Vermont Bond Bank tells Appropriations fund could cut municipal borrowing costs to about 1%

Michael Gaughan, executive director of the Vermont Bond Bank, told the House Appropriations Committee on March 10 that the bank could use a proposed Vermont Sustainable Infrastructure Fund to provide very low‑cost loans — targeting roughly 1% interest — to municipalities and to leverage larger pooled bond financings for infrastructure projects.

The bond bank briefing explained how a relatively small fund (committee discussion has cited figures such as $9.1 million or $15 million) could be deployed in three ways: direct low‑rate loans to units of government, interest‑rate buy‑downs layered with the bank’s larger pooled loan program, or as a corpus used for credit enhancement to attract additional capital. Committee members and the bank discussed how the fund could help bridge financing gaps for small‑scale infrastructure that enables housing and local development.

The Vermont Bond Bank, created in 1970, issues tax‑exempt pooled bonds that carry a state‑grade credit enhancement and a high rating, which the bank passes to borrowers. Gaughan told the committee the pooled loan program currently sits at about $650,000,000 and the bank also manages state revolving fund (SRF) lending of roughly $240,000,000 for drinking‑ and clean‑water projects. He said the bank has expanded in recent years into targeted programs — including about $19,000,000 in flood‑relief loans, an energy efficiency and renewable energy lending program funded in part by a $40,000,000 USDA loan (0% to the bank, relended at about 2%), and a roughly $7,000,000 Department of Environmental Conservation grant for small water system capacity issues.

Gaughan summarized the three principal deployment approaches the bank envisions for the sustainable infrastructure fund. "One is direct loans," he said, aimed at smaller communities and projects that need modest capital. A second is using fund dollars to "buy down" interest rates on larger projects financed through the pooled loan program so those projects achieve greater affordability. The third is using the fund corpus and repayments as a credit enhancement or guarantee to attract additional private capital.

Committee members asked about sources of repayment, loan sizes and terms. Gaughan said he envisions direct loans with terms in the 15‑ to 20‑year range to allow faster amortization that replenishes the fund, and he emphasized that the bank’s statute limits its borrowers to "units of government" — towns, villages, school districts and similar entities. On maximum loan size for direct lending, he said specific limits would be fact‑specific and depend on leveraging with the pooled program; he noted many housing‑enabling infrastructure costs are in the "hundreds of thousands of dollars," meaning a $10–$15 million fund could support multiple such projects.

The presentation included a case study showing how the bank blends programs: roughly $1,500,000 from the pooled loan program combined with about $300,000 from a specialty lending program to complete project financing. Committee members also asked about a flexible fund used for program development and whether the bond bank could substitute pooled‑program dollars if the dedicated fund were not capitalized; Gaughan said the bank does not have the capacity to keep pooled‑program money at the 1% target without a separate fund.

The panel discussed potential federal policy risks. Members asked how the model would change if municipal bonds lost their tax‑exempt status; Gaughan said that would raise cost of capital across the board and make the bank’s work more expensive, although pooling would continue to provide scale advantages.

No formal action or vote was taken during the briefing; the presentation followed earlier committee testimony from the state treasurer and the commissioner of housing and was intended to clarify the bond bank’s administrative model and possible program structures.

The committee did not set specific program rules, maximum award sizes, or a final capitalization level during the session; Gaughan said those details would be determined case by case if the fund is established.