Vermont Legislature SmartTranscripts:

[Sen. Alison Clarkson (Chair)]: Good luck. Oh, I'm glad you have my back. It's always nice, but let's I'll be moving

[Ted Barnett (Fiscal Analyst, Vermont Joint Fiscal Office)]: somewhere there. I'm so sorry.

[Sen. Alison Clarkson (Chair)]: Okay. Ladies and gentlemen, we are going to go live. Are we live? We're live. Welcome everybody back to Senate Economic Development, Housing and General Affairs. It is good to have you all here. We are going to begin. I thought Nate was joining us. Is Nate joining us?

[Sen. Kesha Ram Hinsdale (Member)]: Who's Nate? He is, but he's had to come. Deputy he's coming he has a meeting, so he's gonna come to the pub to see Jesse.

[Sen. Alison Clarkson (Chair)]: No. He's the deputy commissioner of development department of housing and community.

[Sen. Kesha Ram Hinsdale (Member)]: Oh, oh, not Nate.

[Sen. Alison Clarkson (Chair)]: Okay. Yeah. Nate Formulor. And he because Alex can't come today. Okay. So we will I don't think we're gonna begin with John because John's presented the amendments. I think we're gonna begin with all the witnesses. And I think, David, you're on deck. I think you're our first witness that we're going to because Ted can't make it till the end as well. So

[Sen. Kesha Ram Hinsdale (Member)]: But is Jessica coming? No. Betsy?

[Sen. Alison Clarkson (Chair)]: Yes. Betsy is represented by the board. Just by the board. I mean, not

[Rep. Abby Duke (VEPC Board member; Member, House Commerce Committee)]: by Just by the board. There's no Johnson.

[Sen. Kesha Ram Hinsdale (Member)]: Well, I mean But, alright, just- board, the board is here. Two of the

[Sen. Alison Clarkson (Chair)]: board members are here. David, welcome. If you'd be kind enough to introduce yourself, and we would love to have you discuss why these And is Tanya Autorz with us? Yes. David,

[Rep. Abby Duke (VEPC Board member; Member, House Commerce Committee)]: are you

[Sen. Alison Clarkson (Chair)]: with us?

[David White (President, White + Burke Real Estate Advisors)]: I am. Can you hear me?

[Sen. Alison Clarkson (Chair)]: Yes, we can.

[David White (President, White + Burke Real Estate Advisors)]: I'm trying to figure out why my video is not oh, here we go, sorry. It's morning and my brain isn't working as well as it does sometimes. Good morning, everyone. For the record, my name is David Weight. I'm president of Weightendenburg Real Estate Advisors, consultant to numerous communities I think you know regarding tax reform and financing and also have been deeply involved with the CHIP program since it was first simply a raw baby concept and hadn't yet even been adopted, so deeply involved last session, including testifying in front of your committee on a number of occasions. And what brings me to you today is that there's been considerable discussion in recent months over the implementation of the CHIP program, Community Housing Infrastructure Program, and whether there perhaps should be some amendments to the statute as it's currently as originally adopted in order to smooth some rough edges out. And so that's what I'm here to speak to today. Let me start by saying that I just want to

[Sen. Alison Clarkson (Chair)]: May I just ask, what are the rough edges that you are wanting to smooth out?

[Sen. Kesha Ram Hinsdale (Member)]: I'm going to go into detail about that,

[David White (President, White + Burke Real Estate Advisors)]: Senator, but I do want to start by just simply giving kudos to the Vepsey board and staff because they worked unbelievably hard to get the guidelines in place in time to actually launch this in January. They did a phenomenal job and they really deserve huge credit for that. The second thing I want to say is that there's been concern that there haven't many applications yet, and is there a problem here? And I'm not worried about that right now. It's a new program, you know, because the guidelines weren't available until January, and the program didn't launch until then, it's just taking a while for communities and the development community to absorb it and to figure out how do we actually use this tool. So I think we're on a good trajectory with regard to CHIP, and I'm not concerned about some have been concerned it seems to be a slow pace of adoption. I don't think that's the case here. I think it's appropriate for a program that's new as everybody tries to figure it out. Nonetheless, there are some issues. And so to your question, Senator Clarkson, let me speak to some of the things that we're concerned about. Now, did, there is a draft of potential legislation I sent to your staff person and perhaps copies have been provided to you. This was, this is CHIP proposal draft 1.1 dated fourthirtytwenty six. John Gray from Legislative Council drafted this. Do you have copies of that?

[Sen. Alison Clarkson (Chair)]: It's getting printed right Okay.

[David White (President, White + Burke Real Estate Advisors)]: Well, let me just launch in. So one of the key things that has been of concern

[Sen. Alison Clarkson (Chair)]: We have reviewed those. We have reviewed them. Walked through them. Feel free to just address them because we have walked through them.

[David White (President, White + Burke Real Estate Advisors)]: Okay. I'm sorry. Didn't understand that. Thank you. That's helpful, Senator. So one of the key concerns that has been raised in the past excuse me, that is being raised now during as people have been trying to do this is ambiguity around what infrastructure can be privately owned versus publicly owned. And that discussion took place last session when it was adopted, and the general sentiment, as I understood it at the time, was that most types of infrastructure could be either publicly or privately owned. And there was a point when the decision was made to change the language that is used in TIFF, which says that the infrastructure needs to serve a public purpose. The language for CHIP was changed to serve a public good. And my understanding at the time was that from the explanation from John Gray, and again, is my understanding, was that that change meant that things could be privately owned, that public purpose meant public owned and public good meant it could be privately owned. But that's because it doesn't explicitly say that there's been some ambiguity. And so the question is what is the public good and how is it defined? And so there have been it's making it very difficult for communities and developers and VEPSI staff for that matter when looking at a potential project to understand upfront whether a certain type of infrastructure might that would be privately owned, perhaps the parking, for example, for a multiunit building would be eligible. And so we the first change here would simply try to clarify that the public good is the housing itself, and that is the infrastructure, whether publicly or privately owned, is serving that purpose of the housing that's being created, that that in and of itself meets the definition of public good.

[Sen. Alison Clarkson (Chair)]: David, this is under the improvement section. Eliminating Your proposal is to eliminate options and just have one or the other. I believe you've removed the and, and you are wanting to have a choice of only one or the other.

[David White (President, White + Burke Real Estate Advisors)]: Actually, the language as proposed here says that it will serve a public good by fulfilling the purpose stated in the section, and the purpose is the housing. And that makes it clear that is the public good that needs to be served. It's not the infrastructure itself that needs to serve the public good, it's that the housing is the public good, as long as the infrastructure is serving that housing, then it meets the definition of public good, if you follow that distinction.

[Sen. Alison Clarkson (Chair)]: Yeah, we'll have Ledge Council go through it.

[Sen. Kesha Ram Hinsdale (Member)]: It would help me a lot if we paused on each of these to hear from the VEPSI board or VEPSI, and this is why I didn't wanna ask you to speak the exact guidance, I figured we'd have that up because the question then is, did you all feel like you had to interpret the intent to write the guidance for the infection?

[Sen. Alison Clarkson (Chair)]: I I would prefer to have because we have people who are unable to get I would prefer we could go through all the the amendments and then the guidance

[Sen. Kesha Ram Hinsdale (Member)]: printed out.

[Sen. Alison Clarkson (Chair)]: I think we have the guidance on the website so John can pull up the guidance. But would people rather do it amendment by amendment? I mean, we don't have all the witnesses here who are gonna be testifying. So I'm I'm happy to do it.

[Sen. Thomas Chittenden (Member)]: Are you speaking of, like, Wendy and Abby to speak to us from Pepsi?

[Sen. Alison Clarkson (Chair)]: We can wait a record. Wendy just just

[Sen. Kesha Ram Hinsdale (Member)]: No. I

[Sen. Alison Clarkson (Chair)]: I I'm happy I'm happy to to to go through each one of these Okay. If you want, but I think I would I was sort of hoping that we would just get through the proposals, and then we would discuss those. Okay.

[Sen. Kesha Ram Hinsdale (Member)]: I mean, just wanna say, like, I had been talking to Jessica since right after the conference committee the dust settled about, like, particularly the the inability

[Tanya Morehouse (Chief Auditor, Vermont State Auditor’s Office)]: to

[Sen. Kesha Ram Hinsdale (Member)]: oversee the second home piece. So I'm just saying, I know that there was I don't know what the discussion looked like about each of these, and I don't wanna lose track of that as we go through each one.

[Sen. Alison Clarkson (Chair)]: So this is pretty much the same as what we already have. Like does Bev do the- think we're gonna hear from The BevPSE board members about the whole discussion and, after David's done. So David, if you just finish and then we can, we can go through and look at guidelines and hear from PEPC, hear from our auditor and hear from our GFO. Did we invite tax? No, I invited the people you see in front of you. I invited the Pepsi Board members, we invited auditor, and we invited JFO. Don't we have taxes who have booster doses for. Fine, we aren't hearing from them today. We can hear from them later. Dave, would you be kind enough to finish?

[Ted Barnett (Fiscal Analyst, Vermont Joint Fiscal Office)]: Okay, great.

[David White (President, White + Burke Real Estate Advisors)]: The second suggested change that you'll see on subsection 18 is related costs, and right now as it's written, related costs, and just to be clear for those who are not familiar with the concept, that related costs are those costs that are involved in either setting up the chip project itself, that is, you know, going through the process of determining the feasibility of it, going through the process of negotiating the housing infrastructure agreement between the municipality and the developer, going through the process of applying the VEPS, it's all the process of setting up the chip, and then administering the chip in the future, the operational cost. It has nothing to do with the cost of the housing development itself nor of the infrastructure itself. But these are the costs like attorney's fees, consultant fees, application fees that are involved with establishing and operating the chip. So these are the so called related costs. The direct costs of designing and building the infrastructure or the housing are not related costs. Those are direct costs involved. So under the current way it's written, it only allows the municipality to be reimbursed for the related costs involved in things like setting up the chip. What we're finding is that in many communities, it's actually the developer who's taking the lead because the community doesn't have the staff capacity, or perhaps they don't have the funding available to be able to front the cost to be able to do that. The developer is actually carrying that financial cost upfront. And ultimately, is my recommendation that you allow the those costs whether incurred by the municipality or by the developer or the sponsor, and the sponsor would be the entity that's financing it, that those costs are also eligible to be reimbursed, Not solely if it's paid directly by the municipality. So, that's the second one.

[Sen. Alison Clarkson (Chair)]: You

[Sen. Thomas Chittenden (Member)]: say eligible for being reimbursed. Who is the one that will determine that eligibility in your mind, David?

[David White (President, White + Burke Real Estate Advisors)]: So it's really no different than what happens today, let's say, with a TIF project, which is that the municipality will TIF project will pay those costs, the attorney fees, consultant fees, and so forth, and ultimately can get reimbursed either out of the bond that gets issued or directly from increment. And so this would be in this case spelled out in the infrastructure agreement, housing infrastructure agreement between the municipality and the developer. And it would probably call out that says, okay, the developer's paying these costs, but these costs will be eligible, and it'll specify whether it'll get paid out of of the direct out of bond proceeds or out of increment directly.

[Sen. Thomas Chittenden (Member)]: So my concern with that is my impression with PIF currently is that the municipalities that usually do this with the larger ones with staff they have that oversight and so I just want to see at some point if they are ready to be able to approve and determine that eligibility with their current labor, how many people they have. Thank you, David.

[Rep. Abby Duke (VEPC Board member; Member, House Commerce Committee)]: Thanks, Thomas.

[Sen. Kesha Ram Hinsdale (Member)]: Well, and I share that concern, but I think it's the reason to have this language and I wanted to ask David, I mean, my only close-up experience with TIF was working for the city of Burlington. And, of course, I wasn't involved in any of the the details, but I do recall at the time that Burlington was big enough to negotiate and the project was big enough to negotiate in advance that the developer pay, you know, a very high impact fee, pay for the attorneys, pay for all the charrettes to and the design process, and could manage could manage that money kind of even though Burlington did fall under some challenges with its audit around TIFF. But what we don't want in the law are any kind of gotcha moments, especially for our smaller municipalities who are going to be relying on developers to break in the initial funding.

[Sen. Alison Clarkson (Chair)]: Right. But we also don't want this expanded so much that developers are able and sponsors are able to take costs that may or may not be able

[Sen. Kesha Ram Hinsdale (Member)]: to Well, but this is a transparency measure about what is not appropriate, correct.

[David White (President, White + Burke Real Estate Advisors)]: I do understand the concerns, senators, and I don't think it's going to be as difficult to monitor as you fear it might be. Because the costs, I think the developer is going to have to be able to show invoices and receipts and so forth that shows what these costs were spent on. That if a developer says, I've got an engineering fee for you know, designing my, you know, site, that's not an eligible cost because it's not involved with setting up the chip. But if they show the legal fees for the attorney who, you know, wrote the infrastructure agreement, that is an eligible cost. So I think, you know, under current circumstances, whether it's with TIFF or in the CHIP as it's written, costs need to be documented and be able to be later audited by Tanya or anybody else from the state auditor's office. And so I just think it's a matter of good record keeping, and I don't think it's harder for that record keeping any harder for it to be done whether it's paid for by the municipality or paid for by the developer. In either case, the municipality has to have copies of those records.

[Sen. Alison Clarkson (Chair)]: Right. Well, it just expands what may be possible as part of the chip increment. Mean, just expands the A difference. Yeah.

[Sen. Thomas Chittenden (Member)]: I definitely want to hear your thoughts on the next point. This one I do have concerns. These are public dollars and I just want to make sure there is a public oversight of the eligibility of these costs. That's my big concern with smaller base tips is they don't have the staff that municipalities have. I wanna hear from Betsy that they'll be able to provide that oversight for these public dollars. But the next one is where I think if there's a lot of interest and a lot of support for that, I'd love to hear your thoughts on it. I didn't mean to sideways, madam chair.

[Sen. Alison Clarkson (Chair)]: No. No. I let's keep going. Happy to keep going.

[Sen. Kesha Ram Hinsdale (Member)]: Well, can I say something before we go on? The the intent when we wrote CHIP in this committee last year was that smaller communities would be eligible. Biggest barrier they've had to doing a TIF is that they don't have any of the upfront money to do any of this. The whole point was that they can park we designed it so they could partner with a developer at the start for a site specific project. And it only adds more transparency and less possibility of money going into the wrong places to be transferred to the municipality, be transferred into the considered cost for the increment, it were very clear about the developer being a direct partner upfront in making this project happen. That was literally the whole point of site specific.

[Rep. Abby Duke (VEPC Board member; Member, House Commerce Committee)]: Right.

[Sen. Alison Clarkson (Chair)]: And this is why we have asked not to open up Chittenden for a year so that we could see how it works, to see if that is indeed a problem with municipalities. And if it's not and, you know, we have actually to answer your first concern, David, I understand there are a number of projects in the pipeline that one is almost ready to go. The Vergens project is ready to almost ready to go. And I think that this is the reason we had asked and had agreement to wait for a year before we open this up. And I'm happy to look at these next session, but this is a good example of why one would wanna wait, see if municipalities are facing exactly that challenge and if if it would make sense to open up a related cost.

[Sen. Kesha Ram Hinsdale (Member)]: Well, we do have to pay even if we wait till next year on this change, this is one that we might look in retrospect. The as the the the whole problem is rural Vermont gets left out

[Sen. Alison Clarkson (Chair)]: of first come. It's not getting left out here. They are applying it. All of Vermont, Vermont as well as rural, and rural Vermont is not being left out there. A lot of smaller communities, and Betsy can attest to this, but some of the applications are from smaller communities. So I think if this this piece in particular is if it continues to if it it poses a problem, and we will have a whole year of applications and municipalities engaging with Pepsi to see if that is in fact

[Sen. Kesha Ram Hinsdale (Member)]: So I'm happy to move on to section two because it's unworkable and unenforceable and would need to be changed for anyone to make available chip.

[Sen. Alison Clarkson (Chair)]: I don't think that anything is done enforceable at the moment.

[Sen. Thomas Chittenden (Member)]: And on the last, I just want hear, Phepse, what their thoughts are. That's all I was saying.

[Sen. Alison Clarkson (Chair)]: We will. We are going to hear from them in minute. Okay, David.

[David White (President, White + Burke Real Estate Advisors)]: Okay, thank you. So this next one is that under the current statute, says that any housing unit within the housing development is to be offered exclusively as a primary residence until everything's paid And what we have learned already is that lenders are balking big time at this, the private banks and so forth, because they're concerned about over time the impact, the potential that this is unenforceable because it's so challenging to monitor and control what happens in subsequent turnovers of units, whether they're rental units or whether they're for sale units. And you take an example where a homeowner buys initially a house where the infrastructure has been paid for in part or whole by the CHIP program, and they use it as their primary residence, but then five years later they retire and buy a home someplace else, but keep this one as their summertime residence. It's no longer their primary residence. And, you know, that's just one of a multitude of different circumstances. Somebody who gets a, you know, a, somebody who is a, say, college professor, and then for a year goes on sabbatical and rents their home for a year. No longer their primary residence as they're someplace else. You know, there are any number of scenarios where it could be challenging for this and the lenders are deeply concerned that it would if it puts that project in violation of its chip requirements, that their security position is then harmed, and they don't want to get into lending in the first place when they're at risk for that. So the proposed language here simply says that, and I do want to change one language, as currently written, it says offered by a sponsor, it should say offered by a developer, because if you look at the language in, and this is my mistake, it's the way we originally forward it to on, but the sponsor is the entity that borrows the money. That could be the municipality, it could be a third party under the statute, and they aren't necessarily the same ones who would actually be offering the unit. It's the developer who offers the unit. So there is, in the draft you have in front of you, an error, instead of saying offered by a sponsor, should say offered by a developer. The point here is that it would say what the indication here is that the developer needs to make sure that it'll be used as a primary residence, but it doesn't control what happens subsequently moving down. And this is trying to address the lending community's concern about their security position.

[Sen. Kesha Ram Hinsdale (Member)]: I'd really like us to pause here because this is the absolute intersection of housing policy and tax policy. And we wrote into the Chittenden bill, and people can see it, that the condition, and I tried to say this so we wouldn't keep changing the definition of a non primary residence on people, which there is an attempt to change in H955, and I really want to work with finance on that piece, it's entirely unworkable, is that in this case, if TAC sees a 20 unit project that was paid for with Chittenden, and in ten years, they start to see that of the 20 units, 10 of them don't submit a landlord certificate or a homestead declaration, then what do they do? Right? Do they then I mean, that's and I this is why we have to fix this at H nine fifty five. Unless we are looking in people's windows for making them submit a landlord tenant agreement or making them approve six months of rental somewhere, which I don't know who's gonna do and how, and that's not a number of years. That's a ridiculous challenge. But when we are talking about what they would do in ten years, who is then paying that money back if they say this is no longer enough a percentage of primary residences or people didn't file their tax forms that would otherwise demonstrate this. It is going to be a problem for all of us and an impossibly complicated encumbrance if we leave this this way, especially when Ways and Means has also put a proposal in to change the definition of what a non primary residence is after the fact.

[Sen. Alison Clarkson (Chair)]: A primary residence. Yeah. It's tough.

[Sen. Thomas Chittenden (Member)]: So that's a bigger conversation, which I completely agree we need to have. And I do think that the language somewhat addresses those concerns, because I think going back towards Kirby. But if I could recenter back to this tip piece, I agree, to intersect completely and maybe bring John Gray into this. I'd just like to know, can you give me an idea of how much elsewhere in the chip language does it give guidance to BESE that these dollars and then in their evaluation and approval of these projects that they are targeting for what will likely be primary residences and not ski chalets up on mountains as an example is often used. So where else are is there guidance that Pepsi and their good judgment will be directing these dollars to places that are much more likely based on development patterns to be primary residences. I agree, unenforceable. You don't wanna be looking people's windows. And so I'm just curious that the point of sale, how much guidance there already is there

[Rep. Abby Duke (VEPC Board member; Member, House Commerce Committee)]: for sure.

[Sen. Alison Clarkson (Chair)]: We we already administer primary residence verification with the home center. Right? I mean, we have hundreds of thousands of reminders

[Sen. Thomas Chittenden (Member)]: With the issue

[Sen. Alison Clarkson (Chair)]: built this out, and it has not been Well something that's taxed and actually the first

[Sen. Kesha Ram Hinsdale (Member)]: Actually, the bill I wrote that you all just edited in h nine thirty three, which we all just reaffirmed that definition, is the definition we should continue to use for non primary residences. It's the exact it's it's the only definition we've all ever agreed to. And it essentially says that at the time of sale, so everyone's gonna have to pay a property transfer tax, you have to attest as to whether or not you will use it as your primary residence. So within the same offering that's being made, you you simply will not be able to sell it to somebody who, while doing their, you know, final agreement says that they will not be using it as a primary residence. Thomas asked a question. So, John, would you be kind of

[Sen. Alison Clarkson (Chair)]: the answer to that? Sure. I'll try

[John Gray (Legislative Counsel, Vermont Legislative Council)]: to help. So, John Gray, I'm the sponsor of I think the first direct answer is something that's sort of wrong, still has already spoken which is that the piece of this language that speaks to the Housing Infrastructure Agreement sets out the condition to satisfy this, providing that landlord certificate or homestead declaration on a by any basis. That is, you satisfy the condition by doing that. There's kind of a broader answer to your question, which is speaking to what does Vemc do throughout the process that will link to our primary residence determination. It's a little bit looser, but one of the things throughout the program is a check on meeting the statutory purpose of the subchapter, which is to encourage the development of primary residences for low and moderate income Vermonters. That would be included in the plan that you first submit as a municipality to have your project approved. So there is some purpose check as well as part of the approval of the application. Even prior to offering any units, there's a check on the plan prior to approval to say that this is creating a primary residence.

[Sen. Thomas Chittenden (Member)]: So the problem, madam chair two, the point you offered, and that I understand, mister White, that we're trying to fix here is after the first point of sale, the developer develops it, sells it to somebody. Two years, three years later, the the tip is still being paid off. But if that person resells it to somebody else, how do

[Sen. Kesha Ram Hinsdale (Member)]: they They could also own it and not treat it as their primary residence.

[Sen. Alison Clarkson (Chair)]: It is very don't yeah. It had to be a in CHIP. It had to be a primary residence through the until the increment is paid back, until the debt is paid back. That could be fifteen years, twenty years. After that, it could be. It is far less restrictive. Chip debt With the primary residence, let me just finish. Far less restrictive than, for example, if you bought house with the Champlain Housing Trust, that those are permanently required to not be sold to a second homeowner. So the CHIP is only through the debt being repaid. So already CHIP is far more flexible in that regard, but it does it does require that it be a primary residence. Public taxpayer dollars support primary residences. That's the problem we're trying to solve in Vermont is people people's primary residents, not second homes. Second homes are luxury. I have to remind everybody, second homes are luxury. We are not using public taxpayer dollars to support a luxury. Unenforceability.

[Sen. Thomas Chittenden (Member)]: Of that is preventing updating

[Sen. Alison Clarkson (Chair)]: It has not been

[Sen. Thomas Chittenden (Member)]: a problem. And

[Sen. Kesha Ram Hinsdale (Member)]: I will say, this this goes back to the change proposed in the definition of a primary residence right along

[Sen. Alison Clarkson (Chair)]: But that's not the bill in Trump.

[Sen. Kesha Ram Hinsdale (Member)]: We are. Well, will be working on that.

[Sen. Alison Clarkson (Chair)]: Yes, but I'm happy you're working on that, but that's not in this.

[Sen. Kesha Ram Hinsdale (Member)]: These are The affordable housing comparison is a red heron because they have on-site managers, and they truly do have the power and authority through their covenant to look at people's windows. If we started trying

[Sen. Alison Clarkson (Chair)]: to say,

[Sen. Kesha Ram Hinsdale (Member)]: I don't you wanna look at anybody's windows.

[Sen. Alison Clarkson (Chair)]: They were I want I want people to file their homestead declarations as hundreds of thousands of Vermonters do. And I would like us to honor should be here.

[Sen. Kesha Ram Hinsdale (Member)]: Hacks should be here because the question then is and and I think to me, this could be rewritten as language that essentially says we require that 40% of the project be housing, and the other 60% could be other things. We would then be in housing policy promoting a Dollar General over a housing unit that could change from primary to non primary.

[Sen. Alison Clarkson (Chair)]: And this is a great conversation for next year. This, once we have a unified and aligned definition of primary residence, great. Have this conversation next year.

[Sen. Kesha Ram Hinsdale (Member)]: Am not gonna accept that because this is affecting financing and affecting anybody's ability to say they would participate something where ten years later they could be asked to pay back some debt.

[Sen. Alison Clarkson (Chair)]: This has so far not proven to be a financing challenge. We will hear from Betsy in a moment. David, I'd love to get us back on track because we only we have a limited amount of time. So I'd love to have you finish your amendments and then we're going to hear from others about the amendments.

[David White (President, White + Burke Real Estate Advisors)]: So if I may, on this one point, say that I think it is a current problem. That's why we've raised it. We've had multiple lenders, some of whom are very active in the housing world, say to us, This is a problem. It's a barrier to us even investing in projects and lending funds. So I think it's a very current problem. And out of all the things on this list, may be the most important to address sooner than later because I think it's materially slowing down the potential development of housing, which is the purpose here, is to encourage that.

[Ted Barnett (Fiscal Analyst, Vermont Joint Fiscal Office)]: But

[David White (President, White + Burke Real Estate Advisors)]: having said that, let me move on. So the final thing that I want to talk about here is that as currently written, the statute allows for the requires the developer to pay the taxes to the community and then the developer, if the developer has borrowed the money or there's a third party borrower who has borrowed the money to pay for the infrastructure, to get a rebate of those taxes to pay the debt service on the cost of the infrastructure that has been is being paid for by CHIP. And what that has done is we have had multiple conversations with developers who say, This is a problem. It's a cash flow problem, because they have to then pay it and wait for that rebate to come back to them. And in the meantime, they've got to be also paying the debt service. So it's kind of a double burden on them. So one of the things we have requested here is to have language that basically would allow, instead of it being a rebate, to be the same dollar amount as a tax credit so that the developer doesn't have to pay the taxes upfront. This would be spelled out in the housing infrastructure agreement which mechanism would be used, whether it's a rebate or whether it is a credit. But in either event, it's the same dollar amount that would be eligible here. It would be the cost of the debt service for for what has been borrowed to pay for the infrastructure.

[Sen. Alison Clarkson (Chair)]: Thank you. Any questions for David on that? David, I hope you'll stay with us during the discussions that we're going to have. Nate, you were up up. Welcome. Good to have you. Hello. Would you like to I think I I sort of like to have Pepsi next.

[Tanya Morehouse (Chief Auditor, Vermont State Auditor’s Office)]: I'm totally fine. You guys are way in the weeds. My statements are far more overarching.

[Sen. Alison Clarkson (Chair)]: Okay. Do you want to then just make overarching, and then we'll jump into the weeds with Pepsi? I mean, what would you like? Go ahead. Okay. Great. Wendy and Abby, thank you very much for joining us. You. So if you introduce yourselves in your various capacities that you have. Thank

[Rep. Abby Duke (VEPC Board member; Member, House Commerce Committee)]: you. Representative Abby Duke from Burlington and I'm on the FC board as well, as well as the House Commerce Committee. Wendy Harrison, previously of this committee, senator from Wyndham on the board, and both of us were on the subsidy subcommittee to do the, specific guidelines. So I'm just gonna kind of briefly give you an overview of the process over the past year and sort of how it intersects with some of these issues. So we all know this legislation was passed last year. Were are six of us maybe on the Guidelines Subcommittee. We met weekly for three months to develop the guidelines. It was a very transparent process. Every meeting was public. Every meeting we got robust engagement, we got comments. All of these issues were brought up. I would say all of these issues were brought up during the legislative process a year ago and discussed during the guideline subcommittee process, discussed. And then the BEPSE Board overall met twice to go over and discuss the guidelines. And approved the guidelines. The subcommittee approved the guidelines unanimously. The full vaccine board approved the guidelines unanimously. Three months after the guidelines were approved, the Vepcys staff launched the program, which honestly, very impressive. It was a staff of two, now it's a staff of three. They launched it on January 30 for the public and have gotten 10, I think, pre application, official interest forms. There are a couple of applications that are very close to being submitted, including one in Brooklyn, for GEMS. I would say the whole process, there's really three prongs to it. One was following legislative intent. One was following the actual statute language, like what does the language require, and making it as flexible as we possibly could. So,

[Sen. Alison Clarkson (Chair)]: it's launched. So, in your guideline work, did you review these amendments? Because we had reviewed them, as you know, in the legislature and said yes to these amendments. So, did you review these amendment proposals? We reviewed all of them, and all of

[Rep. Abby Duke (VEPC Board member; Member, House Commerce Committee)]: them we made them as flexible as we could within the constraints of both legislative intent and statute language. I don't

[Sen. Kesha Ram Hinsdale (Member)]: think anyone sent it out for these.

[Rep. Abby Duke (VEPC Board member; Member, House Commerce Committee)]: Yes, they did. Well, they weren't amendments. They were part of the negotiation Those are hot. We talked about those topics.

[Sen. Kesha Ram Hinsdale (Member)]: I talked about in the conversation here in No. No. I'm talking

[Rep. Abby Duke (VEPC Board member; Member, House Commerce Committee)]: about the We talked the We talked about topic. The We We

[Sen. Alison Clarkson (Chair)]: In your guideline work, did you consider the proposed amendments? Yes. All of these were proposed.

[Rep. Abby Duke (VEPC Board member; Member, House Commerce Committee)]: And each of them, and I can go through each of them in a second, one by one, but I just want to kind of level set to where we are now. So, there's been extensive engagement statewide, right? And that has been BEPSI's focus, is educating municipalities. It's really a tool for municipalities, educating them about tips, how they've been engaged. Via Vermont League of Cities and Towns, which got a grant, provide technical assistance with communities. And so they are working directly with communities to develop agreements and work through it. So ultimately, Betsy's position is there has been, and I'm back up too, there's another piece too, which is so, Betsy has identified a really great model that we're building some of the tools off of, which is TIFF in Minnesota. Minnesota has a very active, decades old TIF program. There are about 1,700 TIFs in the state. It's broader, there's like five different categories of TIF that you can do. One of them is focused on housing. Of those 1,700, half or maybe a

[Tanya Morehouse (Chief Auditor, Vermont State Auditor’s Office)]: little bit more than half are in

[Rep. Abby Duke (VEPC Board member; Member, House Commerce Committee)]: the metro area. The rest are all across the state, including way up on the Canadian border. I mean, very rural. There's TIFs in very rural districts. They use, there's two different financing tools that are used within tips. One is like a standard municipal bond. The other one is called the PAYGO model. It's basically a model in which the developer takes out the loan and the municipality reimburses increment, you know, basically gives them increment over time. And 70% of those tips in Minnesota use that Pay Go model. So that is something that, Betsy has been looking very strongly and has strong partners in Minnesota that are helping them develop the tools, the bank notes, things like that, about how to use, how to, that's a new for the state. That's a brand new tool for the state. So, those are the two ways that we see CHIP being implemented as a financing tool, municipal bond or this pay bill model. So, we see these issues that have been brought up as stuff that, oh, want, Betsy wants to utilize the tools they have, which are the guidelines, which are things like the banknotes, the agreements with municipalities, with developers to address these issues, and if statutory language changes is needed, to do that next year. Because there is so much work has been done to line things up for now. Like I'll address the, jump in if you I want can address it, for example, the related costs. I mean, kind of to your point, like we don't want to get ahead of the agreements with municipalities. Let's see if there's really that rub and concern and whether or not statute, but we think that the guidelines are flexible enough to be able to address the issue.

[Sen. Kesha Ram Hinsdale (Member)]: And we put the guidelines up. Yes, yeah.

[Sen. Alison Clarkson (Chair)]: John, we can either do that. Cara's going to pick them up as she's printing. Oh, okay.

[Sen. Thomas Chittenden (Member)]: Not to jump around, but my biggest concern is what I think was highlighted in that last testimony is about the unenforceability of after the birth point of sale and that might be recent uptake by lenders. Are What your thoughts on that topic?

[Rep. Abby Duke (VEPC Board member; Member, House Commerce Committee)]: Lenders, there is some concern from lenders about, right, the lenders tend to be conservative, right? They don't want, they want to understand what are the long term risks. So there, the concern is about, not necessarily affordability, the concern is about what happens if a project is out of compliance, right? Who owns what? Right, is Pepsi gonna come back and say, You need to pay back the loan tomorrow? We think, at least for the remainder of 2026, let's see if we can address those issues in the banknotes, in the agreements, because that is, yeah, that's kind of where we stand. There is concern from the lender community about what are the ramifications if a project gets out of compliance. Because I do think this is a very tricky job, sure that the definitions are lined up in terms of regular certificate and post declaration. But I think that that is somewhat different. Really, the nut of this issue is providing, what's the right word, for banks that their investment isn't at risk on the potential of something being out of compliance five years, ten years down the road. So let's not jump immediately right now to changing statute language. Instead, let's say, let's take a look at, maybe there is an adjustment in the guidelines that can focus on enforceability, which the board can do. And the other piece is right now, Pepsi is still developing those banknotes using Minnesota as a model and working with the lending community to set that up in the banknotes to increase comfort levels with the banks.

[Sen. Thomas Chittenden (Member)]: I take from your answer that the conversation is still fluid and evolving.

[Rep. Abby Duke (VEPC Board member; Member, House Commerce Committee)]: It's fluid and evolving and so much has been built to this point that if we start making changes right now, as applications are coming in, it creates, honestly, uncertainty and a challenge to make those adjustments.

[Ted Barnett (Fiscal Analyst, Vermont Joint Fiscal Office)]: Slevers don't like uncertainty.

[Rep. Abby Duke (VEPC Board member; Member, House Commerce Committee)]: It's And this is not, I mean there's one very large project that I think in particular is some of these concerns have been raised about. And I get that, and we want, but I don't think we should be making changes right now in reaction to that project. I think we should acknowledge these issues, do what we can within the guidelines and the tools we have as we look next year.

[Sen. Kesha Ram Hinsdale (Member)]: So two things. I didn't know if I don't wanna ask too much about the 10 projects that are have a pre application in it. Looking at the time. But let's let's just say with this large housing project Yeah. Because I talked to Jessica about this month after month is the the attitude was like, we will work it out. You know? I mean, my concern is for some of the largest housing projects of the century in Durban that we not lose a construction season. And so are you all saying that if this particular issue comes up, you will work in the guidance or in the banknote to make sure that none of these projects lose financing or feel constrained.

[Rep. Abby Duke (VEPC Board member; Member, House Commerce Committee)]: I mean, think we're we'll certainly try, but I think we also need to stay within the purpose of the legislation, is for primary residence. So that's where my second question What

[Sen. Kesha Ram Hinsdale (Member)]: you could be doing is proving my point to go into finance and say, we can't keep changing the definition of what a long term rental at a primary residence is because this affects of other housing policy. So if you're doing that with me, thank you. Let's take what is proposed in H nine fifty five and what your guidance is and what we wrote into the bill, which is the landlord's certificate and the Homestead Declaration. We a landlord certificate because all landlord tenant law kicks in at thirty days. Every long term rental statute in municipalities right now, ordinance is written in at thirty days. All your rights kick in at thirty days. That is a known number in the landlord tenant law space. If someone files their landlord certificate at thirty days or has their homestead Like, then they HATs would generally be satisfied that there's not too many units that are being used as a non primary residence or not a long term resident. Let's just say, worst case scenario, H nine fifty five passed as it was written, the municipality is then going to be asked to deem a property a primary residence or not, a long term rental or not at six months or have a bonafide landlord tenant relationship, which

[Sen. Alison Clarkson (Chair)]: I hope we're working on

[Sen. Kesha Ram Hinsdale (Member)]: the language for that. But they would then be deeming a property a second home for that year's tax purposes or property categorization, and how would you treat that potential difference?

[Rep. Abby Duke (VEPC Board member; Member, House Commerce Committee)]: I mean, think we have to address that. I can't tell you right now. It seems to me the issue is focusing on that definition, like you said, focusing on that definition. But I just don't think making a statute change right now, that is an even That has to go up a little You know what I mean? Just don't, like, 100% agree. Like, all these laws need to line up. Definitions need to line up. But we can't do that. I think making this change in anticipation of maybe another definition is changing from another law is also not being careful and prudent.

[Sen. Kesha Ram Hinsdale (Member)]: Guess the challenge is, this has come up with TIF. I mean, any of us who have been around in on ways of means and on finance for a long time, the new people decide we wanna change TIF. And then communities, especially smaller ones, are left struggling with how do we get to the legislature to say this would really impact us if you made I these think we'd at least have to grandfather every single proposal from any kind of subsequent changes in the laws that would impact, because that's essentially what we did with TIF over the years. It got very complicated because legislators legislators don't listen to, you know, you can't keep changing So

[Sen. Alison Clarkson (Chair)]: I I I think that you will explore that when we align things, when Yeah. Definitions are changed. That is certainly why another reason for us to wait until next year before we readdress and open up the CHIP for further amendment. Anything further before we move to Tanya? Well,

[Rep. Abby Duke (VEPC Board member; Member, House Commerce Committee)]: me just go ahead. I completely agree that these changes should not be made at this time. Our committee spent hours and hours and hours and it was very transparent. All of our meetings were live streamed. We had lots of testimony from developers. Chip is intended to benefit small towns primarily who are not able to do TIFFs. The more complicated we make it, it's not going to help those small towns. We do have applications in the queue. So, this is not the time to change the rules. This would be a terrible time to change the rules. Next year, we'll have some experience and there will probably be, there will definitely be other items that come up and so those could be in conflict with what we're talking about now. It just does not make sense. Developers and especially banks, but also developers care about predictability. Mean these conversations are probably even causing some angst in development community because if the intention is that every year we're going to change the rules, that's not helpful to really any of these folks. So this is a brand new project or a brand new program we need to let it go through. It's been very thoughtfully I think

[Sen. Thomas Chittenden (Member)]: It's not just about same things for everybody.

[Sen. Kesha Ram Hinsdale (Member)]: Yeah. Everyone else comes tonight. I wanna add one thing.

[Sen. Alison Clarkson (Chair)]: Add one thing and then Tanya will Okay.

[Rep. Abby Duke (VEPC Board member; Member, House Commerce Committee)]: Very quickly. I think it's really important to remember that we've set this we've set this legislation up not to make rules, but guidelines, right? So, we can adapt guidelines much faster and more easily than you can update rules. David spits

[Sen. Alison Clarkson (Chair)]: on rules, so he's very

[Rep. Abby Duke (VEPC Board member; Member, House Commerce Committee)]: Oh gosh, yeah. That's, Yeah, I don't I have sympathy. And gratitude. Sympathy and gratitude. Thank you, and gratitude. So important to realize that within the constraints of the legislative intent and the statutory language, we can adjust the guidelines to meet needs that we see. So including guidelines surrounding how do we deal with the consequences, I guess, of of of what happens if there if there is a project that is so called out of compliance with psychologists. So I do

[Sen. Kesha Ram Hinsdale (Member)]: just wanna make clear that that veggie, you know, TIF, etcetera. Yep. Ultimately, TAP is the only one that has the information to know who's out of compliance. So they will work with, you know, Jessica or whomever is in that role. Understood. Understood. Is hard not to have TAP here because this like, no one gets to decide if someone's out of compliance or not. Hear you.

[Rep. Abby Duke (VEPC Board member; Member, House Commerce Committee)]: And I think my point is I don't think the statutory language of CHIP is where to address that.

[Sen. Alison Clarkson (Chair)]: Yeah. Thank you. Thank you both. If you'd stay if you're able to stay for the conversation, great to have you weigh in at different points. We're now going to turn to Kanye Morehouse.

[Sen. Kesha Ram Hinsdale (Member)]: Can can I ask another question? Yep. Did you are you able to say which projects? Are

[Rep. Abby Duke (VEPC Board member; Member, House Commerce Committee)]: I couldn't tell you in my head right off the top of my head. Know Bergen is very close to Yeah. Bergen is

[Sen. Kesha Ram Hinsdale (Member)]: submitting an actual outcome. Okay. And you feel like you have a good mix of smaller towns? I mean, Perjenc, have the mayor.

[Rep. Abby Duke (VEPC Board member; Member, House Commerce Committee)]: Yeah. Smallest city in the country. Yes. Are there smaller towns. There are smaller towns. Berlin, I gave some others that aren't. Right. Not that maybe the teeny tiniest, but, like, 200 person towns, but small towns. Right. Tanya, welcome.

[Tanya Morehouse (Chief Auditor, Vermont State Auditor’s Office)]: Morning. Good morning. Thank

[Sen. Alison Clarkson (Chair)]: being here you for this conversation. Much appreciated.

[Tanya Morehouse (Chief Auditor, Vermont State Auditor’s Office)]: Sure. Sure. Happy to be here. Alright. I'm just gonna pull up my presentation. And

[Sen. Alison Clarkson (Chair)]: If you'd just be kind enough to introduce yourself, and I think you have a copy of your presentation. Sure.

[Tanya Morehouse (Chief Auditor, Vermont State Auditor’s Office)]: Let me oh, need to share my screen. So I just sent a request for that. I'm Tiny Morehouse, Chief Auditor with the Vermont State Auditor's Office. We provided some testimony, I think, while the CHIP program was being developed last session, and we also provided comments to Betsy as the guideline development process was ongoing. So, we've been looking at this program and thinking about it kind of since inception. So let me just make sure I can share my screen here. Can you see my presentation hopefully again? We can answer. Alright. Great. And we can see you in the corner. Alright. Even better. Alright. So it's very interesting to hear everyone's perspective on this. I'm going to focus on the four primary changes, which, you know, the public good criteria, the related costs issue, the primary residence change, and then on the expansion on the use of tax increment. Our overall perspective is that these changes either remove an existing constraint or provide additional flexibility to the developers. But along with that comes increased chances that the projects won't serve the legislative intent and may not serve or provide a public benefit and could end up allowing taxpayer support for second homes and short term rentals, which is some of the concerns I've heard expressed. And essentially in all respects, these changes to us lower guardrails that are currently in place. So you had lots of discussion about this. I'm not going to belabor this point, essentially it removes the public good requirement that is currently in place for infrastructure improvement projects. What you're left with is the or the remaining guardrail is essentially the but for test, which is embedded in that purpose statement. I'm flip back, sorry. So, this is currently a two prong test on public good and the purpose stated in section nineteen oh seven. So you're left with just the projects having to meet the purpose stated here. And part of this is the reliance on the BUC IV, which is, know, essentially the project won't occur unless the infrastructure improvement is funded by CHIP. Now, based on our experience with economic development programs, it's fairly difficult to validate whether a public subsidy is necessary or critical.

[Sen. Kesha Ram Hinsdale (Member)]: Will say for how they administer their bug test.

[Tanya Morehouse (Chief Auditor, Vermont State Auditor’s Office)]: Was that a question for me?

[Sen. Kesha Ram Hinsdale (Member)]: No, no. Just that we've always looked to Minnesota for good tax policy and they have an enforceable bug or test.

[Tanya Morehouse (Chief Auditor, Vermont State Auditor’s Office)]: Okay. Well, our perspective is it's very difficult, if not impossible to audit that BUC for, and it's also difficult to verify it. So the other thing that I wanted to point out is that removing the public good criteria as part of that test of whether an infrastructure improvement can be funded with CHIP essentially nullifies what is in the existing guidelines for the CHIP program on what is meant by a public good. So, BEPC has taken the time and laid it out in their guidelines pretty clearly, I think, what it means to be a public good. So, it just has to meet one of these thresholds, publicly owned, publicly accessible. That's probably familiar to everybody because that's part of the existing TIP program, privately owned, publicly accessible, or if it's privately owned and restricted to private use, well then it has to demonstrate community benefit. This test would be gone if you remove the public good criteria from statute.

[Sen. Thomas Chittenden (Member)]: Ask a question about your

[Sen. Alison Clarkson (Chair)]: Yes, Tom.

[Sen. Thomas Chittenden (Member)]: So thank you for this, Tanya. I think it was raised and just as an example in that previous language, if a large high density housing complex were to come in and they needed to build a parking garage, which is often a necessity in more urban areas, parking garages are incredibly expensive, would you see that as falling squarely in item number three if it was still privately owned and privately accessible to just the residents of the place or would that be excluded from that definition in your mind?

[Tanya Morehouse (Chief Auditor, Vermont State Auditor’s Office)]: Well, think it would fall in that third bucket, but what would be required is they would have to demonstrate that there's some kind of community benefit from that privately owned and restricted access improvement.

[Sen. Thomas Chittenden (Member)]: That would be demonstrated to VEPSI, they would evaluate it.

[Sen. Alison Clarkson (Chair)]: Yeah. We

[Rep. Abby Duke (VEPC Board member; Member, House Commerce Committee)]: talked a lot about privately owned and publicly accessible cause that's really important and that's often what a garage is, a parking garage. Just for the residents? It can be just for the residents or you would have a section of it be for the residents and a section be And that works well in developments, but that was actually a stretch to say privately owned and publicly accessible. The privately owned was something that we talked about a lot and then did get to this.

[Sen. Kesha Ram Hinsdale (Member)]: I mean, have had debate after debate in Wings and Means about a parking garage and whether or not it should be free for two hours, and that makes it publicly accessible. So, you know, we like, we've heard that, you know, oh, like, these these are all we're raising concerns by talking about these things. Any halfway decent attorney has thought about all of the things we're talking about and has those concerns. So I just wanna stay here for a second because the the public good piece, I think the question was, does it serve a public good and fulfill the purpose stated in this section? So did you all talk about that? Like, does it have to meet it you won't you say or. So I think in your guidance, you've achieved what they're asking us to change here, which is congruency about the public good being one of these three things, not being two of these So three I I guess I would just say, you know, can it wait till next year because nobody's gonna get stuck on this? Probably. But but what is being requested is that we fix the statutory language to match what you all did in your guidance, which is say all of these are in four, not two of the three. And so, Tanya, what what would you when you read will serve a public good and fulfill the purpose stated in section 19 o seven, do you read that as two of these things have to be satisfied and would you audit that way?

[Tanya Morehouse (Chief Auditor, Vermont State Auditor’s Office)]: No. So, the current language, let me just flip back, ignoring the underline and the strikeout, it says it has to serve a public good and the purpose stated in nineteen oh seven. We would go to VEPSI's guidelines and we would say, Oh, how is the public good defined? It has to meet one of these points because there's ors here, not ands. It's an or. But the and is that it has to meet one of these and the purpose in 1907. The change Yeah. Change nullifies this. It would just if you eliminate the public good criteria, you don't need these guidelines. So you would just be left with this, which is it just needs to show that it meets the purpose, which is, you know, to encourage primary residents for low and moderate income that would not be created but for infrastructure improvements being funded by the program. So what I'm trying to highlight here is I think this is somewhat on its own a weak criteria because the BUT-four is very difficult to validate.

[Sen. Alison Clarkson (Chair)]: So, Tanya, if you'd be kind just to finish, we have Ted Barnett So, is

[Tanya Morehouse (Chief Auditor, Vermont State Auditor’s Office)]: So, just to kind of end on this particular item, the implication of the risk here is that market rate housing projects, which have no requirement to set aside units for low income or moderate income households, could end up receiving public funds but provide no public good and only be subject to a but for test that we believe is difficult to validate. So essentially, you can open the floodgate to allow any type of developer infrastructure costs to be paid for with public funds. And our suggestion is you just defer consideration until you definitely have more experience to inform the discussion. The next item related do you want me to keep going through or do you want to just go to Ted?

[Sen. Alison Clarkson (Chair)]: No. This is good and then we're gonna add Ted.

[Tanya Morehouse (Chief Auditor, Vermont State Auditor’s Office)]: Okay. So with regard to related costs, this would, of course, expand the universe of related costs in statute to those incurred and paid by a sponsored developer. Right now, the VEPSC CHIP guidelines include related costs of sponsors and developers as an eligible related cost. So I guess, whoops, sorry, having it in the statute, you know, kind of closes it down, makes it clear in statute, but it already is in the CHIP guidelines. I think what the risk is that remains is that it's not clear that the developer or sponsor related costs will be subject to BEPC authorization and municipal validation, and I think that's what Senator Chittenden has expressed some concern about because he's asked questions a couple times around how would those costs be monitored, how would they be validated. Currently the CHIP guidelines are really explicit about expectations for municipalities of implementing procedures to validate infrastructure improvement costs, but do not address developersponsor related costs. So that could be made more clear. I think David White had mentioned in his testimony that it would be spelled out in the infrastructure agreement between the municipality and the developer. That is another good thing, another way to kind of clarify and make sure that the developers understand. They have to spell it all out, have agreement, and then provide evidence to validate that their costs are eligible. I will tell you that this is an area in our experience with TIF districts where we see it as a higher risk, and that risk is both interpretation and administrative risk. So kind of going way back twenty eleven, twenty twelve, Winooski charged their municipal operating costs to the TIF district. This was before the statute was kind of locked down and made more explicit about what was allowed for related costs. The TIF rules also do a good job of addressing it now, and that was pre TIF rules. More recently, the Burlington Waterfront TIF, they use tax increment to pay for internal staff attorney costs. And that, I think, is not an interpretation risk, but it highlights the kind of municipal administrative risk. These are complicated things for municipalities to manage. And in Burlington, the people that were approving the costs and had eyes on what was being charged to the TIF, I don't think they really understood the related cost rules. And so that's how the staff attorney costs ended up getting charged to the TIF district. In St. Albans, we had some issues around a broker fee that tax increment paid for. It was in connection with a sale to a developer of some property that was owned by the city. The issue that we had there was, well, is that really a related cost associated with the implementation of a TIP district improvement or was it a private development cost? At any rate, my point is it's difficult to kind of manage these things. And our suggestion is either, you know, if you're not going to make the change in statute, remove the reference from the BEPSI CHIP guidelines to the sponsor and developer related costs being eligible. Or if you're going to make the change, then also request the BEPSI modify the guidelines to specify that VEPSI needs to authorize the sponsor developer related costs and municipalities have to obtain appropriate documentation from the sponsors and developers to substantiate those costs. Any questions on that?

[Sen. Alison Clarkson (Chair)]: No, thank you. This is Okay.

[Tanya Morehouse (Chief Auditor, Vermont State Auditor’s Office)]: For the primary residence, the effect, of course, is that this has been discussed already, but that essentially the requirement to maintain the units would not apply to any subsequent transactions, and in some instances that could possibly be immediate upon project completion. The implications or risks appears inconsistent with the purpose of the program, could significantly shorten or eliminate the periods that the units are preserved as primary residences, and increases the risk that public funds are used for projects that don't produce the intended outcomes. I think this is the crux of the discussions that have been happening. For this one, our suggestion is just defer consideration until there's more experience that can inform the discussion.

[Sen. Alison Clarkson (Chair)]: Okay, thank you. I think we have a question here with Rumkesha.

[Sen. Kesha Ram Hinsdale (Member)]: I mean, I think a lot of this is about, sorry, I'm standing up because I thought I'd go support our congresswoman across the street in a minute. But this hinges on what might get audited in the future, what would be considered acceptable under the language we have passed at this time, And an alternative question that has been posed to me by some lawyers who are following this is, if we require that 40% of the project meet the primary residence housing requirement to be eligible as meeting the purpose, could the other 60% be not only commercial or, you know, some other type of use, but would tax be able to say, okay, some percentage of these have not filed a landlord certificate or a homestead declaration, but 40% did?

[Tanya Morehouse (Chief Auditor, Vermont State Auditor’s Office)]: I'm sorry, what's your question? Are you asking me if that's a logical way to address this?

[Sen. Kesha Ram Hinsdale (Member)]: Is it logical or would it pass an audit in your mind if the other 60% was a commercial property or a non primary residence?

[Tanya Morehouse (Chief Auditor, Vermont State Auditor’s Office)]: So based on my reading of statute and the current guidelines, I think the requirement is that housing has to be 60% of the floor space or something along those lines. And I think that the guidelines specify that that housing has to be primary resident.

[Rep. Abby Duke (VEPC Board member; Member, House Commerce Committee)]: I'm not

[Tanya Morehouse (Chief Auditor, Vermont State Auditor’s Office)]: sure it does I don't think it's a split second statue. Right? So I think the way to approach this is think about Betsy can think about whether there can be some adjudication process that allows for some level of flexibility.

[Sen. Alison Clarkson (Chair)]: But

[Tanya Morehouse (Chief Auditor, Vermont State Auditor’s Office)]: I can't tell you whether the 40% of the 60% would pass luster or not. I think that's a decision that Betsy has to make.

[Sen. Kesha Ram Hinsdale (Member)]: I think that's a good question for Betsy is if you have a housing project that does have a commercial component, which we know is also a PHP, a benefit to our communities, would you, what percentage of the housing would have to be primary residences to satisfy the concern depending on the and I think we tried to get away from square footage because that kind of leans, like lends itself to luxury housing, being picking up more of that housing. So anyway, this is, I think, a really good question for, you know, you all. And I I mean, I believe our intent was to try and create as many housing units as possible. And so, you know, like, period. So, you know, and and not that worry ten years down the road, do they have a commercial piece and is this a, you know, is this a non primary residence now and what percentage of that? So it is a question you all will probably

[Rep. Abby Duke (VEPC Board member; Member, House Commerce Committee)]: have to answer year after year. Okay. Or, yeah.

[Sen. Randy Brock (Vice Chair)]: Well, is a judgment issue. It's a judgment issue with a case by case basis, That's something that Pepsi would have to make.

[Ted Barnett (Fiscal Analyst, Vermont Joint Fiscal Office)]: Yeah, right. Now, there's

[Sen. Randy Brock (Vice Chair)]: there, I've seen some examples of people saying, question, a professor, for example, who goes on a sabbatical brief, during that year, that property is leased. Does that

[Sen. Alison Clarkson (Chair)]: That's a primary residence.

[Rep. Abby Duke (VEPC Board member; Member, House Commerce Committee)]: No. That's a primary residence. So that's the thing.

[Sen. Kesha Ram Hinsdale (Member)]: I have evidence by the landlords. It only way It is. The question is we can't change the rules on people.

[Sen. Randy Brock (Vice Chair)]: What we can do is the board can exercise some judgment in terms of the measurement from the auditor's perspective as to whether they are or not complying, they

[Sen. Alison Clarkson (Chair)]: have to look at that

[Sen. Randy Brock (Vice Chair)]: judgment and the basis for it and what's in the

[Sen. Kesha Ram Hinsdale (Member)]: So they can only look at they can only make that judgment if tax has a flag for what would be out

[Sen. Alison Clarkson (Chair)]: of compliance about that. Tax has the Olmstead Declaration. It's been really great. Tanya, would you be kind enough to finish?

[Tanya Morehouse (Chief Auditor, Vermont State Auditor’s Office)]: Okay. Turning to the last proposed change. So, this would add to the use of tax increment. And so essentially, it would be reimbursing taxes that have already been paid or as a credit against taxes due. So just to jump right to kind of implications or risks, This change, because of the way that it was written, eliminates the verification guardrail that currently exists. So what I mean by that is in the existing law, sponsors have to provide an invoice as evidence to substantiate that debt payment is due, and then they also have to confirm once they've applied that tax increment to pay the debt. So this ensures that tax increment goes to permissible use. Underlying this also is in the guidelines, municipalities, I think as I mentioned earlier, have specific requirements to set up procedures so that they're validating the costs of the infrastructure improvement project that the developers are doing. So it's not just what's in the law, but it's also what has been set up in the guidelines in terms of the procedures and the oversight that the municipalities need to have. The proposed change doesn't address the evidence required to be provided that would then prompt payment. Also, this could be complicated to operationalize in the context of the municipal and state property tax systems. And the reason that I say that is the mechanisms that are in place right now for facilitating the management and kind of the the flow of funds for tax increment. The ones that are in place for TIF, I think would probably be replicated for the CHIP program. The TIF program does not have this type of wrinkle in terms of a reimbursement of taxes or kind of a reduction of future taxes due. And I'm not sure how this could actually be incorporated in the current processes.

[Sen. Alison Clarkson (Chair)]: Right.

[Tanya Morehouse (Chief Auditor, Vermont State Auditor’s Office)]: And my concern is that it would lead to some kind of of off book or on the side accounting and tracking that would be difficult for municipality to manage. Also, when you read the language, it kind of has the appearance of either being a tax abatement or an exemption, and that could impact local taxpayers' property tax obligations. So generally, when tax abatement or tax exemptions are granted by a municipality, municipality still owes the state education They don't have the authority to just kind of wipe those out. What happens in that case is that the municipalities add a local agreement rate to their municipal tax rate such that it's high enough to raise those taxes that they've excused a property owner from. So the municipal tax rate is higher for all taxpayers. And I'm just not sure how this language would be interpreted and whether this kind of item would kick in. So, the suggestion here is to consult with the Department of Taxes Director of Property Valuation and Review about these last two items, whether they could operationalize the way these funds would flow in their current system and also if there would be any impact on local taxpayers. So that's it.

[Sen. Alison Clarkson (Chair)]: Tanya, thank you. Really, you have done a huge amount of work reviewing this, and we're very grateful, very helpful. This is one of the challenges with having major proposals at the last minute. I mean, just this alone, if we were to do a proper job on this and we weren't already committed to letting chip roll out for a year without interfering with it. I think this alone requires our to really dig in with tax and with the, as you said, the director of property valuation and review. So I really I'm so grateful to you for sort of reviewing these and helping us appreciate some of the implications that these proposals are present us with, and it helps us understand some of the implications of these proposals. Thank you. We'd love to have you stick around for Ted Barnett's, the GFO's testimony. If you're able, that would be great. But if not, this is really helpful. Thank you very much. Really. I really I have to remember that speak to the tube and not to the screen. So thank you so much. Really appreciate it.

[Tanya Morehouse (Chief Auditor, Vermont State Auditor’s Office)]: You're welcome. I was happy to be here. And I will hang around.

[Sen. Alison Clarkson (Chair)]: Ted, if you'd be kind enough to join us, that would

[Ted Barnett (Fiscal Analyst, Vermont Joint Fiscal Office)]: be great. We're good with you. Yeah.

[Sen. Alison Clarkson (Chair)]: Thank you, Tanya. And David is still with us, I think, well. Okay.

[Ted Barnett (Fiscal Analyst, Vermont Joint Fiscal Office)]: Okay, am hopping. Temperinet joined the spilotsas. I'm hopping in the Zoom right now, and then I'll go share my screen, so we'll have a thirty second hold music moments while I'm pulling everything up. Wish I could choose my own adventure on the exact whole music that could play while I'm doing it.

[Rep. Abby Duke (VEPC Board member; Member, House Commerce Committee)]: Oh, that's a nice idea.

[Ted Barnett (Fiscal Analyst, Vermont Joint Fiscal Office)]: Okay. So here's the I given the time frame we had to think about the proposal and given the work we did last session on the CHIP program, we developed a memo that kinda outlines more fiscal implications or considerations around these proposed amendments. As a reminder, JFO was not able to estimate the fiscal impact of CHIP last session when it was enacted in six act 69. There are just too many unknown variables for the broader program to put a specific number on it. Right? It depends on the number and types of projects approved. There's different retention percentages, whether the program or the project meets affordability criteria, depends on, right, the affordable project are not subject to the Bot four test. We don't know how different programs are going to to meet that Bot four. And then given all of our uncertainty around the educate education finance system, we don't know what future tax rate is. So all of those various pieces made it impossible for us to put a number on the fiscal impact of Gyemnis. Given that, what I've said is all those considerations for this particular piece, we decided to really focus on the increment that is generated. And then so increments that's generated, a percentage of that increment, 75% for market rate, 85% for affordable housing projects, right, that can be used for the finance of the CHIP program. And broadly speaking, by increasing the types of uses for that increment, regardless of how you feel about the above forecast, you will have more increment committed to those uses, which are Ed Fund dollars that would normally be returned that could be returned to the education fund through a certain set of processes that are outlined in statute. So that kinda tees up the conversation. The amount of statute outlines that increment that is retained beyond what is needed for payment of financing and related costs are used to prepay principal and interest on financing to be held in a certain financing account for future financing payments, and that's generally what happens in recurring TIF projects. Right? They are they have they're generating a certain amount of increment. If that increment is more than what they need to pay for debt service in that current year, they place it in a TIF account that can be used for future financing payments. Oftentimes, the the bonds are structured to run longer than their to run longer, and so they can build up a surplus to make those debt, you know, down to the matrix. And then you can be used for a few pieces of the financing. It's a third use. And so of the excess that is remaining, it can be returned to the education fund through three processes outlined in the same section of statute. First, in a given year, it can be distributed to the Ed Fund. We don't see this happening in TIF districts, but it is outlined in statute as a possibility. Two, in the tenth year following the creation of a TIF project, statute requires the TIF the CHIP project to issue a financing plan to Pepsi, and in which place Pepsi evaluates the amount of increment they're generating and and sees whether the retention percentage can be lower so they're holding on to fewer incremental dollars, returning more money to the municipality and the education fund. So that the process in statute. So if the project's doing super well, it's designed so that the the project is holding on to fund dollars unnecessarily for the duration of the retention period. And then at the end of the project, any remaining EdFund dollars after the payment of financing would get returned back to the education. So we really tried to focus for this analysis on that those incremental dollars given that, in any case, there are a variety of ways in which they can get returned to the education requirement. With that in mind, we're gonna run through each of the four proposed amendments. As a highlight here in bold, right, we are not able to forecast the exact fiscal impact of those amendments given all of our challenges forecasting the broader impacts of of chip. And but as I've said, number of times, would expand the uses of tax increment dollars, which would negatively impact the education fund throughout the retention period of chip projects.

[Sen. Thomas Chittenden (Member)]: To your point with that very important statement there, could you also say that it would expand the uptake of chip projects, which might ultimately have the benefit of foreign housing projects, which ultimately could grow grantless peers? See my point.

[Ted Barnett (Fiscal Analyst, Vermont Joint Fiscal Office)]: I do see your point. So it is really hard to evaluate those additional projects, how they're meeting the BUT four test. Yep. And so right. Because of the way the BUT four test is construction construction in statute, it it's not a and there is a, like, a there's a strong like, the JFO BUT four test is whether the development would happen anywhere else in the state. Right? Because if it's happening anywhere elsewhere in the state, the 100% of that incremental value is being returned to the education fund. If it's happening in a chip project, they're only re removing a certain portion to the education fund. I would also note that the fund four test in statute allows them to approve projects that would happen in a substantially different or less desirable manner. And so it's not a binary either or that just because the project was financed through CHIP, and finally, the affordable housing projects are not required to meet the BUC four at all. So it's you could theoretically make the same argument that because they're not required to meet the BUC four, those projects would have happened anyway, and so they're a full cost of the education fund. So I think, like, given those but for considerations

[Sen. Thomas Chittenden (Member)]: It was challenging. They're trying to count upon it.

[Ted Barnett (Fiscal Analyst, Vermont Joint Fiscal Office)]: Totally totally understand. So that's why we chose in this the memo to really focus on the the use of incremental dollars. Yeah. Because it it simply even if you view TIF or CHIP, sorry, as a as a benefit to the education fund, there would be fewer of those dollars

[Sen. Alison Clarkson (Chair)]: To

[Ted Barnett (Fiscal Analyst, Vermont Joint Fiscal Office)]: send back.

[Sen. Thomas Chittenden (Member)]: To send back.

[Sen. Alison Clarkson (Chair)]: And what you're saying is there'll be fewer dollars to send back.

[Ted Barnett (Fiscal Analyst, Vermont Joint Fiscal Office)]: Exactly. In any case.

[Sen. Alison Clarkson (Chair)]: Yes. Although our our long term hope with all tip and chip projects is that more money will be coming to the to the Ed Fund because we'll be generating more housing and more tax revenue and more all of it.

[Ted Barnett (Fiscal Analyst, Vermont Joint Fiscal Office)]: Yes. Staying at the end of retention periods, right, the the grand list would be

[Rep. Abby Duke (VEPC Board member; Member, House Commerce Committee)]: Yeah.

[Ted Barnett (Fiscal Analyst, Vermont Joint Fiscal Office)]: Yeah. Lot years every Yep.

[Sen. Alison Clarkson (Chair)]: We get full rate of the increased value of the grand list.

[Ted Barnett (Fiscal Analyst, Vermont Joint Fiscal Office)]: Yeah. And, unfortunately, that that benefit only realizes one year's situation. Right?

[Sen. Alison Clarkson (Chair)]: Right. Well Yep. Some of us, you know, have to have patience. Exactly.

[Ted Barnett (Fiscal Analyst, Vermont Joint Fiscal Office)]: So on the first piece and I will, as I go through each of these points, a lot of these points will be similar to the presentation from Tanya. Yes. Yes. We are. I was happy to see many of those points in

[Sen. Alison Clarkson (Chair)]: her presentation. Yes. That would have been

[Ted Barnett (Fiscal Analyst, Vermont Joint Fiscal Office)]: So the first one, changing the definition of improvements so that privately accessible improvements would no longer be required to demonstrate community benefits of that infrastructure. Similarly so this would likely increase the amount of private infrastructure funded through CHIP. The example referenced before, parking garage, parking lots is kind of the main the main piece of infrastructure we're seeing implicated here. You know, if this private infrastructure would have been a part of the project anyway, but not eligible to be financed with increment. It would decrease the amount of increment left over after financing, reducing money, or the funding of the education function. The second piece is talking about related costs, including planned development, public engagement, consulting fees. We'll note that, you know, again, greater use of equipment, fewer dollars that can be returned to the education fund, and I wanted to provide within this memo some scope of related costs as a share of the overall project. Related costs are they can certainly add up. So within I looked at the face filing from Killington as a part of their plan that they put forward. So for $47,000,000 in debt principal, nearly $900,000 that was financed through bonding was related costs. So by opening this up to developer or sponsor related costs, it could certainly start to represent a sizable piece if all depending on the scope of projects and who's implementing them, it could certainly start to add up. We similarly spent a lot of time thinking about the mechanics of the piece that would allow reimbursement from municipality or payment to sponsors and developments to take the form of taxes for or credit for taxes due. Given I think we share the concern that this does it can appear as though it is a tax abatement type structure. This memo focuses on it simply changing the form of the payment that happens to a development or sponsor. So rather than it going out the door as some sort of cash, it is a credit as taxes due. Best case scenario, that credit as tax taxes due is, you know, in line with a normal financing plan where the amount of increment is supposed to cover the cost of that financing. It would cover the amount of taxes due, kind of a best case scenario. You can imagine a situation in which a municipality has has said, certainly, developer or sponsor will issue a credit of a certain amount. The increment doesn't get realized, but they're still on the hook for those payments.

[Sen. Alison Clarkson (Chair)]: Yeah. And that's one of the big concerns of tax abatements. If they are, then then the city of Burlington is on the hook for making up that difference and saying it to the.

[Ted Barnett (Fiscal Analyst, Vermont Joint Fiscal Office)]: Exactly. And it's the same risk that applies in any sort of TIF chip Yeah. Project is that you are relying on a certain amount of increment to come in. But I will note that I also share the concern that it considerably within state auditor reports, there are a number of challenges in implementing tax implementing correctly, calculating the increment under the current structure in TIF projects. So by adding an additional wrinkle of credits against taxes due, you're certainly offering the possibility for those calculations to be more complicated and increasing the possibility for mistakes which already happen in the current TIP program. And then finally, the proposed amendment that's certainly getting the most attention is this idea that the limitation on chip units created through CHIP being offered as primary residences in the current law for the duration of the debt retention period. It's not

[Sen. Thomas Chittenden (Member)]: an offer to offer to be easy, it's just maintaining enforceability of it being used as a primary residence throughout the life of the tenth. Which

[Sen. Alison Clarkson (Chair)]: Yep. Most don't think it's that challenging to enforce given that we have this with hundreds of thousands of homes that are primary residents who have to

[Sen. Thomas Chittenden (Member)]: It's easy. It's just the resale, the public control. Right.

[Ted Barnett (Fiscal Analyst, Vermont Joint Fiscal Office)]: And that is exactly the concern. We could see this under the current structure of the language. We could see the the sponsor offering those units to some sort of private or property management company that then offers those units as they transfer them as secondary residences, etcetera. So that can and that mechanic can happen pretty likely. And you have no real right. As as you mentioned, right, there's there's no real control over the duration of by which these units created are maintained as primary resonances. And the law lack here, I think there's quite a bit of debate on this particular subject, right, the decision was submitted.

[Sen. Alison Clarkson (Chair)]: Already waived this consideration and made a decision on the bill. Yeah. It's

[Ted Barnett (Fiscal Analyst, Vermont Joint Fiscal Office)]: And I do do wanna flag that, yes, there is a concern that these could be transferred and converted into secondary residences or even short term rentals far earlier than you would have attended. The second piece is the per right. This is the purpose statement clearly identifies that the program is to encourage the development of new primary residences, and the post amendment may reduce the number of primary residences. Probably likely will. And then the other piece I wanted to make, which it's not often I get to talk about the academic literature, but I always enjoy when I get to, is there was research recently conducted by two academics at UVM, Joe Hammett and Chris McElroy. Hope I said both their names correctly. But they looked at housing price increases in Burlington, their explanation, or what they found in data, is that these price increases are more of a demand side explanation. So the fact that you have more investor activity in housing in Burlington, the fact that you have people who are able to offer greater down payments for properties in Burlington, that competition for units was a better explanation for the increases in Burlington compared to any sort of supply side constraints. And so by offering opening up these units to you know, at second or later transfers, opening them up to a greater competition from potential buyers that could potentially increase the price of the unit compared to current law within those chip developments. And, again, great, the purposes of the program is to encourage the development of residences for households of lower and moderate incomes and really speaking to the affordability of those units. And so given this research, there is a concern by increasing competition it could make these units less affordable. Thank very much.

[Sen. Alison Clarkson (Chair)]: Thank you for taking the time. I we're very grateful to have your eyes and ears in analyzing the implications of these proposals. We have to vote h seven seven five out tomorrow at the latest. I had hoped I would I would love to have some committee discussion of this. I I appreciate proposals at any point to improve things, but we really I think I think Pepsi's Pepsi's interest and our support in January when Jessica Rutland came in, the house and the senate and Jessica all agreed for us to look at these in subs any substantive changes next year. John, are you leaving, or are you gonna join us? Are you

[Ted Barnett (Fiscal Analyst, Vermont Joint Fiscal Office)]: I'm leaving. Later.

[Sen. Alison Clarkson (Chair)]: Okay. We well, next year. And so I and given that we have a few more issues with h seven seventy five tomorrow to iron out before we vote it out, I these these these proposals of amendment are already have already taken another hour and a hour and forty five minutes of our time, which and I so appreciate all the implications and all the analysis and and the ideas behind them. But I think coming at this hour, at this day, they're substantial enough. These are not technical changes. These are major changes. They have been rejected three times by this legislature, by the Pepsi Board, and by the Pepsi guidelines to ask for it. I would really ask of May at this point to to decide not to include these amendments in h seven seven five of this

[Sen. Thomas Chittenden (Member)]: Definitely wanna hear from senator Reese, senator Brock. I'm leaning that way as well, but I just wanna say this is a good use of our time. If anything, I wish we had had it a couple weeks ago should we put us filling under the pressure. But CHIP was landmark legislation, so revisiting it, hearing from people on the ground about what they're experiencing is great, but the testimony from Pepsi was quite compelling that I I more inclined to give it to you, but that's where I am. I'd love to ask that.

[Rep. Abby Duke (VEPC Board member; Member, House Commerce Committee)]: And and I think we can be really proud. We can be really proud of the program.

[Sen. Alison Clarkson (Chair)]: Oh, we're proud of. And you're proud of all the tip work. David's done. I mean, I'm proud of all this work, which we ignored. Actually, so with that, senator Clark, I would love to have you actually, I think let's do a a poll on this, and I would ask for a motion to to not include these amendments in our bill at the moment.

[Sen. Thomas Chittenden (Member)]: I think our standard rule is we don't make motions in the negative. So you'd want a motion for it and then you vote against it. But I don't even know if that's necessary.

[Sen. Randy Brock (Vice Chair)]: You guys know what it is.

[Sen. Alison Clarkson (Chair)]: I don't

[Sen. Randy Brock (Vice Chair)]: We don't take it up. Don't take it up. Yeah.

[Sen. Alison Clarkson (Chair)]: Oh, okay. So the decision, my sense from the committee just in a straw poll to include these amendments into the bill. For those who support including them in the bill, please raise your hand. Those who oppose including them in the bill, please raise your hand. Thank you very much. Ted, this was a great news. Thank I'm not I hope it was a great use of your time. I certainly as we go forward, it will certainly inform all your Chittenden's work. So thank you very much. Betsy, thank you. Thank you, Abby, for taking that Premier Committee. Thank you all of us. David, thank you. Good to have this conversation again. And there we are. Thank you very much.

[Sen. Thomas Chittenden (Member)]: This takes a while. You're doing

[Sen. Alison Clarkson (Chair)]: the test.

[Tanya Morehouse (Chief Auditor, Vermont State Auditor’s Office)]: Before.