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Vermont Bond Bank tells House committee it can stretch a proposed $9.1 million infrastructure fund by layering loans and credit enhancements
Summary
The Vermont Bond Bank described how its pooled-loan model, federal-state revolving funds and new low‑cost USDA financing can be combined to extend the purchasing power of a proposed $9.1 million Infrastructure Sustainability Fund, offering direct loans, rate buy‑downs or credit enhancement depending on project scale and credit profile.
Michael Gaughn, executive director of the Vermont Bond Bank, told the House Committee on General and Housing on Feb. 4 that the Bond Bank has for decades pooled municipal borrowing to provide lower, state‑grade interest rates to Vermont communities.
“We have facilitated infrastructure finance for Vermont communities,” Gaughn said, describing a pooled‑loan program that lets small towns access near‑state credit ratings through bond issues that are credit‑enhanced by the state.
Why it matters: Committee members asked how a relatively small, proposed Infrastructure Sustainability Fund — $9.1 million in the governor’s proposal — could be made to have more impact. The Bond Bank proposed three deployment tools: direct low‑interest loans to very small or high‑touch projects; supplemental “buy‑down” loans that reduce a pooled loan’s interest rate for a community; and a flexible source of credit enhancement to help unlock larger, investment‑grade financing for transit‑oriented or redevelopment projects.
Gaughn and his staff explained how federal and state programs already flow through or alongside the Bond Bank. He described the State Revolving Fund (SRF) programs — drinking water and clean water — which are capitalized by EPA grants and state matching dollars and then recycled through loans and repayments. He said SRF loans are “heavily subsidized,” sometimes partially forgiven and often offered at very low or zero interest depending on community need and EPA criteria.
The Bond Bank said it has identified a 2 percent, 10‑year source of funds through a USDA arrangement to finance energy‑efficiency and fuel‑switching projects. Gaughn said that arrangement allows the Bond Bank to make specialized loans for energy projects at a much lower rate than typical municipal financing.
The Bond Bank described emergency flood lending after Vermont’s 2024 floods. The office coordinated with the state treasurer to put federal and state emergency resources to use quickly; Gaughn said the Bond Bank initially made about $15 million in loans and a further $5 million through temporary use of the Emergency Relief Assistance Fund (ERF), and that more lending under a related MCRF program was planned.
Gaughn gave a Charlotte town‑garage project as a case study. The total project cost, including a photovoltaic element, was about $3.2 million; the town used a mix of pooled loans for structural costs and a special low‑cost loan for the PV portion, showing how the Bond Bank can braid multiple sources to lower overall borrowing costs for a small community.
On the proposed Infrastructure Sustainability Fund, Gaughn said $9.1 million “is not a lot of money” but could be deployed selectively: direct lending to small water or transportation repairs; subsidies to lower the effective rate on pooled loans (for example, lending $900,000 in pooled funds and $100,000 from the sustainability fund to reduce the borrower’s rate); or as a credit enhancement to help projects gain an investment‑grade rating and unlock federal programs like TIFIA.
He also described the Bond Bank’s routine use of private capital: the Bond Bank’s bond portfolio is roughly $650 million, with about $24 million in unrestricted reserves (a bit over 4 percent). The Bond Bank sells bonds to private investors and occasionally to local banks, which enables the state‑grade rates passed through to municipalities.
Committee members pressed on mechanics: whether the loans are general‑obligation (GO) debt and how the state intercept works. Gaughn explained most Bond Bank loans are GO backed and that a statutory “state intercept” — never used, he said — would allow the state to withhold funds otherwise due to a municipality to satisfy a loan if necessary.
The Bond Bank emphasized it would partner with the Department of Housing and Community Development and other agencies to set programmatic rules and noted it has experience administering complicated braided‑fund loans, such as SRF and emergency lending. Gaughn closed by saying the Bond Bank sees three practical uses for the fund and that it can combine the fund with its pooled program and federal sources to stretch the dollars further.
Looking ahead: The Bond Bank requested further policy work with the committee and DHCD so applications can be routed efficiently, particularly for very small, high‑touch rural projects that lack administrative capacity.
