3/12/2018 - Tax Credits Fund Housing and Community Development

Tax credits are fairly complicated and somewhat obtuse but have proven to be very effective in encouraging investment in the rehabilitation and revitalization of real estate in Vermont.  They are “tax expenditures” of the State because they result in less tax revenues to support the obligations of the state.  Because of that, establishing new tax credits or expanding existing ones are carefully scrutinized by the money committees in the legislature – and rightly so. 

Who buys tax credits?  A person (including individuals, corporations, etc…) who is certain to have a hefty tax bill with the State every year.  Banks can buy tax credits to reduce their annual franchise tax, and so they are the most common purchasers of tax credits in Vermont.   Let me know if you want to learn more about this.    

H.766 is a bill that deals with three different types of tax credits.  It was passed out of the House Committee on Commerce and Economic Development and is now being considered by the Ways and Means committee before going to the rest of the House for consideration.  Here is what is in the bill: 

1. Establishing a rehabilitation tax credit pilot project.  The bill allocates $625,000 in tax credits to be divided amongst three applicant towns to incentivize the rehabilitation of existing homes in neighborhood areas that border an existing Village Center or Designated Downtown.  The deal is that a homeowner can receive a tax credit equal to 30% of the cost of rehabilitating an existing home, limited to $25,000, as long as the building is a 1-4 unit structure and is under the median price of a house in the state.  The mechanics of the program are fairly complicated (that is why it is a pilot project right now) but the goal is to revitalize Vermont’s aging housing stock.  If successful, it can be expanded and repeated in future years.

2.  Increasing the Downpayment Assistance Program for first time home buyers, administered by VHFA.  The bill authorizes additional tax credits of $125,000 per year for five years to fund down payment loans of up to $5,000, secured by a second mortgage on the property.  Recipients of these grants must qualify for a VHFA mortgage.  This program has provided assistance to more than 600 home buyers in Vermont and is proven to make home ownership a reality for those who would not otherwise qualify.  The eventual repayment of these loans (at 0% interest) will create self-sustaining fund in approximately 5 years. 

3.  Increasing the Downtown and Village Center Tax Credit to $2,650,000 per year.  This program is aimed at providing financial incentives for the rehabilitation of  commercial buildings in Designated Downtowns and Village Centers.  (Woodstock is a Village Center, Reading is applying for approval as a Village Center).  From 2013-2017, 141 projects in 52 communities received total tax credits of $12 million, leveraging another $181 million in private investment.  There is a lot of competition for this annual allocation of tax credits, so not every application receives funding. 

I support this use of tax expenditures to provide meaningful financial incentives for community  development in Vermont.  It is my hope that the rest of the legislature sees the value in these programs as well.