the analysis assumed the 70% retention construct under discussion).

Points of disagreement and cautions

Supporters emphasized CHIP’s ability to bring affordable‑housing developers to the table in mixed‑income projects (Major cited a Hartford master development where a 20% affordable carve‑out would have been built by Twin Pines Housing Trust under a prior incentive). Smart Growth argued that CHIP can unlock deeper affordability and design improvements because infrastructure dollars freed up reduce pressure on project budgets.

The auditor and other witnesses cautioned that broad definitions in the bill — for example, allowing up to 40% nonhousing square footage in a project or permitting increment to pay for site preparation or property purchases — risk shifting costs or benefits without clear public safeguards. The auditor said some items in the bill’s “improvements” definition read like developer site‑prep costs that are typically the developer’s responsibility.

Next steps and calibrations suggested

Witnesses suggested several mechanisms to make the program more administrable and accountable: include explicit inclusionary requirements (for example a 20% affordable threshold on projects above a size floor), focus enhanced increment only where mixed‑income outcomes are verified, require routine (annual) reporting of obligations against the Education Fund, add statutory review points or a sunset so the legislature can recalibrate incentive levels, and give the administering agency clear data and stewardship obligations for long‑term affordability verification.

No formal committee action or vote occurred during the hearing. Committee members asked for additional modeling and suggested the committee will consider guardrails and reporting requirements before deciding whether to advance S.127 to floor or to amend its funding mechanisms.

For now the bill remains under committee consideration; witnesses and staff asked the committee to supply more specific targets for affordability, reporting metrics and whether the program should require permanent affordability or allow price/rent thresholds as the compliance test.