House panel reviews S.127 CHIP proposal that would let municipalities use tax increment financing for housing infrastructure

HEADLINE: House panel reviews S.127 CHIP proposal that would let municipalities use tax increment financing for housing infrastructure

LEDE: Members of the House Ways & Means committee spent most of a May 6 hearing on S.127 walking through a proposal to add a Community and Housing Infrastructure Program, or CHIP, that would let municipalities and other project sponsors use project‑based tax increment financing to pay for infrastructure that supports housing. Proponents and staff described rules, eligibility criteria and an incentive for projects that reserve at least 20% of units for lower‑ or moderate‑income households; the state’s fiscal office said it could not produce a reliable dollar estimate of the program’s cost.

NUT GRAF: The CHIP language (inserted into a 70‑page housing amendment) would change longstanding tax‑increment practice in Vermont by allowing smaller, project‑level financing rather than broad TIF districts and by offering an extra share of education property tax increment to projects that meet affordability targets. Committee counsel and staff emphasized process safeguards — municipal plans, housing infrastructure agreements, state review and a new advisory board — but JFO warned of uncertainty about how much the Education Fund might forgo if many projects use the tool.

BODY: The committee began the hearing with explanations from members and counsel about how the bill was assembled and where the CHIP language came from. "What House General has done is really combine those 2 things together," said Cameron Wood of the Office of Legislative Counsel during opening remarks, describing how the House and Senate housing bills were merged into the current proposal.

John Gray, also of the Legislative Council, summarized the core difference between CHIP and traditional tax increment financing: "At the highest level, it's the difference between a district and a project based approach to tax increment financing." Under CHIP, sponsors may propose a single housing development site and request tax increment to finance infrastructure tied specifically to that development, rather than creating a broad TIF district that covers multiple projects.

Committee members and sponsors repeatedly described the program as narrowly focused on infrastructure. Representative Mark Mahali, who helped present the bill, quoted the statute's purpose language and the ideology that guided drafting: "provide revenues for improvements and related costs to encourage the development of primary residents for households of low or moderate income." He and others said the Commerce and House General committees sought to keep the financing tied to housing outcomes while leaving some flexibility about ownership of improvements and eligible project types.

Key program mechanics explained to the committee include: - Application and approvals: a municipality must create a housing development plan, map a housing development site (the area where the project will be built), hold public hearings and execute a housing infrastructure agreement that identifies the sponsor and developer. Municipalities then apply to the Vermont Economic Progress Council (VEPC) for approval of tax increment financing for the specific project. VEPC must confirm the process requirements and the project/location criteria before authorizing increment retention. - Location criteria: CHIP applications must generally be in designated growth areas (tier 1a/1b), inside or near existing settlements (within 1/2 mile), or in certain mapped tier 2 transition/infill areas. A proviso allows projects that already have Act 250 permits in hand to be treated as meeting the location requirement. - Financing rules and timing: a municipality may incur debt for a CHIP project during a five‑year debt incurrence window after the housing development site's creation date; VEPC may extend that window by up to three years. The bill treats short‑term bond anticipation notes differently (they do not count as the first long‑term debt incurrence). The statute allows financing for debt service interest payments for up to four years — a longer early‑period allowance than the two years used for TIF districts. - Increment retention and incentives: by default a CHIP project may retain up to 70% of the education property tax increment generated by the project for up to 20 years beginning in the first year debt is incurred. If the projected housing development is a "low or moderate income housing development" (defined in the bill as at least 20% of units affordable under the bill's AMI thresholds), up to 80% of the education increment may be retained for the same period. Municipal property tax increments may retain not less than 85% for project use. The statute includes an adjustment review (roughly a 10‑year check in) that allows VEPC to reduce retention percentages if actual increments and debt service projections warrant a lower figure. - Affordability definitions and limits: the bill defines "low income" and "moderate income" housing by reference to area median income (AMI) — a low‑income unit is tied to roughly 80% of AMI and moderate income to 120% of AMI — and defines affordability as housing costs not exceeding 30% of gross income. A project that seeks the higher retention rate must subject at least 20% of units to covenants preserving affordability for the period of project indebtedness. - Governance and accountability: the housing infrastructure agreement (municipality, developer and sponsor) must include performance assurances and remedies the parties agree are sufficient to secure obligations and initially offer units as bona fide domiciles. VEPC and the Department of Taxes receive required notices and annual reports; projects are subject to audit. The bill also creates a Community and Housing Infrastructure Program Board (chaired by the state treasurer and including the VHFA executive director, Vermont Bond Bank and others) that VEPC may consult if an application meets all criteria but fails a numerical threshold; the board can determine whether a project "meaningfully" addresses local housing needs.

Fiscal uncertainty and risk: The Joint Fiscal Office analyst told the committee that a reliable statewide fiscal estimate was not possible because the effect depends on projects that may or may not happen and how many would use CHIP instead of building without state incentives. "We can't provide a fiscal estimate for what the cost of this might be," the JFO analyst said. Committee members pressed on how the program might affect the statewide Education Fund if a large number of projects used CHIP and diverted increment that otherwise would flow to the fund.

Committee discussion also covered practical drafting choices and guardrails: whether the creation date for original taxable value should wait for VEPC approval (which protects the Education Fund by raising the OTP but delays the project's incurrence clock), whether the statute should say "public use" or "public good" (affecting whether privately owned infrastructure could be financed), and how to define a unit offered as a "primary residence" or "bona fide domicile" so the program cannot be gamed for short‑term rentals or investor flipping.

Other housing provisions: committee counsel briefly reviewed other sections of the larger amendment, including changes to the Vermont Rental Housing Improvement Program (VHIP), a manufactured home repair program placed into statute, a Vermont Infrastructure Sustainability Fund administered by the Bond Bank, brownfield language, landlord certificate changes and technical updates to smoke‑alarm requirements. Counsel noted that the VHFA's off‑site construction report remained in the bill but had funding removed in the budget process. Many of those provisions were described as carrying existing appropriations or being unchanged from provisions previously approved by other committees.

ENDING: Committee members asked staff to supply clarifying options and fiscal scenarios and to bring answers back during further testimony the next day. VEPC, legislators and finance staff signaled that much of the debate over CHIP will turn on how many projects use the tool and how the retention percentages and timing interact with the Education Fund's near‑term revenue needs.