(c) Housing Assistance Council, July 1998

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III.  CASE STUDY: VERMONT

The 1990 Census placed Vermont’s total population at 562,758. The population of Vermont’s rural counties was 385,699, and the population of the state’s remote rural counties was 52,289. The state had 210,650 occupied housing units, of which 145,867 were in rural counties. Remote rural counties had 19,196 occupied housing units. Rural residents of Vermont accounted for 68.5 percent of the state’s population, and residents of remote rural counties made up 9.3 percent of the state’s total population and 13.6 percent of rural residents. Rural occupied housing units were 69.3 percent of the state’s housing stock, and remote rural counties had 9.1 percent of the occupied units.

In Vermont, 71.1 percent of people living below poverty reside in rural counties. Vermont’s 1990 poverty rate was 9.5 percent. The poverty rate for rural counties was 9.8 percent, and 10.3 percent in remote rural counties. While the state’s substandard housing rate was relatively low overall at 2.5 percent, substandard housing was more of a problem in rural counties. The substandard housing rate in all rural counties was 2.7 percent, and 3.7 percent in remote rural counties. In addition, 75.6 percent of the state’s substandard units were located in rural counties.

The Vermont Housing and Conservation Board (VHCB) administers the state’s HOME program, under an agreement with the state’s Department of Housing and Community Affairs. In its administration of Vermont’s HOME program, VHCB has awarded a large proportion of its funds to rural areas. The HOME database indicates that 72.9 percent of the state-awarded HOME funds went to rural areas from 1992 through 1995. Rural HOME funding totaled about $6 million in that time, and projects in remote rural counties received over $850,000. Remote rural counties thus received 8.1 percent of all HOME funding and 14.3 percent of the HOME funds reaching rural areas. From 1992 to 1995, rural areas have received 57 percent of all HOME-assisted units, and remote rural counties accounted for 9 percent of all HOME units in the state and 16 percent of rural HOME units.

VHCB staff observe that a large portion of the state’s housing stock is more than 50 years old. Much of the older housing stock needs rehabilitation. The New England region as a whole also has high land and housing costs, which are exacerbated by high utility bills. Much of the older housing stock, even if in good condition, requires additional weatherization.

Program Design

Vermont has awarded approximately $3.5 million in HOME funds each year since the program’s inception. The city of Burlington receives $500,000 of this amount each year, with VHCB administering the remaining $2.7 million statewide, $300,000 of which is VHCB’s administrative fee. The state used to have a rolling application process, where award decisions were made about every six weeks as applications arrived. VHCB now uses a competitive processfor awarding funds, with applications taken once each business quarter.

Project applications must meet certain threshold criteria to receive HOME funds through VHCB. The most important criterion is that each project must remain affordable in perpetuity. Applications are also ranked on the basis of project readiness. Site control, permits, financing and other predevelopment activities must be completed or near completion, so that the proposed project may be completed within six months of receiving HOME funds. If a project cannot demonstrate readiness, then its application is deferred until the next funding round. The state also has six funding priorities, which include demonstrated need in the community for the type of housing project proposed, serving households with incomes less than 30 percent of area median income, and historic preservation. VHCB staff noted that one of the most significant funding priorities is that a project contribute to downtown or neighborhood revitalization. This means that rehabilitation is a state priority over new construction, unless the new construction is infill housing or contributes towards cleaning up a blighted neighborhood.

Applications are also ranked on more project-specific criteria. Projects which leverage funding sources in addition to HOME receive points in the application process. The capacity and housing development record of the applicant is a consideration, as is the applicant’s record in housing management. Collaborative efforts between organizations are considered in rating applications, as is community support for the project. Resident involvement in the development and management of a project, and limiting displacement in the proposed project’s vicinity are also application considerations. Further points are awarded if the project is located in a village area or compact growth center accessible to municipal infrastructure. Since one of the priorities of VHCB is to revitalize decaying village centers, this is an important criterion.

Vermont does not designate rural low-income residents as a special needs population. The state does, however, recognize very low-income residents and disabled residents as special needs populations. Projects which serve these groups receive points as part of the application process.

Vermont has established a CHDO setaside of 15 percent of HOME funds in accordance with the federal statute authorizing the program. In practice, however, CHDOs receive the bulk of the state’s HOME funds. Approximately 75 percent of the state’s funds are awarded to CHDOs. The state has also set aside $150,000 of each year’s HOME funds for CHDO operating capacity grants. CHDOs in Vermont meet regularly, and VHCB has supported development of a strong network among the state’s nonprofit housing organizations. Through their organization and the state’s investments in nonprofit capacity building, CHDOs have become strong candidates in the HOME application process.

VHCB staff do a site visit with each organization that expresses interest in submitting an application for HOME funding. VHCB staff evaluate the readiness of the projects and help the organizations address any potential shortcomings with their applications. Nonprofits have indicated to VHCB staff that this regular technical assistance as part of the application process plays a large role in the success of rural nonprofits in accessing HOME. Early feedback on the status of proposed projects for HOME funding allows nonprofit housing organizations to address any concerns that might lower their points in the application process before an application is submitted. If a group cannot be ready with an application in the present business quarter, they correct problems with their development timetable so that an application may be made in the next funding round. This relationship between VHCB and the network of nonprofit housing organizations in the state allows less experienced groups serving rural areas to access HOME without extensive staff expenses.

Program Use

Because of the preapplication screening of proposed projects, VHCB has not received any applications that were not funded. In FY1994 and FY1995, 28 projects were funded. In FY1996, 13 projects received awards, while 11 applications were received in FY1997 at the time this research was conducted.

According to VHCB staff, rehabilitation of small multifamily rental developments is the most common project for which funding has been requested. Rehabilitation projects, whether for multifamily or single-family housing, are a priority, especially when tied to revitalizing village centers. Vermont has also funded the rehabilitation of mobile home parks. Vermont allows residents of a mobile home park to designate a nonprofit housing organization as a new owner. The nonprofit then purchases the park and upgrades the infrastructure. HOME funds are accessed by the nonprofit housing organization, which then uses these funds to rehabilitate and upgrade the mobile home units. Since 1992, 10 mobile home parks around the state have been rehabilitated in this fashion with HOME funds.

HOME data for Vermont show that the state has supported moderate rehabilitation of 81 units in rural counties, substantial rehabilitation of 257 units, and new construction of nine units from FY1992 through FY1996.⁹ Thus, rehabilitation of existing units accounts for 97 percent of HOME-assisted units in the state. More funding has gone to substantial rehabilitation projects than to moderate rehabilitation projects. VHCB has awarded $1.3 million for moderate rehabilitation activities, and $6 million for substantial rehabilitation. Moderate rehabilitation accounts for 16.8 percent of state HOME awards, and substantial rehabilitation has received 77.7 percent of HOME funds. Rental rehabilitation accounts for 86 percent of the combined moderate and substantial rehabilitation units.

In Vermont’s rural counties, 97.1 percent of HOME units are owned by nonprofits and 2.9 percent are owned by individuals. According to VHCB staff, this individual ownership represents low-income owners of mobile homes sited on rented spaces in mobile home parks rehabilitated and owned by nonprofits. These figures reflect the strong network of rural CHDOs, nonprofit community organizations and community land trusts active in the state.

HOME has been used in conjunction with a variety of other affordable housing funding sources. VHCB staff note that many projects that receive HOME also use Low Income Housing Tax Credits (LIHTC) or Historic Preservation Tax Credits (HPTC). Many applicants have also worked closely with town officials to secure Community Development Block Grant (CDBG) funds. Two projects have incorporated funding from the Federal Home Loan Bank’s Affordable Housing Program (AHP). A few projects have used bank financing in conjunction with a HOME award, or a low-interest five-year loan from the Vermont Community Loan fund. The most common source of funding used in conjunction with HOME funds is money from the Vermont Housing Trust Fund. Almost every HOME award has also received funding from the state housing trust fund, also administered by VHCB, which then functions to fulfill the state’s HOME match requirement. Since the state uses the trust fund as the match for its HOME allocation, applicants are not required to obtain a local match in making their applications.

The HOME program has not experienced any significant changes in Vermont since the program’s inception. A program change under consideration in FY1997 involved efforts to streamline the paperwork involved in making HOME applications. More specifically, VHCB staff were developing a consolidated cover sheet and budget forms for HOME and state housing program applications. If a project requires state housing trust fund and HOME dollars to carry it through, the applicant would fill out one cover sheet to be used for both applications, but will have to fill out a separate application for each funding source. Nonetheless, VHCB staff felt this would reduce the amount of redundant information that would have to be provided by an applicant. VHCB staff saw this as the first step in the process of developing a consolidated application for all state affordable housing finance programs. The goal is to reduce the time and expense incurred by groups applying for funds from multiple sources such as the state housing trust fund, LIHTC, CDBG and HOME.

VHCB staff feel that the network developed by the state’s nonprofit housing organizations and CHDOs has helped strengthen local affordable housing development. By working collaboratively and sharing information regularly, Vermont’s nonprofit housing groups have been able to generate a strong pool of HOME applications. The Brattleboro Area Community Land Trust (BACLT) is one such organization, and has received a number of HOME awards which it has used to provide over 200 units of affordable housing in southeastern Vermont.

Brattleboro Area Community Land Trust

BACLT was incorporated in 1987. The organization serves Windham County, except for the towns of Bellows Falls, Saxton’s River, Grafton, Londonderry and Westminster. BACLT has rehabilitated 148 rental units, 22 mobile home lots, and 34 single-family homeowner units. The majority of the units are located in or near Brattleboro. Most of BACLT’s work has focused on rehabilitation of rental properties, but the organization also manages projects and is involved with a Vermont program to assist moderate-income homebuyers with the acquisition of existing single-family homes. HOME and state trust fund dollars have so far been used by BACLT almost exclusively for rental rehabilitation, with a focus on revitalizing the town center of Brattleboro.

BACLT has four full-time housing staff, and one part-time person. The housing staff includes the executive director, a property manager, a financial manager and a maintenance supervisor. There is also a part-time bookkeeper. The financial manager is responsible for preparing the organization’s financial statements, managing the group’s accounts and payroll, submitting requisitions for rehabilitation awards and assisting the executive director in preparing applications for state housing programs.

BACLT relies on a number of funding sources to cover its housing activities. The group receives approximately $56,000 in annual fee income, derived from rental property management fees. Lease fees for single-family units that are located on leased land provide approximately $9,000. BACLT has also received approximately $45,000 in developers fees from the Vermont Housing Conservation Trust Fund. Additionally, the organization has received a CHDO Capacity Grant from VHCB in each of the last four years, CHDO technical assistance pass-through funds of approximately $18,000 from HAC, United Way contributions of about $6,000 per year, donations of $7,000 annually, and interest income between $3,000 and $5,000 each year. BACLT has received 10 HOME awards from 1992 through 1996.

The organization has also used a variety of funding sources in conjunction with HOME. BACLT has always received funds from the state housing trust fund in combination with its HOME awards from VHCB. Additionally, the group has used CDBG and AHP funds in some of its HOME projects. A number of projects have used Low Income Housing and Historic Preservation Tax Credits. Most often, HOME funding is sought prior to applications for other funding sources. In most cases, then, BACLT has used HOME awards to leverage other affordable housing funding sources. The exception to this pattern is when tax credits are sought for projects. In these cases, the organization will secure its tax credit allocation before submitting a HOME application to VHCB.

BACLT staff note a number of challenges to using HOME in a rural area. Land and development costs are very high throughout much of New England, with high property taxes and utility costs having a significant impact on the rents charged for affordable units. It has been difficult to secure financing packages that allow rehabilitated rental units to have rents affordable to residents with less than 50 percent of area median income. This goal is made more difficult because BACLT includes heat and hot water in all of its rents. Additionally, BACLT has had to rehabilitate many smaller projects, because the rural nature and limited rental market of the service region makes it difficult to do projects with large numbers of units that are geographically concentrated. This means that BACLT cannot take advantage of the cost savings possible through economies of scale.

BACLT staff also observe that VHCB provides a significant amount of technical assistance in preparing HOME applications, performing site visits and evaluating the competitive status of proposed projects in the current application cycle. The relationship with VHCB was described as "very supportive," and BACLT staff observed that VHCB performance of program monitoring duties has provided a number of suggestions that have strengthened BACLT’s organization.

Rural Challenges and Improvements

VHCB staff note a number of challenges to using HOME in Vermont’s rural areas, and noted one program change made by HUD that has made the program much more accessible for rural housing organizations. VHCB staff praise HUD’s elimination of the "four block" requirement in the HOME application. This regulation stated that in order for units to be considered a single project and be covered under the same application for funding, they must fall within four blocks of one another. This regulation had posed a significant burden in rural areas with housing scattered throughout the open countryside. Affordable housing groups were having to make multiple HOME applications for rehabilitation work that was being coordinated as a single project. With the elimination of the regulation, smaller rural groups no longer have to spend significant staff time preparing multiple HOME applications for a given project. This also reduced the need to devise complicated construction contracts and disbursements for each scattered site in a project.

Many of Vermont’s rural housing organizations have limited financial and staff resources, especially in terms of obtaining administrative and operating funds. Many groups, particularly in remote rural areas, are struggling to maintain their current staff positions. Another challenge is the high cost of VHCB staff management and project coordination associated with serving remote towns. However, VHCB and Vermont’s nonprofit network have been able to address this problem because of the strong representation of housing organizations from each region of the state. By coordinating resources and cooperating in developing area-specific project proposals, remote areas have still been served through HOME. Additionally, VHCB has only two full-time staff positions devoted to underwriting and program monitoring. They have struggled to maintain the close personal contacts valued by the state’s nonprofit housing groups, given their focus on site visits and extensive technical assistance and the limits of what two staff people may be able to do.

BACLT staff feel that some changes would make the HOME program more accessible to rural housing organizations. BACLT must maintain large cash reserves during the construction phase of rehabilitation projects to cover contractor requisitions, because the disbursement formula for drawing down their HOME awards does not always match the timing of contractor requisitions. BACLT staff would like to have the disbursement formula adjusted so that they would limit the risk of cash shortfalls during rehabilitation. BACLT staff also observe that even with the combination of HOME and other affordable housing funds, the organization has had great difficulty serving households with incomes less than 30 percent of the area median. While making no specific suggestions concerning this issue, BACLT staff hope to address this problem with VHCB staff and other CHDOs in the state.

VHCB and BACLT staff both feel strongly that the key to the success of HOME in Vermont’s rural areas rests with the strong nonprofit network that has been developed. Nonprofit housing developers from around the state meet twice a year with VHCB staff. The state’s affordable housing coalition meets monthly. Approximately two-thirds of HOME grantees are Community Land Trusts, and the state’s Land Trusts meet monthly as well. While meetings may consume staff time, the cooperation and coordination facilitated by this statewide network has allowed nonprofit housing developers to serve most of the state’s rural areas.

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