Bond Bank proposes interfund loans and revenue-bond option to stretch infrastructure funding

Michael Gahn, executive director of the Vermont Bond Bank, told the House General & Housing Committee on April 16, 2025, that S.127 should allow flexibility in the community-ranking index used to prioritize applications and should explicitly permit interfund loans so the Vermont Sustainable Infrastructure Fund can be combined with bond-bank financing to lower borrowing costs for municipalities.

Gahn said his primary technical request concerned the committees use of a community-ranking index in S.127, which several committee members have questioned. "I think something that's produced and is transparent from a state agency is a good idea," he told members, recommending the bill include authority to use a successor index or an alternative methodology if the original index becomes outdated.

Gahn described a mechanism to stretch limited fund dollars: by temporarily loaning capital from the sustainable-infrastructure fund into the bond bank, the state could issue bonds at the bank's lower rates and use combined capitalization to reduce borrower interest costs. "The way we would effectuate that is by loaning into the bond fund...as the loan repaid, ...we would then transfer that back into the Vermont Sustainable Infrastructure Fund," he said. He asked committee staff to accept draft bill language to authorize such interfund transfers and said he would provide wording to the committee.

Gahn also outlined a proposal for municipal financing using special assessments and revenue-style bonds to let properties that directly benefit from an infrastructure improvement shoulder the debt rather than forcing a townwide vote that obliges all taxpayers. "Municipalities at the governing body level could approve debt that is solely repaid by those properties subject to the special assessment," he said, adding that this approach exists in other states and can be useful for discrete village-scale projects where a small number of properties capture most of the benefit. He urged light-touch guardrails to limit excessive risk.

Committee members and witnesses discussed the program size and interest-rate mechanics. Gahn used an example of a 20- to 25-year financing at roughly 4% for the bond banks pooled issuance and said the sustainable fund could be used to buy down borrower rates. He noted the likely need to leverage the fund: "the $79,000,000 isn't going to go very far. So we want to leverage it as much as possible," he said.

Charlie Baker, executive director of the Chittenden County Regional Planning Commission and testifying for RPCs statewide, told the committee he supports the special-assessment idea and urged changes to S.127s application criteria: require an RPC endorsement letter and make clear that the fund's criteria cover new systems as well as expansions. Baker also noted anomalies in the existing community-ranking index and urged flexibility for the Bond Bank when it applies any index to program decisions.

Both Gahn and Baker emphasized the need for transparent, state-hosted metrics and for guardrails on any new revenue-bond authority so the program does not pose undue systemic risk to Vermonts bond markets. The committee asked Gahn to send specific statutory language to staff; no vote or formal action was recorded at the April 16 hearing.