[S]enate Democrats are hoping to invest about $50 million over the next 20 years into an affordable housing bond that could yield up to 1,000 apartment units across the state.
But some caution that after a recent state bond rating downgrade, now may not be the time for Vermont to take on a major debt by tackling the housing project.
Under the Senate plan, the bond would be paid off with revenue generated by closing two tax loopholes, allowing the state to collect and spend a combined $4 million on the expense annually.
However, since Vermont’s credit rating was downgraded by Moody’s Investors Service in October, in large part because of the state’s massive pension liabilities, some, including Vermont Treasurer Beth Pearce are concerned about taking on even more long-term debt and the possibility of another downgrade.
“Issuing right after a downgrade with another revenue bond … is touchy. I’m not going to say it’s a deal breaker, but it’s a concern,” Pearce told Vermont Public Radio this week.
Tom Kavet, the Legislature’s economist, echoed Pearce’s concern to the Senate Economic Development Committee on Thursday morning.
“I would say it shouldn’t have an effect on the rating, but it easily could,” he said.
The Senate’s proposal comes after lawmakers and Gov. Phil Scott passed a $37 million housing bond in 2017, which officials estimate will leverage an additional $140 million of spending on construction through programs like the low-income housing tax credit and public-private partnerships.
Sen. Michael Sirotkin, D-Chittenden, hopes to replicate the success of the 2017 bond, the largest single investment affordable housing in the state’s history.
He wants to fund the new bond by expanding enforcement of the property transfer tax, and broadening rooms and meals tax collection to short-term rental services other than Airbnb.
He estimates that this new revenue would total about $4 million annually and could be harnessed to pay off the $38 million bond and roughly $14 million in interest over the next two decades.
“We need to spur the economy and I think it’s different than the last bond because the last bond took money away from existing expenditures to fund the principal and interest,” Sirotkin told reporters Thursday.
“We found new funding sources here, so it’s a wash in terms of the state budget overall.”
Sen. Pro Tem Tim Ashe, D/P Chittenden, said that while ratings agencies may not want Vermont to borrow excessively, they also want to see the state make investments in its economy. When Moody’s downgraded Vermont’s bond rating, it cited the state’s slow economic growth and demographics in addition to its large pension debt.
“On the one hand they want Vermont to demonstrate that it has a more robust economy, which requires housing construction, and then on the other hand they don’t want the state to be overextended in terms of borrowing,” he said.
“So I think from our point of view, obviously without guarantees, we do the best we can to manage the risk and make sure that we’re not stepping out in a way that would be disadvantageous,” Ashe said.
Scott administration officials said Thursday that they are declining to take a position on the Senate housing bond proposal at this time.
In his budget, the governor proposed some housing investments, including $1 million to help property owners renovate dilapidated housing stock, boosting downtown development tax credits, and reforming Act 250, the state’s land use law to make regulations less burdensome for developers.
But the administration also signaled it would be less inclined to make a major investment of tax dollars into affordable housing this year.
“The governor is very interested in supporting more housing but he’s also thinking about initiatives and approaches that require less public investment to do that — innovative approaches that can work with more of a public-private partnership,” said Josh Hanford, the acting commissioner of the Department of Housing and Community Development.
“We understand the critical need for housing in all the different manifestations of that need, but we’re also trying to be mindful of our ability to afford these investments ourselves.”
