Committee reviews project-based tax-increment financing plan to fund housing infrastructure

On the last day of February, the House committee on Economic Development, Housing & General Affairs heard a presentation on a draft statutory proposal to create a project-based tax-increment financing (TIF) program aimed at funding infrastructure to enable housing development in Vermont.

The proposal, presented by John Gray of the Office of Legislative Council, would let municipalities create narrowly defined “housing development sites” and enter housing infrastructure agreements with a sponsor — which may be the municipality, a developer, or an independent agency that meets state lending standards — to finance infrastructure such as water, sewer, parking, and certain remediation work. "This proposal accounts for the possibility of different kinds of sponsor beyond the municipality," Gray said, describing the approach as targeted to housing rather than broad TIF districts.

Committee members were given a one-stop draft that combines definitions, an application and VEPC review process, requirements for municipal public notice and vote, and technical tax-administration provisions. Under the draft, a municipality first would adopt a housing development plan and the municipal legislative body would create the housing development site (the parcel or parcels where housing will be built). The municipality must hold public hearings on the plan and record the site with the municipal clerk and lister. The draft sets the site’s original taxable value as of April 1 in the calendar year in which the Vermont Economic Progress Council (VEPC) approves use of tax-increment financing for the project.

If VEPC approves an application, the sponsor may incur financing for infrastructure; the draft requires VEPC review of a financing plan before a sponsor or municipality takes on debt. The bill text under discussion would allow the sponsor to be the developer or other nonmunicipal lender rather than requiring municipal bonding, but the municipality would enter an agreement obligating the applicable tax increment to repay infrastructure financing.

Key numeric and timing details discussed in the meeting include: - Retention: the draft would allow retention of up to 80% of the education property tax increment for up to 20 years beginning the year after the first debt is incurred for a project; the municipal portion must be at least the same percentage as the education increment retention selected by the municipality. - Deadlines: a housing development site would terminate if no project debt is incurred within three years of site creation; municipalities must present specific debt terms and estimated related costs to voters before any vote to incur indebtedness. - Early costs: financing may include debt service interest payments for an initial period (the draft notes up to three years depending on when debt is first incurred) so short-term funding gaps can be covered while development begins.

The draft condenses existing TIF location and project criteria into a simpler test: an applicant must meet at least one project criterion (the draft currently requires at least 50% of gross floor area in the proposed development be dedicated to housing) and one location criterion (examples include areas designated tier 1 under the land-use statute, an area exempt from Act 250, or an existing settlement or lands close to existing settlements). VEPC staff could approve some applications administratively for certain locations (for example, tier 1 areas); other locations would require VEPC board determination.

Fiscal and policy concerns were raised by Joint Fiscal Office staff and committee members. Tim Burnett of the Joint Fiscal Office said JFO could not produce a reliable estimate of the program’s fiscal cost without a cap or information on the expected scale and frequency of projects. Burnett noted the draft does not include a "but-for" test — a showing that a project would not occur without tax-increment financing — which is present in larger, district-based TIF law. "Without a but-for requirement here, we inevitably will have projects that would have happened anyway, which would retain education-fund increment," Burnett said, warning that retained increments reduce revenue otherwise flowing to the education fund.

Speakers also discussed safeguards for municipalities. The draft requires housing infrastructure agreements to identify the sponsor and developer, limit use of increment to financing and related costs for the infrastructure project, and include protections so the municipality is not left liable if a sponsor or developer fails to perform. Committee members asked for clearer, statutory protections and remedies in the agreement language; John Gray said contractual details and many protections would be worked out in agreements but that the statute should include baseline standards.

Committee members and staff discussed other design choices that remain unresolved: whether to adopt a short name (examples offered were "CHIP" for Community Housing Infrastructure Project or simply "project-based TIF"), whether to add affordability or AMI-related density requirements, effective dates tied to state fiscal calendars (the draft uses several April 1/July 1 dates), and whether to cap the number or total value of projects initially to help estimate fiscal effects. Joint Fiscal Office staff noted the governor’s budget includes a separate $9 million municipal infrastructure revolving loan fund as another tool to support municipal infrastructure and said that tool’s fiscal cost is clear and limited to the finance authority capital.

No formal votes or approvals were recorded during the discussion. Committee members asked staff to produce revised language and to coordinate with agency staff (including the person the draft author identified as "Ellen") and JFO so the committee can better compare alternatives and assess fiscal risk. John Gray agreed to provide revised language for committee review ahead of the committee's next meeting.

The committee scheduled follow-up work; members said they want more time with staff to resolve how sponsors will be protected, whether affordability criteria should be required, and how VEPC review will be handled for differing locations. The program remains a draft policy vehicle to encourage infrastructure investments that aim to unlock housing development in designated sites rather than broad TIF districts.