CHIP's Double-Edged Sword: A Promising Housing Tool Hindered by Added Red Tape and Narrower Scope
Understanding the Promise, the Price, and the Political Compromises Behind a $2 Billion Housing Initiative
Vermont municipalities can now begin applying for what state officials are calling a transformative new tool to address the state’s housing crisis: the Community and Housing Infrastructure Program, or CHIP.
Authorized under Act 69 during last year’s contentious legislative session, the program allows towns to borrow against future property tax revenue to build the roads, sewers, and other infrastructure needed to unlock housing development.
The headline number is impressive: up to $2 billion in potential infrastructure investment over the next decade. Early adopters like St. Albans and Fair Haven are already moving forward with plans. But the program that emerged from the 2025 legislative session looks significantly different—and carries considerably more risk—than what housing advocates originally envisioned.
The Housing Crisis That Drove the Legislation
Vermont faces a severe housing shortage. The Vermont Housing Needs Assessment released before Act 69’s passage quantified the deficit: the state needs between 24,000 and 36,000 year-round homes by 2029 to restore healthy market conditions. Following the Great Recession, annual home construction dropped below 1,500 units and has struggled to recover, creating near-zero vacancy rates in many communities and driving up costs.
The problem isn’t just demand—it’s the lack of basic infrastructure. Many Vermont towns lack the water lines, sewer capacity, or road networks needed to support new housing developments. Traditional funding mechanisms through state grants or municipal bonds haven’t kept pace with need, creating a chicken-and-egg problem: developers won’t build without infrastructure, and towns can’t afford infrastructure without development.
How CHIP Actually Works
CHIP operates as a project-based version of Tax Increment Financing, a tool Vermont has used in limited form since 1985. Here’s the basic mechanism:
A town identifies a specific housing project that needs infrastructure investment—say, extending a sewer line or building new roads. The municipality issues general obligation bonds to pay for that infrastructure upfront. As the housing project is built and generates new property tax revenue, the town retains a portion of that “increment” to pay back the bonds instead of sending it to the state education fund or using it for general municipal operations.
The retention rates are substantial: municipalities can keep up to 100% of new municipal property tax revenue. For the education property tax, towns can retain up to 75% for market-rate projects and up to 85% for projects with at least 15% affordable housing units.
Each CHIP project requires municipal voter approval, review by the Vermont Economic Progress Council, and detailed financial projections. The program includes a $200 million annual cap on new project approvals statewide.
What Changed: The Legislative Compromise
The CHIP program that launches this month differs significantly from earlier versions, the result of intense negotiations during what became a chaotic “token session” in June 2025.
The “But-For” Test Exemption
Originally, economic development subsidies require passing a “but-for” test: proving a project wouldn’t happen without public assistance. The House Ways and Means Committee wanted this protection maintained to prevent subsidizing developments that would occur anyway. However, Act 69 waives this requirement for any project including at least 15% affordable housing units.
This means a developer in a strong market could propose a project they planned to build regardless, include the minimum affordable units, and qualify for public subsidy for infrastructure that would have been built privately. The Vermont Chamber of Commerce warned this exemption could lead to tax dollars supporting projects that don’t truly need assistance.
Expanded Eligible Costs
The final legislation significantly broadened what qualifies as “infrastructure.” Beyond traditional water, sewer, and road improvements, CHIP financing can cover consulting fees, project management services, audits, and even costs incurred before voter approval. This means a substantial portion of bond proceeds may go to professional services rather than physical assets.
Looser Geographic Requirements
Early versions would have limited CHIP to designated downtown areas. The Rural Caucus successfully argued this would effectively restrict the program to larger communities. The final bill allows projects in broadly defined “settlement areas,” opening eligibility to edge-of-town developments that environmental groups worry could conflict with forest conservation goals.
The Real Costs: Who Actually Pays
While CHIP is promoted as unlocking new investment, the mechanics reveal a more complex fiscal reality.
Education Fund Impact
Vermont’s education system is funded through a statewide property tax pool. When a CHIP project retains 85% of new education tax revenue locally, only 15% reaches the state education fund. But the students living in those new homes still require full per-pupil funding—roughly $20,000 annually.
This creates a structural deficit. The Joint Fiscal Office acknowledged it cannot estimate the total cost to the education fund because of variables including how many projects would have been built without CHIP. The shortfall gets spread across all Vermont taxpayers through higher education property tax rates.
Municipal Debt Risk
Unlike traditional district-based TIF where multiple properties share risk, CHIP concentrates everything on a single project. If the housing development stalls, gets built at lower density than projected, or is assessed at lower values than anticipated, there’s no other revenue stream to cover bond payments. The municipality’s general obligation pledge means local property taxpayers make up the difference.
This risk is manageable for experienced municipalities with financial cushion but potentially dangerous for small towns with limited capacity to absorb losses.
Two Very Different Test Cases
St. Albans: The Experienced User
St. Albans City plans to use CHIP for the historic Messenger Building at 17-21 Kingman Street, a former newspaper printing facility requiring brownfield cleanup before conversion to 14 residential units with ground-floor commercial space. The city has issued over $21 million in previous TIF debt and employs a full-time city manager experienced in complex financing mechanisms.
For St. Albans, CHIP represents a continuation of aggressive downtown redevelopment strategy using tools the city knows well. The risk is that the municipality is already highly leveraged—additional debt increases burden if projects underperform.
Fair Haven: The Rural Challenge
Fair Haven’s proposed project involves a much different scenario: developing a 24-acre former race track site requiring entirely new road networks, utility extensions, and site preparation. For a town of 2,700 residents without dedicated planning staff, the administrative complexity presents substantial challenge.
The project faces multiple uncertainties: Will voters approve the bond? Can the local market absorb the housing units needed to generate projected tax increment? Will Act 250 environmental review create delays that undermine financial projections? These “absorption risk” questions determine whether rural CHIP projects succeed or become fiscal burdens.
What the Numbers Can’t Tell You
Vermont’s Joint Fiscal Office stated explicitly that “the fiscal impact of this program to the Education Fund cannot be estimated at this time” because it depends on unknowable variables: how many projects get approved, how many would have happened anyway, how quickly properties are built and occupied, and what assessed values ultimately result.
This uncertainty represents both opportunity and risk. CHIP provides tools that didn’t exist before, potentially unlocking housing development that addresses a genuine crisis. But it does so by transferring fiscal risk from the state to municipalities and diverting education funding through a mechanism whose ultimate cost remains unknown.
What Happens Next
The Vermont Economic Progress Council began accepting CHIP applications this month. Municipalities must complete detailed applications including market studies, infrastructure engineering plans, and 20-year financial projections. Each project requires public hearings and a town-wide bond vote before state review.
The program includes annual reporting requirements, ongoing audits, and compliance monitoring. Towns can finance these administrative costs through CHIP bonds, but that adds to total debt service.
The first projects approved in 2026 won’t generate tax increment until housing units are completed, assessed, and occupied—likely 2027 or 2028. Early bond payments will therefore come from municipal general funds or reserves until the increment materializes. How well towns and the state manage this timing gap will determine whether CHIP fulfills its promise or creates new fiscal pressures.
The true measure of CHIP won’t be how many towns apply in 2026, but whether the projects remain solvent and the housing gets built in 2030 and beyond. Vermont is conducting a decade-long experiment in decentralized housing finance. The $2 billion authorization represents not found money but a bet on future growth—one where municipalities and their taxpayers shoulder significant risk for what advocates hope will be transformative gain.