Vermont Legislature SmartTranscripts:

[Senator Alison Clarkson (Chair)]: Hi. You're live. Great. Welcome everybody to senate economic development housing and general affairs. It is Thursday. Wow. It's Thursday, May 7, and we are looking at two housing bills today. And we're gonna begin with seven five seven, which is our manufactured home housing bill and limited equity cooperatives. And we have the sponsor of the bill, representative Gail, as I was here to join us, who, having listened to our testimony last week, our conversation, like to weigh in. Welcome, Gail. Thank you. I'd like to add You can introduce yourself again. Gail Penzone, representing Colchester and the committee on minutes of house general and housing. I'd like to add some perspective to the discussion held on Thursday, April 30 regarding h seven fifty seven, section seven, page eight, lines 15 through 18, which proposes treating mobile home LEC's as nonprofit corporations for the purpose of state funding and grants. First, as noted on page nine, lines one through two, this change does not affect tax treatment.

[Representative Gail Penzone (House General and Housing; Colchester) [time-bound override]]: It does not alter the relationship between an LEC and any tax authority, meaning the IRS. When you register a nonprofit in Vermont, you're creating a legal organization at the state level with the Vermont secretary of state, but that does not automatically make you or get you make your organization tax exempt at the federal level. To be tax exempt under sections like Internal Revenue Code, section five zero one c three, you must apply separately to the internal revenue. This is not the intended purpose of section seven. The purpose of the bill's provision is to align Vermont statute with the way grant making organizations operate. Most funders are unable to award grants to for profit entities and require nonprofit status as a five zero one three c or a designate designation or in this case, a state designation as verifiable for eligibility. As David Hall noted, the current list is incorrect. Some indicate domestic for profit and some indicate domestic nonprofit. He reported that they should all be listed as business corporations. During his testimony before the House General and Housing Committee, he indicated that if granted the authority through the bill, could amend the designation upon request by the manufactured home limited equity cooperative for purposes related to grant eligibility and funding. These manufactured home limited equity cooperative types are for the public purpose and for profit implications can trigger automatic rejection. To work around this, applicants must explain the law 11 b s a fifteen ninety eight to demonstrate that they serve a public purpose and don't generate profit or individual equity. These extra steps create unnecessary work, which would delay the timeline of potentially discouraged funding. So with that, I'd like to stop because that seems to be where there was a bit of a snap during that conversation that it tended to lean toward nonprofit being tax exempt. And this is not what the bill is attempting to do. It's just trying to clear up, as David had said, the list is incorrect. And they are what he had said is what the bill is trying to do. We'll do exactly the opposite. They're listed as he said that they're listed as corporation cooperatives, which automatically triggers for profit. Gail, I hate to tell you that, but that's complicating it for me.

[Senator Alison Clarkson (Chair)]: On my understanding is what you're trying to accomplish in this section is that you're trying to enable all of these cooperatives be able to apply for grants and that with some eligibility requirements are that they be nonprofits and that they are not eligible for things like water or sewer infrastructure or IT infrastructure, whatever the park is looking to invest in, and that some of these grants are the eligibility of the biggie nonprofits. Could we I I think we I think we're understanding that. Could we limit this just to mobile home parks that are that are cooperatives and not just all? Because there are there are other limited there are other limited equity cooperatives, not just mobile homes. So we Right. One thought had been to limit this just to mobile home parks that are That was the purpose. That that That was the original Right. But I don't I'm not sure it says that. And then the other thing is because we're unclear on on the grants and what their eligibility requirements are, because we're looking at AOP, we're looking at ANR, we're looking at DHCV. I mean, there are a lot of agencies and departments that you might be looking at grants to apply for. One thought had been to ask the HCD to do that work of looking at it, because they have a mobile home unit, and ask the mobile home park unit to look and see how we might resolve this and have some language that asks them to report back to us on the grants that you would be eligible for and how we can how we can come to the problem with the secretary of state. We have a little bit more time to do that work. Okay. Well, that sounds like that will solve the problem, but the intent was always for it to be manufactured home, LEC's, that are eligible if they're nonprofit, which all of them, that list is 19. Of the nineteen, seventeen of them are resident owned communities that are limited equity cooperatives. And all over the state, any of the the this state, all over the country, they are eligible because they're nonprofit for public purpose. And by the way, going forward, I believe David said they're all registered as for profit businesses. Is that

[Cameron Wood (Office of Legislative Counsel)]: what I'm so

[Senator Alison Clarkson (Chair)]: sorry. Legislative counsel, would you

[Cameron Wood (Office of Legislative Counsel)]: be kind of debate? For the record, Cameron Wood, Office of Legislative Counsel, I believe what the Secretary of State's office has testified is moving forward at one at a point in time, the Secretary of State's office determined that they should not be designating these entities as nonprofits when they register with the secretary of state because their proper designation is just as a, a corporate housing structure, a cooperative housing corporation, and so that's how they've been designating them moving forward. I don't know how they go about making some sort of secondary determination after the fact if the corporation gets tax exempt status with the IRS, if they change their registration or designation with the Secretary of State, I don't know, but how they've been moving forward based on the new system that they have and how they've been determining, registered them as just as a cooperative housing corporation and not designating it as profit or non profit, etcetera. That's my understanding.

[Senator Alison Clarkson (Chair)]: So I'm a little confused about the IRS part. Isn't that federal? Yes. Okay, so the attempt is not to designate as IRS tax exempt. Right. It's state.

[Cameron Wood (Office of Legislative Counsel)]: Right, my point was simply I don't know if the Secretary of State is updating the registration, if they receive a tax exempt status from the IRS, if they're updating a registration from Cooperative Housing Corporation from there at that point. Don't know if that I don't know if that influences what the Secretary of State does.

[Senator Alison Clarkson (Chair)]: Well, and another question is, is the state allowed to deem something non for nonprofit status or review an application with the lens of, oh, we're looking at this as a nonprofit if they don't have the federal designation of exempt? I mean, are they

[Cameron Wood (Office of Legislative Counsel)]: My understanding is yes. The state has The appellant you can register as a nonprofit organization with the secretary of state's office. Yes.

[Senator Alison Clarkson (Chair)]: Without the proper exempt status from the IRS?

[Cameron Wood (Office of Legislative Counsel)]: That's my understanding, but it's a question best to

[Senator Alison Clarkson (Chair)]: My understanding as well. Because one is state and one is federal, and you're not looking to exempt from taxes. You're looking for the nonprofit as public purpose. Right. As in a grant application. Okay. That's clear as mud. I think it's it's it's a challenge. I think I mean, many members, I I don't know how you're feeling about this, but I think I feel more comfortable. And I don't mean to just be backing out of this challenge that we face. Think I feel more comfortable having the mobile home unit at DHCD weigh in with us next session and come back with a recommendation on how we treat these to accomplish exactly what you're trying to accomplish, which is how we juggle their actual status at the Secretary of State and how we want to have them viewed for purposes of applying, first of what grants are out there, looking at the whole arena of grants that local publics might be eligible for. And already are receiving. That price grant, there is criteria for the eligibility. One is being a nonprofit. The other one is that you're showing that the income is low to moderate income. Right. So they receive So they're already, without even having to be nonprofits, they are exhibiting they're eligible on certain income for certain grants that have income eligibility requirements. Correct. Which is the LEC to The begin LEC has criteria that you must be. Is for manufactured homes. There's different LECs, but for manufactured home, LECs operating as a LEC, that there must be low to moderate income. So it's a covenant Right. Committee members, where, I mean, if the Well,

[Senator Randy Brock (Vice Chair)]: the object of this is to make these organizations eligible for certain grants. Right. The grant required that they be nonprofit, one, and what else?

[Senator Alison Clarkson (Chair)]: Low to moderate income. Low to

[Senator Randy Brock (Vice Chair)]: moderate income in terms of who they're focused on.

[Senator Alison Clarkson (Chair)]: Right, I'm sorry? That the eligibility for the grant is that they are low or moderate income. They have to be, yes. But if you're looking at a paving project with AOT or they may have other requirements that you may have to actually have it at five zero one(three) or whatever it had. Right. And the focus is not on that whatsoever. Well, it might be. I mean, I can see one of these cooperative mobile home parks wanting to actually apply for for those kinds of grants and support. Well, they wouldn't be eligible because they own you don't get any services. As far as the grants, it's typically wastewater, water, China, things like that. That is, those are A and R programs. Right. But the mobile home parks that have applied have been able to get those grants already. The problem is that list, the secretary of state's list, some of them say domestic nonprofit, some of them say domestic for profit. The if domestic nonprofits get it, then have no problem getting the grant. Right. It's the ones that say, and David Paul said, the list is wrong.

[Senator Randy Brock (Vice Chair)]: The question is, is there anything they can do at the Secretary of State's office to have the charter or whatever the document is called reissued as a nonprofit? Can they convert?

[Senator Alison Clarkson (Chair)]: Well, that he said in testimony was if that entity requests it, and we are giving the authority to the Secretary of State through the bill, then they can provide it as nonprofit. Am I correct, Cameron?

[Cameron Wood (Office of Legislative Counsel)]: So the section in the bill allows the secretary of state's office to update the registration status of an entity at their request. At their request. Right. What I don't know that the secretary of state's office would do would be, let me pull it back up and say this differently. I don't know what the secretary of state's office would require in order to update an entity's registration status to nonprofit if it's not already a nonprofit. So that's what I was saying a second ago, you know, if the entity comes in and says, hey, we have tax exempt status from the IRS, will you update our registration with you to reflect that we're a nonprofit? I don't know what their answer would be in that situation. If the entity just comes in and says, hey, we have this language and statute, we serve a public purpose, This has been added in. We want you to update our status and reflect that we're a nonprofit. I get the impression from some of David Wall's testimony that he said, no. We're not gonna do that. Right. That's what think it needs to be clear.

[Senator Randy Brock (Vice Chair)]: If we're saying that they're a nonprofit and we're allowing them to certify that to someone who's giving them money, and they're not really a nonprofit, the question is what kind of tax returns are they buying? They're filing a nonprofit or a If for profit tax they've been filing a federal tax return that's for profit, they're not

[Senator Alison Clarkson (Chair)]: a nonprofit. So, I think that this is part of our challenge, is that it's a little messy. Is that a

[Cameron Wood (Office of Legislative Counsel)]: fair thing to say? Because there's somewhat two, as I see it, there's somewhat two distinct issues. The first is, I think it's pretty clear in the statutory section for these limited equity cooperatives that they're intended to serve a public purpose. They're designed for serving individuals of low or moderate income. The assets of the corporation are intended in what they could be used, because if the corporation dissolves, they're required to be transferred to a nonprofit entity, or do another limited equity cooperative, In the statutory section, it specifically says that the limited equity cooperative in order to fill the public purpose of providing, preserving housing for persons and households of low and moderate income. So I think you've you've kind of designated that. We have this public purpose of these entities for this goal. And it sounds like they are having difficulty. Some of them are having difficulties in accessing certain state funding grants because these funding grant sources may be saying, you need to be a nonprofit entity. Right. And so then the secondary to this is they run into a problem where not it it's the the Secretary of State's office is trying to square peg round all these entities. Right. Because the the not That's

[Senator Alison Clarkson (Chair)]: a good way to write it.

[Cameron Wood (Office of Legislative Counsel)]: Designation doesn't necessarily matter because they're a they're a cooperative housing corporation. That's what they are. They're their own unique corporate type. And so they're not really designed, structured like a nonprofit entity. Right? They have shareholders. Members of the cooperative are the shareholders of this corporation. Nonprofits don't have shareholders. Right? So it's it just they don't fit very well. And so I think the issue is trying to resolve how do we ensure that these entities have access to these funding sources? I see.

[Senator Alison Clarkson (Chair)]: And that's, I think, what would benefit with having DHDD, mobile home park unit, with the secretary of state's office, figure out how we can do that so that that we don't have put the secretary of state's office in this round you know, square peg into a round hole problem. Identify the grants in particular that you are eligible for, which are, I think, many, actually, we look at state government, and come back in January with a recommendation. I just think instead of doing them every time of as a one off, I'd rather have it. I mean, it just seems to make more sense to have this problem solved rather than just enable it. I think it's a missed opportunity because we don't have a lot of time and we need housing, And there are developers that are absolutely interested in forming manufactured home parts, but without need to But they can form them now. That's forming is a problem. But there's problems that new entities will inherit that are big problems. This is one of them. Right. I mean, this this But the secretary of state doesn't feel like we're really resolving the problem here. I I I think we'd like to resolve the problem so that it isn't unfair going forward so that it is clear that all of these, particularly mobile home parks that are formed as limited equity cooperatives, will be treated in X manner. I'm not sure that they're clear that they will do that with all of applications in that. I'm not sure that I heard from the Secretary of State, they will treat them all that way because he says they're all for prods. And so, think it would benefit from the two entities that sort of are overseeing housing and business formation, which is as out of the Secretary of State's office, to come together and actually make a recommendation on how we both fix the problem going forward and how we make mobile home, these limited equity cooperatives eligible for these spreads. I mean, unless we're just willing to accept the language because we are running out of time. We have to vote this out by tomorrow. And our you know, we've had less time than you have. Mhmm. And so I

[Cameron Wood (Office of Legislative Counsel)]: just maybe I didn't remember it well enough, but the Secretary of State come in raising concerns? I don't recall that. Did they put written testimony together? No. My

[Senator Kesha Ram Hinsdale (Member)]: question is did EHCD if we simply said a limited equity cooperative may also be eligible for these grants, did they fight that? Did they have a problem with that? I mean, I know we've had this conversation with our park that's owned by the residents. Each of their plots is owned, and they've struggled with this. I don't know that this will solve the problem for them, but we just said, like, make them eligible for

[Senator Alison Clarkson (Chair)]: I think that's what this done. I mean, we could be We could be clearer, right, in this language. We could

[Senator Kesha Ram Hinsdale (Member)]: just say limited equity cooperatives are eligible As

[Senator Alison Clarkson (Chair)]: nonprofit, because the problem when you're applying for the grant, they see for profit or they don't see nonprofit. That's on one three c. Yeah. The nonprofit status, there's it's kinda like this is the best way I can describe it. If you say apple, there's all different kinds of apples. Mhmm. So when you say nonprofit, that doesn't necessarily mean a five zero one three c tax exempt. Absolutely.

[Senator Kesha Ram Hinsdale (Member)]: But you're so then could we say a limited equity cooperative that operates in this way. Yes. And and maybe the word nonprofit and it's it's general attachment to tax policy and final at c three status is is the struggle, but we could word it. We could simply hammer it. Help me out here. Like, I I forgot. We're going to put it

[Senator Alison Clarkson (Chair)]: at that all limited equity cooperatives functioning at all local home park, limited equity cooperatives.

[Cameron Wood (Office of Legislative Counsel)]: Mhmm.

[Senator Alison Clarkson (Chair)]: For purposes of Grand funds. Grants. They treat this as non profits. Think that was my original wish list as far as that wording. We could be that direct. Yes. And just as I discussed at the beginning, we could include Jeff Mobile Homes in definition. So I

[Cameron Wood (Office of Legislative Counsel)]: think that's what you have in the bill. Is a section, it's B1, it says if you have the bill in front you, page Bottom of page eight. What section are they? Section three. Section Okay. Page eight. B. One. So it says a vulnerable part organizes a limited equity cooperative. So now we're limiting it to limited equity cooperative to them

[Senator Alison Clarkson (Chair)]: in party mobile parties. I'm sorry. I

[Cameron Wood (Office of Legislative Counsel)]: yeah. Shall be treated for the purpose of state funding and grants as if it were incorporated as a state nonprofit for a public purpose. That says it.

[Senator Alison Clarkson (Chair)]: And That says it.

[Cameron Wood (Office of Legislative Counsel)]: So so

[Senator Kesha Ram Hinsdale (Member)]: is there other tax language that confused things?

[Senator Alison Clarkson (Chair)]: No. There was the secretary of state. David Hall came in and really, I have to say, what what confused me. And and I think confused all of us. That's why I'm here. That was so confusing, and it it was going on the wrong path.

[Cameron Wood (Office of Legislative Counsel)]: So I think there is still, you know, would say this illegal thought here. Right, well that's what you're hearing. Right, right. There is still the kind of, that language isn't going to resolve any registration with the Secretary of State's office and so based on this B1 it is not going to be the case that any entity that's not registered as a nonprofit would then be able to somehow gain some nonprofit status. What this language is saying is signaling to you funding source, you EEC, you, AOT, you, THCD, whatever the grant source is, the limited equity cooperative would be able to point to this language and say, should be treated for this funding as if we're the. And I think that's all that's what you're all driving for and attending but just wanted to make sure I'm,

[Senator Randy Brock (Vice Chair)]: you

[Cameron Wood (Office of Legislative Counsel)]: know, you're you're clear and then the the last thing I would just say is and this is a policy question for you all. It is a very broad brush, if you will, that you're saying any state funding and grant source. Then so I'm only bringing that up

[Senator Randy Brock (Vice Chair)]: to say, I don't know what those funding sources are. Whether not any of those sources have some requirement that says it must be a nonprofit, that's the bottom of one(three) of the booklet under the IRS.

[Cameron Wood (Office of Legislative Counsel)]: It's not gonna change that.

[Senator Alison Clarkson (Chair)]: But you can't point to that statute because that's what's happening right now with the manufactured homes that apply for the grant. You have to jump through those groups to show them. However, if we pass this, which this thank you for going back to this. This is super helpful. I would, in addition, like to ask DHCD and SOF to resolve these challenges going forward. Years ago. Yeah. I I think that well, I just think that they need to resolve this. This I mean, because David is saying they're they're not formed as they want to be. They you know, going I I think there are issues to resolve going forward.

[Senator Randy Brock (Vice Chair)]: The other issue to resolve also is how they can treat it for tax purposes. Have they been filing as a for profit with the IRS?

[Senator Alison Clarkson (Chair)]: I can send you something from the CPA that works with a lot of the LEC's on exactly how they file. Yeah. But they file as they are structured, one assumes. Yeah. So they're filing as for profit cooperatives or nonprofit.

[Senator Kesha Ram Hinsdale (Member)]: So, saying on the side of offering these grants to limited equity cooperatives, and we'll look at it again if there's a problem.

[Senator Alison Clarkson (Chair)]: Well, and also just asking the secretary's Chittenden

[Senator Randy Brock (Vice Chair)]: We gotta find out what your almost The number of questions that are arising, we think we shouldn't continue this.

[Senator Alison Clarkson (Chair)]: No. We we need to fix it. I think we need to fix it. I'm happy to consider going forward with this, which is still pretty messy. I mean, you know, you're being asked to be considered something that you technically aren't, but for purposes, for all the reasons you've identified, and then move forward with a

[Cameron Wood (Office of Legislative Counsel)]: So that two things you could do based on the conversation, Senator Brock, just mentioned, Madam Chair that you mentioned a bit ago, and you could put a sunset and then require a report back from the, you mentioned THCD

[Senator Alison Clarkson (Chair)]: and SOS

[Cameron Wood (Office of Legislative Counsel)]: give us the information on what funding sources there are that these entities access to because you know as a legal policy thought you know it would be better to ensure that the grants themselves, the eligibility for them is being addressed as opposed to a That That is

[Senator Kesha Ram Hinsdale (Member)]: And this is in any access to state funding. Yeah. Right? Yeah. Because because I think DHCD is now keenly aware of trying to make this word. Let's hope ANR gets this memo.

[Senator Alison Clarkson (Chair)]: Well, AOT. I mean, there are

[Senator Kesha Ram Hinsdale (Member)]: a lot of I'm trying to think of where do we make sure

[Senator Alison Clarkson (Chair)]: And quite honestly, there may be nonpaid rent. There may be nonpaid rent that you would want to access. Let's say an incredibly benevolent developer wanted to give the state, you know, $10,000,000 to help improve mobile home infrastructure. Mhmm. Mobile park infrastructure. That might be possible.

[Senator Kesha Ram Hinsdale (Member)]: Well, and we had to have this conversation explicitly about mobile home parks with VHCB in the home Yes. At that time, mobile homes could not even be considered housing or a permanently affordable housing. So, I mean, let's make sure that it touches the nonprofits that receive a lot of state housing dollars.

[Senator Randy Brock (Vice Chair)]: And reconcile it's also the higher of the apartment tax regime today. Because what you're asking to do in a way, is also look back at the organization of taking nontax money. How have they

[Cameron Wood (Office of Legislative Counsel)]: been filing? Like, that's good question.

[Senator Alison Clarkson (Chair)]: So, I think The grants are taxable.

[Senator Randy Brock (Vice Chair)]: So the grants are taxable?

[Senator Alison Clarkson (Chair)]: Yeah. If you get income, if they're revenue for something, they might well be. Some of them are taxable, but there is no profit to be made in the mobile home LEC. What comes in is exactly how it's operated. So I am hearing that we're generally okay with this bill. This bill, all the fees and stuff go to finance. So I think we're gonna let finance work on that. If we yeah. And we'll keep it as is, and ask for a sunset with a report back from DHCD's mobile home unit and the Secretary of State working together with Yes. Yes, with tax to make a recommendation on how we fix this. Realistically, we should talk and patch part of this whole message. Wait.

[Senator Kesha Ram Hinsdale (Member)]: I was just gonna email.

[Senator Alison Clarkson (Chair)]: Right. We don't have time. Show today. No. Yeah. Sadly, our our time is not on our side. So we can with this this this you can talk we can talk about it in finance. We can also further talk about that in finance. Thank you. Thank you.

[Senator Kesha Ram Hinsdale (Member)]: I might have missed I missed the first five minutes, like, sound wise, but is the language about non discrimination of manufactured housing the same as ours? Okay, great. Yes. I mean, I I hope it's Everything is aligned. I just wanna point out again, we shouldn't be buying, at some risk, manufactured housing components, given there continues to be chaos and confusion and discrimination with mobile and manufactured housing. Right. We need to solve these problems for people.

[Senator Alison Clarkson (Chair)]: Well, is a piece that helping them helps reduce that stigma in large Small steps. Thank you. Well, Gail, thank you for helping in a slightly confusing bill, which I know has a lot of technical fixes that are really gonna be helpful, and I appreciate that. And we're so grateful to you for your work on this issue. You have been dogged and tenacious. We appreciate it. So if the committee's okay, I think we're fine to vote this bill out if we have an amendment to with that charge.

[Cameron Wood (Office of Legislative Counsel)]: So there's a sunset and a two reports. They report. Well, you wanna report from DHC, David, then you wanna report from the Secretary of State for the DHC.

[Senator Alison Clarkson (Chair)]: I think we want them to work together to resolve this

[Senator Randy Brock (Vice Chair)]: Who's responsible for groups reporting?

[Cameron Wood (Office of Legislative Counsel)]: Well, my thought was, and so is correct me with what people would like to see, my thought was you were saying you'd want to work from DHCD to outline what are these funding and grant opportunities that these entities would That's part of the report. And then separate from that would be Secretary of State and Department of Taxes, you know, is the recommendation to address the issue regarding their registration status with the city?

[Senator Alison Clarkson (Chair)]: That is probably a better thing, although it would be good to have DHCD's mobile home unit person working on that issue.

[Senator Randy Brock (Vice Chair)]: Can add that in.

[Senator Alison Clarkson (Chair)]: Okay. I would add that in. When do we want the sunset? In a year or two years?

[Senator Randy Brock (Vice Chair)]: A few years. I

[Cameron Wood (Office of Legislative Counsel)]: don't need a sunset. I

[Senator Randy Brock (Vice Chair)]: do need a sunset this morning. You.

[Senator Alison Clarkson (Chair)]: So what what what what sunset would you were on the mobile ballpark, Bill? What would you suggest? In a year? I mean, because it would be great to have them come back to us. So it can be dealt with So why don't we ask for the report back in January and so that these committees still enter into the communities of jurisdiction from both, and so that we can work on it next year. And I think that would be David, what we're doing is accepting the language, even though it's a little messy, because of the Secretary of State, and asking actually for work to be done to clarify and make recommendations on how we go forward in English speaking. Mhmm. Seven five seven, the manufactured in mobile phone part belt, which LACs. LACs. Limited equity cooperatives, something I did not know about before we began this building. So thank you, Gail. Thank In addition, we're all better educated as families. That's great. Thank you so much. You have a great day. Pleasure, our pleasure. When do you think you might be able to get this to us tomorrow morning? Okay, so you're with us tomorrow morning. Why are we okay with looking at this tomorrow morning, and we're gonna vote on it tomorrow morning, which will make it for February now? Okay. Great. Thank you. Terrific. Thank you very much. So let's take a six minute break, and we will come back at 09:15 with the chip amendment of language and this I'm not sure we have language.