Treasurer advises funding VHCB over bonding to bolster housing stock

If Vermont lawmakers decide to borrow more money this year to build housing, they should do it within the limits set by the state’s panel of expert debt advisors, Treasurer Beth Pearce told housing bond proponents Friday. 

Pearce, called before the Senate Economic Development, Housing and General Affairs Committee to deliver a report lawmakers requested last year, said it’s clear that a housing shortage in Vermont is holding back the state’s economic growth and harming its people.

“I wholeheartedly share in the belief that affordable and secure housing is a critical issue for the state’s economy and the wellbeing of its citizens,” said Pearce. “It’s dignity for the individual, it’s the right thing to do, and it lowers other costs.”

But it’s also clear that the Capital Debt Affordability Advisory Committee or CDAAC, a state group that annually reviews the size and affordability of tax-supported general obligation debt, would be unlikely to agree with housing advocates that the state should borrow another $50 million to build more housing, Pearce said. 

Sen. Michael Sirotkin, D-Chittenden and chair of the Economic Development Committee, would like to include a $50 million housing bond in a bill that his panel is working on this session. A $37 million bond that the Legislature passed in 2017 has leveraged federal and state money, tax credits, and other resources to build nearly 800 units of housing in Vermont, Pearce’s office said.

But housing is still a pressing need in some parts of the state, identified by some advocacy and economic development groups as the No. 1 priority to improve lives and the economy. Last year, when Sirotkin proposed borrowing another $50 million, Pearce told the committee that it would be too expensive to borrow the money, especially now that the state’s bond rating has dropped because of its sluggish economy and demographic changes.

The committee asked Pearce to report back on the best way to finance another 1,000 more units of housing within five years.

On Friday, Pearce outlined some of her findings and said that public meetings on housing that she had attended over the summer had pushed her closer toward Sirotkin’s point of view.

“I think housing is a very compelling need, and I would be happy to say that in the Institutions Committee and elsewhere,” said Pearce. “I’m all in on housing. But what I am trying to do is make sure we do it at the lowest cost so the money is there down the road to pay for future needs.”

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In her report, Pearce recommended that the state fully fund the Vermont Housing and Conservation Board at its statutory level, something that hasn’t been done in several years. The Vermont Housing and Conservation Trust Fund, made up of revenues from the property transfer tax, was set up to support the VHCB with half of its annual revenues. VHCB is a lender with the goal of creating more affordable housing and land conservation.

VHCB’s share of the property transfer tax has long been raided for other uses, leaving the board with a shortfall. It’s time for that money to be redirected to the VHCB, said Pearce.

“It needs to be funded, year in and year out, at a level at least consistent with its statutory levels,” she said.

In her report, Pearce called borrowing “an option,” but in her comments to the committee, she said lawmakers should use cash for housing if possible.

“The general fund pays the debt service on our bond,” she said. “We talk about pensions all the time, and it’s kind of the same type of thing: If you put things on your credit card, they come back later, and have to be repaid.”

The report also recommended the establishment of a housing trust fund and a review of rehabilitation programs for rental housing to bring some of Vermont’s aged housing stock up to modern standards.

Pearce told the group of lawmakers that if it is committed to borrowing money, it should do so within the recommendations of the CDAAC. Interest on the first housing bond will cost the state more than $14 million, Pearce said.

“In a different world, you could put those dollars to housing as well,” she said. “Cash gets you further. Bonding is appropriate, and we’ll talk about that, but within the limits of CDAAC.”

Sirotkin and others are still convinced bonding is the way to go. The $37 million bond resulted in projects with a cost of $215 million so far, said Jennifer Hollar, director of policy and special projects for the Vermont Housing & Conservation Board. 

After the hearing, Sirotkin said he’s as determined as ever to find a way to borrow the $50 million.

“I respect Beth’s concerns, but I am still not convinced there’s no alternative way of leveraging those funds,” he said. He noted that research, including some cited by the treasurer, shows that investing in housing results in substantial savings elsewhere, such as in Medicaid costs. He noted that Vermont’s bond rating would improve if its economy and population growth picked up — something that would be aided by the construction of housing.  Sen. Becca Balint, D-Windham, added that making housing more available has been shown to reduce homelessness, which in turn increases student performance and children’s health.

“This is a direct investment in the health of Vermonters,” Balint said.

Alleviating the housing shortage would also ease the state’s worker shortage, several lawmakers on the panel noted. Employers have reported they have trouble recruiting people because prospective workers can’t find housing.

“I don’t want to do something small,” said Sirotkin, adding that he wouldn’t object to restoring the property transfer tax revenues to the VHCB.

The Scott administration is lukewarm on the idea of a $50 million housing bond. Josh Hanford, the commissioner of the Department of Housing and Community Development, said Gov. Phil Scott plans to propose some measures in his budget address Tuesday  aimed at alleviating the housing shortage.

“It’s clear we have housing needs, absolutely,” Hanford said. But it’s expensive to build new housing because of permitting fees and other regulation, he added.

“Ask developers how much of their costs they’re putting toward bricks and mortar and construction,” he said. He said rehabilitating structures in towns like Richford, which has a surplus of apartments, would make more financial sense.

“We should be making every attempt to reduce the cost, since we have to borrow,” he said. “Let’s get there by focusing on the rehabilitation, because the cost is much lower.”

Pearce is producing her report in two phases. She plans to return in March with more recommendations. Among other things, she’s going to look into supportive housing for previously homeless people. She said the goal of her housing work is to get the best deal on affordable housing for taxpayers. That best deal, she said, is fully funding VHCB. That would support more than 500 units of housing.

Taxpayers are told the property transfer tax goes toward housing, so it should indeed go toward housing, she said. “We need to be able to devote appropriate dollars to funding VHCB and funding housing resources, because to be honest we don’t have the debt capacity to do a $50 million bond.”