SmartTranscript of House General and Housing and House Commerce - 2025-02-06 - 1PM

[Chair Mark Mahaly ]: Thank you. Welcome everyone to a joint hearing of the committee, the House Committee on Commerce and Economic Development and the House Committee on General and Housing. And it's a day it's still February February sixth, Thursday, and it is approximately one PM a little later. And we are going to jointly hear issues around tax increment financing from Jones Goldstein Jones. Hi. You are remote. Okay. And Jessica Hart. K? Yes. And we have with us Fred Barnett, fiscal analyst, and John Gray. So I understand, John, you're gonna chance to find the the two of you who go first. [Joan Goldstein ]: I can go first. [Chair Mark Mahaly ]: Okay. So, Joan, I think you know everyone on this committee, but, you know, I'm thinking just I don't know you at least. And so perhaps we ought to go around and introduce ourselves. Wanna start? John Carlton. [Mike Marcotte ]: I represent Athens Craft, Winchester, and aluminum. [Joe Parsons ]: Joe Parsons, Newberry, Thompson, Croft. [Gail Pezzo ]: Gail Pezzo, just a twenty, Colchester. [Emilie Krasnow ]: Emily Krasnow, Chittenden nine South Burlington. Mary Howard, Brooklyn City, district six. [Chair Mark Mahaly ]: Ashley Bartley, Fairfax in Georgia. Hi. I'm Mark Mahalley. I represent Dallas Plainfield in March fifth. [Mike Marcotte ]: Hi. I'm Mike Markoff, from Coventry. I represent Coventry Art of Stewart, Newport Town, Troy, Jay Westfield, Lowell, and Eaton. I'm chair of House Comps. [Bea Granting ]: Hi. Be granting representing Jericho and Underhill and, vice chair of House Comps. [Kirk White ]: I am Kirk White. I represent Bethel Rochester, Stockbridge, and Hancock, and I'm the ranking member of house commerce. [Bea Granting ]: Hi. Saudia Lamont, Lamont Washington District, and I am on the general and housing committee. [Emily Karis Duncan ]: Emily Karis Duncan. I run economic development and commerce. Let me to my name and how my name and how it acts. [Mike Marcotte ]: Tony Nicholas on economic development and commerce representing Milton in Georgia. The [Joan Goldstein ]: Washington comments on economic development from Clarendon representing Longford Clarendon, West Rutland, a bulk road town. [John Gray ]: Jonathan Tubera, Townhall, Redington one history to Reed's borough, Searsburg, Stanford. [Emilie Krasnow ]: I'm talking to you for [John Gray ]: the house of commerce, and I represent part of Berlanti. Berlanti? How's the economic development of commerce? I'm representing Crystal Lincoln, Moncton, and. [Michael Lubin ]: Michael Lubin, Commerce and Economic Development, and I represent Bury City. [Gail Pezzo ]: I'm Elizabeth Burrows, and I represent Windsor one, Heartland, West Windsor, and Windsor. And I sit on a general and house of cake. Thanks. [Chair Mark Mahaly ]: Joan, would you state your name for the record and take it away? [Gail Pezzo ]: Thank you very much. Joan Goldstein, commissioner of department of economic development. I'm here with Jessica Hartleben, who is actually there. Do you wanna introduce yourself as well since we'll kind of be combined on this presentation? [Chair Mark Mahaly ]: Wanna come [Gail Pezzo ]: and sit down. If [Chair Mark Mahaly ]: you're gonna testify, why don't you come and sit down? Thank you. [Gail Pezzo ]: The title of our presentation is strategic projects for advancing rural communities. We've been calling this spark. This is inserted into the administration's housing proposal because we thought this, derivation, if you will, of TIF would be very helpful to housing generation. We go to the next slide. In this, we will review kind of how, you know, regular staff or tax increment and financing district is a tool that that municipalities use to fund infrastructure, and they finance that infrastructure through utilizing what the future value of the new private development will be. So just to keep it as simple as possible, it's really driven by the desire for development in a community. And in many cases, there is not adequate infrastructure to accommodate that development. And so the kind of before TIF and after TIF, what it represents is what the taxable value does during that period of time, and it usually increases significantly. And the incremental tax that could be collected from that is utilized to pay back the debt that the municipality went into to do that infrastructure. So that's normal tip. What we are why we're differentiating this, is so that we want to and I should say normal TIF actually involved tens or hundreds of parcels in a particular district. So it's very, very complex, and many of the larger towns and municipalities have taken advantage of it. You know, when I say larger, Winooski, Saint Albans, South Burlington, Hartford. Killington has one, a a new one. So these are vast TIF districts. So what this is is to scale it down a bit for smaller communities. We really want smaller communities to have the tools to be able to develop the housing and the economic development that they need in order to sustain a thriving community. So our focus this year, of course, is housing, and there's housing demand all over, rural areas as well as the urban areas. So we think that this scaled down version, which would mean instead of hundreds of parcels, you may have a parcel or a project in a particular town that doesn't pencil out, which is what we've been hearing from many of the developers and builders that the cost of construction has increased considerably, and some things are not getting done. So the idea behind TIF is always that but for the TIF, the project wouldn't get done. And so this abides by that same type of rule, and we would be addressing housing demand in these areas as well as flood impacted communities who are having difficulty with, you know, do they really want to buy out do federal buyouts of these flood impacted areas and then have no ability for taxable value, that these communities may want to purchase those those impacted parcels, impacted properties, and do some flood mitigation efforts and flood, you know, climate mitigation efforts. And that's expensive, But they would if they could utilize this tool and borrow the money to do that and then pay it back with incremental tax revenue from a private development, let's say, a multiunit housing that would go on that area. So we wanna address housing. We wanna address flood impacted communities. And some communities still may want to use this for infrastructure. Right? That's still very much a need and boosting local economies. So more housing, economic growth, environmental resilience, and development. Now the mechanism, again, is that, you know, a town would either go into debt. And this this derivation of TIF, however, gives a municipality the ability to grant that investment partner or private developer or private builder, grant them the opportunity to get the increment that's being collected to help that development happen. So, again, we leave it it's gotta be municipally driven. It's not like it's going to be private development driven, but municipally driven to decide. Do they need the increment to pay back infrastructure, or do they need the increment to help pay back the developer who chose to do the development in their community? So it's really giving some power back to the municipality to make that determination. And why do we think this is valuable? We've heard from communities that, for example, may not need to expand infrastructure, but they have a developer who wants to do some housing, and it doesn't pencil out. So this is so the mechanism for this would be to the municipality and the developer would have to have a community agreement. The municipality is not taking risk because they're not gonna pay anything until after the development is done and after the increment is being collected. So it kind of acts like a a rebate of sorts. But at the very least, at the get go, the developer would know that they would be entitled to this increment if they fulfill their end of the agreement. So, yeah, I mean, at the the bottom infographic is just all about how, you know, projects aren't penciling out. They can't do anything. They they need an investment partner. They create a a community agreement. Pepsi, which is Vermont Economic Progress Council, who is the governing body, and Jessica is the executive director of Pepsi. It's a board, that would review the community agreement, reviews the projects, make sure that there's enough increment, make sure that this is feasible. The construction happens. The tax revenue gets collected. New homes, new community vibrancy, and grand less growth. Wanna address this, issue that we hear often about taking from the ed fund. So Spark, just like TIF, it only uses new incremental tax revenue. So it's money that would not have existed to begin with, so, therefore, it cannot be taken away. The property taxes associated with the new investments made at the property is what we're calling the incremental tax revenue. This is the amount that exceeds what the property was worth pre project. So, really, if anything, it grows the education fund, but it is a long term investment. I mean, we called it spark. Sometimes I think it's really next generation investment. So next generation investment now so that the next generation could benefit from this, you know, grand less growth and increment in taxable revenue that'll occur over the next ten to twenty years depending on the length of the debt. [Chair Mark Mahaly ]: We can ask it up. We can ask questions. Here you go. By the way, John, I'm gonna say, if anyone has a question, ask just raise your hand and ask it when you wanna ask it. I don't think we should wait until the end if that's acceptable. Just I agree. [John Gray ]: The question. [Chair Mark Mahaly ]: Yeah. So [John Gray ]: go ahead. John, was Do we have [Chair Mark Mahaly ]: on the next slide. Okay. Go ahead. Go ahead, John. [Gail Pezzo ]: Oh, okay. I'm sorry. Was there a question? Or [Mike Marcotte ]: Not yet. I don't know. [Bea Granting ]: But I'm going to just wait a minute. [Gail Pezzo ]: Okay. So I don't know. Jessica, did you wanna take on the next segment about the community agreements? It's basically the agreement between the municipality and the private investor. [Emilie Krasnow ]: Sure. So, just for the record, I'm Jessica Hartley, and I'm the executive director of Pepsi. I've been the executive director at Pepsi for about one year. And prior to that, I was the staff attorney working, at the Department for Economic Development on their ARPA related projects and making sure that we were using ARPA funds properly and implementing the CRRP program and the CIP program, and then also did work with, Brownfields and other DED related programs. So, having said that, I'm happy to talk about the community agreements. So the community agreements are new, in terms of SPARK. Community agreements are not something that we have in our regular TIF program now. We consulted with the state of Maine. They use these community agreements to have municipalities and builders or other business owners that want to move into their municipalities. It's a contract that's negotiated between the municipality and either the builder or the, business owner, to encourage the business owner or the builder to come to their municipality. And so, for example, in Maine, if a builder wanted to move into a town, the community may say, and this is a small community, may say, we don't have the ability to bond for the infrastructure improvements that it would take to create that housing. The municipality may say, okay. You, builder, you take on that risk. And when the municipality and the builder come up with that agreement, the builder says, okay. I'll take on the responsibility of building that infrastructure, and I will take on the responsibility of building the homes. Once those homes are built and that new growth is received, the home builder would basically get a rebate of the increase in their property values for a period of time that the community and the builder agreed upon. I spoke to Maine, the Maine Department of Economic Development today. They sent me a sample community agreement. It had to do with a hospitality, agreement. But she said you can use these for for builders, for businesses, manufacturing. They also use theirs for, they had a number of energy projects. She also gave me the website. You can see all of the TIF districts that they use in the state of Maine. Having grown up in Maine, I knew a number of the towns and they were very some of them were very small towns, less than a thousand people. So with that rep granting, you had a question that you're just jumping at the bit to say. [Bea Granting ]: Let me find a couple more. [Joan Goldstein ]: Sure. Let [Bea Granting ]: me start with the first one. Yeah. So when I when I look at this program, Spark, I'm looking at how do we help our smaller towns Yeah. For whom it's too complicated, too much whatever, to do a full TIF program. Right? But for them to negotiate a community agreement with a business, they're still not gonna be likely at even footing. Right? Because you have a part time town manager, you have volunteer select board perhaps. Right? So there's this this power imbalance. There's this problem that it could put the town in a place where they are way more at risk than in than in a more evenly balanced situation. And so I have concerns about what kind of supports Yeah. We can provide as a state for that. And I just wanna flag that as we're talking about developing this program. Right? Sure. [Emilie Krasnow ]: Yeah. So I actually, because I've heard that, question a few times in your committee and in another committee that I was listening to. And so I talked to the commissioner today about that. And what she said is that they have municipalities that have less than a few hundred people. And what they do is they have similar to what these volunteer municipality volunteer town clerks, things like that. You would hire an accountant to do your books. They might be able to hire an attorney to help them negotiate their agreements. That would be considered what is in regular TIF, a related cost so you could bill that back to the to the spark and have that paid for. Alternatively, I know that there are other consultants that also could could be of assistance. Vepsi is we are a two person staff. So, you know, I would certainly be open to hearing if there are are other proposals around other types of technical assistance. I know that the RPCs and the RDCs have been supportive in the past. But in talking to the state of Maine today, they also have volunteer town clerks and town managers, and what they say is that they just contract those services out. [Bea Granting ]: And my my my other question is if you're looking at a town that needs wastewater Mhmm. And housing, sure. Would it be multiple community agreements? No. [Emilie Krasnow ]: So the thought is that if the municipality chose to take on the water and wastewater, that's part of a typical TIF, and the town bonds for that. There is, in the town of Middlebury So [Bea Granting ]: they would have to do both TIFF and SPARK and No. No. [Emilie Krasnow ]: No. Not at all. Trying to really Nope. So, if let's just take this. There's an example. There is a town right now, that is doing something similar. The town of, Middlebury received a CRRP award. They needed to do water and wastewater to create a housing development. They basically did a pass through of their CRRP funding to the developer. The developer is doing the water and the wastewater project and the housing project. The town is giving a pass through of that CRP funding to the developer to do the housing project and the water and wastewater. At the completion of that, the developer will then return or sell back, if you will, the water and wastewater lines so that the town can then have that on their books and can and can build, you know, as a as a community would for their water and and sewer. And then in addition to that, the town now has additional grand list growth because they're gonna have housing. They're gonna have apartments that they wouldn't have otherwise had. [John Gray ]: Mhmm. Go ahead. Just following up on the question, I think, in general in terms of how applicable the this program going to the board, especially maybe some smaller tenants. Middlebury, you know, that's great. In Addison County, they're the biggest town in Addison County, and there's [Gail Pezzo ]: a bunch of smaller towns. Yep. [John Gray ]: Or even whether there are any programs or Ontario that might limit the application of ability of a a small municipality type of deals or whether there'll be some ability to see as what did you say? Related costs, right, where the accounts can join together or something like that? [Emilie Krasnow ]: So I can give you another example, of a town in Rutland. Fairhaven is an example of a town. They have a parcel of land where they had a developer, and Fairhaven is a town of three thousand people. They have a parcel of land that they wanted to create housing, and here's their example. So you'll see there's a twenty five acre parcel of land. It used to be an old stock car racetrack. It's been vacant for over twenty years. They had a developer two years ago that approached them, but the town needed to bond for, I believe at that time, was three million dollars to do the infrastructure to create the housing for that project. The town didn't have that ability to do that, so the the project fell through. With Spark, you could approach a developer and say, you take on the infrastructure project and the town of Fair Haven would give a rebate for a portion of the project costs if the developer took on the infrastructure and then did the improvement, and did the housing. So in our example we have here, we've we've actually, got these numbers from the town of Fairhaven. And you will see, there is a thirty three percent more value by doing this project than if the lot just remained vacant. We would also in our example, if you look down to the feasibility, it's a thirty million dollar construction project with a four point eight million dollar water, wastewater, and roads. If the developer were to take that on, the once the project is completed, the annual incremental tax revenue, so that increased revenue, is about four hundred and four thousand dollars. If you were to give a ninety percent rebate, you would over a twenty year period, you would give back seven point two million dollars, which would cover the four point eight million dollars in infrastructure needed to build the housing, and it would reduce the cost down to five hundred and thirty four thousand dollars to build the housing. So one of the other pieces that we're hearing is that it is not affordable for builders to build these homes and then sell them at costs that Vermonters can afford. So we're hoping that this will address those issues as well. [John Gray ]: I guess I have a question. You have a question? You actually. Right? [Chair Mark Mahaly ]: Well, first of all, on what grounds would Vepsi be able to turn down a project? [Emilie Krasnow ]: So Vepsi could turn down a project if Vepsi found that the project wasn't feasible and if it didn't have if the if the numbers just didn't pencil out and, the incremental values wouldn't be enough to support the project. [Chair Mark Mahaly ]: So Pepsi would have the authority to independently review the pro form a of the project We do now. And determine whether the subsidy was necessary? [Emilie Krasnow ]: We do that now. [Chair Mark Mahaly ]: The prior slide talked about eligible costs. What does that mean? [Emilie Krasnow ]: So eligible costs are defined by, I believe, rule, TIF TIF rule. So, typically and I don't have the whole TIF rule in front of me right now. Typically, eligible cost [Chair Mark Mahaly ]: be the same as TIF. It's the TIF, current TIF. Yes. Except it would include private costs. [Emilie Krasnow ]: It could include some private costs, right, for the development of the housing. Yes. [Chair Mark Mahaly ]: I guess that would [Gail Pezzo ]: Related related costs. Right? [John Gray ]: Related to the project. The the the [Gail Pezzo ]: the the the the the the the the the the the the the the the the the the the the the [Chair Mark Mahaly ]: I'm used to seeing tax increment projects where the tax increment goes to the infrastructure. Yep. It's a public project. Consequently, it's bonded for tax free bonds. That's right. So the developer, when they're putting their capital stack together, they don't have to worry about the infrastructure because it's gonna be taken care of right away through bonding. They don't have to put any upfront cash. Yeah. Isn't that a superior solution for a development than saying, you have to capitalize and pay for the infrastructure, and you'll get paid back when you built the whole project, which could take several years. I mean, isn't I don't understand why a developer would prefer to take on the cost of infrastructure upfront when they might not sell the houses for five years or three years when a normal TIF would just upfront that cost. [Gail Pezzo ]: So we [Chair Mark Mahaly ]: think The Yeah. [Gail Pezzo ]: Let me just interject. [Bea Granting ]: I Go ahead. Sure. [Gail Pezzo ]: Really it's not preferred, but we're hearing that certain towns are asking the developer to take that on and that the town would then take care of maintenance. The examples that Jessica pulled through are just examples where infrastructure was indeed part of it. The developer and the Let's Build Home Coalition is in favor of this because the it's not it's not required that they do infrastructure. That's just an example. But this could help with penciling out some of the housing projects that are being presented, that there are gaps and that this would help fill that gap. And even though it may take years for them to build, if it's a commitment, it's, you know, it's a commitment that they could get that increment provided they build the building. It's not upfront money, but it's it's commitment to get funded. [Mike Marcotte ]: Yes. It would certainly reduce the cost to the municipality and administration, which if if the if the builder took on the responsibility of providing infrastructure of providing infrastructure. [Chair Mark Mahaly ]: K. Go ahead. [Kirk White ]: Could you talk a little more about the percentage based model adjusting to actual tax increment levels to ensure fiscal responsibility and protecting municipalities from underperforming projects? And, well, I'm just imagining, you know, always look at worst case scenario. Yeah. So the municipality comes up with a community agreement with with the developer. The developer, you know, starts this process, gets ten percent in, goes bankrupt [Chair Mark Mahaly ]: Yeah. [Kirk White ]: Or something like that. How how does that how, you know, how would that play out to the municipality? Well, [Emilie Krasnow ]: I think that you would need at the beginning of this, as in regular TIF, the community is doing market analysis, feasibility studies. They're penciling out all these projects. Obviously, worst case scenario, something horrible happens. The in the scenario where the developer is taking on all of the risk, then the municipality is not out any money, and they're not having to pay back any bond. And they're certainly not going to have to pay on any community agreement because the developer didn't follow through and finish the project. In my experience with TIF and in our TIF reporting, the nine districts that we've had, that has not happened. And I think that's a credit to the legislature for putting in, the strict standards that we have and for the monitoring oversight that VEPSI provides. And that's gonna continue with Spark. It's not it's not going to be any less. But you are giving communities an opportunity to address their needs in their individual communities. And this is designed to help a community that has five hundred people or a large city like Burlington or Winooski. [Gail Pezzo ]: And if I could interject, the every town has a lister, and they're usually involved in the projection of what the taxable increment would be. So it's not as if they're just taking a developer's pro form a and, you know, rubber stamping it. Each pound that has a TIF, typically, the the lister or the assessor will look at what is projected and then figure out what that projected incremental tax revenue would be. [Mike Marcotte ]: I I guess I I just wonder if under scenario where the builder up fronts everything, builder has to get financing for that. And part of that financing is gonna be built on the promise of getting Yep. Tax increment financing back. What happens if the builder goes bankrupt in the middle of it? Who who is the bank or the financer coming after? [Emilie Krasnow ]: They're going after the builder. [Mike Marcotte ]: Which doesn't have the money to pay it back. So if your promise the bank is or the financing financing is going on the premise that there's a promise to for tax increment financing. That's so that's one of the features of being able to get the loan. Mhmm. [Chair Mark Mahaly ]: But if [Mike Marcotte ]: they go belly up and [Emilie Krasnow ]: There's no incremental tax to be had, then No. I don't. The builder's gonna be on the hook for that. [Mike Marcotte ]: So I'm just wondering if [John Gray ]: Isn't the bank going to insist [Chair Mark Mahaly ]: that the community agreement, which is recordable document, I take it? [Emilie Krasnow ]: Is it I'm sorry. I didn't hear you. [Chair Mark Mahaly ]: Recordable document? [Emilie Krasnow ]: A recordable? Yes. [Chair Mark Mahaly ]: Well, wouldn't the bank say you're second in line? [Gail Pezzo ]: I guess that depends on the deal. [Emilie Krasnow ]: Yeah. That would just depend on each individual deal. But my understanding in talking to the main folks today is that their community agreements are contingent on the developer actually completing the property. Because, really, you're not gonna realize those those incremental values until the property is completed. [Mike Marcotte ]: Sure. But but you're still developers going and and getting stacks of our financing. Yeah. And in that, TIFF is part of that stack. And so I'm just wondering who get who's on the hook if anybody's on the hook. And if no one's on the hook, I don't know how they can use the TIFF as part of that strategy of getting funding. [Emilie Krasnow ]: I think what I would say to that, representative Marcotte, is that that's really for the bank and the developer to negotiate and work out. And Yeah. Bad things happen. And, you know, that that's, as we've seen, a a small, you know, a small percentage. [Gail Pezzo ]: The tip the tip [Emilie Krasnow ]: that we have, if there have been projects that haven't happened or have had to be changed due to FOSS, in the regular TIF, districts, municipalities come back to Vepsi with a substantial change request, and the substantial change request addresses changes in projects and costs. [Mike Marcotte ]: But if something happens in the middle of a project with a regular TIF, it's a full faith in creditors and municipality that's on the line. And they have taxing capacity where they can pay the bond back. Here, it's a little different. And so if I guess, I'd wanna hear from I'd wanna understand from the financial community how they would treat that and Yeah. And and, you know Sure. [John Gray ]: To try to [Kirk White ]: to [Mike Marcotte ]: see if this can go forward or not. Yeah. Because if you're recreating something that financial community is gonna say, that's too much of a risk. I'm not gonna go there. Then we're [Gail Pezzo ]: Well, maybe yeah. If I could interject, I mean, it might be good to talk to some of the builders to find out if they indeed would utilize community agreements as a contingency for their bank loan. Some may not need it. Some do need it. I you know? I I think I think right now, what we're comparing is right now, it's the full faith and credit of the municipality that the development doesn't happen. They still have to pay back the debt. That's a that's a gigantic risk, right, the way it is now. Whereas here, the municipality wouldn't have to pay anything because they don't have anything to pay. Yeah. I just There's no increment. [Mike Marcotte ]: Right. Yep. [Emilie Krasnow ]: I do think having a bank come in and talk about it would be would be helpful for this committee because we are trying something new here. [Chair Mark Mahaly ]: Yes. Yes. In the example that Joan put up of the racetrack. Yep. Here. Essentially, that that's an example where the developer the the the increment is going both to infrastructure and the development. And the and the portion that's going down to the development as compared with a typical two Yeah. Is is being used to write down the price of the housing. That's right. Is that enforceable? I mean, what would keep the developer from just selling it for increasing their internal rate of return by just selling it at market rates? [Emilie Krasnow ]: So that would be something that we would you know, you as the legislature and us as Pepsi, we can put parameters on that. Right? We could we could write into our rule that we want these houses to not be sold for more than x number of of dollars or a certain percentage. Right? Those are those are the devils that devil in the details, I think. [Emily Karis Duncan ]: I think [Chair Mark Mahaly ]: that would be a difficult detail. I think you'd get a lot of back. [Emilie Krasnow ]: Yeah. Potentially. [Chair Mark Mahaly ]: But it it I'm not saying it couldn't be done. Yeah. [Fred Barnett ]: Through trying to and and then through the conversation, the news that we're not attempting to posit something that reduces risk in economic development or realistic development to zero. It is, as it always has been, a risky probably just with some risk. You know, we determine this community will determine their appetites for it. If I understand correctly, part of the notion of Spark is that we're going to create a tool that brings the same develop many of the same developers who are doing work in our large communities to give them a reason to come do this work in smaller communities without having the same timeline of, like, alright. You small town, do your thing first, and then we show afterwards that rather, I think, insight into the examples you have that these are smaller projects. Perhaps it should be a little bit more of pursuing both infrastructure and real estate development sort of at the same time. [Chair Mark Mahaly ]: Yep. I'm [Fred Barnett ]: just trying to understand that correctly. [John Gray ]: Yep. But [Fred Barnett ]: the so this is Spark is attempting to find a way to bring what the market may be more easily able to bear out in a larger municipality into places where that work really doesn't seem to to occur. [Emilie Krasnow ]: That's correct. [Chair Mark Mahaly ]: Okay. Thank you. Could you clarify one thing? I don't know whether it's you or Joan. Sure. Right now, am I right that the when we do a TIF, we take seventy percent of the Ed Fund amount of the increment? [Emilie Krasnow ]: Yes. That's right. That's what the current statute says for well, with a caveat that some districts take additional. So for example, Winooski, which just closed, they were pre twenty seventeen, right, is that when the law was changed? So they were pre that shift. So they took a hundred percent of their increment for the life of their TIP district. But any new districts going forward, to answer your question, would be seventy percent to the municipality and thirty percent to the Ed Fund. The municipal tax increment is eighty five percent to the, municipality, fifteen percent. They have to take eighty five percent and put it towards their TIF, and then fifteen percent can go back to the town. [Chair Mark Mahaly ]: And is Spark I just is Spark a hundred percent or eighty percent? [Joan Goldstein ]: I just heard two different numbers. [Emilie Krasnow ]: So we have it up to one hundred percent. And the thought process behind that is this. If you have a smaller parcel, you have less increment. Right? So you want to provide that increment, as much of the increment in a shorter, potentially, amount of time so that, you're not having a builder have to pay it out over a twenty year period, for example. So if you have a hundred percent and you can meet your amount in a ten year period, then that's ten years at a hundred percent, and then a hundred percent is going to the Ed Fund after that time. [Gail Pezzo ]: But the idea also the reason why we're saying up to is we do wanna give some leeway for the municipality to work that to work that out. As we said before, I think you asked the question about would Vepsi turn it down. What happens is there's so much prework before it even gets to the Vepsi board. For example, there have been communities that wanted tips but didn't have enough projects to for it to make sense. They never even got to Vepsi. So we're envisioning that same type of prework before we even know. Right? So that you by the time you get to the board, we've proven out that it's financially feasible. You know? So, again, we wanna leave that leeway for the individual projects. All these different projects are gonna be different. Some will need infrastructure. Some will need both. Some may just mean that they have a builder and it's in a downtown. They already have the infrastructure. So we want this to be as flexible as can be with the municipality driving driving it. [Mike Marcotte ]: So we're talking about small municipalities. All this upfront work that needs to be done, those municipalities usually don't even have the funds to do that. What are we thinking about on how [Emilie Krasnow ]: Yeah. [Mike Marcotte ]: To get that done? [Emilie Krasnow ]: Sure. I can answer that question for you because I was working with a municipality. I met with them this fall, and they had previously looked at creating a TIF district, I think, about nine years ago, and it didn't pencil out for them. So now they're at a crossroads where they wanna consider it again, but they're they're not sure that they have the capacity to ask their voters to pay fifty thousand dollars to do that work. There are community, development funds, through our partner at DHCD, that can offer community planning grants. And I don't remember the total amount. I think it's Joan, I don't know if you know. But I [Gail Pezzo ]: think it's up to forty or fifty thousand dollars so that they could use they could use that. Also, that would be Yeah. And that's the you you yourself do a fair amount of work with the community. It's not gonna be a full on study, but just a, you know, introduction to what they're planning so that we could ask the right questions. And [Bea Granting ]: Right. [Gail Pezzo ]: They'll be [Emilie Krasnow ]: all in that meeting that I went to this fall, we did talk to the municipality and just kind of you know, they in order for TIF to work, you have to have, you know, builders and investors that are willing to do these projects so that you can create the, additional funds to pay back those, infrastructure bonds. [Chair Mark Mahaly ]: But would it be possible [Mike Marcotte ]: if there's a project, that they're working with a builder or a developer that developer pays a left front cost as well that could then be reimbursed by the [Emilie Krasnow ]: Sure. Yeah. I mean and in the case of the town that I was talking about, I mean, they may they may have one project of the eight that they were thinking about. Doing an eight project TIF is probably not gonna be feasible for them, but they might be able to do one, and that would create housing in particular. [Chair Mark Mahaly ]: Joan Joan, I I I wanna signal a concern I have, which probably is obvious to you, but I'm not sure what to do about it. And any thoughts you eventually have would be appreciated. If if, let's say, in a year, the all of the projects that we're talking about add up to a hundred units of money, whatever that unit might be, for, beyond the municipal part. We're essentially telling the voters of the state that in addition to the taxes you pay for education, you're gonna pay another hundred units to support, the the increment because the increment's coming out of the Ed Fund. And and if we adopt a model for education funding that doesn't just say whatever the voters vote, but says it's gonna be x amount, well, we're gonna just have to tax more than that to pay for the increment. And I'm wondering, what we do about that and how we how we accomplish that in some way that is, acceptable. [Gail Pezzo ]: So if you could, thank you for the question and the concern. If you could indulge me a bit, take me through what you mean by other taxpayers paying the increment. I wanna understand that because it's not our understanding that other taxpayers are paying the increment. If that were the case, we would never hear that the TIF takes from the Ed Fund. Right? Because if people were paying that, then it wouldn't be taking. So I need to I need to just understand. Maybe I'm misunderstanding the question. [Chair Mark Mahaly ]: Be more clear. [Bea Granting ]: So so the education costs are divided throughout all of the taxpayers in the state. And so what we're saying is this funding, this extra cost, now has to be borne by all of the taxpayers in cost now has to be borne by all of the taxpayers in the state to build this program. No. And so it gets spread. [Emilie Krasnow ]: Nope. That's not how TIP works. [Chair Mark Mahaly ]: Well, how does the doesn't the the taxpayers of the state, including a town x that has a project, have voted to create they have they each of them have voted their education, their education budget. All of those budgets are added up, and the education and we here set the tax rate to raise the amount that they budgeted. Okay. That might change. It might be that it's determined differently, but that's money that one way or another, there is a budget for education in the state. [Emilie Krasnow ]: Right. But the increment is foregone revenue. So you're you're gonna you're gonna pay your original taxable value in the town regardless of whether you have a TIF. If you have a TIF district, you're it's that it's that additional amount, that increment that is generated from the development. So that increment wouldn't exist, but for that development happening. Right? I mean, you you're familiar with TIFs. You understand that. So so the original taxable value is gonna get paid no matter what. And thirty percent of that increase is also going to the ed fund. But for a period of time, the town is going to take seventy percent of that projection, whatever that is, and pay back their bond for their infrastructure improvements. And then the, the whole point of this is that we're making an investment so that at the end of twenty years, your the the state as a whole is getting more money in the ed fund. [Chair Mark Mahaly ]: But but in [Gail Pezzo ]: the interim but in the interim, taxpayers are not paying for that increment that's being withheld by the by the town. Right. That's what I think there's a misunderstanding. All [Chair Mark Mahaly ]: it all hinges on the but for argument. It is. It's a Without the but for argument, that increment would go into the ad fund and reduce everybody's taxes. That's right. And but instead, it's go it's not. And so it all hinges on the but for argument, and a lot of people are concerned that, yeah, it's great, the but for argument. But, yeah, maybe but for that investment, that development wouldn't happen there, but it would happen somewhere else nearby. And that's the question. It's not an easy one. [Bea Granting ]: It's the [Chair Mark Mahaly ]: positive question. I'm a little concerned that if we had we're we're taking away taxes that would otherwise go to the ad fund. And our answer is, don't worry, bud four. It would be it gets harder and harder to make that argument as you go up the percentage tree from seventy percent to a hundred percent. [Emilie Krasnow ]: Right. I think the other the counter to that, though, is that the is that we as a you as a legislature have decided that but for the but for test is decided by VEPSI. And VEPSI is an independent board made up of nine individuals in Vermont that make up different towns and cities throughout Vermont. And you have two legislative members. And those council members, take great care and, great caution to make decisions that they feel are gonna benefit all of Vermont. And the purpose of TIF is for economic development for our entire state. And so if you are going to say that this development would have just occurred anywhere, I think it's [Gail Pezzo ]: Wait. I just wanna interject here for a moment because, I mean, we're talking about a housing crisis. So I think it's fair to say the development is not happening. The other data point I would say is we had tax department run the average grand list growth excluding reappraisals, but the average grand list growth over the last fifteen years and a hundred and ninety eight pounds had grand list growth average grand list growth of less than one percent. So I think it's fair to say that building is not happening. I mean, maybe it's happening in a a small cluster. But, yes, is there a risk of that? Perhaps. We're not gonna have a zero risk free rate on on any of it. But I think to answer the housing crisis to encourage and incentivize development, this one tool that could be used in a builder's toolbox. And, the notion that other taxpayers are paying for the increment is is just incorrect. If if that were the case, we there wouldn't be calculations about how much is foregone, on their edge fund. And even if we don't let's say we don't believe the but for. Do we think that the state has a role in incentivizing housing development? [Chair Mark Mahaly ]: We have several one Emily's been waiting. She's been waiting. One, two, three. That work? Emily's been waiting. Okay. Emily. So [Emily Karis Duncan ]: on on this whole thing about the one hundred percent, is there a limit on parcel size or parcel value, or is it just the pencil out, like, whether it pencils out or not? [Emilie Krasnow ]: Are you talking about for Spark or for [Chair Mark Mahaly ]: For Spark. [Emilie Krasnow ]: Yeah. So that would be up to the municipality to decide how many parcels. But I would based on my conversations with individual towns, it's usually one or two parcels that are creating a project. [Emily Karis Duncan ]: I wasn't meaning, like, actual like, number of parcels. I mean, the actual, like, physical geometry, the area of the parcel itself. Because from my understanding about the the one hundred percent issue is is the issue that the size of the parcel or the value of the parcel is not going to give the same amount of tax revenue to be breaking out the increments. So the idea is that a hundred percent will go back to the the town. Nothing goes to the end fund. So And then is that based on the value of the parcel? [Emilie Krasnow ]: So the original the original taxable value of a parcel of land will always that value will always go back to the Ed Fund. Okay. What we're talking about is the the additional [Chair Mark Mahaly ]: amount [Emilie Krasnow ]: that would be generated from the development. Mhmm. What we're saying is that a hundred percent up to a hundred percent of that would go back to the municipality as it does in a regular TIF. It's currently a seventy thirty split. So thirty percent of that revenue goes to the Ed Fund in addition to the original value. [Emily Karis Duncan ]: Over top of the original. [Emilie Krasnow ]: Yep. And then seventy percent goes to the municipality. Okay. Under Spark, up to one hundred percent would go. [Emily Karis Duncan ]: Back to the municipality. [Emilie Krasnow ]: Back to the municipality, but hopefully for a shorter period of time. [Emily Karis Duncan ]: And but that is also based on the the original taxable value. [Emilie Krasnow ]: It's based on the increase [Emily Karis Duncan ]: Of the orig [Emilie Krasnow ]: of the original value. [Emily Karis Duncan ]: Based on the increase of the value. Okay. So [Chair Mark Mahaly ]: Okay. To [Gail Pezzo ]: answer answer the question more directly, no. We have not anticipated a a size limit. Right? We're we're not saying [John Gray ]: the same. [Gail Pezzo ]: Yeah. Or a size value. It'll it's gonna get determined because we're gonna look at it. You're gonna see what that value is. And it just like we do now on TIF. Like, is there enough incremental value in the proposed project to pay back the project for infrastructure or, in this case, the you know, is it enough to incentivize the builder to say, yes. I'm gonna do this project? [Kirk White ]: Right. Michael? [Michael Lubin ]: Yeah. As a community that has a TIF, [Joe Parsons ]: I just I just wanna just make [Michael Lubin ]: a comment about the benefits of it. When our community used the funds for the TIF, we ended up doing some remediation on Brownfields within our district, and we have a nice parking spot, which is, you know, far better than what it was before. It's it's a huge benefit for municipalities. Regarding the foregone funds Revening. Revenue, it's [Chair Mark Mahaly ]: the the con [Michael Lubin ]: TIP is not a tax stabilization. And then I know for our community, we have tax stabilization, and we can stabilize the Ed Fund. When we, as a municipality, stabilize the Ed Fund, everybody in that area has to pay for that amount. Whereas in TIP, that's not the case. It's just foregone revenue. Because with the stabilization of municipality, the stabilization, the Ed Fund still needs to collect that money. So then the surrounding folks in that community have to pay the extra money to to do the to [Chair Mark Mahaly ]: get the money into the [Michael Lubin ]: end fund. That's not the case for a TIF. A TIF just it just you're not getting the revenue. It's not you know, it's [Gail Pezzo ]: Right. That's a good yeah. That's a good that's a good explanation. It's it's not where in a stabilization agreement, you have to make up for the rest. It's not that. It's that that foregone revenue never hits the the roles, if you will. It just goes back to the municipality. [Mike Marcotte ]: In the in the spark [Chair Mark Mahaly ]: scenario, [Mike Marcotte ]: you could actually cost the Ed Fund money because you're building housing Along with housing, when people enter housing, hopefully, they're bringing children, which then go into the school system of that municipality, which which incurs cost. But those but because of the the TIF that's there, that money is going back to the developer, which means that the rest of the Ed Fund has to pick up the extra cost to educate those kids that are in that development. Does that make sense? [Gail Pezzo ]: Yeah. I I understand the question. I'm just I'm just curious. I mean, everything we've heard is that the population of students have decreased steadily over the last decade. So I think that there's it's it's pretty fair to say there's excess capacity, especially in the small rural towns, that it would be I'd be hard pressed to say that this is a cost. Probably could add a lot more a lot more children. [Mike Marcotte ]: Have you thought about with everything that's being done on the education side? And there's a talk about lot grants from the state. So the state is collecting x amount of dollars just to give out the all the all the towns, and it's it's a reverse of the town sending us the bill and the other and and so how does that how would that affect this? That'd be would there be an effect? [Gail Pezzo ]: I think it's the I think it would be a neutral effect because at the end of the day, all the ed tax bill is being sent to the state. So if this is foregone revenue now, it's foregone revenue even if there's a new distribution method because it's all going to a central spot. I don't think that's changing. [Chair Mark Mahaly ]: Please, you know, I'll tell you what I think you should. I don't wanna stop questions, but I think that for in the interest of time, we'll be good if you're through your meeting slides. Okay. [Emilie Krasnow ]: I'll give it back to Joan. [Gail Pezzo ]: Yeah. In order in order to let's say we were to successfully get through this idea of project based TIF, Spark. What we wanna do is change the TIF statute, lift the cap. Currently, there's a cap on two districts per county and the maximum number of TIFs that Pepsi can authorize statewide. And so the the statute currently limits the creation of six new TIF districts. Two are being utilized. Four remain to be created. This new capability coexist in municipalities that already have TIF districts as an example. And so, for example, Fairhaven is a good one. Pillington has a fifth district. Rutland has voiced their interest in becoming a fifth district that would exclude Fairhaven from doing anything. That would exclude many other towns from doing anything. And so we're just wondering why there is that constraint, and could we lift that constraint so that development could occur? There was another technical change that we would be in favor of, which is the timeline of when a district usually, it begins April first from of the year that the select board or the town management approved it, it really should be April first of the year that it receives that fee approval. And that's because sometimes it takes some time for that town to then get everything together to present to Vepsi, and that's been asked for by the development [Chair Mark Mahaly ]: the municipal community. [Gail Pezzo ]: These slides just go through a level of pre and post TIF, the annual education fund contribution, and it gives an idea of what the impact is in terms of, taxable value and ultimate contribution to the ed fund. So, again, I do think this is really next generation investment. [Chair Mark Mahaly ]: Joan, do we have these slides on the website of the two committees yet? [John Gray ]: Yes. [Bea Granting ]: Yeah. It's on our website. [Chair Mark Mahaly ]: Thank you. [Gail Pezzo ]: I think so. Yep. Okay. And this is a measure of original taxable value versus current taxable value, and the change. And some of them are small because they just began, from a larger it really just depends on the size of the district. And these are some of the major differences about between regular TIF and Spark. And I really think the the major difference is allowing the municipality to, kinda transfer the benefit of the increment to a private developer or private builder. [Chair Mark Mahaly ]: Please. Joan, I'm wondering [Fred Barnett ]: if we can step back two slides. You've began with the regular success for the Education Fund contribution. I it seems like it's an important I just wanna make sure I understand this. Since TIF districts are active for, like, a several years, what is pre TIF versus post TIF? Is the entire are we is the entire time the TIF's activity, Winooski, being jumped over? Or help me understand. [Gail Pezzo ]: Yeah. So I think, pre theft is before the commencement of the TIF district, what they're contributing to the Ed Fund. Post TIF is after the retention period ends. Do I have that right, Jessica? [Emilie Krasnow ]: I know Yeah. That's right. So pretiff is the original the original taxable value. So when for Winooski, for example, their original taxable value before their TIF district was created, they were contributing five hundred and sixteen thousand dollars to the Ed Fund. The retention period, for Winooski just ended in twenty twenty four. Their TIF district is now closed. That same those same parcels of land, will now contribute two point two million dollars to the Ed Fund. [Chair Mark Mahaly ]: The other ones projections? [Emilie Krasnow ]: Yes. [Bea Granting ]: That's what I'm trying [Fred Barnett ]: to get at. [Chair Mark Mahaly ]: Those are projections. So it so is the Miltontown this is important. It's an interesting table. Is the Miltontown core two point nine million? That's a projection of the taxes that it will produce. Correct? Are those nominal dollars, or do they take into account inflation? [Emilie Krasnow ]: So that's a great question. And the deputy commissioner and I were just talking about that. I Joan, do you have an answer to that? [Gail Pezzo ]: I think they're nominal because I think [Emilie Krasnow ]: I think they're nominal as well. [Chair Mark Mahaly ]: I don't think they could. Yeah. Yeah. It was really You know, it would it would be given the controversy [Emilie Krasnow ]: I agree. [Chair Mark Mahaly ]: Given the nature of the controversy, I'd love to see this chart somehow adjust inflation adjusted. Yeah. I still think it would yield similarly positive results. Yep. [Emilie Krasnow ]: Well It's your your question is very timely because I was having that conversation with the deputy commissioner at eleven o'clock this morning. [Chair Mark Mahaly ]: I don't know if it's [Gail Pezzo ]: the inflation rate or whether it's the grand list growth rate that you'd wanna look at. Right? Because if we have an average of one percent. [Chair Mark Mahaly ]: Yeah. I think even with inflation still have a positive. [Fred Barnett ]: I would appreciate more clarity on this Oh, man. Charge. [Chair Mark Mahaly ]: Yeah. Are there other questions before go ahead, please. [Joan Goldstein ]: Question about the recommendation to lift the cap, which is currently two TIFs per tally. Do you have a new cap figure in mind? Or would that be because, obviously, there is at least a freezing effect on the affected property's contribution to the Ed Fund. Do you have any guidance of what you would like to see for a cap over the number of projects? [Chair Mark Mahaly ]: I don't think they would, I can. [Emilie Krasnow ]: No. We don't. [Joan Goldstein ]: Don't want any cap whatsoever? [John Gray ]: No. Okay. [Gail Pezzo ]: Maybe we start instilling caps when we feel that we've got ample housing for our citizens and ample opportunities, but I don't think we're there yet. If if if anyone here feels that we would achieve those levels of education fund contribution by doing nothing Yeah. That's that's an interesting that's an interesting argument. [Chair Mark Mahaly ]: Anything else? You have [Gail Pezzo ]: That's it. It's it on the on the slideshow. [Chair Mark Mahaly ]: I'm sure we just have a let me counsel. Mister Gray, would you like to come and testify? Thank you so [John Gray ]: much. Anything Don't [Chair Mark Mahaly ]: leave the room. I I won't leave the room. Please. [Emilie Krasnow ]: You haven't scared me away. And I do think that after hearing testimony yesterday in rep Markoff's committee, I believe that you have the twenty twenty three TIF program annual report that's been sent to you. The new annual report will be available as of April first. So and I'm happy to continue to answer questions as this committee works through these issues. [Chair Mark Mahaly ]: Thank you. Joe, and also thank you so much for your your testimony and your responses to our to our quest our various questions. [Gail Pezzo ]: My pleasure. Thank you. [Chair Mark Mahaly ]: Hello? State your name for the record, John. Yes. It's a take away. [Joan Goldstein ]: John Gray. Office of legislative council. So I will admit to being confused sitting down, but I think that there's probably a happy explanation for for my confusion, which is the reactions that I had to this proposal are based on the administration's proposed language, which I I think there's some gap between the language and the presentation you heard today. So I'm I'm hopeful that it's just that the language doesn't match up, with with what was expressed, and that we can resolve that. But just to point out, I don't see any requirement for a rebate component to the administration proposed language you could provide as currently drafted dollars from day one, to the project. But I'm happy to talk through my sets of reactions to this proposal. Or if you guys just wanna throw questions to me and I can respond to how I think about the current language, I would say my main takeaway thus far has just been that I that it would be extremely helpful for me to talk to the drafter of the administration proposed language because it feels different from the the presentation that I [Chair Mark Mahaly ]: Let's acknowledge at the outset that this is a a little unusual and that we don't have a bill. We don't have an actual bill in front of us. And we're all working off of a draft, which was called, I believe, and it's I just wanna identify it. It was a draft that was presented to the house general and housing committee by the administration, and it was called draft six. Is that and we understand that that's an evolving document and that the bill has not yet been presented. But the advantage of our proceeding anyway is we could get a head start. And if things improve or change, fine. We can deal with them. So my feeling is it would be fine for him to give his reaction to draft six with the understanding that it may change. [Joan Goldstein ]: Sounds good. [Chair Mark Mahaly ]: Or it may have changed already in somebody's minds. [Joan Goldstein ]: I would say it sounds like it has already changed, or what I think is also just possible is that the intent was not reflected in the language. And I can talk to some of that as well, because I think one of the big pieces I took away from this presentation was how much hinges on the community agreements. It's one of the things about which I had the most questions. But just to start, you my first reaction was something that you guys have already talked about, I think has already been addressed. But that's the significant change in the definition of improvements, which are those pieces that can be funded with that increment. Previously, we were just talking about public infrastructure with the hope that it would incentivize or produce further development within a district. So you're probably gonna hear me compare a lot during this between what's on the books for TIF districts and what the spark proposal is. I think that's a nice way to think about what this proposal does and to try to draw out some of the differences in in functional safeguards, I would say, between the two. So this proposal allows for outright development with those dollars. So the increment can go directly to a housing development. It doesn't have to just be to the infrastructure that would then produce that. And that could be public dollars outright flowing to a private developer. We heard earlier discussion about selling back infrastructure that has been built by a private developer to the city or to a municipality. I would say that currently as drafted, there's nothing that requires that sale to occur. I'm guessing, again, this would be something that's subject to that community agreement. But is currently drafted. You could just be sending public dollars to a private development that never goes back to it could be private infrastructure, essentially. So that brings me to kinda my biggest point here, which is just the how much hangs on the community agreement piece and to call out the pieces that are picked up throughout the draft. Related costs may include direct payments consistent with the community agreement without knowing what the community agreement is. It's hard to say what the extent of those related costs are. I will qualify that by saying related costs are limited in the sense that they do have to be directly related to the TIF. So it's not as if you could just create a community agreement, fill out a bunch of things that have nothing to do with the TIF, and have those funded. There are constraints in place to ensure that related costs are related to the project. But I do just wanna call out that that community agreement is shaping a lot of the standards for what would be in place for this proposal. Additionally, FEPC is authorized to approve Spark Projects to provide financing to a community investment partner consistent with the community agreement. So, again, just calling out places where I think a lot is hinging on what's basically a one line definition, what that community agreement is. And there's no at least currently, there are no substantive standards for what that community agreement would be. I think what we've heard is that that would essentially be left to the contracting process. Right? That the municipality, although it's it wouldn't be the public that's voting on the community agreement, the way that it works is it's approved by the legislative body of the municipality. So that would be the folks representing a board or mayor or, you know, whoever it might be. So the community agreement that's governing how this project might go is negotiated between, at least as currently drafted, that legislative body for the municipality and then the community investment partner. And that's gonna be quite determinative of how these projects run. So I just wanna call out how loose that feels. You could see lots of things happening in that space, and it leaves a lot to the contracting process is, I I think, the best way to put it. So I would ask, you know, what constraints might you envision being put on the community agreement? And I would ask to because it requires approval of the legislative body, but we're also envisioning this community agreement being contracted between a muni and a community investment partner. Is that approval process separate from the contracting process? Wouldn't the contracting between the muni and the community investment partner constitute that approval? So I just wonder how many checks are actually in place for the community agreement. Another thing I would note is that standard TIFs, big TIFs, what's currently on the books, include a requirement that financing for improvements be authorized by voters. That specific line is included in the definition of financing. That may be intended to be implicit in this draft, but that particular clause has dropped from the Spark proposal. And so the concern that raises for me is conceivably, you could pick up any debt that the municipality elects to pay for improvements in the approved Sparksite project. So it's going to that approved project. That's gone gone through this whole process that's envisioned in the bill. But you could have additional financing for those same improvements in that space. And they wouldn't have to go through this process because the definition of financing doesn't include that clause related to authorized by the voters. So I just wonder if there are kind of loose pieces here that allow other funds to end up going through this process, but outside the safeguards that are meant to be provided here. I would also note that there's a lack of [Kirk White ]: So can I ask [Chair Mark Mahaly ]: you to slow down on that one? Yes. I'm just not sure I understood. Sure. Sure. [John Gray ]: I think [Chair Mark Mahaly ]: I'm the only one who's stupid, but I feel a little over my head on this one. [Joan Goldstein ]: No. Yeah. No. You're good. [Chair Mark Mahaly ]: Go back a little slower. [Joan Goldstein ]: So when we think about in big tips, just the broad definition of financing, so kind of a key piece here that we're thinking about increments going to, as part of that requirement, there's only thing there there are only specified pieces that money can go to. So it has to be bonds that have been approved by the voters related to the project. I'm just calling out that that particular clause about authorization by the voters is not present in the Spark proposal. And so conceivably and like I said, it's it's possible to me that this was just an omission and not an intentional thing. K. But it's conceivable to me that without that clause, a crafty municipality could decide outside of the spark proposal to bond. And so, you know, the voters have said we want to bond for this. So maybe they have their own processes for ensuring that there's sufficient public support for this. But they could not have that bond go through the spark process. Basically, this would be additional funding outside of the safeguards provided here, but it would also be funded by the increment that's done through this. So I'm just calling up that as drafted, I think you could have dollars coming from outside even the Spark process. And I just wonder if that's been thought about, if that's intentional. It could easily just be an unintentional emission. But we have that clause in TIF district definition of financing, and it's omitted here. So that's really what I'm drawing out is just that one particular clause is missing, and I wonder what that means. [Chair Mark Mahaly ]: I I under I think I understood what you said, but I'm wondering if I guess I'd like to explore one thing that's related to that. In the status quo, as I understand it, there's always two options. The increment can be spent on a pay as you go basis. You don't have to bond the increment. You could spend it as it comes in, though I imagine that's not usually the case. Usually, you go the other route. You bond. Correct? [Joan Goldstein ]: I I honestly I can't speak to in I think other folks in the room would better be able to speak to. [Chair Mark Mahaly ]: Saying it right. You know, usually, people don't use the money on a pay as you go basis. They bond because they want the upfront money. [Emilie Krasnow ]: That's correct. [Chair Mark Mahaly ]: Okay. So if a town wants to bond under this current state of affairs, they have to vote Mhmm. To prove the bond. If they didn't wanna bond, if they wanted to just pay as you go, they would there there wouldn't be a vote. Would there or would no. Okay. So there wouldn't be a vote. [Emilie Krasnow ]: Go through the the only vote would be through their local legislative body. [Chair Mark Mahaly ]: Right. Okay. Rare, I admit. Rare. Rare. But okay. Under Spark, Spark actually contemplates a sort of pay if you go situation. It it's not necessarily the one that but the example of the race track, for example. There's no bonds. Right? So would there be a vote? [Emilie Krasnow ]: There would need to be a vote because he would he would not be bonding. It would go through the municipal the select board. [Chair Mark Mahaly ]: Right. So I do think you have at least trick triggered in my mind a another situation where this is different. In other words, you almost always under normal TIFs that I'm not saying this is bad. I'm just trying to understand it. Almost always in normal tips, you're issuing bonds, tax exempt bonds to pay for infrastructure, and the town has to vote. If you if you have a situation where you're not gonna issue bonds, there's no provision in this law, in the proposed law, Spark, for any kind of town vote. It's it's up to the elected officials. Okay. I'm not I'm I'm not totally wrong on this. Okay. Go ahead, John. Sure. [Joan Goldstein ]: So I appreciate that. And I I think, you know, some of what this may get at to is the extent to which particular pieces of TIP administration, both currently and to be seen, are addressed through rulemaking. Because, obviously, Pepsi has power to has authority to to pass rulemaking in this space. And so I know that earlier there was discussion about substantial changes, provisions related to substantial changes, which is EHS through Pepsi rulemaking or other provisions. It's not clear to me if the existing VEP C rules would apply to this. This is not a TIF district. This is a spark. So this is something entirely distinct. And there's a couple of things that make me wonder in this area. So I talked about how you might have money that's routed outside of the safeguards of this process that could make its way to the increment, at least as currently financing is defined. The way you would typically, in a TIF district, have a safeguard to pick that up if you didn't have the clause that I'm talking about is through the substantial change piece. You would say, well, the voters have to vote on this piece because they're making a change to this proposal. I don't see a substantial change provision in the proposed draft, But perhaps there will be rulemaking in this space. So it's just something something to think about. I I'm trying to get at things where I could see people circumventing the constraints of the proposed language, basically. Another point I would make, and I realize I'm just kinda hitting different pieces of the bill, concerns that are occurred to me. Typically, a TIF can include, as part of its bonding, funds to cover debt service interest payments for a two year period. At least the conceptual justification I think of as why you might want to do this is that you may not have generated additional value in that first two years of a project. Right? Like, it's in the development stage. You're you're receiving sufficient funding, but you still wanna be able to cover those financing costs. In this case, there's no time constraint on this piece. There's no two year limit on applying, TIF to those interest payments you could include as part of your community agreement that you're gonna cover interest payments for the lifetime of the bond. Economically, that sounds odd to me, but I just wanted to point out. [Chair Mark Mahaly ]: Capitalized interest pay. Yes. [Joan Goldstein ]: And one of the [Chair Mark Mahaly ]: So do I understand correctly? A capitalized interest payment. Just in general financing, what you're doing is you're protecting yourself by borrowing enough money. So you borrow enough money to for the project you're doing, and you promise to pay it back. If you add on to the amount you borrow, you add on enough so that if something really goes south, you've got two years of interest covered. Literally, you stick it back in your pocket. It means it's a pay that interest. And here, you're saying it could be more. [Joan Goldstein ]: It could it could be more. And, you know, it's just interesting because, obviously, you're paying interest on having Interest. Exactly. Yeah. One of the key questions I have for the draft is what are the act what is a spark site? In any kind of TIF concept, you need to define geographic area in which to assign your original taxable value, and you need to say that this is the area in which the rules apply, this is where development is happening, you need to specify. I think I sort of generally understand the concept here. A spark site is meant to be a project or envision development and adjoining parcels. But it's a question to me what the limit of adjoining parcels is. And I would also just note that the definition of spark site speaks to approved development and redevelopment. Is that reference to development to the project that the voters have said we want to do this thing? Or is it a reference to the development that is expected to occur as a result of the project? Depending on those constraints, you could end up with a quite differently sized spark site. And I think it's really important to know what the size of the spark site is going to be, even just from a functional perspective. I'm guessing this is something where people have a clear answer. But it's not clear from the draft to me what a spark site actually is, and we need to know that. I would also note that just one second. The definition of original taxable value is set based on the spark site plus adjoining parcels. So, technically, that would mean development plus adjoining parcels plus plus adjoining parcels around that. And I I just don't know where it ends. That so I I am guessing this is, just imprecise drafting, but I wondered if there were could be some accidental bleed through when you basically don't know what the scope of the Spark site is, in which case you wouldn't be able to determine an original taxable value, and you couldn't run the project at all. Couple of simple things. This should be live for many of you after some of Ted's presentation. Under current TIF's law, there are particular location criteria that a project is intended to meet. You have to meet three out of five of those for what's on the books. This proposal says to meet only one of six criteria, so I just wanna call out the loosening of that location constraint. And I would note that the final location criterion that is envisioned here is much like what's on the books for a transportation type location criteria, so improving transportation in a particular area. But it modifies that transportation area criterion in a pretty significant way to include recreational development and trail systems. That's fine if that's the direction that you guys would like to head. I would, I would just call out that when Ted was giving his presentation before, he was talking about how TIFs even if you put aside potential economic benefits or you know, one of the arguments you could make for why TIFs might be justifiable in the absence even of economic benefits would be that they direct development toward particular areas. I just wanna note that with the softening of this transportation criterion, the changes to some of the location criteria, I think that connection between targeted development and location criteria is now more tenuous is what I would say. We heard earlier, and this is a key one about the but for. So the but for is the key piece here that lets us know whether or not additional dollars are just being created, and this is a win win for everyone. If you imagine your taxes aren't gonna go up sufficiently, your growth in your district resulting from the TIF or spark is sufficient to increase revenues over time, then you can imagine that, the TIF is economically justifiable. But we talked about and I think in particular, Remahal, you had pointed out that that really rides on how substantive that before criterion is. If it's weak, then we can't necessarily say that you've produced additional dollars, and you may actually be siphoning off money. So the the point I wanted to get at in this draft is, the up for criterion here is different. Typically, we think about the review criteria for this piece as getting at how a project would proceed differently and more poorly in the absence of the project. Right? It might increase the size of affordable housing through the increment, or, you might more quickly be able to proceed toward this project. But there's still pieces of that but for criterion maintained here. I don't want to mislead you and say that, it's totally transformed, but there's a new review piece added related to a documented need for housing in an area. And I would just call out if you're including this in your but for criterion, I think you've weakened the but for. And as we can imagine, most regions of the state, if not all regions of the state, have a diagnosed need for for housing. So I just wanna call out that change to the but for review is one you should think about. And another piece that I would note is that for big TIFs, there's a set of in addition to location criteria, which we just talked about in brief, there are also process requirements required. So you need to have, held public hearings. You need to have provided information to voters. Like, there's all sorts of things that you need to do. And they're process checks. Pepsi looks and says, did you hold hearings? Did you come up with a financing plan and the like? Part of the financing plan that you have to provide for big TIFs, in that financing plan, you have to provide a demonstration that the project would not proceed without the allocation of a tax increment. That's a but for demonstration. There is no such requirement in the financing plan for the start proposal. Another piece of oh, I'm sorry? [Fred Barnett ]: I'm not trying to document that we have [Joan Goldstein ]: The Omnibus housing proposal is out there. I am not sure where it is. [Chair Mark Mahaly ]: I don't know what you have. [Mike Marcotte ]: Those are your [Chair Mark Mahaly ]: prepared notes that [Joan Goldstein ]: are Oh, yeah. These are just my notes. Yep. [Fred Barnett ]: Alright. Yeah. But you mentioned the version six That [Chair Mark Mahaly ]: is at the top. That's the [John Gray ]: one that you shouldn't be on here. That should [Chair Mark Mahaly ]: be I think that's all that's out there right now. Okay. This version it says up at the top versions Roman six. Did it say that on here? [Fred Barnett ]: Oh, they said it v I? [Chair Mark Mahaly ]: That's right. Perfect. [Fred Barnett ]: Oh, gosh. [Chair Mark Mahaly ]: Yeah. I Roman [John Gray ]: the fifth. [Chair Mark Mahaly ]: Got it. [Kirk White ]: For what it's worth all confident. [Joan Goldstein ]: I read it the same way as you, and I have just been going along with this version since. Yes. [John Gray ]: Thanks very much for your presentation. I don't have version six in front of me, so but I appreciate the thoughts here. What I'm hearing is a lot of legitimate questions, but it's appropriate. Some general skepticism around the whole block for analysis. And I'm not aware, you know, I'm not aware of all the things that are going on in terms of housing. But I do wanna point out that some of these rural districts are usually in order to have. They're not even maintaining their existing housing stock, much less increasing in at the level that folks say is unique in this town. So if this isn't gonna be a vehicle, I sure hope that there are other vehicles because these towns are really, really hurting, and they need they need the support of the state to increase the handling stock so they can remain viable. If this isn't the vehicle, it's not being, but it I [Chair Mark Mahaly ]: I really strongly agree with this. John, we're kind of running out of time. Do you do you have anything else you wanna say before I wanna leave at least a little time to add [Joan Goldstein ]: I'm sorry to Yeah. [John Gray ]: To address I [Joan Goldstein ]: can give some just very quick points and then people wanna follow-up with me. For a big test, there's a proportionality constraint in place, which means that the municipal legislative body can commit increments for the financing of improvements and related costs only in the same proportion by which the improvement or related costs serve the districts as determined by the council. So that's a determination that Pepsi makes. That constrains how much that increment is. Right? There's no proportionality constraint for the Spark proposal. Unspecified indebtedness against revenues of what? Typically, it's against revenues of the district. Here, we don't know what revenues it's against. Is it just the Spark site, or is it the municipality broadly? I'm guessing it would make sense for it to be the Spark site. That's the increment that you're generating, but just wanting to note. There's no requirement for Pepsi to approve a financing plan prior to a public vote on a bond like there is for normal TIFs. I think pretty big piece. That means that typically there's been some check before the bond vote happens for a municipality. The debt incurrence period here is five plus a discretionary three year period. You can think of that as maybe lighter than typical TIFs, which are likely to hit that ten year period. But I would just note that that's quick to become an automatic eight year debt incorrect period. We've already talked you guys have talked about the hundred percent retention upping from it and clarified that it's up to a hundred percent for at least the education property tax period. The other piece I think is important to note here is there's no specified retention period. There's no specified retention period. We think about a twenty year retention period for TIF districts. There's no retention period here. It's just it hinges on the length of financing. So, conceivably, a municipality could, through the way it structures its financing, have quite a long [John Gray ]: retention period. [Chair Mark Mahaly ]: Hinge on the financing, or is it simply whatever's in the agreement? [Joan Goldstein ]: It it could they could do this through the agreement, but the way that I read it is that upon retirement of the debt, that's when the retention period would [Chair Mark Mahaly ]: But there's no debt? If [Joan Goldstein ]: if there's no debt, it's a question. [Chair Mark Mahaly ]: There's no debt in the racetrack. Okay. So there's no specified period for payback. Right. Right. Okay. [Joan Goldstein ]: Which I think gets also to whether you're advantaging or siphoning from the Ed Fund because depending on the length of that period, you could have different effects. Lastly, there's no annual reporting to the legislature. Information reporting may be weaker because at least a portion of it is governed by the community agreement about which we don't know much. And dispute resolution pieces of this are absent, I would say. In the bigger TIF context, there are required hearings. Pepsi has greater has less power. The secretary of commerce and community development makes certain determinations. There's no appeal under the Spark proposal, no referral to the AG in the event of bad happenings. I'm presumably, they could still do this, but they aren't authorized by Spark to do this, and no specified withholding of funds in the event that a municipality doesn't pay its underpayments to the Ed Fund. So I just wanna call it that this the dispute resolution pieces of the Spark proposal are much lighter than what's in place for big TIFs. And I pointed out earlier that Spark is not a TIF district, so you would not need to remove the caps to make Spark happen. Spark would not be subject to the TIF caps. [Chair Mark Mahaly ]: Yes. Thank you very much. [Joan Goldstein ]: And Yes. [Chair Mark Mahaly ]: Why don't you you have a few minutes. And I think if people have questions, which I bet they will, I think they should direct them perhaps to the charities And then we will take them to John. We have them all coming back. Sounds good. Alright. Good. [Joe Parsons ]: For the record, Ted Barnett joint fiscal office, I am gonna share my screen. I have some notes that just help me organize my thoughts, and they should be on the committee pages. I am going to John raised a lot of technical and substantial concerns. I'm gonna zoom out and talk a little bit more about the currency of the Ed Fund's current rates of growth and talk about how sparks might intersect with that. At a very broad level, Jay, if I was unable to provide a a fiscal estimate, I think a lot of the concerns that John brought up preclude us from having enough information to to be able to provide potential a a a formal estimate of, cost to the statewide education fund, especially considering this up to a hundred percent retention of education funding commitment. So, yes, we would need more information about the scope, size, intended magnitude of the the spark program to to really start to understand some of the fiscal ramifications. I would like to say that statewide grand list growth is currently high. There may be some distinction between what is happening at local municipal grand list and what is happening on the statewide education grand list. So in fiscal year twenty four, actual statewide average grand list growth was nine point seven percent and is forecasted to be at least fourteen percent. It's fourteen point three percent in fiscal year twenty five and fourteen point seven percent in fiscal year twenty six. And this is from the most recent education fund outlook that was presented to eBoard in January. In use through this but for of of TIF, conceptually speaking, is predicated on a declining or stagnant grand list, which based on the data I've seen using equalize the equalize education grand list. That's not likely to be the case for much of Vermont. [Chair Mark Mahaly ]: And is that because the value of real estate keeps going up? So it's not inconsistent with the fact that we aren't seeing new real estate. [Joe Parsons ]: Exactly. There are three pieces right when thinking about what's contributing value to the education fund. You have new construction, rehabilitation, and then this background growth are house you know, houses that haven't changed in any way. They're selling for higher prices, and so there's an accounting for that that growth in value. So looking at I just took using information that's available from property valuation review, looking at the difference between the value equalized value on the twenty twenty three grand list and the equalized value in the twenty twenty four grand list. Hundred and sixty one towns, we're seeing growth of at least so they were seeing growth between ten and twenty percent. And you only had two towns that had a declining grand list. One of them, I would note, is Somerset, population six near Dover in Southern Vermont. So when you freeze values in this in this context, vacant land, things in municipality are could grow or likely growing, many of them are, at double digit background growth rates. And that would get captured by the Spark District and not remitted to the education fund. And so that's the conversation about where our foregone revenue is coming from. There's also a piece that I wanted to mention very quickly that research conducted in other states have found that areas with higher property value growth are more likely to implement a TIF. This could be because they wanna capture and retain that value as opposed to remitting it to other jurisdictions and to provide infrastructure projects within their locality. And so if that's a mechanism that's happening with Sparks or Sparks sites, that could be a further risk to the education fund. [Chair Mark Mahaly ]: So you're saying that, Ace you're saying that if you create a spark district, you do capture the increased value that comes from the project, but you also capture the increased value. I mean, if it's just project specific if there's nothing there to begin with, you're not capturing the increased value of the increase in value because there's no increase in that there's nothing there to increase. [Joe Parsons ]: Well, there may for a vacant piece of land, for example, that value is increasing along with the cost of vacant land. [Chair Mark Mahaly ]: Vacant land. Yeah. The vacant we increase vacant land value. And if there's something there, you're increase and you're improving it, you're increasing you're capturing its inflationary increase. [Joe Parsons ]: That as well. Exactly. And, you know, it's, as Sean mentioned, unclear what the joining the size of the Spark. Right? So it may just be project specific. But if you're incorporating eight to ten parcels that include current housing or things that are already there, those would be appreciating in value as well. And that would be captured upon creating, the Spark site. John did go through to the difference in criteria between spark projects and the TIF program. So I will not I will share that I do agree that the the advantage of driving development to dense downtowns would be lost in the current spark proposal. Yes. And I think there was all there was earlier discussion around risk. And if there is bonding that happens upfront and you have a very narrow spark site that relies on development to generate increment, you're creating if you've gone to bond, you're certainly creating risk and you don't have other ways. Smaller towns, unlike larger ones, may not have other sources of revenue to mitigate that risk, so they're really on their own and relying on that development. And if the municipality is the one that's doing doing the bonding, they're the ones who are on the hook. So in that specific case, there could be risk there from a fiscal standpoint. The same thing is you we're in within the big TIF program. We've just made it through COVID. We also wanna flag that there could be there's often uncertainty with construction projects. They often incur delays, and that's also a piece of risk if municipalities have bonded and the project is delayed by a few a couple years. And there is an increment to to pay for bond payments. I will skip the piece around disparities and equity in in use because I this that was covered quite a bit earlier testimony. I would like to also highlight John's point about the indefinite length of the retention period. With longer retention periods, the bonding period may be longer, which results in using more expensive inch instruments, meaning that the interest rate may be higher over a longer term. And in which case, there would need to be more education fund increment to to pay for those additional costs. I did wanna flag one of the considerations I thought of when looking at this is that with the developer agreements, there is there could be an incentive for a housing developer to go to many different municipalities and essentially shop around to find the best deal on an agreement. And so that is also something to consider in this proposal. [Chair Mark Mahaly ]: We we we I think we can if it's okay with committee, we all we have our committee has four of three. We all have four. What am I saying? Yes. So what yeah. So yeah. We've got a house set of doing here. Okay. Anyway, let's go till five of three. I think we can Awesome. Can we can hustle? Okay. Alright. [Joe Parsons ]: And I can I am naturally a very quick talker, and I will try and get upper bound to that without it's like a word salad? But the I wanted to leave with more general questions about thinking through the the need for infrastructure development and housing in the state. I worked on a JFO report that talked about the difficulties of financing public infrastructure in Vermont. The challenges are very real, and wanted to flag where, you know, where would this proposed policy fit in the the municipal toolkit? So, for example, comparing against a revolving loan program, which is proposed to be funded in this housing bill, would have a clear fiscal impact because the fiscal impact would be the amount of money, in this case, general fund that's put into the fund. We know the constraints on what that funding costs to the state. Also, we are following if you're thinking about this tool as as a mechanism for infrastructure development, we've just made it through a period where there's been a lot of COVID and infrastructure funding that has flowed through the system. Of the projects that are remaining, the towns haven't gotten to, how many are feasible from a technical standpoint or from a political economy standpoint? So do the voters actually want them? You know, there's a real concern that something like Weston Weston was the town that was ready to put in a water system, and most of it was paid for except for a four hundred thousand dollar contingency bond, and the voters decided the project wasn't right for them. So there's a a tension between the political economy and what agreement might be associated between the legislative leaders and and and a developer. And then if it's more that the concern is that developer costs don't pencil out, Why I would just pose the question, why is the education fund the one that would provide these dollars? Should the state be an an investor of education fund dollars if the benefits aren't accruing in the short term given the uncertainty with the statewide education fund at this juncture? And are there other tools available that we could consider? [Chair Mark Mahaly ]: You know what? We we're talking about what we're talking about here is the possibility more joint hearings on this. And so and I think we're talking about next Tuesday, a joint hearing. Does that work on our schedule as well? So what I guess I'm gonna say, Ted, is let us we'll be able to concentrate better and hear you more. And I know there was at least one question for you, and what we should do is just continue this, next Tuesday afternoon, if that's alright. Both with you and you guys on that committee and you both committees will will deal with this more on Tuesday afternoon. [Mike Marcotte ]: And everybody, this is all on our both our web pages. So committees, I think, members take a look at this is what Ed is actually talking from. So take a look at that and and we can ask we'll have much more time to ask questions on Tuesday. And then, Jess, I I'm hoping don't know. I don't think Dan agrees to send the invite out yet, but you can touch base with Joan as well. [Emilie Krasnow ]: Yeah. I'm happy to come back. [Chair Mark Mahaly ]: Thank you very much. Thank you. You're welcome. Yeah. Alright. So we anything else? I've been instructed and trained that I can't see the a word as in I can't say that word until we really are. Is there anything else that anyone can say while we're still on video? [Emilie Krasnow ]: Yes. I would just like to ask where is this race track? Is this the Devil's Bowl? No. [Gail Pezzo ]: From in Beverly. [Emilie Krasnow ]: In Beverly. And [Chair Mark Mahaly ]: original.

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SmartTranscript of House General and Housing and House Commerce - 2025-02-06 - 1PM

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