Earlier this year, Vermont launched the Community and Housing Infrastructure Program (CHIP), a tax-increment financing (TIF) program that lets municipalities and developers borrow against future property tax revenue to pay for the roads, sewers, and water lines under new primary-residence housing for low- and moderate-income households across Vermont’s rural and urban counties alike. The pitch sounds appealing: up to $2 billion in infrastructure investment, no new taxes, no state spending.
TIF doesn’t explicitly raise tax rates, but there’s no such thing as free money. Every dollar of tax growth diverted to repay project debt is a dollar that doesn’t go to the general fund, the education fund, or towards property tax relief for existing homeowners. When a housing project raises a property’s assessed value, the extra tax revenue generated by that growth would normally flow straight into town and school coffers. Under CHIP, municipalities can redirect that new revenue to pay down the infrastructure debt instead, for up to 20 years, before it starts flowing to the general fund and education fund the way it normally would. The Agency of Commerce and Community Development points to an estimated $380 million in new Education Fund money the program will eventually generate, but “eventually” is doing a lot of work in that sentence. It’s a bet on projects panning out as projected, paid out two decades from now, and financed by two decades of revenue schools don’t see today. Technically no one’s tax rate goes up, but real money does goes missing, and the taxpayers will have to account for it later.
Then there’s the picking of winners and losers. CHIP applications go through the Vermont Economic Progress Council, nine members appointed by the Governor, two by the General Assembly, deciding which projects get subsidized and which don’t. Most TIF programs, CHIP included, require applicants to clear a “but-for” test to show that the project wouldn’t happen without the subsidy. Instead of proving the project’s public benefit will outweigh the public cost, applicants just have to show that they need the money. A board allocating capital to whoever clears that bar and files the strongest application cannot allocate capital as efficiently as a market pricing risk on its own. In fact, a review of more than 30 studies on TIF programs nationally found that in most cases, the tool hasn’t accomplished its goal of promoting economic development. CHIP layers a new bureaucratic process – applications, board review, project-by-project approval – on top of the regulatory barriers already there. More process rarely makes something cheaper, and in this case, it also gives more bureaucrats a say in who pays and who benefits.
CHIP will also pull money further out of view. Because captured revenue sits outside the normal budget process, it stops showing up where voters and elected officials would ordinarily be able to weigh in on it. Chicago offers a preview of where this can end up: roughly $660 million, close to a third of the city’s property tax collections, now flows into TIF districts rather than the general budget, which makes that money harder to scrutinize. Vermont’s version is still small right now, but the mechanism that landed Chicago in that position is the same one CHIP just switched on in Vermont. The program also invites the same dynamics that show up wherever governments use targeted tax incentives to compete for development: towns bidding against each other for projects, and decisions optimized for winning the next application cycle rather than for what actually serves a community over the long run.
None of this makes housing infrastructure inherently less expensive to build, it just changes who gets help paying for it, and it adds a layer of state review to do the deciding. A market allocating capital doesn’t need an application window, a board vote, or a grant-writer on staff to figure out where investment belongs, but tax-increment financing introduced through CHIP does. That is the real cost of a $2 billion program billed as free: Vermont is now in the business of deciding which projects get built and which don’t, all at the taxpayers’ expense.
