Housing division seeks $4 million in base funding for VHIP after more than 1,000 units; ADUs grow but septic and tax issues remain

Sean Gilpin, director of the Vermont Housing Division, and Jamie Bauer, who manages the Vermont Housing Improvement Program (VHIP), updated the Senate Economic Development, Housing & General Affairs Committee on VHIP’s progress and asked lawmakers to make the program permanent through base funding.

The agency reported more than 1,000 VHIP units completed or funded statewide and said the program averages roughly $39,000 of work per unit with an average owner match of about $32,000. "It is a rapid unit creation program" designed to bring underused, substandard or vacant units up to HUD housing quality standards, Gilpin said.

VHIP currently offers grants and forgivable loans. Jamie Bauer outlined two primary program options for property owners: a five‑year affordability commitment tied to HUD fair market rent and a homeless‑services referral requirement, or a 10‑year affordability commitment structured as a 0% forgivable loan (forgiveness occurs annually over 10 years). Grants typically range from $30,000 (studios/one/two bedrooms) up to $50,000 for new or larger rehabilitated units; applicants must provide at least a 20% match and many contribute far more than 20%.

Bauer said the program has prioritized households exiting homelessness by working with coordinated entry and continuum‑of‑care providers; VHIP allows referrals from those providers for imminent homelessness as well as current homelessness. The program’s partners are five regional organizations that administer and inspect projects: Champlain Housing Trust, RuralEdge, Windham & Windsor Housing Trust, Downstreet Housing, and NeighborWorks of Western Vermont (now merged with the Housing Trust of Rutland County in that region).

Officials said tax treatment required reworking the 10‑year forgivable‑loan structure so property owners did not receive a single large taxable grant in year one. Under the current forgivable‑loan design, only the forgiven portion in each tax year is taxable, which officials said reduces upfront tax liability for property owners.

On compliance and enforcement, Bauer said the program requires annual self‑certification of compliance and conducts random audits. If a property falls out of compliance, VHIP can pause forgiveness, place a lien on title, or require repayment of remaining funds; program managers said they have had relatively few serious compliance problems to date.

Bauer said VHIP 2 averages about $44,000 per unit and that roughly 30 ADUs have been completed to date. Paul Matarano of Windham & Windsor Housing Trust told senators ADU projects are often slowed by wastewater/septic questions and pre‑construction engineering costs, and that ADUs have been used as workforce and teacher housing in several towns.

Committee members pressed officials about units aging out of affordability obligations. Bauer said the first cohort of completed units will begin coming out of compliance in 2025, with about 66 units reaching their first compliance deadline this year and larger cohorts in following years; the housing division said it will proactively contact owners approaching the end of their obligation periods. Bauer said analysts had not yet calculated the program’s effect on municipal grand lists but agreed to provide that analysis to the committee.

Gilpin and Bauer asked the committee to adopt statutory clarifications and to approve $4 million in recurring base funding for VHIP so the department and its regional partners can stabilize staffing and respond quickly to new project opportunities. The committee also discussed a requested $20,000 accessibility incentive and clarifying language that VHIP grants or forgivable loans should not be treated as mortgage loans subject to Vermont mortgage‑lending statutes.

Senators said they will consider the request and follow up on suggested legislative language.