SmartTranscript of House General - 2025-02-04 - 1PM

[Speaker 0 ]: Alright. [Witness Michael Gowen ]: Are we here? [Chair Marc Mihaly ]: We are on the line. Okay. I'll welcome you. We'll introduce ourselves. Yeah. [Speaker 0 ]: Thank you [Chair Marc Mihaly ]: very much. Welcome, everybody. It is Tuesday, February fourth. Those of you online are attending the House Committee on General and Housing. And our first witness this afternoon is Michael Gowen, executive director of the Vermont Bond Bank. And I think, Michael, what we'll do is we'll go around, and the committee will introduce itself to you since this is your first appearance with us. And then you can introduce yourself to us and take it away. Great. [Member Mary Howard ]: Thank you. [Member Emilie Krasnow ]: I can start. Rough Emily Craftsnow, South Burlington, Chittenden, nine. [Witness/Assistant Nicole Lee ]: Saudia Lamont, Lamoille Washington District. [Chair Marc Mihaly ]: Hi. I'm Elizabeth Burrows, and I represent one zero one. [Member Mary Howard ]: I'm Mary Howard, and I represent Rutland City District six. [Chair Marc Mihaly ]: Good afternoon. Gail Pezzo, Chitten, Paul Chester. John Drellton. I represent Chester Avenue, Shpraxton, and Wingdon. [Witness Michael Gowen ]: Bill Parsons, Newberry, Thompson, and Groton. [Vice Chair Ashley Bartley ]: Thank you. Ashley Barley, Fairfax in Georgia. [Chair Marc Mihaly ]: Marilyn, Mark Mahali, and I represent Calais, Plainfield, and Marshfield. Welcome to the committee. State your name for the record and tell us what you can. Sure. [Witness Michael Gowen ]: Michael Gaughn. I'm the executive director of the Vermont Bond Bank. I'm also joined by my colleague, Nicole Lee, our senior financial analyst. You may recognize her from Agency of Education previously, so we're, very excited to have her, someone that's familiar with this place. [Chair Marc Mihaly ]: You are lucky indeed. I happen to know. Nicole, do you think you will be participating in any way in the testimony? You might. If you might, why don't you state your name for the record as well? [Witness/Assistant Nicole Lee ]: Certainly. Nicole Weed and Vermont Bombay. [Chair Marc Mihaly ]: Thank you. Please proceed. Alright. Do you have slides that you'd like to have? Probably be I wonder if you [Vice Chair Ashley Bartley ]: have presenters share that. [Witness Michael Gowen ]: Oh, okay. First. Okay. Sure. Yep. Sorry. [Chair Marc Mihaly ]: So I will I do apologize. We have [Witness Michael Gowen ]: we're have one thirty at senate government ops, so be leave just be leaving promptly. [Chair Marc Mihaly ]: I'm half the North Korea, everybody. [Witness Michael Gowen ]: So as I'm loading this up here, I'll sort of give you the the backstory on the bond bank, which I started with. I don't like to assume anybody knows us that well, although I used to say we're the best kept secret in the state. I think that, I think we're over that hump now. We have a decent amount of people that understand what we do. But for the last fifty years, we have facilitated infrastructure finance for, Vermont communities. Our the genesis of the bond bank was that, school districts were growing in the late sixties and had enrollment growth and were borrowing through local banks. Those local banks, different sort of, regulatory environment were hesitant to do the long term financing for those projects. And so we had a bit of a capital crunch. So the solution was the Vermont Bond Bank. We have we're you created us for an instrumentality of the state, like VHFA or VIDA. We have five board members. Four are appointed by the governor, and this treasurer sits ex officio on our board. Our main program for the majority of our history has been a a program we call our pool loan program. And this is what, what we do is we pool loans together from all of your communities. We work with everyone. Burlington has their own credit rating. We work with them a little bit, but not not as much as everyone else. And then we issue bonds that are sort of backed by those loans out in the municipal bond market. And then our bonds are credit enhanced from the state. And as a result, all of your communities get a double a plus rate, which on an S and P basis is equivalent to the state, and Moody's were one notch off of what the state is. And so we don't, we don't risk you know, we because of the credit enhancement, we don't differentiate the rate that we pass along to communities. So it's a great deal for, for your communities, your taxpayers, etcetera. And so, we did that for a long time. In the late nineties, we started doing, SRF activity, the state revolving loan fund, clean water and drinking water, and that that that is part of the story we'll be talking about today. This is how it's an EPA capitalization grant. Historically, it's been eighty percent of the grant, and the state kicks in twenty percent that comes through the capital budget. For the bipartisan infrastructure law, it was this split was ninety ten, but regardless, that money flows in. There's a pot of money for drinking water projects, and clean water, stormwater projects. And, in addition to the capitalization grants that come from the feds every year, there's also a recycling of loan repayments, and that provides the, source of capitalization for those loans. Those loans are heavily subsidized. Sometimes they'll be, partially forgiven. They all have a very low interest rate. Sometimes no interest rate depending upon the need in that community and different criteria from the Cool. [Chair Marc Mihaly ]: ETF. I'm gonna interrupt. [Witness Michael Gowen ]: I'm just [Chair Marc Mihaly ]: asking a question here and also slow you down. So I am I right? I understand that, like, when you guys own money when you guys raise money for a municipality, like, for example, Talus wants [Witness Michael Gowen ]: to Yes. [Chair Marc Mihaly ]: Bonds for a dam. Talus, theoretically, could issue bonds, but those bonds would, god knows how they'd be rated by the bond community because Callist doesn't have much of a credit rating. But right now, as I understand it, twice a year, you guys accumulate all the bond requests by the different communities, and then you issue one bond issue that is the credit rate enhancements so that we get the all these towns get the benefit of the bonds. Is that right? [Witness Michael Gowen ]: That's exactly right. [Chair Marc Mihaly ]: Okay. And then you proceed to transmit you sell the bonds. You get all these millions of bucks. And then you proceed to give CalSA as for half a million, you give them half a million bucks, and they have a contractual obligation to repay you, and that obligation is backed by their full patent credit? [Witness Michael Gowen ]: Yeah. For, ninety nine percent of our bonds are backed, are geo backed, general obligation backed. All ad valorem, you know, taxing authority, full faith and credit. One percent or so are revenue bonds. Some of those are the small electric utilities in the state, and some of those are [Chair Marc Mihaly ]: Are they more expensive for you? [Witness Michael Gowen ]: We to be honest with you, we haven't, we have not financed a revenue bond through that program since I've been there. We've historically passed along the same rate. Those also benefit from our most powerful credit mechanism is the state intercept. So those those bonds also benefit from the state intercept. Also included are not just electric utilities, but also Burlington's water and wastewater utilities. [Chair Marc Mihaly ]: So so when you say general obligation, it just means that the voters I'm gonna use Callus as an example. So you've shipped half a million bucks to Kalos to do the their dam, let's say, and they have a contractual obligation to pay [Speaker 0 ]: you [Chair Marc Mihaly ]: back. Geo means general obligation that if they don't, the voters of Calais must tax themselves enough to pay. [Witness Michael Gowen ]: That's right. [Chair Marc Mihaly ]: Whereas a revenue bond would be different in that it's not backbed full faith and credit of the town of Calais. If it was the utility, it would only be backed by the revenue that was supposedly gonna be produced by the utility, which, you know, theoretically is a little more risky. Is that right? [Witness Michael Gowen ]: That's correct. But in both instances, we do have the the, like I said, we have this powerful credit enhancement mechanism that hasn't has never been used. [Chair Marc Mihaly ]: Okay. [Witness Michael Gowen ]: And we never intend to use, which is that if a community does not pay us, we can intercept dollars due to them in state aid. [Speaker 0 ]: Okay. [Witness Michael Gowen ]: Which is similar to USDA or other other federal programs in which, you know, you might have a a grant or a loan from from the feds. And if you owe them money, they might take that off the top of what they're giving to. [Chair Marc Mihaly ]: Right. And just to clarify again, in terms of the EPA, the drinking water grant the drinking water funds and the stormwater, you guys administer essentially administer the the the loans made under these programs? [Witness Michael Gowen ]: That's right. We're the under statute, we're the financial administrator. The the through the Department of Environmental Conservation, the state does the programmatic, review, underwriting, the, sort of the intended use plan is sort of what the the public document that can be reviewed and commented upon. The state produces that. And then once they get through their approvals, they come to us for a financial review, financial capacity underwriting, and the loans are in fact in the bond bank's name, and we fund those and then manage the dollars that flow into the program, in terms of investing those and Those flow in from the feds and state. That's right. Yep. [Chair Marc Mihaly ]: Thank you. I just wanted to clarify that for everyone. Alright. [Witness Michael Gowen ]: Yeah. And and so then to round things out, so that was in the nineties. And that's sort of where we were, up until very recently. And the, the issues that the state is dealing with have become more complex. The, the capacity challenges felt by municipalities are certainly more acute. And so starting, you know, we've been sort of working on this for a while, but, really starting last year, to be honest. There's a lot of wheels in motion for the last three years, but last year is where we sort of, that's that's why Nicole's here, because our the the volume of activity that we're undertaking increased significantly. So, on for one, we've always done, fuel switching and energy efficiency types of projects through our pool loan program, but we identified it identified it identified a very low cost of source of funds to do that through USDA and have a loan agreement where we'll be now able to do those loans at at two percent for ten years, thanks to that program. [Chair Marc Mihaly ]: That's for? [Witness Michael Gowen ]: Energy efficiency and renewable energy and sort of used ours our expertise in capital markets, deal structuring, working with local communities to to mold that to fit Vermont's needs. After the floods in twenty twenty four, we worked with the state treasurer's office to receive a loan from the what was then the ten percent of Vermont program. We're now part of the two two and a half percent, to make low very low cost loans to communities recovering from the flooding. And, that was proven to be a very successful program. We made fifteen million dollars worth of loans initially, worked with agency of administration after twenty twenty four, did another five million dollars of loans by simply temporarily using the emergency relief assistance fund, ERF, and are going to do more lending under what we call the MCRF for twenty twenty four response very shortly. And then we are working, Nicole is working very hard on some more climate resilience related programs where we, again, use our lending expertise, our expertise in managing money to hopefully identify some more federal funds through a program called Safeguarding Tomorrow Revolving Loan Fund. And so the story here is that we are expert in working with municipalities, making loans, figuring out what their needs are, and then bringing together different sources of funding to match their needs. And I think that brings us to the present and the Vermont infrastructure sustainability fund that was proposed by the governor. [Chair Marc Mihaly ]: You know what I'm gonna do? I'm gonna because I know you've only got fifteen minutes. I'm just gonna lay out for you [Witness Michael Gowen ]: Yeah. [Chair Marc Mihaly ]: One reaction that we've heard because it's a very interesting fund, and we look forward to hearing it. [Witness Michael Gowen ]: Yeah. [Chair Marc Mihaly ]: Is that it's not that it it's just not enough to wonder. Right. Right. And I'm just wondering, as you go along, is there can you accumulate other funds to the nine million proposed Yep. To be to make it, you know, more effective. But, anyway, please proceed. [Witness Michael Gowen ]: Red it's red my mind. Yeah. So why don't I just give you an actual case study on how this might work? So on page four of the presentation you have here, it's our it was our pilot project for the energy loan program I talked about. [Chair Marc Mihaly ]: And share this. [Witness Michael Gowen ]: We're gonna plug in here. [Vice Chair Ashley Bartley ]: So it's really both in title. It's you again. [Witness Michael Gowen ]: Oh, okay. [Member Mary Howard ]: We're just other accounts. [Chair Marc Mihaly ]: And also, we're not supposed to [Speaker 0 ]: do that type. When we [Chair Marc Mihaly ]: when they do it, what how do they share their screen without our head to [Vice Chair Ashley Bartley ]: Everyone that gets invited, I send the Zoom link to, and [Witness/Assistant Nicole Lee ]: then they share their [Chair Marc Mihaly ]: They share their screen. Okay. So as opposed to you putting the slides up and then having to play, you know, keep changing the slides. Alright. So you should be able to go Okay. Michael to the Zoom link. [Witness Michael Gowen ]: If you are looking at page four, you'll see there a great story in Charlotte, the town garage. Burned down. [Chair Marc Mihaly ]: It's not that bad. [Witness Michael Gowen ]: I'm I'm just loading right now. Okay. Still a little bit of time. Okay. Burned down. Cost to rebuild was significant. [Witness/Assistant Nicole Lee ]: There we go. [Chair Marc Mihaly ]: If you share your screen. [Witness Michael Gowen ]: Okay. There we are. Great. [Member Emilie Krasnow ]: It's my hometown. [Witness Michael Gowen ]: Okay. So, there's the new garage. There's our our event for for a service service a pilot project for our, [Chair Marc Mihaly ]: our larger program. But the [Witness Michael Gowen ]: total cost including the, the PV solar on the project was three point two million dollars. So what and then you see there that the town came up with a number of sources at the bottom, for how they would fund this, but, needed the bond bank's help for about, you know, one point eight million dollars or so of the total project cost. So some of that was structural. So we financed that through [Chair Marc Mihaly ]: our pooled loan program that [Witness Michael Gowen ]: I mentioned that we've been using for the last fifty years. And then they have this PV element to it that qualified for this special program that we'd identified. And so, so made one loan for the the majority of the the project and then made another loan for this special application. And so, therefore, we're able to bring down the total project cost, provide them with the flexibility that they needed. And that was really because we have this, you know, understanding of the different sources that are out there and kinda can braid them together in a way that makes sense for that community. So fast forward to the, infrastructure sustainability fund, I have a similar idea for how this might work. Nine point one million dollars, not a lot of money. We're always happy to receive more, should should, it prove to be successful. But here's how we were sort of thinking we would do this. We'll have the fund, and then we have, kind of three ways in which we think we can deploy it. Number one is probably where your head goes, direct loads. Obviously, dollars nine million is a lot of money for revolving loans. But in many instances, we have small projects. The infrastructure needs are significant. Drinking water and transportation is where, I think you had a presentation last week, but that's really where we think the majority of the need lies because the SRF program cannot finance drinking water expansion under the EPA rules. It's a repair replacement program. So that drinking water expansion connecting to the main is part of the trick. Transportation, you know, obviously, as you dig up the road and and build the community, you're you're that's gonna be part of the need. So there will be instances in which that project is difficult. It's a small community, needs help, very high it's a very high touch need. Right? And and so a direct loan is probably going to be most appropriate for that community. But there will be other instances in which our pooled loan program would otherwise provide the right source of capitalization for that project. But the project, given that the community is trying to have that project sort of pay for its own infrastructure, the cost of even our low rate will be too high. And so in that instance, we would use some of the fund to bring down the cost through [Chair Marc Mihaly ]: our pool loan program through, [Witness Michael Gowen ]: kind of a supplementary loan that repays back into the corpus of the fund that is at zero percent or something like that so that we can, you know, take their rate from four percent to three percent and help make the numbers work. [Chair Marc Mihaly ]: Okay. I wanna stop you there just to make sure I understand because I'm not sure I do. But I can so a small community has a small project, drinking water, whatever. It's it's got a project. And so one thing you can do with the nine million bucks is just loan them money Right. At whatever interest rate. It it would it would be it would be your cost of capital plus. Right? [Witness Michael Gowen ]: Well, this would be I mean, we would we would have no cost of capital. Right? So it it would just be about the sustainability of the fund to, in aggregate, hopefully, grow with inflation. [Chair Marc Mihaly ]: Right. So it would be inflation plus a little. Okay. But another possibility of using the nine billion bucks would be to subsidize the cost of a loan which you made from other sources, right, by buying down the interest rate. Right? So it's so if the source was your full loan program, what's the there is what the cost of capital for your full load full loan program is whatever the market tells you it is plus a little bit. Right? Right. And so you could use the nine million to buy down the interest rate. [Witness Michael Gowen ]: That's right. So instead of let's say, otherwise, they'd be take they would be borrowing a million dollars from us. Instead, they would now borrow nine hundred thousand in the pool loan program, and we'd supplement that with a hundred thousand or whatever the number is from the, sustainability fund. And then that money would recycle back into the, the corpus. And then the other way we think we could use this is as a, flexible source of credit enhancement, for potentially more sophisticated projects. So, you know, I live in Burlington. I am on the planning commission there. We recently also in the South End Innovation District, which is by Hula. And that has elements that will be that might qualify as transit oriented development. And, you know, there's a federal loan program. I don't wanna go into all the way. There's a federal loan program called TIFIA that is very, flexible as as it pertains to, transit oriented development. But that program requires an investment grade rating to participate. The city may not be have the ability to put its credit rating on the line. And how do we credit enhance that project to allow them to unlock other sources of financing? So that would be the third application of the of the fund. Do you [Chair Marc Mihaly ]: ever work with private capital where you underwrite the loan or you provide credit enhancements or you buy you do things so that you're leveraging private money? [Witness Michael Gowen ]: Well, almost everything we do is leverage private money. Our bond portfolio is about six hundred and fifty million today, and we have a, unrestricted reserves of about twenty four million or about four you know, a little over four percent of that total. The rest of that is through the sale of bonds to private entities all over the country. We've also done, transactions in which we sell to local banks. So we've we did a transaction with Northfield Bank that was successful. And so you can certainly see an application where, you know, these developments, are, untested, in some cases, and there might be some risk associated with that. We help mitigate that risk, and then ultimately, the the bond or the the loan is placed [Chair Marc Mihaly ]: with the local bank that we owe. So in other words, let's say we have a small project in rural area. It's just nothing more than eight hundred. And they go to Northfield, and Northfield says, no. We we don't know you. You're too risky or whatever. Or the infrastructure is too risky. That's what I'm talking about, the infrastructures in that town. They're just not gonna do it. You, in some way, you assist the lending process? [Witness Michael Gowen ]: Right. And I think we've you know, I've advocated for I think this may this committee may consider at some point, special assessment revenue bonds. Right. And, certainly, there that is a a useful mechanism, another tool in the toolbox so that infrastructure can pay its own way, the development can pay its own way. And if that's the case, your only, credit support for that loan is that development itself. And so then it starts to become a little riskier than things that are backed by the general obligation. And so that's a great fit for a program like this where, you have certainty that you can that you can pass the bond because it's those those, property owners, not the town vote. So that provides certainty for the developer, but it's a little bit higher risk. And so here's a more patient source of capital for that type of application. So that could be either a direct loan or it might be, some sort of, credit enhancement if they're with their construction lender, or whomever. [Chair Marc Mihaly ]: When you say credit enhancement, weren't you speaking with through the committee? [Witness Michael Gowen ]: Yeah. That's that could be, there's a numb I mean, I don't wanna define exactly how that might work. That might be that we just use the the sort of corpus of the fund if there's a shortfall in paying back that loan that that might, you know, fulfill that, that missed payment. [Chair Marc Mihaly ]: A guarantee of some sort. A guarantee. Mhmm. Right. [Witness Michael Gowen ]: Yes. And that might be full or partial. [Chair Marc Mihaly ]: Yes. You're sort of a green bank. [Witness Michael Gowen ]: We are the original green bank. We think that term is unnecessary in some ways. It's not it says. [Chair Marc Mihaly ]: It's not necessary. No. You don't have to do anything special. It's just [Witness Michael Gowen ]: That's right. We've already got it. Yeah. I mean, we've been doing wood pellet, fuel conversion since the nineties. So certainly understand [Speaker 0 ]: that. [Chair Marc Mihaly ]: Do you have any other thoughts about the infrastructure sustainability fund you wanna share with us? I think that I think [Witness Michael Gowen ]: that covers it from now. Obviously, the the sort of funnel in which we receive applications would be something to work closely with DHCD on and develop programmatic requirements around that. We have some experience doing that recently with, a grant we received from DEC to do assistance for small water systems. So it's not something that's unfamiliar to us. [Chair Marc Mihaly ]: It's it's I I would say in my invite others to ask questions. I would say one of the impressions we have is that if we're really talking about rural Vermont, we're talking about very small projects that almost and very, very small administrative capability, if any, to really go through complicated processes. [Witness Michael Gowen ]: Yeah. And that is something I mean, we not to I mean, I guess I'm here to sort of say how great we are. But, we have a lot of experience working with super small communities. Our SRF program the SRF program in particular, the state revolving loan fund, SRF. We're working with water districts sometimes that have forty users in that system. And so we see municipalities from Yeah. I'm not saying that's a good thing. Okay? No. I'm talking [Chair Marc Mihaly ]: about my town. [Witness Michael Gowen ]: Yeah. That's that's an entirely separate conversation. [Chair Marc Mihaly ]: But we're [Witness Michael Gowen ]: working with everyone from them to the city of Burlington to the Vermont State College system. So there's sort of no scale that we don't understand, in other words. [Chair Marc Mihaly ]: One of the things members of the committee have questions? One of the things that he did mention, which I just would like to tease out since we have two we have him with us for two more minutes, is you mentioned assessment districts. Right now, in an assessment district is is essentially you draw a circle around a project, and then the property owners in that circle are assessed a certain amount each year. And that assessment is the basis for for issuing bonds to build whatever it is that they were wanting to do, you know, roads, schools, whatever. Whatever it is that, water districts or whatever or or for that matter, septic system. The property owners can assess themselves, pay for it, and it's spread out over, what, twenty years, thirty years, the life of the bond. [Witness Michael Gowen ]: Yeah. That would exactly, that'd be the theory. Right now, that's allowed. It's just that you can't secure debt solely by that special assessment without going into all voters in a in a municipality. [Chair Marc Mihaly ]: So the problem yes, Jeff. I'm just trying to [Vice Chair Ashley Bartley ]: find a comparison. In my mind, what you're explaining sounds a lot basically, a TIF district, but instead of a tax, it's yours agreeing to a low payment. [Chair Marc Mihaly ]: Relying on the increment. [Vice Chair Ashley Bartley ]: Right. You're It's just You're not relying on a tax. You're relying on a loan payment. [Chair Marc Mihaly ]: Special. And it's used all over the United States. Yeah. You're putting in a road. What you do is you take the the people who are affected benefit. Some places, it's called a benefit history. [Speaker 0 ]: You draw a circle and you say, these are the people that [Chair Marc Mihaly ]: are gonna pay the bonds off. You issue the bonds to build the thing, whatever the thing is. But the And and then they pay those property owners when they get their tax bill in addition to the other lines that are on everybody's tax bill. There's another line, which is your special assessment for the year. Okay. Yeah. Okay. Often in other jurisdictions, as I understand that the the vote to do it is a vote of the people who are gonna be attacked, and that's the end of it. And in Vermont, it can be the whole town of voting so that the whole town gets to vote on whether some of them are taxed, which is what I think, Michael, you were saying is something we would have [Witness Michael Gowen ]: to work on. That's right. And but there the term of art in the industry is land secured finance Right. Special assessment. You'd be viewed the same way. Obviously, one is a little bit more beneficial than the other, but, very similar mechanism. [Chair Marc Mihaly ]: Okay. [Vice Chair Ashley Bartley ]: And then as people move in and out of housing, that kind of [Chair Marc Mihaly ]: It's it comes with the house. I was [Vice Chair Ashley Bartley ]: gonna say, yeah, like a decade. Yeah. [Chair Marc Mihaly ]: It just comes with the house. Yeah. Okay. Michael, thank you. Any other final questions? I have a feeling we might [Speaker 0 ]: have you back. [Witness Michael Gowen ]: Yes. I'm sorry if it's such such an abbreviated time here, but thank you so much. Nice to see everyone. Nice to meet everyone. Thank you. [Chair Marc Mihaly ]: CB, are you going to want to I don't see you. I have both of you up there. It's a cool Grab a chair. Grab a chair. Yeah. It is are we still alive [Speaker 0 ]: or paid the bill? Yeah. [Chair Marc Mihaly ]: It is still Tuesday, February fourth, and we have heard from the Vermont Bank. And now we are going to get a little more deeply into the cost of housing and other related issues. And we're gonna start with testimony from two representatives of Vermont Housing Conservation Board and then also Kathy Beyer from, Evernorth. I think you I think, Gus and Ollie, you know everyone on this committee. So I think that we should proceed immediately in your testimony. If you have slides, share your screen so that by way of explanations to the committee members, this is a sort of an ongoing effort to bring people in, talk to us about the cost of housing, what's involved with that cost and different kinds of housing, and how what kind of contribution to that cost these agencies make in terms of how they finance it, how they put it together. Thank you. [Speaker 0 ]: Thank you. Please take your way. So for the record, Gus Silo, the director of the Vermont Housing and Conservation Board. I'm Holly Major. I'm the policy director for the [Witness/Assistant Nicole Lee ]: Vermont Housing and Conservation Board. [Speaker 0 ]: So, to begin with, let me just start by saying thank you for having us back. And let me also say that cost and cost containment is always on our minds. And as we go through the presentation, see the various ways we thought about and tried to manage cost in a really difficult environment of the last four years of the pandemic. I think, whoever then, of course, since I recall you saying in a previous year that bunch of the best people in your part of the world were very busy building, very expensive housing. So labor shortage is a piece of what we're all trying to manage. The atmosphere in which we were working also, the legislature asked us to do a couple things. One was to go as fast as possible, and that was partially in response to the big increase in the use of motel program and the big increases in homelessness we saw. This presentation also is gonna focus on leverage and return on investment. And I would tell you that when you look at our enabling statute, it asks us to consider the ability to leverage the state's funds in order to get more for the taxpayers by bringing other dollars forward. There are dollars available that are only available for housing. They come in some very difficult ways. You heard from Mark Collins about the tax credit. It's not the smoothest thing, but it's the biggest tool the federal government gives us to build and rehabilitate housing. So we're trying to make use of that. There's a variety of other resources that are not always available for things except by their location. For instance, there's something called the historic the reinvestment tax credit, and that are known as the historic tax credit. And we always try to bring those dollars in while we're working on a historic building. It wouldn't be available for so we may build a more expensive building or rehabilitate a more expensive building in downtown or a village center, but you couldn't transfer those dollars to a greenfield in order to get us a less expensive property. Same thing with the cleanup of an environmental pest. There's some type of money available in the agency of natural resources or from the feds. You were gonna get site cleaned up. You wouldn't get those dollars. So price tag looks higher. But that but we try to leverage those those dollars. I wanna assure you that this keeps me up at night. Whether it's project I wanna do on my home or it's project with the public's dollars. And you'll also hear that we work, and Kathy can speak to this more probably than we can, but we'll give you at least an example of how we value engineer. The chair asked me to just briefly review the role of the housing and conservation. So we are the primary administrators of what are either grants or long term deferred loans from the state to build housing. And when we were created, the state spent nothing on housing back in the eighties, and we were really the beginning of the state intervening at a time that the federal government had really cut back its federal commitment to housing. So we work as a we are not involving money right away, but we talked when we were in before about permanent affordability, and we are getting a long term benefit for the public in return for it. We are not the only program, and there are other programs that try to provide other kinds of benefits like the NEHIP program. So with that, I'm gonna get into the slides as as an overview and just begin to get to this very first photograph is the transit center here in Montpelier, and it speaks to the kinds of things I was talking about. Patty first got funding from the feds because it was a polluted, contaminated site in the early nineteen nineties. And when we finally took this project on, it was because DEW, a really good construction development company, had planned to build market rate housing above the transit center, and they couldn't make the numbers work. And so they pulled out of the project. The city of Montpelier was at the end of when they could keep the federal money, when they were gonna turn it back for this fifteen years in the planet. Maybe longer because governor Scott was actually at the groundbreaking for this. And so, again, it's a cleanup of a polluted site and the bringing of public subsidy forward in order to bring the cost down to a place where people of modest means could afford the apartments. [Chair Marc Mihaly ]: Do you have a question? Go ahead. [Member Mary Howard ]: I don't have a question, but I just wanna comment that we took a tour of that building and the apartments Yes. A few years ago, and they were very nice. [Speaker 0 ]: Yeah. I mean, on one side, you're looking at the river and Mhmm. Very nice apartments. They're looking at [Chair Marc Mihaly ]: the Golden Dome. Right. Right. [Speaker 0 ]: So it's a wonderful place. Some of those some of the units in that building are very people up to a hundred twenty percent of median are hundred percent of median, and some are the people who are very low income. We showed you this slide before, but wanted to bring it back to say we're doing a lot of different things from a shelter to rental to homeownership to mobile homes to farmworker housing to accessibility improvements. And when you look at what we have committed for almost five thousand families, the cost here, the the difference five you saw from a different metric is actually under eighty thousand dollars per unit, but they're not all the same kind of projects. So so and we'll talk about our most expensive projects. So we do a lot of different things as I just said. And for the multifamily rental housing over the course of the pandemic, the median cost was around three hundred thirty thousand. Our investment was about a hundred thirty five thousand. What you see here ranges, again, from permanent supportive housing on Main Street in Burlington. And then I think this is one of the projects from Laura Collins who's maybe not naming, but describing to you a really difficult site to get materials to to move in and out of, but it was also a site that was free. And the reason it was free is because Katz already owned the building right at Frontside Main Street. So they had room in back to build another building. It was a difficult site to work in. Also, very well located for permanent supportive housing for families who had experienced homelessness and some economy of scale at the service end of what they're trying to do because they're already on location there, with a family. Question. [Chair Marc Mihaly ]: So when you say since twenty twenty, you have averaged total development cost. That's all in for the for the rental part [Speaker 0 ]: of it. Now over the last year, costs are higher than they were the first year of the pandemic. [Chair Marc Mihaly ]: So the three thirty, which seems low in the sense that it's better now, it's because it's all forty. It's four years [Speaker 0 ]: or almost it's four years during which time the costs keep going up. Right. And among the things we have done, which we'll speak to in a minute, is turning hotels into ads. First few hotels we bought, we got at great prices. The most recent hotels, much higher. Also, different levels of leverage. So this chart really speaks to several things, and, Pauly, please add. But the first three projects are shelters where the state investment is most of the investment, which is to say to get a shelter up and running in Berlin, Vermont, because Washington County had very little shelter capacity or the two field shelters up in Saint Albans, there wasn't the ability to raise other money. You can't use tax credits for shelters. That's not allowed by the IRS. As you go across this, you'll see, the the, it's hard for us to see [Chair Marc Mihaly ]: the detail. The dark blue is The dark funds? [Speaker 0 ]: The dark blue is our so one of the stories you're seeing is when you get to the more expensive projects at the far end of the chart, you're seeing lots of yellow and the blue is the light blue is other funding other than the state investment through us. So that's what again, to go into the question of leverage, are we bringing other dollars to the fore to help get these places built? That's what we're trying to do most of the time. Because the we needed the shelter so quickly and because there was no time for a fundraising campaign with what was called CRF funding, which had to be spent within nine months of when the state got it. We just said we're gonna pay the whole tab, and that's what happened there. [Witness/Assistant Nicole Lee ]: Just to add to what Gus is saying here, when we're talking about cost, we're really talking about two different things. We're talking about total development costs, so the full length of those bar graphs, what it really costs to get materials, labor together to build these buildings. Land, everything. Land, everything. The other thing we mean when we're talking about costs, and it's a very different number, is the cost to the state to get that asset. And so the cost to the state is that blue, the dark blue, the VHCD investment. The total project cost is that full line. And sometimes we can bring down the total project cost by increasing the state investment. You can see there's different types of housing here, some of which, like hotel conversions in the middle, cost the state more but cost less to create a unit of housing. And on the far right, new net new units cost more to build, but costs the state less to get that flat [Chair Marc Mihaly ]: little trouble. But is in other words, these these last couple of projects, you're talking about more than five hundred thousand dollars a unit. Right? Between five and six hundred thousand total development costs. [Witness/Assistant Nicole Lee ]: Yep. But most of that's being made up with private equity. [Chair Marc Mihaly ]: Right. I understand. And those were they, like, historic preservation projects or other were there were there as cost driven up by being [Speaker 0 ]: These three these three projects in particular were just new construction projects, but we'll show you some historic preservation projects. [Chair Marc Mihaly ]: But these were just straight new construction at six hundred between five and six hundred thousand well, yes, for the last two a unit, but of which a whole bunch came from this cost of the state. [Speaker 0 ]: It's a lot much less low. Right. Yeah. Because we're trying to get those other dollars to be put to work. So you saw a slide a week ago again in another presentation that said and it's act was accurate. Five hundred fifty four thousand in public investment and other investment, but that's not what the state is paying. So, the other thing we think about is what the return on investment is, and but to the community. So the Abuchon, the French block here in Montpelier is a nineteen unit development. And that space had been vacant since the nineteen forties. We had a similar story at the Key Corner in Bennington a couple years ago with Putnam block, where it had been vacant since the nineteen seventies. When we went up there with our lead paint team to measure lead contamination, it got the highest reading valve that it's capable of reading. It was a rabbit one. To give you a thought about how to save some money, and my friends at historic preservation will be unhappy with me. But, mister chairman, you saw this project a year ago. They made us keep three internal staircases and glass them in. Their fire safety would never let you use these staircases as an exit again, but they loved the historic nature of those staircases. That changed the nature of the layout, and we lost three units. So it made the project much more expensive because the basis went from twenty two prime units down to, like, nineteen. So you should have a discussion with the historic preservation folks. You can blame me for having had it. They know That's this is a pet peeve of mine, but that's one way we can make thing the cost of things go down. But for the community, just as with the transit center where there was a polluted site, getting people housed within a five minute walk to the supermarket, six minute walk of the library, a few minutes movie theater, to a great bookshop, a great coffee shop, and getting this back on the tax rolls was a big win. Same thing with the transit center. Big win for the community even as it was very expensive. And, again, here are lots of private equity. Just go back. Just one other point to make here. The largest source of dollars we're getting to make these deals work comes from tax credit equity, either the reinvestment tax credit known as the historic tax credit, which I've used on a project like this, or the low income housing tax credit. There is significant debt, and we also thought as we looked at the numbers that fundraising of thirty two million dollars by a variety of people was also a significant number. So those are some of the places funding is coming from to make these things work. A big part of what we've done over the last, four years has been to make much more use of the four percent tax credit. And I think Maura talked to this last week, explained there's a nine percent housing tax credit. It's about twice as valuable as a four percent credit. And, therefore, this credit didn't get nearly as much use until the state had more money to unlock it. It's not like we can take these dollars and get investors to invest in things other than housing projects. So it is additional revenue to the state when we get them. It helped us invest in more than a thousand apartments around the state. And, actually, we did more than twenty three communities. Our database just prints out sometimes we have a multi town project. Just prints out the first community that it comes to. So we'll probably hit twenty five, twenty six communities with this program just in the last forty years. Who's build up? Who do we work with? These are all the organizations and entities that we work with. They are primarily nonprofits who do housing work, shelters for the home, or organizations that provide shelter for people who've been on on house, but a variety of other kinds of groups all across the state, including groups like Summit Properties that was on the channel three news, probably several other news channels about the big development that we're beginning with them in Middlebury. We'll work with anybody who has [Chair Marc Mihaly ]: a a great idea and a good project. Include someone is a private developer. Private developer. And and if that's not unique for you, I [Speaker 0 ]: mean, do you work? We'll talk more about nonprofits as we go through this. We are instructed by statute to work with nonprofits. They are the eligible applicants for for our state funding. We generally provide federal funding to private nonprofits, and we'll talk more about that when we go through. But we've not turned down a good project since the pandemic began. That's been one of the beauties of this situation that we've been in. Who does the work on this? You don't you can look at this another time, but lots and lots of small Vermont companies and some larger companies, including a big international company like Otis Elevator. What's driving cost? One of the things that drives cost is the availability of elevators and the labor to install them. So you we'll talk in a bit about project in Saint Johnsbury, but the opening was delayed for more than four months because the elevator didn't arrive. And then when it did arrive, it needed to sit and wait for the labor. Kathy's shaking her head because she was the general partner on that project. And what what did that mean to cost? It meant the construction loan, which should have closed in June, didn't close until October. And over the course of the pandemic, construction the cost of borrowing for construction went from three percent to nine percent. So if you're doing a fifteen million dollar project, nine percent, even for a year's time, fifteen months' time is a lot of money. So those are some of the other factors that have been driving us through the pandemic. We're usually often asked to fill a gap, a market gap, a market failure. The building on the left is in downtown Bellas Falls, and what it was was a concrete structure built, I think, in the nineteen twenties. And it had not been used as a garage, I think, for quite a long time. The developers originally thought that they could reconstruct the building with the garage, and when they actually tested the cement, they found it was a cheaper kind of cement that they should not rebuild. So we saved the front facade. There's twenty seven beautiful apartments there today. Some look out at the canal there, and it really is the entrance into Bellows Falls. Project we're working on right now is the redevelopment of the old Bennington High School. And, again, it's been vacant for thirty years. It is gonna be used not just for thirty two units of housing, secondhand work with the affordable. It's supposed to provide child care center, space for the live gyms, likely performing arts in the auditorium, lots of community uses. The town of Bennington sees this as so essential that it's committed three million dollars toward the renovation. The governor's proposed adding a million dollars in its budget. Private developer working on this originally proposed this to us at about four hundred forty thousand a unit. [Chair Marc Mihaly ]: Which one though? High school. [Speaker 0 ]: High school. We got a budget a week ago that is well north of six hundred thousand dollars. We'll have to decide what to do with that. [Chair Marc Mihaly ]: Is the I'm confused. The slide says public subsidy where the market can't function. Okay. So, like, for example, the Bellows Falls garage, why can't the market the private market handle that? Nobody [Speaker 0 ]: took that site on or a couple of other sites that we've been involved in, Bellows Falls over thirty years that I think you visited last summer, the the old building that that converted to housing for artists, a single person in the living. Fundamentally, the numbers don't work. If a private developer could have taken that site and done something with it, I think they would have. Lots of people have thought about buying the Bennington High School over the thirty years. I know of at least two or three prior attempts. And when they looked at what it cost, they walked away. We're in the midst of a redevelopment at the Sacred Heart complex in Newport, phase one. It's gonna add to the old convent building, but Russ Engels, who's a realtor, will tell you he's he said to us this morning when we were in the ag committee and the other body, I walked four different clients through that building, and we all said, numbers don't work. I can't do this. It's way too risky. So this in in this slide, the cost to build you have the cost to build a new home in twenty twenty three is six hundred and fifteen thousand. Right. A new single family home in twenty twenty three, according to finance agency, cost six hundred fifteen thousand. And what we are saying to you is whenever we've looked at what it cost to be able to build a single family home in Vermont, cost of building multifamily rental housing is not far behind. Why is that? I think it probably goes to what the codes are, what the inspection requirements are. I think what you what somebody could do, like, the the fellows who worked on renovating the house I live in today, working out of the back of their pickup trucks could do. You can't do and get financed to build multifamily housing that's gonna cost millions of dollars. Your lenders and your investors simply have more requirements than somebody working on the back of their pickup can manage. [Witness/Assistant Nicole Lee ]: I can add here. What you're seeing in these two pictures is affordable housing developers taking on projects that the market could not take on because they didn't cash flow in a way that would generate return on a profit. Affordable housing developers are non profit developers. They're also for profit developers. We see the project type really driving the project cost, not the developer type. So we're seeing nonprofit and for profit developers bringing us similarly priced projects. [Chair Marc Mihaly ]: So you work with for profit developers as a in addition to nonprofit developers. Yes. The the developer of the high school is a private for profit entity. [Speaker 0 ]: And, again, they thought they could do it for much less as they've understood, you know, environmental cleanups, flood mitigation, historic preservation. The costs have gone up more than two hundred thousand dollars per unit. So they thought they could do it the way they were doing. Lots of other smaller projects, and they've found that it's far more difficult. [Witness/Assistant Nicole Lee ]: So I can talk a little bit about what are we seeing that what are the cost drivers that we're seeing in the market today? And also, I'll kind of go on to talk about how are developers working to contain these costs, knowing that we have one of the expert developers in the room, and Kathy, and so you're going to hear from Kathy after us. What do affordable housing developers do to leverage other sources to bring down that cost to the state, create more housing, help the public dollar go further? And also what can BHCV do to decrease the cost either to the state or the total project cost? So we're looking at what are the cost drivers. Some of the main ones that developers and builders point to are the hard cost, the labor material, the energy, the investment needed to bring a building up the state's energy codes. There's also the costs that are offset sometimes by those, by those other incentives. So the historic requirements that you hear Gus talk so much about and the site cleanup that those brownfields site cleanups. And then there's costs like time. Anytime a project is delayed because the permit delay or the permit timelines, construction delay, the amount of time it takes to compile the financing for that project. Because we're seeing our costs escalate right now in this economy, that increases the total project cost. And we're also very, cognizant that there are these gonna be future pressures on costs with, potential tariffs, with something called the Build America United America, provision for federal funding as well. [Chair Marc Mihaly ]: Under the BABA, does that would that mean tariffs aside that materials that come from Canada would not I [Witness/Assistant Nicole Lee ]: can talk about BABA later, but, yes, there's a provision included in in ARPA, I believe, that says that for federal for building projects on the federal funds, they need to purchase whenever possible, American materials. And so lumber is a classic example where the lumber is built in Canada, and so we're not able to purchase the most cost effective mother at this point next to the border. We've seen rapid escalation in the cost of building supplies and labor. Red is labor, green, blue is building supplies. This is an older chart, but the point I wanted to leave you with here is that really rapid escalation we're seeing in the building industry since twenty twenty. And this isn't just Vermont. And it's not just the United States, the global industry. So there are factors that are beyond control of the developers that we work with. So what are some things developers do to contain costs? Affordable housing developer has a very serious incentive to keep construction costs as low as possible while creating a quality home because they're limited in the rents they can charge and how they can finance that constructions. So like we said earlier, we see nonprofit and for profit affordable housing developers having roughly aligned cost per unit, and we're seeing that align with what the market size these are. All projects are competitively built or have a procurement process. So we're looking to review the way the public dollars are being spent here to ensure that they're going to the highest value materials that are most efficient. And then these projects are also going through a process of of value engineering, which is looking at the building design and the choices that are made in that design saying, is there a way to maintain quality while using a more cost effective material or making a more cost effective design choice? And, an example of that is Firehouse Apartments in Bristol here that was developed by Addison, Housing Works, a nonprofit in partnership with EverNorth. And that went through several value engineering processes. And in the end of the day, it saved three hundred thousand dollars in the the total cost of [Chair Marc Mihaly ]: of the [Witness/Assistant Nicole Lee ]: whole building. And then some of the decisions I just want to share some of the examples. Some of the decisions being made are whether to emit soundproofing in between stories. Really important for apartments, but it came at a cost of four hundred sorry, forty thousand dollars And then they're also looking as small as changing the size of one of the water heaters and saving a little less than two thousand dollars on that decision. So this is really going through these projects with a fine tooth comb to really decide how to make them most cost effective and bring down that total project cost. And when you design as efficient building as possible and still have to find those funding sources, that's when we start and developers start looking at what sources can you leverage can we bring into the state to offset [Speaker 0 ]: the cost of housing? Just before you leave this slide, this was a project that a fellow in Bristol, very attached to Kennedy, worked on for probably a decade. He wanted to make it condominiums for sale. And when the cost hits something like three twenty five a unit at that moment, he said, that's too risky to market. We're not somewhere at home ownership at that time at that price. And that's when our local nonprofit and network were invited in to replace them so that the community could still, having done all the planning work, get the twenty units [Chair Marc Mihaly ]: built. How much would a unit like that cost the tenant? [Speaker 0 ]: So the federal government, when you use tax credits, sets a maximum income and maximum rent. And I can't speak to it exactly in Addison County today, but I'm gonna guess that a two bedroom might be eleven hundred a month, something like that. [Witness/Assistant Nicole Lee ]: Mhmm. A little less. [Chair Marc Mihaly ]: With A one heat included. [Speaker 0 ]: With heat included and a one bedroom less than that. So so you're when we say you're limited as to your income [Chair Marc Mihaly ]: Mhmm. [Speaker 0 ]: You know, I I could imagine in Bristol's market today, you could charge eighteen hundred and two thousand a month and somebody would pay it, but not the same people who would otherwise get to who cares and meet the text. We could think of it. [Witness/Assistant Nicole Lee ]: So we've talked a bit about buildings that are at the center and part of communities that the private market hasn't found a way to redevelop in a way that's gonna cash flow for them. And so affordable housing is able to step in and rehab those buildings and get them active on the grand list contributing to the community. So here's two examples again. One, new avenue done by a local nonprofit developer, Girl Edge, in partnership with Evernorth and another that was developed by a for profit developer, M and S Construction in Brattleboro. And these two buildings were able to be were the financing is able to come together in these two buildings because they're able to take advantage of very specific examples. In this case, new avenue was able to take advantage of the historic and downtown tax credits, flat street of the, historic tax credits. And so while those having to when you take advantage of these tax credits, you have to meet the requirements of those tax credits. And that adds cost to the project, but that cost is offset by the equity brought in, by these programs. So in the, example of New Avenue in Saint Johnsbury, it was fourteen million dollar project, and two million dollars of that came from the historic tax credit program and another four hundred fifteen thousand from the downtown tax credit program. [Chair Marc Mihaly ]: Well, I'm gonna go over this for a minute. So you're saying the tax credit is essentially free money, but for the project, it it requires it has a lot of requirements that drive up the project beyond what it might cost if it wasn't a tax credit deal. But the extra money that the tax credit throws into the [Speaker 0 ]: project offsets or more than offsets that extra cost? It it it usually, it's offsetting when it isn't in both these cases. Going back to the question of return on investment and the story, as I understand in Saint Johnsbury, you might correct me. Whole community decided this building needed to be turned around. So there's a different kind of return on investment beyond the financial thing. You had nine almost ten thousand square feet of commercial space that had been mostly vacant, right, for over close to three decades. So it was a drain on them. And so you get you're getting that kind of return as well. But, yes, doing a historic building is usually more expensive. Complying with the secretary of standards adds cost, and that historic tax credit equity usually offsetting that additional cost. But the sticker price makes it much higher. So [Chair Marc Mihaly ]: when you say that a private developer was unable to I mean, unassisted was unable to make this work, it's because perhaps their costs might have been less. Perhaps, but maybe not. But in any case, they wouldn't have had the free money of the tax they wouldn't have had the tax credit money. So with debt and equity only, it wouldn't have it wouldn't have been possible. That's why they pulled out or didn't do it. Well, in in the Brattleboro case, that vacant building had sat vacant for thirty years. [Speaker 0 ]: So whoever looked at it and this is, like, catty corner from the wonderful food co op in Brattleboro. Great location, but I can't speak to why they couldn't make the numbers work. But they you know, this is one The one on the right, building in Brattleboro was developed by, as Paulie said, by a private developer. They initially thought their costs would be in the mid fours. When they got done, they were in the mid fives well, mid fives. So, again, to the question of our for profits or nonprofits is one more cost effective or not, really goes to building type, we think. And these projects tend to be very expensive. [Witness/Assistant Nicole Lee ]: Another, type of incentive that gets utilized for these buildings is, brownfields. Brownfield incentives that help to clean up polluted sites. And so that's a really important source for these downtown projects as well. And if, again, you have to meet certain requirements that's bringing up the total project cost, but that cost to the state is less and we're able to create these homes where otherwise the buildings that often set underutilized are vacant. I'm going to move on quickly if you're here for the sake of time and your questions. A place where we're seeing the incentives not to be case with the, costs to to do the work is in the energy sector to, exceed the state's building energy codes to fully electrified units. It's about twenty five thousand. And Kathy [Chair Marc Mihaly ]: Yeah. Go ahead. [Member Emilie Krasnow ]: Yeah. With that in mind, in South Burlington, we have, like, an ordinance that has all the new construction has to be energy efficient and certain codes. If that was something that was a statewide, would that really disadvantage development? [Speaker 0 ]: Well, what I can tell you is according to White and Burke at their conference, they had a presentation that said that the combined cost increased cost of labor and law and energy codes was adding fifteen percent Fifteen? To the cost of development. Labor plus energy codes. I think that was what the statement was. I did I was not at the conference. I saw the slides afterwards. What we can tell you is we would estimate not less than twenty five thousand dollars in cost to meet energy codes in DuPont, and some of my staff think it's higher. And the contribution from various energy incentive programs is about one percent. It's only a bunch of stuff. Oh, Oh, wow. Okay. You know, when you were looking at the prior slides, we were running through. But for the at Calvary, there was an environmental cleanup that contributed over a hundred thousand dollars per unit to getting that development built. [Member Emilie Krasnow ]: Okay. So would it would add substantially? Because, obviously, retrofitting is more expensive, but we need to get units online. [Speaker 0 ]: Yeah. I mean, I think we need what I would say to you is you should have a conversation with your committee on energy because I think there's a whole conversation we had [Member Emilie Krasnow ]: Yes. [Speaker 0 ]: About how the incentives work and how they sometimes the solar incentives, somebody of my income can take advantage of, but we're not getting that same benefit, for multifamily housing for people with modestness. So I think we have it kind of backwards in terms of where some of the incentives are. [Member Emilie Krasnow ]: I think that would be a helpful conversation. Thank you. [Witness/Assistant Nicole Lee ]: Some things that BHCV does to contain cost is, again, use the Vermont state dollars to seek additional resources, leverage those funds, help them build as many units as possible, and we've used that really effectively in the last four years with the four percent tax credit program that Maura Collins at BHFA administers. We also invest in a range of housing types, and I'm gonna talk about how that is a way to help the state dollar go further and do housing debt is less expensive than, the new construction that we need. And also work to collaborate with other funders and to minimize the regulatory requirements and compliance requirements so that the burden of accessing those funds is is to minimize. Not going to Well, on leverage, as we've talked a lot about it, but we're always happy to answer questions, but this is one of those examples where, again, the state dollars, the HCB dollars are in blue, and then the tax credit is in orange, and sometimes we are increasing the state dollars in order to get orange dollars that otherwise wouldn't be available to the state. We're always looking for new models to bring affordable housing into the state's affordable housing portfolio. Here at the HCB's history, we've done hotel conversions. First one, Grandville and the Nine discuss. In twenty twenty, we saw them as very cost effective, and then the cost of hotels went up as they started getting used for hotels again. That made it a less cost effective strategy, but still one that when there is a good opportunity that developer sees to convert a hotel into a lot of apartments, we saw this Mountainvale Apartments done by Turin Pines House and Trust in Hartford. That's one recent project. We're still seeing these come forward. They're great opportunities to bring a lot of units online quickly whenever possible. [Member Mary Howard ]: Are you aware that the what what is it? The Holiday Inn Cortina Inn in Rutland Town, and it's closed, and it's up for sale. [Chair Marc Mihaly ]: I heard they had a problem [Speaker 0 ]: with health on that site, but, yes, I've heard it's for sale. Were some big health concerns, but you may know more than I do. [Member Mary Howard ]: Is it possible that the state might be interested in purchasing that hotel and building apartments. We're I think we're always interested. [Speaker 0 ]: And Okay. And we would look carefully at at that if that makes sense. [Member Emilie Krasnow ]: It's a good spot. [Member Mary Howard ]: And and it really is. I mean, there's you know, right there is a shopping center. There's buses. Yep. You know, there's there was a pool in there. I think it would be a good idea. Thank you. [Witness/Assistant Nicole Lee ]: We also work with, manufactured housing when that are possible. So here's an example in the center picture. Seven, highly energy efficient manufactured, housing units going into a park in Bennington. Then we work to preserve affordable housing that already exists. That can happen in two ways. The picture here, Dorset Commons, was housing built, operated through the private market that was affordable to the tenants but was going up for sale. Champlain Housing Trust purchased it in order to keep it affordable to those tenants. There's also, in our statute, it asks us to prioritize preservation of affordable housing when that housing has been built with public dollars with a shorter term of affordability. We require affordability forever. Many programs have a term of five, ten, thirty years. At the end of that time, tenants can face rent increases when the property flips the market rate. And so there's a urgent need at that point to preserve the property within the affordable housing portfolio to protect those tenants. There's four properties on the market right now that there's an opportunity to protect those tenants if the affordable housing development community can purchase those properties into the affordable housing portfolio. That's one of the one of the uses that we could put the funding that you included in the BAA towards this this year. It's a pretty timely timely issue. Simplifying your regulatory requirements, a long conversation. But one thing I wanna point to here is that whenever possible, we work with other funding agencies to mitigate the compliance requirements that are going to be applied to a building. So Central Maine here in Windsor is one that received a CDBG award through the state, but that Build America, Buy America provision was going to apply to the building. And actually, the cost of doing that was going to be more than the award itself. The Department of Housing and Community Development came to the HCD and said, could you use some of your general fund dollars to swap out our federal dollars so this building doesn't need to comply with Build America by America. That swap, while it increased what it costs to be HCB, decreased the total project cost, made it more affordable to build the building at the end of the whole thing. Highness money and projects often facing high escalation of building prices face a gap at the end. And so the HCB over the last four years has been able to increase project awards at the end to close a gap, and that gets units online faster. It means those projects don't have to find other financing, and it means that the homes that are the homes can be built. So that's a tool that we've used to help speed up development and in doing so costs. Gus, I'm gonna turn this presentation back over to you this morning. [Speaker 0 ]: Thank you. This is one that you may recall over in South Burlington for the ribbon cutting that fell for said. We had come up with I think it was close to two million dollars because when they got their bids back and ready to close, they had that size gap of some ninety four units and all of that. Again, with a private developer, and it would have set the project back many, many months, and people would be perhaps be living there if we hadn't been able to jump in. So [Member Emilie Krasnow ]: He's in there to pull up my heartstrings. [Speaker 0 ]: They're all here. Something's hard. But this also wouldn't have happened in South Burlington having inclusion or. So that's a tool that we see as [Chair Marc Mihaly ]: very effective. I'm gonna talk [Speaker 0 ]: for a moment about nonprofits. These are the nonprofits we work with across the state. If you went back to the pounding of DHCB in the late eighties, there was no map like this. The Champlain Housing Trust was then the Burlington Community Land Trust with the staff of one and a half, and they've done three homes. Today, they part [Witness/Assistant Nicole Lee ]: of the [Speaker 0 ]: support more than three thousand homes, apartments, and more than six including more than six hundred homeowners. There was no rural edge working in the Northeast Kingdom. There was no organization working in Southern Vermont or Madison County. Really, it was in we were instructed in our statute to invent a delivery system for a couple of different reasons. Then five of these organizations, if you were a big fan of the hip program, five of these organizations are people who work with the small mom and pop landlords providing the the loans and grants. So we invented the system so that every corner of the state would be covered. That's rare in a rural state. Go to Montana. If you go to any place where there's a lot of rural area, small towns get left behind. We have done as you saw as little as a three minute project in East Calais downstreet for organization. Central brought didn't develop the failed manage. Seven unit development in Cabot who've been brought in for a small project. So we get to small communities. Franklin, Vermont has a develop and this system was developed these organizations developed specifically to get it out there. They're they also were developed as organizations that were committed to permanent affordability. And to go back to the question of return on investment, what I wanna say to you is that the way real estate generally works is you develop a piece of real estate, You own it for a while. And then when the market is right, you flip it. And that's a fine model under American capitalism. But what it does for the people who live there is it means when the rents go way up because property's been flipped, they need to find another place to live. So the decision about creating the housing and conservation board and having a policy of permanent affordability was to not always have to be catching up and buying the resource over and over again. We do have to reinvest every twenty, thirty years in a way we'll have to reinvest in our homes. We don't have to buy the asset again. And so that is a big part of why this network exists across the state and why our statute directs us to to support them. Policies for cost containment. You've heard me talk several times about cost of appeals, and I hope that's one of the things that you can work on this year. Density is a big help in doing development. But having more dense development without more public investment to support the dense development will mean that the affordable units won't get built. Something I wanna talk about, it didn't stop on the slide of Windsor, but it took a big twelve months, to get something called a corrective action plan approved for that site. I don't think you need legislation to fix that process, but I think I would encourage you and your colleagues in the other body to have a conversation with the Department of Environmental Conservation. In the case of the project I mentioned in Newport at the Sacred Heart Complex, I think it took them eighteen months to work through the cap process. So I'd love to see a process that where the time got down under six months, because as you said, time is money, for any developer. And I would also ask some questions about how much we're moving, what's stalled, and Kathy is more expert on this dirty dirt off-site into landfills and whether that's the right thing or whether I understand our standards are higher than EPA's standards are in Vermont. So I think that I I don't want anybody to live on a contaminated site. So if we need to remove the dirt, we should keep doing it above my peak rate to determine what the right health safety level is, but I think it's quite a discussion I hope you'll have with DEC. And then the availability of infrastructure absolutely makes a big difference to whether small communities get access to resources. We've done some things without infrastructure, and it's not inexpensive. We've been back in Rotman a lot some years ago with a multi building development spread through town, but it is more expensive. And the policies around drink maintaining a public drinking water, private drink meaning that the drinking water standards have gotten more expensive. So anything you can do for infrastructure is gonna end up being a help. One thing I mentioned to the chair and to some others is that we've got a lot of money through the bipartisan infrastructure bill that didn't ask congress, not the Inflation Reduction Act that was so controversial. And that means that there's more money that's flowing into Vermont for another four, five years for water, sewer, loads, and sidewalks. I wonder whether it's possible to say, let's grab fifteen, twenty percent of those dollars and use them exclusively for new neighborhoods that we need, like the one we were at in Middlebury yesterday. So those are some thoughts about how to help us contain costs. And then On that slide, Gus, was in [Chair Marc Mihaly ]: reference to energy strategies and well, it must be a presentation. You said that the subsidy more than offset the cost. With energy, you said, well, it doesn't. [Speaker 0 ]: It does not. No. It's we're [Chair Marc Mihaly ]: we're getting Is there aside from more money, as I remember, you have a special time limited exemption? [Witness/Assistant Nicole Lee ]: Yes. So the, renewable energy standard changed the ability of multifamily housing developers to utilize off site net metering for solar and change it so they could only use on-site. And the challenge there is there's a lot of mechanicals that need to go on the roof of a multifamily building, so there's not enough space to generate the solar, the energy needs for the building with solar on the roof. Off-site is really critical to making solar work for multifamily. And as we electrify multifamily buildings, it's really critical that they have an energy generation component because that makes the operational costs of the electric units, cash flow better for the building. There is an exemption there is an exemption pushing that, that bar against off-site net metering from all fit family out one year. And it that is not the rationale for one year is that that'd be one year to design an alternative incentive program. There isn't a clear picture of what that program would be. And so we think we need more time, at least till twenty twenty nine, to really fully design a program that's gonna allow multifamily buildings, buildings that are serving low and moderate income for monitors to take advantage of solar the same way, as I said, a middle income household with their own home can do. [Chair Marc Mihaly ]: Is the exempt when does the current exemption run out? [Witness/Assistant Nicole Lee ]: Maybe at the beginning of twenty twenty six. The the [Speaker 0 ]: other thing I would say to you is that and people might wanna debate this, but the instruction from the public utilities commission to efficiency Vermont is to be cost effective. These projects can carry only so much debt. But if your test is around cost effectiveness as opposed to equity, that's problematic in when you're trying to house a population where you are limited as to the income you can generate from the property. So I think that you may wanna revisit that with your energy committee and with the public utilities commission. I think I [Chair Marc Mihaly ]: was gonna [Speaker 0 ]: I think efficiency Vermont is up for a discussion about that. There was an adjustment some years ago for societal benefit. But if if you just think about what it means for a low income person to have their utilities included in the plant, Now what what it means to you as policymakers to have people not have to utilize the Hawaii program to to to the extent that somebody who has to pay their own heating and electric bills, There is there is, I think, some significant benefit that the current cost effectiveness tests do not capture. Is, is there a [Chair Marc Mihaly ]: proceeding ongoing at this time to well, we can Cathy is the expert. We can wait. I I'll hold my question here. [Member Emilie Krasnow ]: Right. I remember last year, those discussions, and and learning more about it. So it's your recommendation that we revisit some of that outside. [Speaker 0 ]: Absolutely. Okay. And and last thing I'm just gonna say again on appeals is, you know, this project in Putney was community developed a village center. They had a public process, debated it, It's approved, moved again in a public process through each planning commission, approved for a third time at the state level. And then they went through a permitting process to get design review and all the things you do to get your local permits, and yet we spent several years in court debating it. So I really like the idea that people should appeal the plans. But once the plans are set for this is where we wanna build, we should stop fighting. Do you happen to know whether [Chair Marc Mihaly ]: in in your experience, do the appeals come from people who are directly impacted or, like, adjacent property owners or something like that, or do they come from res just generally residents of the town? [Speaker 0 ]: They often come from people nearby. I think that's fair to say. And I guess I again, I you know, we but it comes at at a high cost Sure. To meeting the mission that we that you've given us. So we are seeing communities overall with case in Putney. This community was quite strongly behind the project. The case in Woodstock, they actually had a vote of the school district extend the easement, I think, for a waterline to make that spent ten years in the courts. You know? So I I I guess my question is when have we had enough democracy? When have we had enough process? And, you know, I if you have a concern about what's gonna happen in your neighborhood, take it up when the planning is going on. [Member Emilie Krasnow ]: Right. I was gonna ask too while we have you, and I assume we are gonna get into appeals deeper. But what about what are your thoughts about a, like, time when you get this amount of time, and then that's it? This is how long the appeal is gonna be, and then it's over. Someone had suggested that to me recently. [Speaker 0 ]: Well, you heard from the administrative judge last year on this topic, and like most judges have him back. He thinks that all this should be in the judiciary. And he also told you why he didn't think time limits could be effective. I [Member Emilie Krasnow ]: I had a constituent. [Speaker 0 ]: What what I would say is to you is once you go to court to settle, it's very expensive. And even if you limit the time Okay. Tell the judiciary that they have to get it done in a certain amount of time. That's I like the idea of an appeal housing appeals board with a Band Aid. We use quasi judicial [Chair Marc Mihaly ]: Yep. [Speaker 0 ]: Boards for the Human Services Agency, for the Public Utilities Commission. But I like even better the idea that your chair has shared with me of let's have the fights in the planning process, not and let's keep moving once the plans are set. [Member Emilie Krasnow ]: I agree. Thank you. [Speaker 0 ]: So, again, to to the question of, you know, high cost, I would love the cost to be lower. I'd love to build twice as much housing as we can build right now. But I guess I would just wanna say to you, though, when you look at the high cost, look at the return on investment, not just from a financial perspective, though I think we've talked about the leverage and the need to unlock and bring that private equity to Vermont. But to downtown development, to road development, to ground field development, to getting new neighborhoods built, all of these things, I won't continue to read from them. And this, again, gives you what the leverage has been over this period of time since the pandemic began. And we provided a lot of funding for us, shows you the kind of leverage all over the state, and also speaks to what you've heard most recently, the ten most projects we've needed to put on, on average, a hundred fifty two thousand dollars a unit into. And it's had a cost of five hundred fifty one, but there's a lot of leverage in that. So I'm not trying to hide the ball at all. It is too expensive. The only good news you would hear is something like Jeanne Morrissey, the owner of Jam Construction, who work hard with their handlers, with their saws, with electrical and plumbing are making a much better living than they were some years ago. That that's a good thing. But the average monitor, it costs too much. [Member Mary Howard ]: We [Speaker 0 ]: are catalyzing new communities and new markets. And one of the things we've seen that South Burlington established a city center, versus the buildings were built that were built were built as affordable housing. I think what you see, although they these were built by nonprofits, is that it freed up getting them sold, let them then move on to got their capital back out from what was invested in those sites so that they continue to build the neighborhood out. Same thing happened with a private developer up in Morrisville. He this is a turnkey deal he did with the local nonprofit in Evernorth, and then he that freed his capital up, and he built at least one, if not two, more of the limbs into the Evernote that were market rate. So we are seeing that that your investment doesn't we don't report to you on the numbers of market rate units, but they are happening because of our investment. Saint Albans TIF district, we've invested in a hundred fifty homes. They've built two hundred and seventy there. Rural communities. This is there was a local group called Cider serving the elderly across Grand Isle County. They looked for close to a decade, and they really ended up creating a village center in South Hero adjacent to the community health center near right near the fire station. It's just a beautiful place that any of us would be happy if our parents ended up. [Member Emilie Krasnow ]: That would be great. [Speaker 0 ]: And another thing you're getting is the protection of vulnerable. And if you just think about this number of fourteen hundred and fifty people who are unhoused, who are living in motels at the cost during the height of the pandemic of a hundred forty dollars a night. One night was two hundred three thousand dollars that we were spending. A hundred nights, much, much more. Even if you knock it down to ninety dollars a night, which I think is probably around the current GA cost. You're still spending a huge amount of money every night. So we think that there's a cost benefit to getting people housed and a much higher quality of life, not just for people housed, but for the community as a whole when they get housed. Again, you saw this before, but this policy of permanent affordability, we think protects Vermonters, a case in Burke, great old section eight project. We added eight apartments. None of the elderly that with their need to leave permanently. We're creating mixed income neighborhoods that we see in the way of gentrification. It's without a policy like this. The rents just go up, and the people of modest means cannot live in a neighborhood like the one you see here. And we're protecting the assets. The you don't have to buy the asset back again as was the case with Northgate Apartments protected in nineteen ninety and still going strong using back then when we funded the project, we still had Ronald Reagan's secretary of head Jack Kemp who believed in empowerment. This is a nonprofit with a majority of residents on the board, and they've taken good care of the property and and are doing well with it. So with that, we're gonna say thank you, and we're happy to keep answering questions. Thank you so much. I hope this was helpful. So I hope you walk away understanding that we are as worried about cost as you are. I wish I had a magic bullet for it, but I don't. [Chair Marc Mihaly ]: Thank you. Members of the committee, I I sense it's time for a break. [Witness/Assistant Nicole Lee ]: I agree. [Chair Marc Mihaly ]: Kathy, are you able to go with us if we return here at a quarter of three? Members of the committee, it means we might go a little beyond three o'clock. Mavalley, is there any problem with that in terms no. Okay. So [Speaker 0 ]: is [Chair Marc Mihaly ]: that alright? Can are you available? Yep. Okay. Thank you. Forgive me

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