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Officials outline changes to Downtown and Village Center tax credit as demand outpaces funding
Summary
State housing and community development officials told the House Ways & Means Committee that a proposed increase in funding and changes to designation rules will expand eligibility for the Downtown and Village Center tax credit, a key tool for downtown revitalization, historic preservation and flood mitigation.
Christopher Cochran, director of Community Planning and Revitalization at the Agency of Commerce and Community Development, and Caitlin Perkins, tax credit and grants coordinator with the Department of Housing and Community Development, told the House Ways & Means Committee on Feb. 5 that the Downtown and Village Center tax credit program is widely used and currently oversubscribed. The governor’s proposed budget would raise annual funding for the program from $3,000,000 to $5,000,000, officials said.
The tax credit program supports local revitalization by helping pay for building rehabilitation, life-safety code work, facades, historic rehabilitation and flood-mitigation improvements in designated downtowns and village centers. “The program was created in 1998. Currently, it awards $3,000,000 in credits annually,” Perkins said during her overview.
Why it matters: Committee members were told the program is a financing lever that helps towns leverage grants and bank loans and that changes to how places are designated will make more properties eligible. Cochran described a redesign of the state designation system that collapses multiple designations into two center types, shifts boundary mapping to regional planning commissions and moves review to a reconfigured Land Use Review Board; that mapping process is expected to start in 2026 and will automatically qualify many more villages for the credits.
Program details and uses: Perkins described the main credit categories and caps: a 10% state historic credit that parallels the federal rehabilitation tax credit (requires National Register listing and federal approval), a 25% facade credit capped at $25,000, and code credits that are the program’s most-used category (50% of eligible costs). Perkins cited elevator-specific and sprinkler-specific caps ($75,000 and $50,000 respectively) and said the catchall code category cap was raised to $100,000. She also described a 50% flood mitigation credit with a $100,000 cap that aided rebuilding after the July 2023 floods. The credits can be carried forward up to nine years or monetized by sale, and Perkins said banks that buy credits typically pay about 90–95 cents on the dollar.
Demand and scoring: Committee members were shown program data indicating annual demand routinely equals or exceeds $5,000,000. Perkins said the program uses a scoring process that evaluates project scope and readiness, budget realism, and community impact; projects must meet a minimum score to be awarded credits. She told the committee that most applications meet the minimum because the program offers application assistance.
Examples and partners: Ben Doyle, president of the Preservation Trust of Vermont, testified in support and described projects that used state credits to leverage other funding. He said the tax credits “are accessible, flexible, and are often the first money in that gives confidence and can help capitalize other projects.” Doyle described the East Calais general store renovation, which combined tax credits with dozens of grants and private donations; he said $71,000 in village tax credits helped leverage roughly $300,000 in additional funding his organization contributed. Doyle and Cochran named partners including the Vermont Housing and Conservation Board (VHCB), VHFA, regional planning commissions, the Preservation Trust of Vermont and the bond bank.
Implementation and next steps: Cochran described pilot partnerships to increase capacity in smaller communities, including a Leahy Foundation grant and planned work with the University of Vermont to place graduate students in towns. He said the designation modernization should reduce the burden on small towns that previously had to apply for designation and will free state staff to provide more technical assistance.
Committee members asked about award redemption and recapture. Perkins said awardees have three years to complete projects and that credits unused because a project does not proceed are recaptured and reallocated to the next year’s pot.
Ending note: Officials asked legislators to consider the governor’s proposed funding increase and to monitor the 2026 mapping rollout, which they said will enlarge the pool of eligible properties and likely increase program demand.
