Good morning and welcome to the Vermont Legislature's House Committee on Natural Resources Fish and Wildlife. This morning we're taking up S226, an act relating to expanding access to safe and affordable housing. And with us this morning we have one of the bills main sponsors, the bills main sponsor, Senator Keisha Rom, Hinsdale, and welcome. Thank you, Madam Chair. Thank you committee for the record, Senator Keisha Rom, Hinsdale and County. I wasn't able to connect with Ellen just to be sure about which pieces are of interest to and under the jurisdiction of this committee. So, I think I'll speak broadly and then just take any questions you may have. That's fine, we'll sponsor it at any rate. Perfect, okay. So, you know, I would say just two things number one, you all are going to receive an environmental justice bill soon that we've discussed and this is, I think part and parcel with that and that environmental justice is different than conventional environmentalism. It's focused on livable, walkable, transit oriented housing in places where you can achieve density and ensure that, you know, you have safe affordable housing for folks. So, you know, I often say for people of color and low income people being part of the environmental movement is not just saying the same things that people have been saying just with different faces and different incomes. It really is about having that, you know, sense of community and ability to afford safe and healthy housing and have it be, you know, in neighborhood centers. I really set out to do a housing bill that had a little bit about permitting, not a permitting bill that I had a little bit about housing we've all been talking about the housing crisis that we're facing in, in Vermont and not unique to Vermont but you know, as you know, we have a very high vacancy rate the highest vacancy rate in the country. We have, you know, a really strong robust permitting and planning principles in the state, you know better than I do. And we have to make sure that those are still allowing more housing to be built in the places that we want it. And I think so often what I've observed being being at one point vice chair of natural resources and energy in the house, and also book ending that with service on the House Committee on Housing and now the Senate Committee on Housing is the conversation around permitting and building more housing can sometimes get lost between the two committees and we need to have a housing bill that addresses a little bit of permitting, not, you know, sort of make it solely focused on permitting. You know, we care, we all care about our environment, we also care about making sure that we have enough housing to house for monitors right now in a crisis. And so, as a member of the housing committee, I sought to take all the best ideas about how to build more housing, which is what we need in the state. Great to members have questions. Good morning. Good morning, Mr. Vice Chair. Yeah. Are you Vice Chair ID. Okay, great. I was a better ranking member but I remember you being Vice Chair. So, that's a question I can answer. The rest of them are not so sure. Usually take questions from the witness but okay. I likely will get into this elsewhere in the bill. Yeah, I've asked the question several times and haven't gotten an answer from others who invented the 55, the 55. I'm not talking about a very long list right now. True enough. Yeah, I will answer that question at a different time as well. Oh, yes. And so, so you know what the question is. I do. And we'll re ask it. Thank you. I was getting worried because I couldn't think about the 55 in the housing bill. And I know exactly what you're talking about. Yeah. All right. Is that your question. All right. I got the 55 right away. Good morning. This question may be more suited for the state as well, but when you talk about ensuring that we have safe housing. We're always concerned if you're building on floodplain where you're putting more people in harm's way, even though our historic villages were built on streams to take advantage of that and that power for milling, for example, or our energy. We're all concerned that, especially during climate where we're seeing even now, the increased frequency of severe weather, and the potential impacts of putting more people in harm's way. Yeah. So, in your mind, does this bill, when you talk about safe housing, is it a responsible bill to find that, that I guess that way forward to accommodate housing where you want it. In downtown New York, while at the same time, are we being careful enough to not put more people in harm's way. Yeah, I think it's a great question. And I think there's, there's two, potentially two areas, general buckets in the bill where you might find us wrestling with that question, maybe more, but, you know, one is trying to articulate that if we are giving to existing properties or homes in flood plains, that the resources be directed to sort of lifting them up or may mitigating the impact. So we, you know, the reality in Vermont as we already have a lot of housing and flood plains, particularly mobile homes. And when I hope you may hear from Sandrine Kabui or others from the mobile home project. You know, when I saw the effort from the administration to create buyout funds made available to individuals to relocate out of flood plains. I thought that was a good start to the conversation. I do worry about who's going to be left behind if we're talking about individual buyouts. And so this, the idea of this bill was to go to the communities themselves and say, you know, who. What do you need to feel safe in the existing home you're in. And how can we also wrap this conversation and resources around community relocation and properties or, you know, planning that might help people transition away from these areas as I think I said in the environmental justice bill, people in mobile home communities are 8% of the population but 40% of the flooding distance of Hurricane Irene so we need to be thinking a lot about the next disasters and who's in these areas. I put the resources in that for the requests of the people closest to the situation on the ground, who are saying you know people need accessibility repair and relocation. And we can't sort of, in my mind let the perfect us like, you know, telling people this is the time to move and here's a little bit of money, be the be getting the way of helping people right now with impaired unsafe housing. So, you know, it was a real balance, and I hope this engenders a larger conversation around the state getting creative about state land and other places that mobile home communities can move with the wraparound support and resources directed in these funds and other funds. Those are the folks I worry about the most and then so I mean we have, you know, commercial properties and other homes of greater value in floodplains as well. And I think we've seen that those folks need help as often too and you know in tropical storm Irene. I written, I don't know, looking around I mean I know I know representative McCullough was here but you know we went to the housing committee went to Waterbury index very and waterbury people were helping people shovel things out. You know, stripping things down to the studs and erring it out and helping people rebuild and we went to a mobile home community index very, and they said we haven't seen anybody for four days. We feel completely left behind, you know, we have nothing, and no one and we watched planes fall I overhead and go to waterbury and never come see us. And so those that's who I worry about in terms of resiliency and disaster. And we are really far from giving them the resources they need to make to have agency and the decisions about where they go and how safe their house. Let's see any further questions. Thank you for one other question. The other area of interest is to ensure that we're providing housing in our smaller communities as well. In your mind is this bill help to provide not only safe, affordable housing in our larger cities and towns are there. In your mind and adequate focus for our smaller more rural communities. I think taken in totality, we tried to ensure that there was something for communities of different sizes so we have another bill about what we call many tips which are just smaller, you know neighborhood development areas. And so we've tried to look at who you know usually gets the largest share of this pie and how do we redistribute that. I had a couple provisions in this bill and I looking around because I think one survived. You know, the two provisions were around getting doing matching funds for institutions and I believe that did survive in the bill so you know if you if you have Grace cottage hospital or you know really it could be a smaller institution. There are communities right now for example that have colleges that are transitioning to be something else, you know, Green Mountain College and put me for example, where we should be trying to create a matching funds so that they can redevelop and revitalize. And so, by larger institutions larger hospitals and colleges. So I think that provision did survive. I had another that was about a fund for transitioning commercial properties to residential where someone, you know, thought of this is going to be a great little industrial park or whatever a little, you know, commercial building and there may never be the same need for commercial space in the near term again. So I'm hoping those properties with the resources to put in plumbing to do fire safety whatever needed for habitability. I don't know that that survived in this bill, but we I try to think about all the towns and asking them what they needed this bill also has a tiff extension, which I know doesn't help our smallest communities like in alongside that mini tip, you know, I think that a lot of our medium sized towns a lot of the Bennington's the berries. They're the ones who have, you know, I mean in very I was told we have 300 job listings and three housing listings. So, you know, I know they're not a small town but these are our medium sized communities that are becoming the hub for people to try and find a job and try to find somewhere to live. And they're asking for, you know, the resources they need now that they have the money for housing they need to build it. And so this bill tries to sort of clear some of the red tape and underpin the planning processes they need to build the housing and I think that will help. There's the, there's other dollars for blighted properties and properties that need to be upgraded profitability. I think that helps in areas where you might have a historic home that sort of sitting on its own that needs repair for for someone to become a homeowner. We've got to keep going we have a lot of witnesses. Go ahead. You know, you said that Vermont has the highest vacancy rate. The nation does that include second homes and primary homes together because what's happening and in many of the smaller towns where I'm from is that we're losing a sense of community because so many homes being bought up by people who recreate for, you know, for snowmobiling for any kind of recreational activities in the woods. So what you're seeing is less and less primary homeowners, which of course then, you know, less and less folks to help pay for the services. And I'm just wondering if that if that that highest vacancy rate pertains to secondary home owners as well. That's exactly what it was about. You know, we often look at New York and California and think, Oh, they must have so many rich people's life was rich and famous. Those are sitting empty. Maine and Vermont, about a quarter of the properties in the state are vacant, whereas it's about 10% in those larger states so we're talking about second homes and, you know, we're looking at a place like Woodstock that's trying to, you know, pay people to create a rental housing at this point. But this bill I did not poke the bear of vacancy per se in this bill and we didn't have that figure from the New York Times article that I'm happy to send when I drafted the bill. But it should be cause for concern for all of us we don't have to increase our footprint necessarily we have to figure out a way to incentivize people to open up their homes for seasonal workers or for long term rentals because that's a quarter of our housing stock that's it's vacant for this definition which is a lot about when people are there and how often. Thanks. Great. Thank you. Yeah, thank you all so much. Good luck. Thanks. I'd like to go to Seth Leonard, who is joining us. Good morning. Thank you for having me. I really appreciate it. My name is Seth Leonard, I'm the managing director of community development of Vermont housing finance agency. And Lizzie, I think I'm okay to share my screen. Is that right. Thank you. That come through okay for everyone. Yes. Great. So, I think what I've been asked to do today is to help the committee think through how much housing we need in this state where we are in terms of need where we need it and a little bit about the state's land use regulatory environment land use planning apparatus is. And I guess what we probably all say is this historic opportunity for one time investments in housing community development and how those can work together. That sounds right in terms of what would be productive for me to cover today. Yes. Great. Okay, so I think most presentations when they come about put citations and resources at the end of the presentation, I think it's really critical to point out that a lot of these, the thinking, the thoughts and the policy development resources that underpin as 226 are part of much longer solutions. And many of the solutions and ideas didn't come out of them there and the pressures that they're addressing in the housing community and community development world are very real measured and studied in a lot of cases. So you should all have a copy of my presentation with these links I think it's, it's great to have these handy. The housing needs assessment there at the top that was done prior to the pandemic setting in and the housing needs assessment showed us that in Vermont. We have 90,000 over 90,000 now. Homeowner and renter households that are cost burdened by their housing costs that's 36% of every Vermont household that are paying more than 30% of their income on housing costs. That amount 39,000 or 16% of all the households in the state are paying more than 50% for a cost the housing needs assessment made it clear that we had an affordability issue in Vermont prior to the pandemic exacerbating those issues. We had a statewide housing cost study from early 2020 which again pre pandemic that highlighted that we were already seeing a real pressure on our affordable housing development resources in general, and housing development was feeling less from a well defined combination of regulatory permitting and process issues, combined with emerging labor and material costs. In 2021, we created a report focused on how land use regulations at the local level are not always working in coordination with the regional state and sometimes even the communities own vision for where housing should be built. We surveyed 69 towns and 22 of those towns don't have zoning less than a half acre anywhere in their community. That's not a good recipe for, for building in the right places we would say, and in a lot of areas. We had a 2021 report called the state of development in Vermont. Many of the slides today are going to be continuations of that report that show that really we've encountered a bit of a perfect storm when it comes to pre existing conditions and pandemic exacerbated factors that are putting pressure on the housing, the housing stock in our state. And then you have, I like to say the timeless resource that I hope you all have visited before just housing data.org, which is our repository for the state's housing data, best policy practices tools for local communities and legislators when thinking about housing issues so you haven't visited there encouraged you to do so. I just want to point out to that. We in the affordable housing and community development area really work hard to align policies, and you'll find that in the investment, the key investment policies like the qualified allocation plan for affordable housing. There is prioritization of smart growth there's prioritization of energy efficiency of ensuring that homes are being built with access to transportation, and that we're considering climate impact. I want to make that clear off the start is we do approach on the development of housing not just as accounting or an accounting of units. We're being very thoughtful about where those investments are being placed year over year pandemic or not, and making sure that we're serving the state communities in the best way possible. I think this chart really helps frame how what causes housing to get built or not get built in the state, and it says two critical things. One is that builders and developers are always going to size their pipeline be them nonprofit or for profit entities based on how much capital they think that they can get to build housing. And we've done quite a bit in terms of ARPA and moving the needle on that. I think that was a leader and proposing investment of dollars into housing investment that has now been followed by the entire country. And the numbers in other states are staggering in terms of what they've recognized in terms of their housing needs they want to put their one time or ARPA funding towards. So that's, that's been incredible to watch. And then the second piece is builders thrive on predictability and stable permitting and regulatory processes. It costs a lot of money to get halfway through development have a long delay, it costs a lot of money in and time that sometimes builders just walk away from or don't take the risk. If they clear path forward. At the onset of the pandemic we had that housing needs assessment I referenced on that first page and the magic number in terms of need to maintain the state's affordability to backfill units that were going offline because of aging stock was that we created about 5800 units by 2025 so again this was a snapshot in 2020 and we said in the next five years, if we just want to keep status quo and offset some of these impacts to the house, cost per households we need to create 5800 households. In a given year in non pandemic times we have roughly about $60 million in affordable housing development capital in the state that goes to a lot of different sometimes targeted specific areas. But if you take that thinking we have roughly enough to produce around 200 units year over a year of affordable housing development resources in a normal non pandemic non ARPA time period. So you can imagine that making up 5800 units when you're trying to solve that problem feels like a tall mountain to climb. So what we're excited about in s to 26 is that there is a placement of additional capital in gaps that we think were existing. That center around really touched on in terms of picking places to make investments where perhaps the work pre existing are already targeted funds, and then also supporting the statewide plan destination programs to increase predictability then still trust that projects can come to fruition. And most importantly that we're building the right buildings and the right places, because that's what we all want to say. So again, filling. We've applauded those efforts to both simultaneously make investments in areas where there are gaps, first generation home buyer assistance medicine needle and homeownership development investments, manufacturer home community needs, but we also applaud that it's being paired with the statewide destination program which we use to prioritize our investments as well. Municipal planning investments and help make and guide critical capital investments for communities. And what's really exciting is a lot of the communities are also doing this with their own local recovery funds and want to make want to make progress on on housing and other community development issues too. But here's the sobering reality of what we're dealing with in the state so that's the raw raw portion of things. Now I'm going to go a little bit more into kind of where things are at and pre pandemic we had reached what was really a near stagnation. In terms of rate of growth and our housing stock in our state point one 8% was our going great which, going back several years, we would be a couple percent positive of the number of units we're adding, and our overall housing stuff. We've chronically underbuilt housing in the state for the last couple decades, and a lack of supply has inevitably put some pressure on prices and created more affordability and cost burden issues amongst households. And there are long standing sort of institutional issues around permitting and regulatory issues I think you all have grappled with in a number of different times and then there's cost controls to happening there outside of our control, like labor and market materials. But the reality is, as a country for the first time we just hit a pretty staggering mark which is the median sales price in the United States for a home just crossed $400,000 for the first time in our history. For months not quite there but we are on our way so $400,000 was a I think a big shock to the national system about where prices are, but this curve gives you a pretty good picture of where things have been heading. And our housing market's been tight and hot since before the pandemic, but it's fanned the flames right the pressures of the pandemic have flamed the flames. So pre pandemic prices increased around two to 3% each year, but jumped 10% from 2020 to 2021. And overall have increased by 19% over the course of the pandemic. And I can tell you that construction prices have done almost exactly the same thing I'll show you a chart and a little bit that tells you where we are in terms of costs. So home prices don't exactly match up with household growth that we observed in the census. So we'll see that Chittenden County is still the highest price area and the median home price being about $385,000 for a single family home $425,000. But nearby Franklin County is also been a hot market but I think what this chart is also showing you is that the growth has been statewide. And it's the highest increases are now actually being incurred outside of Chittenden County. So I think that really bears noting for for a statewide alarm. In terms of where we're seeing that growth this is reiterating that fact right that before the pandemic Chittenden County had the greatest price increases year over year. And now the greatest price increases are outside Chittenden County, and a lot of these towns tend to have a lot of seasonal tourism attraction associated with skiing outdoor recreation and tourism. The Warren for example still has the highest median home price in the state $786,975 in 2021. But we've seen growth in a lot of what we would say is non unexpected areas if you were looking at it as a statistician, we can all make sense of it but areas like Addison, a big increase in Barry North hero ones that we would not have predicted to see such spikes in the pandemic. And that's showing out for what it's like buying home I think everybody's heard this story probably from a constituent that they go to make a bid on a home, and either there's not one there, or it's very quickly snatched up and homes move fast and that it's buyers who are using government programs who are using down payment assistance, you know we can try to address this on the demand side by equipping low to moderate income buyers to go into the marketplace and compete. But when there's this much competition for homes they're going to have a tough time getting a sales contract right frankly buyers are choosing or sellers are choosing high cash buyers, and it's making the homes move even quicker so it's down to 69 days on the market which is the lowest since 2012. Then in terms of where we are seeing growth, Vermont's population grew 2.8% between 2010 and 2020 right this has been a consistent conversation. We're ranked 40th in the nation and population growth according to the 2020 census. We're really small household size as well so the rate of growth of household size was a was a little greater. And what that means is we're, even though our rate our growth rate of growth is slow. We're still not building enough to keep up with the with the number of households coming in, because our household size are also smaller. The population is divided among more households because you have a small household size there's more two and three person then four and six person households. That means that these, the numbers of around growth can actually be a little misleading about what pressure new in influx of people coming in the community are so. And again we're seeing that statewide in terms of those pressures. And construction's just it, it's been fairly steady during the pandemic you can see that level there and we measure the success of whether or not there's confidence in the building market by a combination of how many permits are pulled and applied for. And then how many buildings actually go to start. I would say that one of the more concerning factors is we are seeing a widening gap between the number of permits that get pulled in the number of starts that actually happen. We're always curious what's the pull through rate of the people who obtain permits to actually get to a building getting built. And that's a sign that in some cases people are running into issues where they're turning around mid mid development process and saying I'm not doing this for various reason price increases or they run into regulatory challenges that they're they're concerned about. And this is certainly a cyclical slide that we're we're really concerned about to and if you talk to a builder. This just goes round and round in circles builders will tell you I can't find labor and I can't find labor because my labor can't find housing and these are builders trying to build housing. So we end up in this cycle where the other brings a great entity to call in if you want some some really good comments from a builder who's had that experience of trying to hire in trades people but not being able to find people willing to move to Vermont or lose people because they can't find housing themselves so the people who build housing. Can't find housing and that's that's a repetitive issue that comes up so unemployment rate in December 2021 was 3.3% which is down from a high 15% in April of 2020. So it's getting fairly close back up to pre pandemic levels but still not there and nationally the unemployment rate was 3.9% so we're still a little bit below that. But there are 32,490 fewer employed Vermonters working in December 2021 compared December 2029 and that's a that's a big number. So we think childcare and things like that have have impacted that as well. This was just a discussion that you all had and want to make sure to share this information with you the out of state buyers are concentrated certainly among seasonal areas. So that makes sense that we would see some of these increases occur but out of state buyers increased by 38% in 2020 so there is pressure on moving to Vermont. Understandably beautiful state and from a pandemic standpoint, people like the environment. There are 19% of the homes in Vermont there you seasonally or bake it for other reasons in 2020, according to our research and then the short term rentals, which tend to get a lot of focus. Just keep in mind that while that's that's an issue that that housing stock remains less than 2.5% of the total unit so while it's true that short term rentals can put pressures and particular market places that there is. There's also a reality that that's still a relatively small portion of the overall housing stock in the state. I can't move on without pointing out this disparity which is another startling number that the nation crossed overall is that there's now over 9.9 trillion dollars and tappable home equity available for residents in the United States and now it now supports about 30% of the typical household in the nation. And as we think about equity so we think about social and environmental justice we do think that this is this is a real called action this graph. When it comes to making sure that we're making investments that that support equity and are focused on racial and social justice as well. And that is if you have an industry and or homeownership has created such a vast amount of wealth for so so many Americans, and you have populations that have been blocked out from that. That's going to be extremely detrimental to their, so that that communities those those impacted individuals, long term economic financial health, amongst other factors and issues. I want to make sure to talk about the cost. So, we don't want it to be about cost, but the reality is is whether we want to be or not it is in these numbers I think probably shock a lot of people. But if we take a moment to think through it, the pandemic again has made conditions quite a bit worse between 2020 and 2021. The average cost of proposed development of affordable housing rental apartment rose by 9%. To 333 that $333,000 per unit in terms of development costs in early, I'll say late 2021 and when we analyzed pre applications, we're already seeing a sizable jump from 333 to 347. And now, as those same projects that expected to be 347,347,000 per unit came to us in the fall they're coming back in the spring and saying, actually we've continued to work on cost numbers and this is where we think we are $368,000 per unit being our average. And again, we conducted some work and research to understand what types of items are really putting a lot of pressure on builders and developers material and labor are absolutely the top items, but want to point out that consistently. We continue to hear back that predictable land use regulations are a real key to making sure that costs stay reasonable in the development of housing so we can be sure to hit our goals. So permitting continues to be an issue that comes up over and over again. And just because I can jump into specific portions of the bill if you'd like me to, you know, we've obviously been giving a lot of testimony related to the missing middle proposal, and also the manufactured home community proposal, and the first generation home buyer proposals. And I know you've got some great experts in the room around land use regulation and some of the other components but I want to make sure I'm conscientious of time because I know you have a busy morning community. If you'd like me to touch on any of those other specific areas or have questions or comments we should talk about. Thank you for that. Yes, you're reading my mind that so that was very, very helpful overview. I guess. I'm going to wrap my head around the, the vacancy rate in Vermont and 30 you just said 38% increase in out of state buyers. I'm not sure how many of those folks are calling Vermont home now but I guess I'd like your thoughts on, or if you know about how the rates are addressing this I know that the New York Times article was very enlightening and I did a search after that and found that the vacancy rates have really kind of escalated over time since about 1950. And I feel like we've have tax incentives in place for purchasing second homes or third or fourth homes and with thoughts on that I welcome them because I, I struggle with the notion that we have a housing shortage I understand we do we have a housing crisis in terms of homeowners needing homes but somehow that's a big piece we need to integrate into the conversation. So, you're right that Vermont is second at a lot of stuff where I believe the second, the second most rural state in the, in the country. And I believe we also have right now the second oldest housing stock, so we do have a combination of both homes that are there owned is vacation homes that aren't occupied year round but we also have just an old stock that's causing issues with, with keeping our stock the same number because those units go offline over time or become really expensive to maintain. So we hear a lot from banks that when their single family buyers are trying to purchase homes, in some cases that were previously camps that they're missing a lot of key components that help those homes be livable year round. And that in a lot of cases the homes need a good amount of work as well. So, and the range of homes that we're looking at our focus has been on with the missing middle program. The idea has been to reinvest in existing stock to. So in addition to producing new homes for example, the missing middle also allows for acquisition rehab, where a builder can acquire a home that's not in great shape, make substantial improvements to it and sell it back to the market in in at a reasonable sales price. I could also promise some follow up. We'd be happy to take a look. I want to admit to having not read that times article I've heard it referenced a few times but I have not read it myself yet. But I, we can follow up maybe with some more thoughts for you chair to on on that issue at large and see if we can put some actual Vermont data behind it. Well, I mean, it seems like we're talking about the incredible upward pressure and pricing, and yet on that pressure is coming from, I mean it has to be in large part from a 38% increase in out of state buyers we already had probably a significant number of out of state buyers so that's a, that's a big, but the one slide show that the percentage state the same. And percentage of vacancy on occupied, even, even with the increase in ownership, the vacancy rate state. People are moving. 2010 I think that's so there's must be the people are actually moving here. Well, because otherwise, yeah, so yeah. Representative, I'd like to take you up on your offer. And I'm also interested to hear how other states are addressing this. I know that even greater housing pressure, California comes to mind. New York, we heard they have lower vacancy rates. So anyway, representing Dolan's. Good morning and thank you. This is very enlightening presentation I appreciate it. I just want to mention in, I'm from Washington seven districts of the matter of a valley and experience more time included. We have for the first time now experiencing where our housing, we've passed the 50% mark in second homeowners, and many of them are actually being used for short term rentals. When, when the owners of that second or third home is not using them. So I am, I'm still concerned about that I instead of dismissing it as being only two and a half percent of the issue. In some places where we're seeing a tremendous lack of available housing that's affordable, because of the second homeowner and the short term market so I only want to flag that because I think it's still while statewide it may be substantial in some parts of the state. And we struggle with that because again get getting to your point there's no housing for people who are living and working there that can help contribute to support the vibrancy of the local economies. Representative. Sorry, I didn't know if that was a question. We do need to be sensitive to time. Sorry. Was there a question there. I just interested if you had a comment on that. I think that lines up with our, I, I would wonder how much of that has to do with the ski industry because I think that does map to what we're seeing warrens listed as one of those communities that's had the greatest pressure in terms of home prices at large. And then I would think it would probably map to that that idea that they've probably seen a higher influx of out of state buyers that that that would map and I would be curious as to how much of it was tied to this industry. Senator McCulley can be the last question says a question first and then a comment which will not need a response. 32,000 plus Vermont workers, a reduction. The question is, are those all in the trades, or is that across the board. Because that question really is directed at construction of housing. That's a really good question that I do not have at my fingertips. The last time that I had looked at it. It was trades heavy. And that I will admit to saying was back when we did our survey of builders and developers. So we had 60. 60 folks attend a forum about construction and development impact. And the feedback was that the cutoff that they were having trouble with was around $25 per hour, any trade any work that had wages below $25 per hour. They were having a near impossible time recruiting people into those positions. And this was in August September of 2021 that we held those conversations. And I think it spoke to the, they weren't having trouble with hiring architects and engineers there were there was there was nothing at that price point it was it was the labor area. Okay, thank you. That is important. And perhaps you could layer the answer on the chair's question, as you do research. And this is the comment, not requiring comment by you. I find the Vermont housing finance agency to be a reliable non political source of information data for us with recommendations even. And I find your graph that plays the political mantra of regulatory policy and permitting as being one of the monsters here. And this is troubling coming from your department, I get it from other places, but not. I'm just saying. Thank you. If I could make just a quick. Yeah, comments to that just a lot of what our job is to also talk to developers and builders in the field and report back their experiences and I do, I do want to say that that those types of comments you're right are really hard to measure. They also, we also try to when possible bring back reflections from what we're hearing from the field. And when we do the types of surveys that we do for builders to ask them about what what they're experiencing what their obstacles are. We feel like we have a responsibility to share some of that back so I respect what you're saying but and also we try to do it as empirically as possible. Thank you. Thank you so much for your testimony it was very helpful and I would like to have you back for the further comments as we get more into the bill. Great thank you honor to be here and appreciate your time. Thanks for your work. Great. With that we'll go to Chris Cochran, director of community planning and revitalization. Good morning. I'm also joined by Jacob hemorrhage, who is our director planning and policy man. Is it okay if I stand because I can see the screen I think I'm a little louder with a mask on. So, first slide. What I plan to do is just kind of give you start with this is an update on kind of where the bill is it's still in the Senate and it does face a lot of them. Give you many of you members are new I have met, not many of you but I haven't met all of you. So I wanted to tell you a little bit about the designation programs is to give you a little context but and then Jacob and I joined to go back and forth but we'll get into some of the why some of the policy changes that we're recommending here are supporting. I'm the director of community planning revitalization I think I've one of the better jobs in state government because we help communities, you know we provide them the tools and resources they need to make our communities great and strong. And then Jacob. Yeah, I'm a planning policy manager manager in the Department of Housing Community Development, I'm in some of the designation programs that we're going to talk about some grant programs support legislative work for the administration. And I've served as a local planning commissioner on my volunteer and volunteer roles as well. Yeah, I will add that he's the new new Mayor Barry to allow he hates me to mention that. Next slide please. So, like I said we work to provide tools and resources to communities, they do the work, but we're often the true leaders and kind of give them the framework to kind of make the changes we like to see in the landscape. So, I think, I think I walked a little bit of Alan's testimony yesterday a lot of these things that you're looking at in this bill of repeats from last year bills, the s one on one didn't make it across the finish line but we were, we were glad we were able to implement the bylaw modernization grants will say more about that in a second. But the root of this bill was came I think if you wanted to go back even further is s 237. This was a bill from 2020. And what it was, it was a lot of things, but I think it struck a nerve with municipal planners, because it was a preemption bill. It said, you know, look, we want to support small compact, you know, we want to support contact growth in areas with sewer and water services, but many of our communities have large lot formats and we're just not getting good value out of these areas where we'd like to see how some go. There's a strong reaction to that in the house, it passed the Senate unanimously to the house so you know, no local control we need to be able to, you know, have respect communities decisions. And it was controversial. So what a bill that came over there was 60 pages I think ended up passing about 20 pages so it made some good changes but it didn't. The preemption language language failed, but it did start struck up a good conversation with municipalities about where do we want housing to happen. What do we can we do to be more welcoming to communities to create more housing options in these desirable locations close to amenities shops resources stores, etc. And that's where representative on guards came in. He hosted a housing forum or conference in his region with representative James can meet a lot of stakeholders talk about the housing problems in his region. It's always great when you follow up and you actually want to do something to actually make a difference so we heard a lot of about the challenges. He convened a group of us stakeholders including the department, the NRC regional planning commissions and the Vermont planners Association to work on a bill that kind of responded to a memo that they had sent to many legislators about, you know, really the problem is not at the municipal level the state can make a lot of changes to the designation programs to make it easier for small towns particular to qualify for the state designation programs, particularly around housing. So that was where we started, we met several times they were great meetings, I complained to set them like I wish we could do this faster but I think we had five meetings over the fall. And we worked collaboratively to kind of narrow down the scope of their agreement on a bill that became 511. I think, what do you have 19 co sponsors in addition to you and rep James so it's well supported. Ultimately 511 didn't start in the house. It started in the Senate. So Senator Sorokin in his omnibus housing bill took in many of the provisions in each 511 it kind of rolled them into this bill. And so this is the first couple of sections that we're talking about now. Since then, you know, many of our other partners haven't weighed in on the bill VHCV via to pay the LCT and others, you know, came in and supported the bill, because we all see this as a housing crisis we're trying to solve and the bill is responsive to those concerns. The Senate also added complimentary provisions that you've seen before S101 to make it easier for communities to qualify for these designations. Right now, it's in the Senate still we expect it will go on to the floor today for second reading, several amendments are proposed I think Ellen gave you the heads up on that. The most significant one that I expect is all of us to Tim, which was the rental registry and the VHIP program to improve housing that's offline will get pulled into that bill. It's a really, it's a big monstrous, you know, omnibus housing bill that's coming your way. Third reading is probably going to be Thursday or Friday so I think it'll meet be in the house next week, maybe even sooner. Alright, any questions there, enough of a background. Next slide please. So a little bit of kind of why we do this and kind of what we've done. This is a picture Bristol from the late or early 90s. We've done close work with our partners of the Preservation Trust around beach to get others. We all recognize that this is not the image we want to project to visitors and this is not a place that says they're strong and prosperous. Next slide please. And this is what Bristol looks like today. And you know this is 30 years of hard work, a lot of state investment and what we try to do in our office is align our state funding with regulations kind of create the outcomes we need today to create strong and vibrant communities. Next slide. And this is what we want to want to see in many of our communities the pandemic has certainly set us back. But I think everybody's aching to go downtown or to their village center to meet their neighbors and convene and have fun. And this is, you know, while we don't have billboards in the state I think this is the best advertisement we could ever have for Vermont and why it is a great place to live and come to work. Next slide. We do this by focusing on a few different types of designations one is our downtowns.  And if they're strong and vital. This is what's what's helps us draw new people to the state, our businesses need people here to fill their jobs but we can't give them the housing they need to fill these positions so it's kind of this a little bit of the problem set you know it's like, we need more people but we can't house them. And until we figure out it hasn't really solved these problems. Next slide. Villages are also really important to us, but they're definitely smaller scale, you know they don't have the central business district like the downtowns do. And this is really gets at the heart of what s 226 is trying to do. We're trying to make the state designation programs particularly the neighborhood area designation easier for our small towns. So I'm going to pause there and then turn over the talking stick to Jacob answers questions. Thank you. So, Senator on hit on a point that something I've been thinking about for now, probably since the start of the pandemic if not before. There's a lot of commercial space, including offices that people may have had worked at before are never going back to because of our new paradigm. And those places are prime residential housing. And I will also say they are prime for time for active 50 because they're likely permitted through active 50. That will be an opportunity through active 50 to say some certain percent shall be affordable. What happened, how did that, Jim get taken out of the bill. I think there's still wrong. I think there's a commercial conversion provision, but there's also the downtown tax credits that can be used to convert, you know, that they can commercial building into housing. And I don't know if that works out a little bit more, but the senator seemed to think it was scrub. I don't think that's correct, but I'll double check. But I think you're absolutely right. We need people to support our shops and businesses, you know, many people are now comfortable shopping online and we need to figure out how we can get more people to our downtown areas, living full time to support our small And the owners of those projects need that kind of support. Thank you. I love questions. We don't have a bill being amended so if we can stick to a big picture that would be great. I level doesn't have to answer now but at some point in the bill talk there's an overlap between permitting for water wastewater with state and local and it eliminates as I understand the draft eliminates the state as opposed to the other way around streamlining it but still having stayed oversight so you don't have to answer it now but that's one year I'd like to get a little more clarity. Okay. Next slide Chris has talked about downtowns and villages and the next designation as we think about the bill environment is neighborhood so the various surrounding downtowns and villages and the housing crisis has really brought a lot of opportunities in these areas and creating more opportunities for people to live in and around downtowns and villages is not only an important strategy to meet our economic environment and environmental goals, but also our land use goals are smart principles so you heard Seth talk about policy alignment and as 226 really works to align state and local regulations with new funding to increase housing opportunities and choice in good locations in the neighborhood surrounding downtowns and with our convenience close to jobs libraries where transit can work. Next slide. So we have five state designations you can see there 262 right now 221 village centers, 23 downtowns, two new town centers, 10 neighborhood development areas and six gross centers. These are all created at different times over the past 25 years to address different concerns ranging from bacon and underused buildings like the picture you saw on Bristol within the downtown to housing to managing and planning for future growth so we've seen 100% increase in villages in the past five years and interest is starting to build with the neighborhood development area designation program. Next slide. Well, while many of the communities are designated a total area of the designation really quite small one, 355th of the total land area of the state of Vermont so you can see this area of the state of Vermont compared to the actual areas that are that are designated throughout the state. Next slide. If just looking at one of those designations you can see that you know the downtown designation 50% of those are in the 50 to 100 acre range and examples of Burlington designated downtown and Bristol designated downtown so when we're talking about this area. We're really talking about just the civic and commercial core of a community, not necessarily what made people might have in mind when they think about that when they, when they picture their downtown in their community. The development occurs in these compact centers they achieve really what planners refer to as location efficiency. There are places where transit can actually work because there's enough activity to sustain and support a bus stop there where people have active transportation options like walking and biking, and where they don't have to risk their life to get from there. And there were public and services and infrastructure are more affordable to deliver that helps deliver on housing affordability that's more rate payers per linear foot of waterline. That's more households to help underwrite the cost of a sidewalk. And it's and we're more school children could be clustered, help save on that fuel budget that you see in the school, the school budget each year. Next slide. And back to Chris. Hi, my name is Chris. I'm a member of Vermont Climate Council. Oh my God. I got so tired to zoom, but really important work, but there was a lot of meetings. But I was glad he was there to represent, you know, our settlement pattern and land use because it's a key component of how we're going to tackle our climate climate change, or how we're going to reduce our emissions. It's really hard to really support the compact settlements that that actually reduce the vehicle miles traveled. If you live closer to where you work or go to school, you don't have to drive as much and this committee I'm sure well knows, vehicle miles traveled are our highest source of missions in the state. After that, it's a heap of fuel for homes. So this is why the council recommended many changes to support compact settlements, and a key chief among them was the downtown and village center tax credits this is a great program that, you know, improves existing buildings in and around different areas, brings them back online uses fills us vacant upper floors. But what they recommended doing and this is what included in s226 is an expansion of the tax credits to the neighborhood areas that surround the downtown so Jake is going to talk a little bit about how these different designations work together but really the health of our downtown is really tied tightly linked to the health of our neighborhoods. I wanted to figure out how we can make improvements to the existing housing stock many of Vermonters, we all live in large homes, as said where our household sizes are very small. So how can we create more housing opportunities in these bigger buildings. So this is one of the things that the tax credits hopes to do and there's also a provision in this in this bill that creates a $5 million program for accessory dwelling units. This is one of the opportunities I think to help older people who need as another source of income to stay in their homes and create an opportunity for younger person to live in a downtown and maybe have one less car. Next slide. We all know we all talk about Vermont's traditional settlement pattern of compact centers surrounding by rural countryside. This is the picturesque Vermont that we all know and love cars kind of came on to the landscape and kind of change that. And it allowed kind of a lot of rural and dispersed housing development. That many people don't like an active 50 as we know is not a great tool to control this type of rural small scale development because of its jurisdictional thresholds. It's cheaper often to develop houses in the countryside because they don't have to deal with the same issues that you do in a center they don't have contaminated soils. They have fewer neighbors, they don't have to deal with staging and redirecting traffic they don't have to coordinate their infrastructure investment so it can be very expensive to build in these centers, and that tends to drive. The development to rural areas. And this of course, you know, increases force fragmentation and increases parcelization. Next slide please. And we, we've had research that shows that if you live in a, in a compact center you actually drive a whole lot less. And transportation is not cheap, especially these days I filled up my car tank the other day and almost paid $100. Because it's just not fun when you have to spend all your time traveling.  And you know, to the extent that we can create more opportunities for people to live in a in a downtown and village center and have fewer cars and spend less time in the cars. We can save people money and improve the quality of life. However, next slide please.  But the cost of transportation if you add into it, you know, cost of owning your car and maintaining your car and the fuel you need in your car. Often makes a downtown residence more, you know, more attainable and actually can cost the same. But the problem is, is we don't have very many opportunities. Many people would like to live in these many rich areas they're just not the house and supply issue softens up to satisfy the market's needs. Stop there and turn it over to Jacob. And then slide. So as this committee is well aware a lot of our planning framework and it was built occurred during the 1970s. And so and that includes a lot of municipal zoning bylaws there's a lot of 1970 thinking when household composition was very different than it is today, 70% of Vermont's households are now one and two person households. And 70% of households only have one or two, two people in the suburban zoning like we see in municipal bylaws around the state typically requires larger locks, wider roads mandates the development pattern that is more auto oriented in this type of zoning can also make the traditional pattern that's on the ground right now non conforming and harder to adapt over time. So many of the types of patterns limit transportation options it doesn't use our infrastructure and and land efficiently and it can certainly harm the vitality of traditional centers as it leads to a reliance on single occupancy vehicles. So many of Vermont communities continue to have single family zoning but really excited that had the bylaw modernization grants from last year's budgets rolling out right now. So $25,000 work, going to work in 41 towns who are currently updating their zoning in and around centers now that's about 20% of the total communities with zoning and subdivisions bylaws, looking for opportunities to welcome homes and open new opportunities to start locations. The Senate hopes to allocate another $650,000 to continue that program and help even more towns, adapt their municipal bylaws from some of the 1970 standards that are working against the goals that we have today. Excellent. How many towns don't have zoning and subdivision bylaws off the top of my head I guess about 20% do not have them. Because we've recently learned 128 towns are one acre towns for active 50 purposes 128. That's a lot, and often it's because they don't have zoning and subdivision bylaws I haven't dug into that yet but that's something we would like more information on. Absolutely and we can we have a one resource department maintains is a planning Atlas where we have which we update every September based on data fed to us from the regional planning commissions. There's a data layer on there that shows what we what the RPCs report out as municipalities having zoning and subdivision or unified bylaws and so you can see a map of the state of Vermont. I think it also does one acre 10 acre towns to so you can have it all in one place. I think that's what I've been looking at. So, that would be helpful though. I think over 90% have at least flood hazard bylaws to qualify for flood flood insurance. So, so you know better than I. So you may see that seven days is doing a series right now called about the housing crisis called locked out and we expect that there's going to be an article coming out shortly about the work happening with the bylaw modernization grants. There's also one that talks about this bill Senate bill 226 and how it could help create more housing and centers. Next slide. I'm going to bring this bring the message home about neighborhoods having more people living in and around villages of downtown is really critical to meeting the state's environmental goals and keeping young Vermonters here and drawing new new families and businesses to Vermont. So despite the really incredibly successful work of many of our partners to increase the supply of affordable housing in Vermont the gap between the need and availability of housing really stubbornly persist. The gap will grow without sustained increased investments in housing. So next slide. Just to break down the neighborhood development area program which is with several sections of this bill touch on. Again the downtown and Village Center designation is the core designation in the neighborhood development area builds on that by looking at a half mile radius around downtown or quarter mile radius around village centers and designating that area within walking distance to the center. Next slide. As part of this program we look at the local bylaws to make sure that they're welcoming welcoming homes in and around those centers including the density, the building designing the transportation network, complete streets and natural resource avoidance in those areas. Next slide. So the bill proposes to remove the water and wastewater infrastructure prerequisite for the neighborhood development area program. And this would make more villages working on community septic of it eligible for designation so these are just two examples. One is Jericho they're both in Chittenden County one is Jericho, one is Westford, a small village. And the next to the north of the districts. These are, this is the type of build out pattern that could, could be supported with a community septic in this unsuered village, and Westford is now has been actively working on the community septic to support development in and around their village center. Next slide. So this is, is Manchester here you can see their sewer service area map in the red area. And there were, there were areas that could have been included in the town of Manchester's neighborhood development area designation, but it was not yet within the sewer service area. And they're planning for sewer, sewer expansions, but it also would mean that there are areas that potential developers could look at. Or an in ground system to support cluster development that would be enabled by the municipal bylaws to do that compact development served by complete streets that has the density. That has the building built pattern that the program looks for in the stage prioritizing. Excellent. And the other direction. And just a, just a, here's an example of a decentralized wastewater system. Sometimes these are much more affordable than big pipe solutions and designating unsuered areas such as the bill suggests, gets the local planning framework in place to support cluster development and support that can be supported by shared septic system and these, these types of system would still remain subject to a state water wastewater permit and open more areas for pre development due diligence to invite a developer to look at those sites for prospective development. And you know what you talked about yesterday. Next slide, the river corridor and flood hazard provisions of the bill as 2026 would refine how the program recognizes what's how municipalities are regulating locally to protect for flood rally ready development. And so river corridors protecting the inner belt of the river and you can see in this Manchester case again, where the NDA has excluded the river corridor and the flood hazard area. And now I'll just add that the neighborhood development area was built right after Irene, and since that time, the agency of natural resources have developed much more robust model bylaws for responsible for respond flood ready and responsible development in those areas. And so this is an example where Manchester is working hard to try to figure out how to provide housing that's affordable to people in the 120% to 250% area media income so workforce housing in and around their village center. And this is a parcel that currently has three structures. It's, it's within the flood hazard area and they would like to pull the partnership for 40 units at the rear of that parcel, but delivering on the affordability measures is very difficult without the neighborhood development area designation. Because it's it becomes eligible for the priority housing project exemption from active 50 and our fees are kept $50. There. So those benefits help deliver affordability. The other thing that delivers affordability is that this area is already served by municipal infrastructure. There's streets, there's water, there's sewer. There, they're the typical services, municipality provides the supports that supports affordability housing affordability. Next slide. So it's not talked about, you know, right buildings right places this is an example of a building in in Winnowsky and what what this bill really gets at. I spoke to yesterday is the balance between protection of river corridors and flood hazard areas outside compact centers while allowing floods flood ready development and responsible development in centers where there's existing infrastructure and and where people can live closer to jobs and services. I do have a time constrained witness that I wouldn't mind if it would might be a little awkward but we could switch to him and then I don't think you all are as time constrained. Am I am I right about that. Someone who has to leave at 1030 and I think it'll be pretty. I'd like just just, it's a kind of a strange switch but I think it'd be helpful. So it's Graham Campbell, our fiscal analyst from joint fiscal office on a memo for us on second home stuff so sorry for the segue but I want to respect Graham's time and I also want to have a moment. Thank you Madam chair up for the record and Graham Campbell from the joint fiscal office. I prepared a presentation that it's more or less the memo that I shared with Madam chair like earlier this week about the tax things in the tax code that might benefit second home ownership in Vermont. And I've also laid out some considerations and so I'll go ahead and share that and start the slideshow here. Let's change this to this. Can everyone see this presentation so far. We can but we were seeing it as up there we go. That's good. Perfect. Okay, so I'll try to blitz through this because of my time constraints here. So, just some quick background we know that Vermont has a lot of second slash seasonal homes although the definition for these are all touch ponds is really kind of standardized across lots of different data sources and you know tax department, etc. But according to the 2020 census over 55,000 house sites were classified as either seasonal recreational or occasional use was about 16.6% of total house sites. That's, that's a classification within a source larger classification called vacant homes within the census. Bacon homes includes things like seasonal recreational occasional use homes that includes things like homes for sale, just homes that are not being lived in and other types of dwellings that are just not occupied. So just to give you a sense of how that's evolved and we all we have had a lot of vacant homes for a long time in the 2000 census about 18.2% of house sites were vacant homes. And then in the 2020 latest census about 18.6% of house sites were vacant homes so to the extent that it sort of feels very acute right now that second homes or recreational homes are crowding out the housing stock that you know could have been potentially the case back in 2000 because roughly the same percentage of total house sites were second homes. Another measure that I see site a lot is from this IPX 1031 property management firm which estimates 17% of homes of Vermont are vacation homes is second in the country after main. But the issue is that second home has so many definitions across lots of different places but generally the census definition here is just very broad it's a seasonal to temporary it's an occasional or recreational home but that doesn't necessarily mean a home that is suitable for a person or family to occupy year round so includes detached homes that you know have all the necessary requirements for living in includes, you know condos seasonal apartments at ski resorts camps lake houses cottages.  You know some of those things might not have insulation or heat or might be on a concrete slab or not suitable for all year round with the census, and a lot of the data source that I've seen classify those types of things as sort of second home so I guess my the point of this slide is to specify just because you're seeing a number that says something like 60,000 homes in Vermont are vacant that doesn't necessarily mean that all those homes are accessible for housing supply, because a lot of those are not really suitable for year round living. To give you to dive more into the tax side of things. Second homes aren't classified in Vermont in any sort of formal way. Basically the way it works is any homes, anything that is a home, a residence that is not a homestead is considered non homestead property and they pay the non homestead property tax, but non homestead. So that would include things like second homes or seasonal rentals but it also includes everything else commercial industrial business properties farms, open land timber land etc. That's considered all non homestead properties. But within all the other categories there are are all within all known homestead and non homestead there are 18 different property categorizations. So four of those are what's called R one and R two which is the residential property which R one is residences under six acres and R two is over six acres and seasonal properties seasonal properties same sort of split on acreage six acres and under over six acres. And so the first goddess to say well, look at S one and S two those are our best proxy for what a second home ownership Vermont if we wanted to do something tax wise we just identify the S ones and S twos and put the tax on them. Well, S one and S two properties are generally those that are really seasonal and deemed seasonal by the assessor of the property at the local level so you know I've been told by the tax department has these hazards have specific characteristics like a lack of insulation, a lack of heat sometimes lack of running water in the house, or toilet, they're on a concrete slab things like things that are not suitable for residential dwelling so the problem when we talk about second homes. If you have a classification for seasonal homes, things about things like residential homes and say stowe or Woodstock or others he built towns or gold towns that look and you know for all intents and purposes are homes. Those are just getting classified as residential properties there's no way to really identify those types of second homes. So, that's more or less than my, what I'm saying at the end of the slide here is the Department of taxes was asked last year to look at, you know how can we identify second homes within the tax structure, the existing property tax, and they basically said there's no way great, no great way to do it, because we don't collect that information. I think I'm missing something. Why wouldn't R one and R two capture those. Because R one and R two capture every any normal type of home. They don't, you know, so they're big. I mean if they're not, if they're non homestead, no, they're not used year round. True, but I don't, I don't know whether like R one and R two, like for instance someone might be not living in the house for one year and not file a homestead declaration in which case it would sort of look like a vacant home but then the next time they move back and then become a, a, you know homestead property so I understand the question it's I just think that the tax department does not currently set up have a great way to sort of handle all the nuances between are correctly identify what is what we typically think of as a second home that is vacant for only the purposes of a vacation or only a part time residents. Good, good morning and thank you for this presentation it's important one. What about backing it going backing up in that definition you can, you can exclude the commercial industrial businesses, farms and what you would be left with is the potential non homestead seasonal for second homes and then put the burden on the property owner to demonstrate whether it's a permanent home or not but in that way if you could separate out that non homestead category. You can then potentially use that differential and tax rate to help clarify and target away those homes that are second homes. Yeah, I understand the question. I would really encourage you all to have the tax department to come in and talk about the nuances of property evaluation but I'll give you an example of nuance here that's really difficult to pose. You know, I am a Vermont owner of a four person a four unit apartment building. Okay, and I basically I own the building but then I sell shares of that building to individuals from out of state who use those condos or apartments within the property as seasonal materials themselves. How, how would that get handled in a situation where we're trying to target second homes. So, I would really encourage the committee if they're interested to look at there to have the tax department, particularly the property evaluation review team come in and talk about some of the issues and to overview their report. Thank you so. So I was asked to look at basically whether the tax codes federally in Vermont have sort of incentives for second homes or tax benefit for second homes. And generally what I found and based on my knowledge that the federal Vermont tax goes do not have a strict definition of second home or vacation home. We're talking about the issues definition. So most of the time we're talking about the distinguishing factor is between a primary residence and then everything that's not a primary residence. And there's not something that's called that says well if you have a vacation home and here's how it gets treated etc. So, overall, there are few to know provisions and either the Vermont or federal tax code that benefits second homes relative to the primary homes so basically there's nothing in the code that says if you have a second home you get this tax incentive but if you have primary home that primary home doesn't get the incentive. What more likely you see is second homeowners can utilize the tax benefits that are available to real estate and primary residence holders in the tax code. So to give you some of the big ones here in the federal tax code the biggest one is within itemized deductions. I'm sure this menu on the committee are aware of the home mortgage interest deduction that's available for owners of primary and secondary residences but basically what it means is an individual conduct the cost of interest on their mortgage is up to $750,000 in debt. So if you have one house and you don't hit the $750,000 in debt threshold or ceiling, then you can use you can start deducting on your second home. The second thing is the state and local tax deduction where tax payers can deduct the tax is paid on a first or second home property taxes, but they're subject to a $10,000 cap and that also includes state and local income taxes and sales taxes so you know for someone with a second home in Vermont they're almost certainly going to you know likely hit the $10,000 cap and not be able to deduct the entire cost of both or the property tax cost of all. And if someone's living in Vermont then they would have to essentially choose how they want to split up that $10,000 or they want to use it for income taxes or they want to use it for property taxes on their first or seasonal homes. The key thing here that I want to flag is that these deductions are most likely probably more likely to benefit or second homers own homeowners are likely to benefit from these disproportionately because in order to itemize your deductions your most you have to have sort of higher income generally higher income households are much more likely to itemize federally and you know basically what we see in Vermont returns. And it stands to sort of more reason that someone with higher income can afford a second house and so there's no date on it but sort of theoretically because second homeowners are more likely to have higher income than low income homeowners. Then they're more likely to be able to access these deductions. And the second I want to touch upon as deductions for rental properties so someone's running a second home like a rental property aka having receiving rental income from it. They can deduct the mortgage interest cost and the taxes paid as deductible expenses under the federal tax code, and just like any other business would so don't think about it as something that's like, you know second almost second homes get this special treatment any business that has property and pays taxes would get the ability to deduct their, you know, their mortgage interest cost that they're buying sort of a an industrial building for instance or any state and local taxes paid. The third is capital gains there are two levels of treatment on at the capital gains the first is the capital gains exclusion for primary residents. It's $500,000 for married couples so if you have capital gains, if you make money on your primary residents, you sell it the first $500,000 are excluded from taxable income. If the owner lives in a second home for the past two or the five years they can claim that exclusion because then it your hope that house is considered a primary residence if it's strictly a second residence where the owner is not living in the second home they're not eligible to take that capital gain exclusion. The second is for second homeowners who do old capital gains, there are lower rates on capital gains relative to other income. So, I'm wary of my time constraint here at 1030 so I'm wondering whether I should pause here and finish up at a different time or. Yeah. Yeah, whether I should try to ask the Ways and Means Committee whether they can give me another 15 minutes. This is what it means. Maybe. Yeah, let me, let me see if I can ask Sorsha. I'm going to wait to hear back if I can continue here because I hate to stop. Where was I. So, moving on to the Vermont tax code Vermont really does not offer any sort of specific tax incentives to second homeowners that don't apply to primary homeowners on the income tax side. There's a couple that I would identify as first there's federal deduction flow through so because Vermont starts its age it's personal income tax code at AGI adjusted gross income. If a second homeowner is using that property as a business like a rental property that and deducts mortgage and tax expenses that deduction happens before adjusted gross income, and therefore that that sort of deduction flows through to Vermont. And then how that works. So we're essentially taking a line off of the federal return that asks you what your income is, but income is defined as wages salaries, you know, business income, social security, etc. And business income is net of any deductions. The second one is the capital gains exclusion Vermont Vermont sort of picks up that capital gains exclusion for the sale of primary residences. That is at the federal level so if you are excluding the sale of your primary residence from your capital gains and Vermont picks that up. And then Vermont has a specific exclusion of $5,000 that you can subtract from your capital gains for the sale of a residence if you're not if you're paying capital gains on it. So, it's not specific to second or first homes it's not specific to it's really just any capital gain that you can deduct $5,000 from your income. If you're a second homeowner and you have your paying capital gains, then you can deduct $5,000 from it from your income for Vermont. Moving on to the property tax so as I said earlier second homes are classified as non homestead property and for the property tax system. Generally we try to keep those the legislature tries to keep those rates pretty close to each other and when there are changes in the rates each year. The changes, you know the percentage change equal between homestead and non homestead to prevent distortions. So to give you a sense fiscal year 22 homesteads, the average homestead rates that why was $1 52, and it was $1 61 for non homestead property so it's not as if, you know homesteads are getting a much bigger break with a lower tax rate on average than non homesteads. The second thing is that homestead owners benefit, you know, significantly from the property tax credit and second homeowners do not because second home owners and non homestead property are not eligible for the property tax credit so in general the property tax credits a huge tax relief program for homeowners primary homeowners to vote 170 not $170 per year that's a mistake $170 million per year. So, sort of wrapping up the tax, you know, summary here. These are sort of others that I highlighted. The first is the use value appraisal program which this committee I'm sure knows a lot about. The second second homeowners with large land holdings could benefit from the use value appraisal program, but it's not really a special benefit as you know, relative to a primary homeowner so for primary homeowner has a house site and has a lot of land. They can benefit from the use value appraisal program. The ownership really doesn't necessarily matter. But we don't have any data on the number of parcels enrolled in the use value appraisal program that are that contain a house site, and it is owned by non resident owner. So it's just sort of a, we think there, this could be a tax benefit for second homeowners but it's not special for them specifically, and we don't really know what the scale is. The final one is the property transfer tax this is a tax paid on the transfer of property by deed or controlling interest when you buy a house, or by any type of property in Vermont is paid by the buyer unless otherwise negotiated the seller and the buyer, and the buyers and the sellers indicate what they intend to use the property for so I think this is a sort of, you know, a good area for use for future study about, you know, you know how many property transfers we see that go from someone who was using the house for a, for a primary residence that sells it to someone who plans to use it for a secondary residence a seasonal home. So, because that will give us a sense of whether there is housing stock being removed or being added basically if someone's taking a seasonal home and turning into a primary residence, being added or removed from the housing stock. So, basically if the transfer is using it for a principal residence they pay in a lower effective tax rate. You can see in the table below if you are using the if it's the buyer is using it for a principal residence they pay 0.5% on the first $100,000 in value transferred, and then they pay 1.25% on the value over $100,000 plus the point 2% clean water surcharge. It is not a principal residence so all other so that would include the transfer for a second home, they would pay 1.25% on the entire piece plus the the point 2% clean water surcharge on the entire purchase price of the home. So, in this case it is, it is a tax benefit to, you know, use a property for a principal residence. So, I'll wrap up here by just talking about some considerations for, you know, committees in this committee or other committees when thinking about how to tax second homes. As I said earlier the definition of a second home is very nuanced is it does it just mean a vacant home, or are we talking about vacant homes that have all the necessary requirements for living in. So, you know, there are, you know, probably close to 20,000 at least seasonal homes in the state of Vermont that are classified by the Department of Taxes as being seasonal and therefore, like, having things like no heat or not having running a concrete slide really suitable for only seasonal use. So, our, if there is a tax to try to incentivize people to put more or to bring more housing stock back into sort of the fold. Then it's important to identify what exactly the target is, because if it's sort of a broader sort of seasonal, you know, occupy versus non occupied classification then there's a good chance that, you know, this tax attacks would end up being applied to, you know, things like a cottage or a lake house or something like that that is not necessarily, you know, taking housing away from the housing stock per se. And so, if we're talking about using the tax code to help incentivize houses being brought back into sort of the primary residence fold. Do we build a new tax system to reuse an existing tax system so for looking at the property tax. I think the Department of Taxes touches upon this in their report that they published and I can send that to Lizzie for the committee to have. So probably require some sort of declaration every year of a non occupied house site, similar to the homestead declaration. So basically, someone would have to say or tell us what they're using the house for, because we under the current system. It is, there's just too many nuances to get a sense of what a parcel is being used for. So the tax is reading. But even if there is a declaration and compliance and administration are sort of issues there so how do you treat. How do you ensure that out of state residents out of state taxpayers are filing the declaration, you know, and how do we make sure that the Department of Taxes and municipalities if municipalities are going to be administering this partly. How do we make sure that they have the resources and expertise and understanding of the law to administer this type of tax. So this is the income tax and I would say that the Vermont income tax does not offer much in the form of incentives to really take away or change for for second homes most of the benefits are federal in nature and it's not like Vermont can require someone to add back a federal tax thing that they've taken because Vermont's tax code. I think to the to a positive direction is delinquent from the federal tax code. So if there was, you know, something on the income tax, it would have to be something I think relatively new, you know, something like, you know, if you have a second home in Vermont then you have to pay an extra 1% on your income tax which I think would be rather confusing and funky to to to carry out. The third is the property transfer tax and in my reading this is probably the easiest more straightforward because we know what the buyer and the seller, like right now under the current form buyers and sellers list what they're using the property for. So we have a good sense of what the houses the property being transferred is being used for. So it's kind of, we have sort of already baked in system but the issue with the property transfer tax or I don't know if an issue but it's really only collected once when the property is transferred. So if the goal is to, I guess disincentive eyes keeping a home vacant, and this wouldn't sort of do the trick, it would essentially just generate a source of revenue from people who are buying a residential home for the purposes of second home to, you know, generate money for some of this. And a quick summary of what other states do. This is this is my research. So I don't want to say this is completely exhausted but you know I've spent some time looking at this in response to madam chairs request but we could not find a state tax that is on second home specifically. So state all states really do not have a state property tax, except for really Vermont so is it would be difficult to find one even within a state context, but even within cities this doesn't appear to be or towns does not appear to be something that is that done nationally. The option I could find was Washington DC, and they leather I hire property tax on vacant properties so we're not talking just second homes we're talking any type of vacant property, vacant real property in in the city. The taxes $5 per $100 of assessed value so whereas the ordinary property tax rates about 85 cents so it's really a punitive tax for keeping properties vacant within the city. So they raise about $10 million a year from that tax. And they're the studies that they have conducted on the taxes that it's quite unclear whether this tax has actually incentivize the property owners to put their properties into use or not. A lot of people I just end up paying the tax and that's why they're collecting about $10 million and in revenue. So here, jurisdiction that I that I found that had a vacant property taxes Vancouver, British Columbia and Canada, they have a vacant property tax of 3% on the value of the home that is not a primary residence. And as I similar to what I suggested earlier, in order to determine whether this is not a primary residence every year, the owner of the property has to declare whether the house is a primary residence or not. If it's not then it pays the 3% value. And again the studies on this vacant property tax have been pretty inconclusive as to whether it is has affected prices in Vancouver as I don't know if this committee is aware but Vancouver is one of the most expensive housing markets in the entire world. And the studies on this have have not been conclusive to find that whether this has helped mitigate the price increases by bringing on more supply of single family and apartment come dwellings to the supply of Vancouver. So, that's all I have. I've gotten to go ahead to come to ways and means when I have time so when I'm done so if there are any questions I can answer them now. Thank you for that. It was very helpful. Do members have questions for Mr Campbell. I'm just curious, what was the rationale or what is the rationale for that five going back a few slides that $5,000. And on this transfer taxes, the first 5000 or whatever that was capital gains. Yeah, what's the ration out for that. So, um, so I should say that that capital gains exclusion is in Vermont I only said the 5000 it's actually two parts, it's $5,000, or 40% of the capital gains if the capital gains come from the sale of a property, a farm or timberland. And so the reason for that statute the statutory purpose is there's three parts one is to tax, or to incentivize and saving savings and investment in Vermont. The second is to prevent, you know, the impacts of a one time big sale of capital gains on someone's tax so you say you're making $50,000 a year you own a business or some of that you sell it, and all of a sudden your income spikes to one year, and that puts you into a higher rate bringing you back into a more normal position. The third is to mitigate mitigate the portion of a capital gain that might be due to inflation. So capital gains are not indexed to inflation at all. So if you bought an asset in 1900 and it didn't increase in value at all but you were just getting inflation you'd be taxed on that. It's just the inflation side so it helps mitigate that more historically that capital gains exclusion I think is more of a relic from what Vermont's tax code previously used to be Vermont's tax code used to be just 24% of the federal tax liability. So federally there is the incentive for capital gains of the lower tax rates. And so when Vermont sort of decoupled from the federal tax code this was sort of our way to keep that federal benefit in the Vermont tax code. So over the, when that switch happened it used to it was originally just 40% of all capital gains could be excluded. And over the years, the General Assembly has sort of whittled away at that capital gains exclusion. So it is now the where it's either you take $5,000 on any type of asset, or 40% of the capital gain. If it's the sale of timber farm or investment property. Thank you very much. Thank you. We need a break. And I'm going to need to check in with our witnesses and make a plan. So let's take a minute break.