Committee reviews draft project-based TIF to fund housing infrastructure; debate on affordability test, scope and administration

John Grama, legislative counsel for the Vermont Legislature, reviewed draft 2.2 of a bill proposing a project-based tax increment financing (TIF) program designed to finance infrastructure that supports housing development.

The draft tightens the definition of “improvements” to require that infrastructure "serve a public purpose" and adds a purpose section saying the program will "stimulate the development of affordable housing." Grama told the committee the public-purpose language is intended to prevent improvements paid with public dollars from being used exclusively for private benefit: "this update to the definition of improvements is just to ensure that there's a public purpose constraint so that any improvements developed through the program do serve public purposes and are not exclusively for private use," he said.

Why it matters: the change would steer incremental tax revenues toward projects that demonstrably advance housing goals rather than purely private projects. Committee members and outside stakeholders spent most of the session debating what "affordable" should mean, how to test whether tax increment is actually enabling housing that would not otherwise be built, where projects should be eligible, and who should approve applications.

Major policy points discussed

- Affordability and the "but-for" test: Senator Ron Hinsdale’s idea of an affirmative economic test reappeared in the draft. The draft’s project-criteria language would require that (a) at least 50% of a project’s gross floor area be dedicated to housing, and (b) the projected housing would not have included units affordable to households at or below 200% of AMI "but for" the use of incremental tax revenues. John Grama explained that the second condition is intended to ensure the program subsidizes projects that require the increment to produce affordability. Committee members warned the test could be subjective and administratively difficult to audit.

- Definitions and AMI: Grama and others noted that Title 24 contains an existing definition of "affordable housing" but that the committee could create a program-specific definition. Multiple members urged providing a specific AMI-based definition for the bill (examples discussed: 200% of AMI, or a requirement that a stated percentage of units be affordable at 200% AMI).

- Location criteria and eligibility tiers: Draft 2.2 treats certain areas (tier 1a, 1b and areas exempt under interim housing exemptions) as eligible for staff-level approval and existing settlements within one-half mile (a higher-intensity category) as requiring board determination. Several legislators and witnesses urged adding tier 2 communities so smaller or rural places without designated downtowns could access the tool. Legal staff suggested the interim "existing settlement" language was meant to bridge the period before tier maps are final.

- Scope: mixed use vs housing-only. Jessica Hartley, executive director of the Vermont Economic Progress Council (VEPC), urged allowing mixed-use projects and broader "improvements" language. She argued that in practice infrastructure (for example, a wastewater line) serves a variety of community uses and that limiting the program strictly to housing would be administratively difficult and could make some projects financially infeasible: "tailoring this only to affordable housing . . . becomes, frankly, an administrative nightmare," Hartley said, noting some projects need commercial increment to be viable. Several committee members said their political purpose is to prioritize housing but left room to consider mixed-use or minimum housing components in the future.

- Administration and approvals: VEPC asked that the council retain an approval role. The draft had contemplated a more streamlined staff approval path for low-risk locations; VEPC urged council review of applications rather than delegating unilateral approval to staff. Stakeholders agreed to work out a balanced approach that expedites smaller, lower-risk requests while preserving legislative oversight of public dollars.

- Financing options and debt structure: The draft contemplates three sponsor/financing structures: (1) municipal-issued debt, (2) developer-issued debt repaid via tax increment rebates to the developer, or (3) a third-party conduit (examples discussed included VHFA or the Vermont Municipal Bond Bank) issuing bonds or providing credit support. Brett Long, deputy commissioner, and Michael Gaughan (Municipal Bond Bank) discussed how those options would affect risk, structure and whether the obligations appear as municipal special obligations or as another credit form.

- Increment retention and term: Participants debated how much of the education increment municipalities could retain. Jessica Hartley described VEPC’s preference that municipalities have flexibility (she noted VEPC’s draft allowed longer early interest support and up to 100% municipal increment in some formulations). Legal counsel flagged that the current draft then under discussion set a cap "for the education property tax increment no more than 80%" and that municipal-flooring rules would interact with that cap. Committee members also discussed statutory limits in existing TIF law (numerical caps per county) and the fact that the project-based approach in 2.2 would not include the same statewide numerical caps.

- Housing Infrastructure Fund and credit support: Participants discussed a proposed housing infrastructure fund to provide low-cost loans, credit enhancements or gap financing. Michael Gaughan said such a fund could reduce borrowing costs and multiply the effect of state dollars; advocates said the draft fund had been discussed at $9.1 million and that some drafts increased that figure to $15 million.

What the committee directed and next steps

Committee members and stakeholders agreed to continue drafting and to meet outside the committee to reconcile VEPC’s administrative concerns, the affordability definition and location eligibility. Multiple participants offered to meet with counsel and VEPC staff in the coming 48 hours to produce revised language to bring the bill to committee for consideration. No formal votes or final decisions were taken at the meeting.

Sources and direct attributions

Quotes above come from the meeting transcript. John Grama is identified in the transcript as "John Grama, Office of Legislative Council." Jessica Hartley is identified as executive director of the Vermont Economic Progress Council. David White identified himself as president of Weissberg (Weisberg) Real Estate Advisors and said he would volunteer to help draft bill language. Brett Long identified himself as Deputy Commissioner, Department of Economic Development. Michael Gaughan identified himself as Executive Director of the Vermont Municipal Bond Bank.

Ending: The committee paused debate to allow counsel, VEPC and stakeholders to continue technical drafting. Members emphasized the project's housing focus but agreed to continue work on mixed-use, AMI definitions and administrative approvals before a final committee vote.