Last minute Act 250 changes from S.234 were rolled into S.226 but the underlying bill was meant to address Vermont's housing crisis. Despite making steps towards assisting with housing development, the bill does contain a watered down version of a contractor registration provision that Governor Scott vetoed last year.

In furthering our vision of an informed and active electorate, we are providing summaries of key bills considered during the 2022 legislative session. S.226 is one of these.

S.226 Bill Summary

The bill provides for the following programs and initiatives...

• Education
  • Community Partnership for Neighborhood Development to demonstrate how new partnership models for targeted and coordinated investments can support the development of homes in inclusive smart growth neighborhoods.
    
    
• Regulation
  • The bill creates a watered down version of a residential construction registry that Governor Scott vetoed last year. In this version, contractors who bid on projects over $10K would be required to register with the state and carry insurance coverage of at least $1M per incident. 
  • A new provision would prohibit unfair housing practices that might prevent minorities from accessing housing. To this end, the bill would create the Vermont Land Access and Opportunity Board to promote home ownership for historically marginalized communities.
  • Creates a Neighborhood Development Area (NDA) designation to promote new and infill housing in the areas including and immediately encircling a town's designated downtown.
  • Following public controversy, the bill would require that subsidized rental units be maintained as affordable (per the definitions in place at the time) for the first 15 years of operation.
    
    
• Grants
  • Manufactured home improvement and replacement program would provide grants up to $20k for owners to complete small-scale capital needs projects to expand access and housing capacity.
  • The Missing Middle-Income Homeownership Development Pilot Program with $15M in funding over FY2022-23. The program allows buyers under 120% of area median income to receive subsidies up to 35% of the cost to develop or rehab and owner-occupied housing unit. This credit could be broken into two components, one going to the developer and the other to the homeowner.
  • Municipal Bylaw Grants would allow municipalities to update and modernize their bylaws to promote smart housing growth. $650K will be made available for this purpose.
    
    
• Tax Credits
  • The bill creates a down payment assistance program for first-generation homebuyers run by the Vermont Housing Finance Agency with a $1M appropriation.
  • A new Downtown Village Center Tax Credit Program would allow the new NDA designation (covered above), to qualify for tax incentives based on the housing density of the area. The idea is to encourage more infill development. This includes areas previously excluded because they were in floodplains. In addition, the bill actually creates a secondary tax credit for mitigating flood risks for construction or improvements in floodplains.

Updates From the Last 6 Weeks of the Legislative Session

April 4th Update

Senator Ram-Hinsdale introduced S.226 in the House Natural Resources Committee on Thursday as the bill was on the Senate Floor. A key piece she focused on was mitigation and rehabilitations standards, particularly in regards to flood plains and mobile home parks, but also the uses of funding to “transition folks away from these areas” through additional resources in the bill. She even suggested the possibility of using state lands to relocate people in flood plains.

There were questions about the high vacancy rates that recent reporting by Vermont Daily Chronicle and has shed light on. This seems to largely be driven by second homeowners. This bill does not address that, but they will "need to address it very soon" according to Ram-Hinsdale.

The Vermont Housing Finance Agency requested the Committee follow a "needs-based analysis" and provided an excellent presentation on the current housing situation in the state. There has been a chronic undersupply of single-family housing built over last two decades, especially at price points accessible to middle-income Vermonters. It was also noted that the growth in median home prices are now highest are outside Chittenden County, which is representative of the mass in-migration and second home sales.

They specifically called out that the Act 250 permitting rules created housing development pressures that led to dispersed rural housing stocks we now see. This is because dense and multi-unit development triggers state permitting. There is an opportunity to create local zoning that favors smaller lots using incentives and grants.

Chairwoman Sheldon expressed dismay and some surprise about the vacancy rates and how to respond to these. She suggested they discuss the “favorable taxes for second home ownership.” Some members of the Committee suggested offices that now being abandoned in the “new work paradigm” could become housing. Act 250 should require a certain percentage of affordable housing to be conversions (according to some committee members).

The Joint Fiscal Office provided a background on second homes in Vermont and their impact on tax revenue. As of the 2020 census, there were 55K second homes in the state (likely higher now). This is about 18.6% of all housesites and the second highest percentage in the country. However, because of the way they are categorized for tax purposes it is very difficult to tell which ones are suitable for permanent housing (for example, they may not be insulated for winter use). There are no special incentives in either the Vermont or Federal tax code to make second homes beneficial, however they do qualify for regular tax deductions like mortgage interest and capital gains. Because Vermont uses the federal AGI, this would impact any income taxes due in Vermont as well. A few municipalities, like Washington D.C. and Vancouver have targeted taxes at vacant housing.

Vermont Housing and Conservation Board was supportive of most of the provisions in the bill and the inclusivity of housing availability and permitting exemptions for downtown development districts. These alternative permit exemptions are proving very attractive to local developers who are looking for a streamlined avenue to get started in designated development areas.

 

April 10th Update - Housing Presentation to House Appropriations

Chris Donnelly (Director of Community Relations, Champlain Housing Trust) told the House Appropriations Committee on Tuesday that they were concerned about the return on investment of Priority Housing Projects because they were expecting a market crash within the next two decades. They would prefer more investment in shared equity programs (which they operate) because the initial subsidy keeps the housing unit permanently affordable. This is done by an equity covenant, where a subsidy covers a portion of the purchase cost of a property in exchange for a share of the equity increase. This equity gain is then rolled into a subsidy for the next homeowner. This way the home remains affordable in perpetuity. The trade-off for purchasers is less equity gain but the program covers your down payment costs.

Some members of the Committee were concerned that the numbers showing really no progress in housing, just more folks living under subsidies in hotels and rent-adjusted apartments. Essentially, we have "done nothing but spend a lot of money and not actually changed the economics." Donnelly pointed to national standards hindering the housing placement process. We would argue that this is because there are not enough home-ownership opportunities so families are getting stuck in "affordable" rentals that are being subsidized by state and federal housing programs.

There were also questions about how to incentivize developers to build middle-income housing (currently it's not profitable). Maine may be considering assistance along these lines, but there is no clear programmatic path forward according to Donnelly.

 

He repeated this same testimony for the House General Committee, which currently holds S.226.

 

April 17th Update

There was a lengthy discussion on Thursday regarding the many parts of the S.226 which may be of interest to the House Ways and Means Committee. Chairwoman Ancel pointed out that the affordable housing tax credits are not in the bill anymore, however, $3M in manufactured housing grants is still there. This equates to 150 grants at $20k apiece.

The bill enhances an existing tax credit program for Designated Downtowns and Village Centers to bring buildings more than 30 years old up to compliance with modern housing codes.

It also provides funding for smaller flood mitigation projects with up to $75k in matching funds. There are other tax credit monies in the bill that operate more like a grant with a programmatic sunset.

 

The House General Committee also worked on S.226 this week, taking testimony from over a dozen people. The Committee is pretty split on certain aspects of the bill. Some would rather proceed with a strike-all targeting "unfair housing practices" while others think the bill misses the goal of creating new housing stock completely. After some debate, the Committee voted 6-2-3 in favor of adding language discouraging discrimination that was borrowed from S.329. Much of the dissent came from the delicate balance this bill strikes between environmental advocates and housing advocates. There was worry that adding a provision that could open up litigation for landlords and developers might upset that balance.

The Committee did a walk-through of the bill on Friday with legislative counsel. There were several areas that they plan to make changes, but one of the most immediate was that to qualify as an affordable unit under the definitions in the bill the unit would have to be held under market rate for 99 years. They also confirmed support for $15M in funding over two years for a missing middle pilot program run by the Vermont Housing Finance Agency.

The bill also now includes a registration requirement for residential contractors. The Committee increased the insurance coverages contractors would be required to carry to $1M per incident and $2M aggregate. However, some issues surfaced around mediation for small projects (less than $10K). If there were a dispute between a homeowner and a contractor, the state cannot help with complaints that aren’t ‘consumer’ in nature. If the contractor complains about the client there will be no resolution.

Some members of the Committee were in favor of including language from H.273 around discrimination protections while others opposed including anything at all because the language does not paint clear path forward. Chairman Stevens stated that they have no time for further testimony so they will have to proceed without it and hope to offer an amendment on the Floor. There was tension among members about how to move forward. It seems they will give it one more week to see if they can vet the proposal.

There was a proposal from the Administration to include $5M to assist municipalities with upgrading stormwater systems to accommodate more housing in urban areas. However, the funding has not been appropriated in the budget, they would essentially be appropriating pre-existing funds within the Department of Housing and Community Development (taking them from somewhere else). The Committee voted 4-3 against including the proposal in the bill but revisit next week if they are able to take additional testimony.

The Committee voted the bill out 7-2-2.

 

April 24th Update

The House General Committee took testimony on an amendment to S.226 on Thursday. Josh Hanford (Commissioner, Department of Housing and Community Development) reviewed the proposal with the Committee. It would dedicate $5M to support municipal housing development for ARPA projects to help communities to build new housing. He noted that at least five communities that want to build and support more housing. The idea is to help build infrastructure such to make it more appealing for developers to build housing within the municipality.

Local communities want more stake in the process, but have had access to funding to enable them to do this. Without money they won't be able to make these investments to support more housing. Housing costs and availability are a huge barrier for people moving into the state. Schools are even looking at providing money to help build housing for teachers. There were mixed reactions from the Committee but some consensus around the role of state and local government in infrastructure development. Hanford closed by saying that that we do investments subsidized housing, flood plains, and in downtowns. What we need to do is build middle income housing in new areas that are safe from flooding rather than invest in areas that are at risk.

 

May 1st Update

The House General Committee took up S.226 again on Wednesday despite the bill currently residing in the Appropriations Committee. Representative Cina submitted letter to the Committee about including a Land Access and Opportunity Board in the bill. This was deemed controversial because a similar board had been pursued through H.96 to deal with racial and social imbalances in areas that included housing policy. After a heated debate over whether or not this new board would be duplicative if more testimony should be taken on this concept. Representative Murphy was upset by what she sees as a move to dilute the legislative process. She believes they engaged on another vehicle for this type of language and they should stick with it.

The Committee will come back to this later on, as they are struggling to reach consensus. Some members of the Committee want to take further testimony as well. All of this being said, the Committee no longer holds the bill so any action they take would likely need to be as a floor amendment.

 

The bill was referred to Ways and Means Committee on Friday.

 

May 8th Update

On Tuesday, Legislative Counsel explained the First-Time Homebuyer Down Payment Assistance program to the House Ways and Means Committee. The program, part of S.226, provides grants for first generation homebuyers. The qualification requirements replicate the Federal program and will have up to $1M in available funds for FY2023.

A new amendment from Representative Cina would also create a Land Access Opportunity Board to oversee BIPOC access to property ownership. This language has already found issues in the Senate (and the House General Committee) because it seems duplicative with other work the legislature is doing.

The bill would also expand the Downtown & Village Center Tax credit program by allowing developments or redevelopments within Neighborhood Development Areas to qualify. Flood mitigation projects would also qualify under the new bill.

There was some hesitation to blend it with NDAs (which are seen as a pilot project) with Downtown and Village Center designations as the existing program seems to be working well in their eyes. There is a sunset provision (two years out) in the bill which seems to make most of the members on the Committee happy.

An updated fiscal note was provided by the Joint Fiscal Office (JFO) that focused on the addition of contractor registration requirements. They believe up to 1500 individuals and 2500 businesses will register. The program will cost around $200K to administer, which will be covered by the registration fees. Contractors accepting jobs smaller than $10k would not be forced to register, but JFO predicts that most of them would anyway because otherwise they are pigeonholed into smaller projects and being a registered contractor would likely be seen as a "status symbol."

Committee Voted to pass the bill 7-4-0 with opposition from Representative Mattos, Brennan, Canfield and Beck because of the contractor registration program.

 

House General took up S.226 on Thursday to review amendments from Ways & Means and Appropriations. Because the regional navigator program was nixed a few weeks ago, the $5M that had already been appropriated for that bill was re-distributed into two manufactured homes programs. $3M would go into capital grants (up to $20K per home), $1M into repairs and rehabs, and $1M into foundation construction and utility connections.

After reviewing the amendments, the Committee approved 10-1-0.

 

The Committee came back to entertain two floor amendments to S.226 on Friday morning. The first amendment was offered by Representative Donahue to add members from psychiatric and disability advocates to the Vermont Land Access and Opportunity Board (VLAOB) being proposed in the bill. The Committee found the amendment favorable.

The second amendment was offered by Representative Bluemle and also addressed the VLAOB. Her amendment would add to their responsibilities advising the Vermont Housing and Conservation Board, the Vermont Housing Finance Agency, the Vermont Economic Development Authority, the Vermont Agricultural Credit Corporation, and other affordable housing and land access stakeholders. The Committee found this amendment favorable as well.

 

The Senate Economic Development Committee received S.226 back from the House on Friday on a 103-42 vote. The House removed several sections on Neighborhood Development Areas because they are also included in S.234. There was also some debate about the necessity of the new housing board to oversee diversity that the House added.

The Accessory Dwelling Unit language that was in the bill is now in S.234 and the section on wastewater connection permits was removed entirely, the Committee is trying to insert those provisions into S.11 in the Conference Committee.

The important part, the missing middle home affordability grants, are still included in the bill and were unchanged from the Senate version. However, the bill also came back with a controversial provision to register all construction contractors who bid on projects greater than $10k.

 

May 15th Update

The Senate Economic Development Committee reviewed S.226 on Tuesday. When the Committee met, the only land use provisions in the bill were water/wastewater and all the other land use language was still in S.234. The provision in the bill dealt with wastewater connection permits in Downtown Development districts and Village Centers. The bill also now included an amendment addressing discriminatory housing practices.

There was a great deal of confusion about provisions moving back and forth between the two bills. Chairman Sirotkin asked “if we are going to do anything to try to eliminate the duplication of permitting." From discussion, it doesn't seem like they will find consensus on this point for now.

The bill was put forward to the Senate floor on Wednesday with provisions protecting Accessory Dwelling Units (think in-law apartments) from stringent municipal zoning requirements, relaxing requirements for housing development in downtown areas, and providing grants to municipalities to update their zoning requirements.

During the floor reading, there were a number of procedural votes as pieces of the bill were questioned and amendments were offered. The net result was the following:

• Tax credits for affordable housing through VHFA to finance down payment assistance
• A first generation homebuyer outreach program (to make people aware of the financial assistance programs available)
• Manufactured Home Improvement and replacement program 
  • $2.5M for capital grants for infill development
  • $750K for repairs and rehabs
  • $750K for foundation grants, up to $15k each
• A new program requiring the Department of Housing and Community Development to work with other stakeholders to incentivize development of inclusive smart growth neighborhoods.
• A new Downtown Village Center Tax Credit Program for improvements to buildings at least 30 years old.
• Changes to the Village Center program and new Town Center Development Districts to streamline permitting processes.
• The launch of the missing middle-income homeownership pilot program, which appropriates $15M over two years to create affordable owner-occupied housing. Families under 120% of the area median income can receive a construction subsidy up to 35% of construction, acquisition, or rehabilitation costs.

In a last-minute change, a provision that was previously in S.234 related to the registration of construction contractors was added to the bill. A similar proposal was vetoed by Governor Scott last year and this could be considered a "poison pill." The Senate raised the registration threshold to only include contractors who take on projects larger than $10k in hopes to appease the Governor. Provisions on unfair housing practices, the Vermont Land Access and Opportunity Board, and several other initiatives were also ported over from S.234.

The forest block language from S.234 was struck down and the road rule provision, which the Governor had previously objected to, was not even proposed. The Senate passed the bill 30-0 on Thursday and the House Concurred later that evening. The bill will now be sent to the Governor.

 

The bill was signed by Governor Scott on June 7th

 

Page last updated 6/14/2022