Finance

VLCT Launches CHIP IN VT to Help Local Governments Finance Infrastructure for Housing

Member for

3 years 7 months

Submitted by iminot@vlct.org on Tue, 03/10/2026 - 15:34

The Vermont League of Cities and Towns (VLCT) has launched CHIP – Invest in Vermont (CHIP IN VT), a three-year initiative designed to help municipalities use Vermont’s new Community and Housing Infrastructure Program (CHIP).

CHIP is an innovative financing program that has potential to help communities fund the infrastructure improvements they need to support new housing — without raising broad based property taxes. While CHIP creates new opportunities, implementing it will require more staff hours and technical expertise than many of Vermont’s towns, cities, and villages have. VLCT has designed CHIP IN VT to help close this capacity gap by providing local governments with practical training, tools, and ongoing technical assistance.

“Communities across Vermont are ready to address housing needs, but infrastructure costs and limited local capacity often stand in the way,” said Ted Brady, Executive Director of VLCT. “CHIP IN VT will give local leaders the knowledge, resources, and confidence they need to make good use of the funding opportunities that the legislature made possible with CHIP.”

CHIP IN VT offers learning pathways tailored to meet the specific situations of interested municipalities. Local officials will have access to educational sessions, cohort-based learning opportunities, and technical assistance in addition to a growing library of tools, templates, and guidance. Over time, participants will build the skills and relationships needed to evaluate project feasibility, prepare strong CHIP applications, and manage the long-term responsibilities that CHIP requires.

“Local officials are juggling many priorities, and complex financing programs can feel overwhelming,” said Katie Buckley, Director of Municipal Operations Support at VLCT. “CHIP IN VT is designed to make CHIP easier for communities of all sizes to use – so they can take advantage of this historic opportunity to grow their housing supply.”

By strengthening municipal workforce capacity, CHIP IN VT aims to accelerate infrastructure investments that not only make housing development possible but also support economic growth and help communities plan for long-term sustainability.

Learn more about CHIP IN VT at vlct.org/CHIP. Learn more about Vermont’s Community and Housing Infrastructure Program (CHIP) at accd.vermont.gov/economic-development/vepc/chip.

CHIP IN VT is an effort funded by a $500,000 (70%) grant from the Northern Borders Regional Commission, a $200,000 (28%) grant from the State of Vermont Agency of Administration and a $10,000 (2%) contribution from the Vermont League of Cities and Towns.

Without this funding VLCT would not be able to offer this assistance to its membership which consists of towns, cities, villages, counties, housing authorities, solid waste districts, fire districts, regional planning agencies, communications union districts, and other political subdivisions of the State of Vermont.

Model Capital Improvement Plan and Capital Budget Policy + Guidance

The capital assets of a town and their condition are critical to the quality of services that a municipality can provide. Capital asset expenditures can be more controversial than other expenditures because they typically involve large sums of money, sometimes raised through debt, and not every citizen will agree as to the necessity of each project undertaken. By using a well thought out capital improvement plan, a town can plan for the replacement of assets, potential reserve funding, operating budget impacts, and debt service.

Vermont law provides for adoption of a “capital budget and program” in 24 V.S.A. § 4430, and encourages that the capital improvement plan (“program”) conforms to the municipal plan.

Capital improvement policies need to be general and flexible enough to accommodate a community's political will, while still providing enough structure to support sound financial choices. Determining the criteria for selecting projects in advance, rather than debating them project by project, takes much of the emotion out of the selection process.

Consider the following when developing a capital improvement policy:

Capital Improvement Plan. The basis of any capital improvement policy is the capital improvement plan (CIP), a multi-year projection, covering at least five years of the town's capital needs and available financial resources. Vermont law sets five years as the required minimum; many towns plan further ahead, VLCT's own capital planning resources describe multi-year plans commonly spanning five to 20 years, particularly useful for infrastructure with a longer useful life, such as water and sewer systems. The purpose of the CIP is to build consensus on the town's most important projects (including asset renewal or maintenance), so those projects are undertaken first rather than those suggested by whoever has the loudest voice in the room in a given year. The policy should include the criteria used to prioritize projects, health and safety, legal compliance, asset preservation, service delivery, hazard resilience and available outside funding are common starting points, and a capitalization threshold, the dollar level above which a purchase is tracked as a capital asset and planned for through the CIP rather than treated as an ordinary operating cost.

Asset Management. A capital improvement plan is only as good as the town's knowledge of what it already owns. Maintaining a basic inventory of capital assets, along with periodic condition assessments, helps a town catch a failing culvert or an aging truck while there's still time to plan and budget for it, rather than after it fails.

Project Funding and Financing. In capital planning, it's useful to distinguish two related but distinct tools for paying for a project. Funding is money that doesn't need to be repaid, grants, budget appropriations, impact fees, reserve funds, and unassigned fund balance. Financing is money that is borrowed and repaid over time, typically through a general obligation bond or a state revolving fund loan. Most small capital projects rely on funding alone; financing enters the picture once a project is large enough that the town needs to borrow. As of July 2025, Vermont towns may also maintain an unassigned fund balance under 24 V.S.A. § 1585, a more flexible complement to purpose-restricted reserve funds under 24 V.S.A. § 2804. The policy should identify a project's funding sources and, where financing is needed, its financing method, including the type of debt obligation and the period of probable usefulness (the maximum term state law allows based on the asset's expected useful life) on which it's based.

For more information on capital planning:

VLCT's Capital Planning resource page.

Vermont Bond Bank’s Road to Resilience: Town Highway Disaster Reserve Benchmarks

Vermont Land Use Planning Implementation Manual, published by the Vermont Land Use Education and Training Collaborative.

Disclaimer: This resource was created by Municipal Operations Support (MOS) staff of non-legal professionals with expertise of the subject matter. It is only intended to provide information and does NOT constitute legal advice. Readers with legal questions are encouraged to contact an attorney. The use or downloading of this resource does NOT create an attorney-client relationship and will not be treated in a confidential manner. Non-legal questions about this resource can be directed to MOS staff at mos@vlct.org.

Publication Date

03/03/2026

Capital Planning

Planning for Today and Tomorrow

Capital planning helps towns prepare for the future. It’s a way to make important decisions about big projects - like fixing roads, building a new highway garage, or replacing water pipes - before problems happen. Taxpayers often ask, “Why plan so far ahead?” The answer is simple: planning saves money, reduces costly surprises, and helps the town prepare for emergencies – from sudden repairs to natural disasters. A capital plan makes sure tax dollars are used wisely, and the town doesn’t promise more than it can afford.

What Is Capital Planning?

A capital plan is a long-term guide for big investments like buildings, roads, equipment, and land. It helps towns know what they own, what needs fixing, and what they’ll need in the future. Capital projects take time and money. Planning helps make sure they’re done right.

What Capital Planning Does for Taxpayers

Saves Money Over Time: Planning helps towns buy and repair things at the right time, avoid emergency repairs, and get better interest rates when borrowing.
Protects What You’ve Paid For: Roads, buildings, and equipment don’t last forever. Capital planning makes sure they’re repaired or replaced before they fail.
Plans for Asset Life: Planning helps towns avoid surprise costs. Using yearly wear and tear, towns can decide when to repair or replace and save money by looking at the full cost over time.
Keeps Taxes Stable: By planning ahead, towns can spread costs over time and avoid sudden tax increases.
Finds More Funding: With a plan in place, towns can apply for grants to help pay for projects - less money needed from local taxes.
Sets Priorities: Not every project can happen at once. Planning helps decide which projects matter most to the community.
Avoids Costly Mistakes: Planning helps towns avoid last-minute decisions and budget problems. Without a plan, projects may cost more or miss long-term needs.
Gives Residents a Voice: The capital planning process gives you a chance to weigh in. Should the town focus on plow trucks or wastewater upgrades? The plan opens that conversation.
Improves Transparency: Residents can see what’s coming, give input, and prepare for things like road closures or construction noise.
Builds Trust: A clear plan shows that the town is thinking ahead and using money responsibly.

How It Works

Towns take stock of what they already own – buildings, roads, vehicles, equipment, utilities, land, and other assets – and its condition.
They look 5 to 20 years ahead to decide what needs to be built or fixed.
They figure out whether the project needs to be done in stages or all at once so major steps like design, permits, and construction can be included in the project cost.
They figure out how to pay for each project or step. Should the town use cash from the town budget, previous savings, grants, special taxes, or borrowing?
Plans can change if needs or costs change. Flexibility is built in because the legislative body (Selectboard, City Council, etc.) looks at the capital plan every year when they prepare a budget.

Planning Pays Off

Capital planning is like using a map - it helps the town avoid wrong turns, save money, and reach its goals. It’s not just about buildings and roads; it’s about making sure the community stays strong, safe, and equipped for tomorrow. Planning doesn’t mean spending more money. It means spending money wisely. Without a plan, the town risks wasting money, missing out on grants, and falling behind on basic services. With a good plan, the town stays resilient, stable, and ready for whatever comes next.

VLCT has a robust list of resources to help with capital planning. Whether your municipality is just thinking about it or is ready to take it to the next level, we are here to help. And as always, if you need a human to help you navigate, don't hesitate to ask us! Email the Municipal Operations Support Team: mos@vlct.org.

Publication Date

03/03/2026

CHIP IN VT One-on-One Technical Assistance

Need One-on-One Help Understanding CHIP or Advancing Your Efforts? *

If so, meet with VLCT's Project & Funding Specialist! Whether you are just in the idea phase, have started to gain momentum, have a housing or infrastructure project defined, or are ready to submit a CHIP application, let us help you. We will talk with you about your CHIP project, initiative or problem to help you:

Understand how CHIP works and whether it's a good fit,
Identify infrastructure investments that could unlock housing development,
Plan projects that are financially and operationally sustainable,
Prepare strong CHIP applications,
Navigate financing, compliance, and long-term program responsibilities, and
Learn from peers and statewide experts.

Whether you’re just learning about CHIP or moving your infrastructure project forward, you can schedule a convenient time to meet with our Project & Funding Specialist by booking time directly into her calendar or emailing bwaninger@vlct.org.

* Member-Only Service

This service is available only to individuals who hold an official role (selectboard, town manager/administrator, clerk, treasurer, planning commissioner, assessor, etc.) with a VLCT member.

Publication Date

02/20/2026

February 17: Special Funding Proposals – Opioid Abatement, Appraisal, and Town Highways

Member for

3 years 7 months

Submitted by iminot@vlct.org on Tue, 02/17/2026 - 10:47

Given the constrained state budget this year, we thought lawmakers might be open to discussing municipal revenue streams, and, oh boy, are they ever. The good news is that some committees are open to exploring new non-property tax revenue ideas. The bad news is that the appropriations committees are discussing new ways to spend local monies.

In this Weekly Legislative Report, we discuss proposed appropriations from the Opioid Abatement Fund and PILOT Special Fund, announce a new proposed municipal revenue authority for town road spending, and provide an update on the ongoing debate about the timing for implementing Act 181.

The House is expected to take action later this week on H.660, an act relating to fiscal year 2027 opioid abatement special fund appropriations.

Revenues to the opioid abatement special fund come from a number of negotiated settlement agreements with pharmaceutical companies and pharmacies understood to be at fault in the national opioid overdose crisis. Recommendations for how the state should spend its share of these settlement monies annually are made by the State Opioid Settlement Advisory Committee (OSAC), which includes seven members appointed by VLCT to represent local interests. The OSAC recommendations for FY27 are available here.

The appropriations for FY27 made in H.660 total $6,317,277 (including prior year adjustments) and are generally in line with the committee’s recommendations, and include:

Annual funding to Vermont Department of Health (VDH):

$455,000 for outreach and engagement: funds 26 outreach/case management staff in preferred provider network

$1,600,000 for VARR‑certified recovery residences

$850,000 for syringe services programs

One-time funding for existing programs:

$1,100,000 for peer recovery coaches at the Deptartment of Corrections

$250,000 for homeless shelter harm‑reduction supports with the Office of Economic Opportunity

$900,000 for new recovery residence beds (via VDH) and $300,000 for new NARR‑certified beds in Brattleboro, Middlebury/Addison, Randolph, Chester, St. Albans, or other identified regions

One-time funding for new programs:

$248,000 for EMS Buprenorphine PREVENT Program (via VDH) to expand EMS training to administer buprenorphine after naloxone

$35,000 for Rutland Mental Health Services transitional housing room & board subsidies

$237,646 for Springfield Project Action – a Public Safety Enhancement Team – to support coordinator positions in Bennington, Springfield, Brattleboro, St. Johnsbury, and Central Vermont (via VDH)

$288,935 for Elevate Youth Services (Barre) for a low‑barrier drop‑in teen center

$124,999 for Greater Falls Connections for expanded youth engagement, staffing, and prevention programming space

$200,000 for Friends for Change (Windham County) for youth access to therapy, crisis, housing, medical, recovery, and employment supports

$26,697 for Winooski Partnership for Prevention for medicine‑safety education for elementary‑aged youth

Last week the chair of the Senate Committee on Transportation, Senator Richard Westman, revealed a new outside-the-box proposal to help municipalities fill transportation funding shortfalls.

In Governor Scott’s proposed budget, total proposed “Town Highway” program aid is down by over $7 million, or -7.3%, from $96,665,344 in FY26 to $89,648,226 in FY27. As we reported in our Legislative Preview, the overall $30 million revenue gap in the state Transportation Fund is made even more concerning as transportation construction and paving project costs have risen by 40-60% over the last five years.

The Senate proposal includes a new municipal authority to assess a “Local Option Municipal Services Tax”. The new taxing authority would work like a 1% Local Option Tax (LOT), but the portion retained by the state would be dedicated to a new “Local Option Municipal Transportation Special Fund” instead of funding going to the Payment In Lieu Of Taxes (PILOT) fund. In the current draft language, first introduced on Wednesday, February 11:

Municipalities would be allowed to hold a vote to impose an additional 1% local option tax on one or more of the currently allowed taxes (Rooms, Meals, Alcohol, and Sales).

50% of the collected tax would be returned to the municipality without charging an administrative fee (whereas the current Vermont Dept of Taxes LOT fee is $5.56 per return).

40% of the collected tax would be deposited into the new Local Option Municipal Transportation Special Fund and that fund would be used solely to provide state transportation aid to municipalities.

10% of the collected tax would be deposited into the PILOT fund.

Future disbursements from the Special Fund would be in addition to the existing statutory minimums for Town Highway Aid funding.

$3 million would be appropriated from the FY27 PILOT fund to the Agency of Transportation to provide additional grants through the General Sate Aid to Town Highway program.

Since the start of the session, we have said we would support any effort to address this year’s transportation fund budget shortfall and minimize its effect on municipalities. VLCT is always supportive of efforts to grant new municipal revenue funding authority. This proposal might not be perfect, but it’s a good place to start!

We will be working, over the next few weeks, with both transportation committees to suggest improvements and maximize the municipal benefits in this proposal. Stay tuned and give us your thoughts at jhanford@vlct.org and ssheehan@vlct.org.

According to the state’s FY25 end-of-year Special Fund Report issued in November, the PILOT Special Fund (SF#21485) has a surplus of more than $15 million. This money is from local revenues generated by Local Option Taxes (LOT) on meals, rooms, sales, and alcohol and retained by the state for the purpose of making annual Payments in Lieu of Taxes for state-owned buildings and lands.

As the PILOT surplus has grown over the last two years, VLCT has held concerns that legislative appropriations would rob the special fund for non-municipal purposes or priorities – and has advocated that the surplus be returned to the more than 30 municipalities that raised it.

In the governor’s FY27 budget, he recommends that $3.5 million of PILOT surplus be used for the state expenses related to property appraisal and the equalization study which is used to set the state education fund property tax rate. The House Committee on Appropriations agreed with this $3.5 million in their version of the budget, and doubled down, taking another $3.5 million for the same purpose in their FY26 Annual Budget Adjustment (BAA), which has passed the House. These appropriations would use half of the available PILOT Special Fund surplus for the purpose of setting the statewide grand list.

Municipal leaders understand the acute budget challenges facing state appropriators this year. As state property taxes have increased more than 40% over the last five years, local budgets have suffered under the same driving budget pressures including the rising cost of health insurance and other benefits, high interest rates, sustained inflation, and increased salary and professional costs from a diminishing local workforce. That is why so many more towns are voting on create or add a Local Option Tax at their town meeting this year. Waitsfield, Milton, Swanton, Chester, and Morristown will consider LOT adoption. The town of Stowe will take up a charter change that would establish a unique 2% LOT authority.

Local Option Taxes are one of the rare non-property revenue authorities that Vermont municipalities can use to alleviate the ever-growing property tax burden on Vermont families and businesses. VLCT objects to appropriation of the existing PILOT Special Fund surplus for annual payments to municipalities for property valuation and grand list maintenance.

The work of maintaining and setting up the state’s grand list falls primarily on volunteer municipal listers and appraisers, many of whom are unpaid or receive moderate stipends. The current annual per parcel payment amounts granted to municipalities fall far short of the true cost of mass reappraisal, now required to be conducted every six years. Municipal governments are obligated to set the grand list for the purpose of setting the state education tax rate – and are required to collect those taxes. Furthermore, municipalities must remit state property tax payments regardless of whether the property owner falls delinquent.

Given the high rate of state property tax increase over successive state budgets, more Vermonters are unable to pay their taxes, which creates an added cost for municipal budgets. Many municipalities are carrying forward hundreds of thousands of dollars of deferred revenues from delinquent property taxes in their FY27 municipal budgets. This burden is in turn passed on to Vermont taxpayers through the municipal property tax rate.

Revenues created by the 38 Vermont municipalities using LOT should not be paying for any statewide expense – least of all for the current statewide property valuation and tax collection system which already overburdens local budgets. These are local revenues created by voter authority.

We urge the legislature to reverse course and find a more appropriate revenue source from within the state’s general fund or education fund to support costs related to the state’s property valuation system.

Last week opened with a press conference hosted by the leaders of the nonpartisan Rural Caucus calling for legislative action to slow down Act 181 implementation for the Road Rule and Tier 3 jurisdiction.

VLCT Director of Intergovernmental Affairs Josh Hanford spoke at the press conference saying: “When town officials look at the draft Tier 3 map, they fear that this sweeping new Act 250 jurisdiction will freeze their community in amber. The draft rule would create new duplicative permit requirements along key highways and in existing neighborhoods for types of construction as incidental as a garden shed or one-car garage – as well as for the new housing that towns need, want, and allow in local zoning. If the state is going to apply Act 250 to 80% of the land area in Vermont, then local officials and citizen planners need time to see and understand what the LURB [Land Use Review Board] proposes while they make decisions about future Tier 1 areas that could be Act 250 exempt. VLCT urges the legislature to take action this session to slow down Act 181 and make sure we are striking the right balance between environmental protection and smart growth.”

At least Senate leaders have heeded their call, as the Senate Committee on Natural Resources and Energy continued to hold joint hearings throughout the week on Act 181 along with the committees on transportation and economic development.

The VLCT advocacy team testified twice at the joint hearings, first on Tuesday regarding our concerns related to the Road Rule and Tier 3, and again on Friday regarding the process for the adoption of Tier 1A and Tier 1B areas.

VLCT is calling for legislative action this session to:

extend temporary Act 250 exemptions to the end of 2030 or until a municipality receives Tier 1A approval,

eliminate requirement for Tier 1A municipalities to enforce existing Act 250 permits,

delay Tier 3 Rule and Road Rule Guidance to November 2026, and

delay Tier 3 and Road Rule implementation to July 2027 (currently road rule to take effect July 2026, Tier 3 December 2026).

Most stakeholders who have testified, including the Vermont Natural Resources Council (VNRC), have agreed that the current timeline for Act 181 implementation is misaligned and will support deadline extensions for the Road Rule and Tier 3 rulemaking and guidelines.

Here are some recently released reports and news stories related to top issues for local government.

Report from Act 73 of 2024: Regional Assessment Districts, Vermont Department of Taxes

Health Department Opioid Abatement Special Fund Spending Recommendations State Fiscal Year 2027, Vermont Department of Health

March Bond Requests Down 84% in Vermont’s Biggest Cities and Towns, VTDigger

In the Vermont Statehouse, Committee Chairs Wield Tremendous Power, Seven Days

Elmore Budget has Increased Costs, but A Little Extra Revenue, News & Citizen

Vermont Town Saves the Nation’s Longest Ice-Skating Trail, NBC 5

With work in the State House underway, the most important key to our success is your input and participation in VLCT’s advocacy work. Don’t forget to register to attend our Advocacy Chats to learn what mid-session progress has been made on the issues that matter most to local government. Also, hear what your municipal colleagues from around the state have to say about the hot topics and share your concerns for the legislature. You can register here to join us on Monday, February 23 at 1 PM.

You can find (and share) this legislative preview, last month’s advocacy update, and future reports and alerts on our main Advocacy webpage.

Before you visit the State House, check VLCT’s Effective Testimony Guide for Municipal Officials for best practices and answers to frequently asked questions.

To support VLCT’s advocacy work; participate in policy development, testimony, and legislative actions; or just learn more, reach out to Josh and Samantha by email at jhanford@vlct.org and ssheehan@vlct.org.

Model Fund Balance Policy + Guidance

Like any planning effort, town budgeting involves an element of risk. When preparing and adopting a proposed budget, neither the selectboard nor the voters can precisely predict circumstances during the coming year. A town budget must necessarily be built on certain assumptions and estimates of resource flows, such as revenues and expenditures.

Recognizing this uncertainty, the Government Finance Officers Association (GFOA) recommends that general-purpose governments maintain reserves in their general fund of no less than two months (approximately 17%) of regular operating revenues or expenditures to cover unanticipated shortfalls, unforeseen expenditures, and cash flow needs. In addition, the Vermont Bond Bank (VBB) publishes annual median financial indicators for Vermont municipalities and plans to include fund balance benchmarks in these reports, which may be used alongside national guidance to help towns assess appropriate local targets. GFOA further recommends that governments adopt a formal policy to define appropriate fund balance levels and guide their use. See Fund Balance Guidelines for the General Fund. Governmental Fund fund balance is reported following GASB (Governmental Accounting Standards Board) standards, that classify fund balance according to the constraints on its use. Unassigned fund balance, the most flexible category, appears only in the General Fund and represents spendable resources not otherwise restricted, committed, assigned, or nonspendable.

Fund balance is simply the mathematical difference between assets and liabilities. It increases when inflows exceed outflows and decreases when outflows exceed inflows. Fund balance is sometimes misunderstood as excess money that could be used to reduce taxes or fees. In practice, unassigned fund balance is a long-standing and essential component of town financial reporting and management, used to understand and communicate a town’s overall fiscal position. Maintaining an appropriate level of fund balance supports stable and predictable tax rates over time and strengthens a town’s ability to manage revenue fluctuations. Adequate fund balance provides flexibility to respond to economic downturns, emergencies, and other unanticipated events, while also ensuring sufficient cash flow for ongoing operations. Overall, fund balance helps mitigate both short- and long-term financial risk and contributes to a town’s overall fiscal stability. The use of fund balance categories is a standard part of governmental financial statements and reflects how towns have historically assessed financial capacity and risk.

Prior to 2025 and the passing of 24 V.S.A. § 1585, it was unclear, though it was widely practiced, whether Vermont law authorized towns to maintain and carry forward a dollar amount in unassigned fund balance from year to year. With the passage of the new law, selectboards now have the discretion to carry forward or use unexpended voter approved funds, consistent with other applicable laws and local policies. Notably, the selectboard does not require voter approval for expenditure of these funds. Specifically, the law says:

“Monies from a budget approved by the voters at an annual or special meeting that are not expended by the end of a municipality’s fiscal year shall be under the control and direction of the legislative body of the municipality and may be carried forward from year to year as an unassigned fund balance. Unassigned fund balances may be invested and reinvested as are other monies received by a town treasurer and may be expended for any public purpose as established by the legislative body of the municipality.” 24 V.S.A. § 1585.

Under section 1585, even if selectboards do not technically require voter approval for the use of these funds, state law and best financial practices still require maintaining transparency and accountability. This is best achieved when fund balance activity is properly accounted for and reported (e.g., included in discussion of budget preparation and in the annual audit).

This policy provides guidance to the selectboard on monitoring and managing fund balance, including unassigned fund balance, in a manner consistent with GAAP, GASB standards, and Vermont law, while recognizing that fund balance itself exists as the difference between assets and liabilities. Selectboards are encouraged to apply this policy in light of their financial circumstances, long-term plans, and risk tolerance, including defining parameters for target fund balance levels appropriate to local circumstances; conditions for use and replenishment of the fund balance; corrective actions if fund balance falls below the target (such as reducing discretionary expenditures, reallocating resources, or implementing a multi-year recovery plan); and treatment of excess fund balance, such as one-time uses, capital needs, or tax rate stabilization.

Please note that this model policy has been developed for illustrative purposes only. VLCT makes no express or implied endorsement or recommendation of any financial policy, nor does it make any express or implied guarantee of legal enforceability or legal compliance, nor does VLCT represent that any particular policy is appropriate for any particular municipality. Your legal counsel should review any proposed financial policy before adopting it.

As always, please contact the Municipal Operations Support (MOS) if you have questions at mos@vlct.org or 800-649-7915.

VLCT's Model Fund Balance Policy

Publication Date

02/04/2026

Common FEMA PA Audit Compliance Findings and How to Respond

Municipalities across the state are facing an uptick in program compliance audits tied to FEMA’s Public Assistance (PA) program. These reviews are an important part of ensuring federal funds are used appropriately, but they can also create uncertainty for local governments already managing complex recovery efforts. Municipalities that are not rated as “low risk” are more likely to be audited.

To support communities navigating this process, VLCT has compiled practical, ready‑to‑use response language and strategies to address the most common compliance questions raised during state audits. This resource is designed to help municipalities respond confidently, clearly, and consistently while maintaining alignment with FEMA PA requirements.

Audit Questioned Compliance

The following text can be added to one of the municipality’s written policies or procedures, such as its Procurement Policy, Internal Controls, Financial Management/Accounting Manual, or Grant Management Policy or Procedure.

To determine cost allowability when expending Federal award funding, the municipality will consider Federal Cost Principles, the notice of funding opportunity or award announcement, the award application, the applicable funding agreement, and its own policies.

Federal Requirement: 2 CFR § 200.302(b)(7)

You can use VLCT’s Model Procurement Policy or add the following text to the municipality’s Procurement or Conflict of Interest Policy:

Definition of Conflict of Interest. A conflict of interest occurs when the employee, officer, agent, or board member of the Municipality, any member of their immediate family, their partner, or an organization that employs or is about to employ any of the parties indicated herein, has a financial or other interest in or a tangible personal benefit from an entity considered for a contract.

Policy Text for Conflict of Interest. See Definitions section. Any employee, officer, or agent of the Municipality who participates in the procurement process must make reasonable efforts to avoid real or apparent conflicts of interest, must disclose any potential conflicts of interest in writing, must refrain from participating in procurement decisions where such conflicts exist, and must comply with other requirements of 2 CFR § 200.318(c). If the municipality has an affiliate or subsidiary organization that is not a State, local government, or Indian Tribe, the Municipality also must maintain written standards of conduct covering organizational conflicts of interest. Any actual or potential conflict of interest must be disclosed to the funder. If a conflict exists between the Federal requirements and the Municipality’s requirements, the most restrictive requirement must be used. Disciplinary actions shall be the enforcement actions in the Municipality’s adopted investigation and enforcement ordinance, personnel policy, or rule Code of Ethics Investigation and Enforcement Ordinance. Disciplinary actions of Appointed Officers shall apply to non-employee agents.

This text blends Federal Conflict of Interest requirements with requirements of Vermont’s Municipal Code of Conduct.

Federal Requirement: 2 CFR § 200.318(c)

If the municipality has not developed detailed, written internal controls, the municipality can provide the State’s audit staff with the most recently completed internal financial controls document provided by the Treasurer to the Selectboard. A template of this document is available on the Vermont State Auditor’s website at Internal Financial Controls Checklist for Municipalities.

Municipalities can use VLCT’s Internal Financial Controls Checklist for Municipalities to assess their internal financial controls.

Federal Requirement: 2 CFR § 200.1 and § 200.303

The DPS Risk Assessment Survey asks questions about your municipality’s financial systems and policies. It should be filled out by people who understand these areas well. Wrong or guessed answers can cause the municipality to have “Questioned Compliance” findings or be treated as a “high‑risk auditee”, which can affect future grants.

To address this Questioned Compliance, send a corrective action response saying the municipality will review all survey answers for accuracy before it is signed and submitted. Explain how this will be done. For example: “Two knowledgeable staff members (such as the Town Clerk/Treasurer and the Selectboard Chair or Town Manager) will complete and check the Risk Assessment Survey.” Whatever process you choose, it should become part of the municipality’s internal controls. Keep a copy of each completed survey for your records.

DPS only requires one signature on the Risk Assessment. The VT Department of Environmental Conservation (DEC) requires two. DEC asks that the person authorized to sign the agreement sign as the “Chief Officer,” and that the Treasurer or Finance Director sign as the “Chief Fiscal Officer.”

Federal Requirement: 2 CFR § 200.332

Federal regulations (2 CFR § 200.302) require municipalities to track Federal award activity in their financial management systems, including:

Assistance Listing title and number,
Federal award identification number,
year the award was issued, and
name of the Federal agency or pass-through entity.

These requirements apply once a Federal award exists. They ensure that Federal revenues and expenditures can be clearly identified, reported, and supported for monitoring and audit purposes.

Before a federal declaration or award is issued, some of this information may not be available. During that period, municipalities may track emergency or event‑related costs using their normal accounting practices (e.g., event‑based or date‑based accounts).

Once a Federal award is issued or an event becomes eligible for Federal assistance, municipalities must ensure that required award information is clearly associated with related revenues and expenditures. This can be done through the accounting system structure, tracking fields, or other controlled records linked to the underlying accounts.

If the financial system cannot capture all required award information through account attributes, the VT Department of Public Safety recommends incorporating it into the account naming convention in the following order (example shown):

Federal agency (FEMA)
ALN title/award title (DR4810)
ALN (97.036)
Pass‑through entity (DPS)
State grant agreement number (02140‑84810‑XXX)
Federal Award Identification Number / FAIN (FEMA‑DR‑4810‑VT)
Award year (2024)

GFOA guidance generally favors maintaining a stable chart of accounts and tracking grant‑specific details through system attributes, project codes, or supplemental records rather than lengthy account titles. As an alternative to a long account name, municipalities may maintain the required Federal award information in a controlled supplemental record (e.g., spreadsheet BW1.1) that is clearly linked to the relevant accounts. In this case, the fund or account may be named based on the event or incident date, with the supplemental record used to document the required Federal identifiers once known. VLCT’s Model Account Naming Spreadsheet can get you started.

Whichever method is used, it must allow the municipality to accurately identify, report, and substantiate Federal award activity while maintaining consistency and integrity within the chart of accounts.

Federal Requirement: 2 CFR § 200.302(a) and (b)(1)

Federal awardees must maintain records that sufficiently identify the amount, source, and expenditure of Federal funds for Federal awards. These records must contain information necessary to identify Federal awards, authorizations, financial obligations, unobligated balances, as well as assets, expenditures, income, and interest. All records must be supported by source documentation.

To address this Questioned Compliance, municipalities should track each disaster event and all other grants separately. You can do this by creating a dedicated fund or, for smaller one‑year grants, by using a spreadsheet that lists all required information. The goal is to make sure every expense can be clearly linked to the grant money that paid for it.

Federal Requirement: 2 CFR § 200.302(b)(3)

This questioned compliance may be described as “Accounting reports detailing federal and non-federal share of expenditures for Public Assistance award”

Make sure your accounting system can show the federal share and the local match share for every FEMA PA expense. Record each transaction so the two parts are clear.

If your system cannot do this, keep a separate spreadsheet that shows the match breakdown. You can use VLCT’s Model Grant Match Tracking Spreadsheet. Add each reimbursement request to the same spreadsheet, and total the columns for Total Expenditures, Federal Share, and Match Share. At closeout, the total Federal Share must match the amount FEMA paid the municipality.

FEMA funds Small Projects based on the approved Project Worksheet estimate, not the actual cost. Municipalities must provide a 25% match on the FEMA‑funded amount, even if the real cost is lower. This may require using extra match. The total match you document must meet or be higher than the required non‑federal share shown in your financial reports.

Federal Requirement: 2 CFR § 200.306 and 2 CFR § 200.302(a)

You can use VLCT’s Model Procurement Policy or add the following text to the municipality’s Procurement Policy:

Requests for proposals or bids will incorporate a clear and accurate description of the technical requirements for the property, equipment, or service being purchased. The description may include a statement of the qualitative nature (ex. size, appearance, value, etc.) of the property, equipment, or service to be procured. When necessary, the description must provide minimum essential characteristics and standards to which the property, equipment, or service must conform. Detailed product specifications will be avoided if at all possible. When it is impractical or uneconomical to clearly and accurately describe the technical requirements, a “brand name or equivalent” description of features may be used to provide procurement requirements. The specific features of the named brand must be clearly stated. Requests for proposals or bids also will incorporate any additional requirements which the offerors must fulfill, such as insurance requirements and bonds, and all other factors that will be used in evaluating bids or proposals.

When writing requests for proposals or bids, include enough technical detail for bidders to understand the scope of work. For larger projects, describe the general services required (e.g., design, permitting, construction) and expand as needed. For smaller projects, list the specific tasks and any required standards or specifications, such as dimensions, materials, or applicable municipal or permit requirements. Clear, accurate technical requirements help ensure compliant procurement and consistent bids.

Federal Requirement: 2 CFR § 200.319(d)(1) and (2)

You can use VLCT’s Model Procurement Policy, which is federally compliant, or ensure the municipality’s current policy includes the following language:

When expending Federal funds, purchases must follow the municipality’s purchasing policy and Federal Procurement Standards per 2 CFR §§ 200.318 – 200.327.

Federal Requirement: 2 CFR § 200.318 and § 200.320

You can use VLCT’s Model Contract Award Summary, which lists all required contract information and helps you show the municipality completed all required checks and verifications. Keep the documents that prove these checks and verifications were done in the procurement file.

Federal Requirement: 2 CFR §200.214

You can use VLCT’s FEMA Public Assistance Program Compliant Contracts You also must add the text from item #19 (“Sub-Agreements) in the State of Vermont Attachment C: Standard State Provisions For Contracts And Grants . You can find Attachment C your grant agreement with the state.

Both the State and Federal provisions must be included in the contract, whether the purchase follows your normal procurement process or is an emergency one.

Federal Requirement: 2 CFR § 200.327

State Requirement: State of Vermont Agreement, Attachment C, #19 Sub-Agreements

Moving Forward with Confidence

Preparing for and responding to compliance audits doesn’t have to be overwhelming. By understanding the issues most frequently flagged and having well‑structured responses at hand, municipalities can streamline the audit process and reduce the risk of delays or misunderstandings. We hope this resource empowers local officials to approach audits with greater clarity and assurance as they continue the essential work of disaster recovery. Our team will continue updating this guidance as policies evolve and new audit trends emerge.

Publication Date

02/09/2026

Small Project Pitfalls: New FEMA PA FAQs

Member for

3 years 7 months

Submitted by bwaninger@vlct.org on Mon, 02/02/2026 - 16:24

VLCT has updated its FEMA Public Assistance FAQ webpage to address two issues related to FEMA’s Small Project procedure: changes to project scope and what happens when a Small Project costs less than expected.

Changing How a FEMA PA Project Is Completed

Several municipalities have asked whether they can adjust how a FEMA‑funded project is carried out. The answer is simple: contact the State of Vermont before making any changes.

FEMA must approve any modification to the scope of work written in the project worksheet. This includes changes to materials, methods, or hazard mitigation components. Scope changes must be approved in writing through a revised project worksheet. Completing work differently than approved – even if the project still functions as intended – can put funding at risk.

During final inspection, if the completed work does not match FEMA’s approved scope, the state may:

Request a FEMA scope change, which could result in partial repayment
Determine the project is ineligible, requiring full repayment
Investigate potential misuse of federal funds

Misconduct is treated seriously under federal law. Improper use of FEMA funds can lead to repayment, state or federal debarment, civil penalties, or criminal charges. Early communication with the State is the best way to avoid these outcomes. Best practice is to put your scope change question in writing and get any scope change approval response in writing too.

What If a Small Project Costs Less Than the FEMA Payment?

Under FEMA’s Small Project rules, municipalities may keep excess funds only if:

The project is completed exactly as described in the FEMA project worksheet,
All costs are properly documented, and
The state verifies completion during closeout.

For highway projects, VTrans will confirm that the work matches the approved scope. Once the State closes the project, any remaining funds may stay with the municipality, but they may still be subject to adjustment later.

To avoid complications, municipalities are encouraged to wait until they receive the final closeout letter for the entire disaster grant before treating any funds as surplus.

These updates are designed to help communities avoid common pitfalls and stay compliant with FEMA requirements. Municipalities are encouraged to review the full FAQ page and reach out to their State Public Assistance Coordinator with questions as projects move forward.

Meeting Federal Grant Requirements for Cybersecurity Internal Controls

The federal government has strengthened cybersecurity expectations for all recipients of federal financial assistance. As of October 1, 2024, municipalities must include cybersecurity as part of their internal control systems. This change reflects the growing risk that cyberattacks pose to public services, financial systems, and sensitive community data.

Why This Matters

Cyberattacks, especially phishing and ransomware, are increasingly targeting small towns. The updated federal rules recognize this risk and require municipalities to take reasonable steps to safeguard financial systems, grant records, and sensitive data.

Controls Municipality Can Use

Even with limited staff and tight budgets, there are practical steps every municipality can take to meet this requirement and protect its systems. The controls listed below are examples of reasonable controls a municipality could use. They are not intended to be one-size-fits-all or a compliance checklist.

These low cost, low staff-time actions offer strong protection and are easy to implement.

Strong Passwords - Use long, unique passwords. Encourage password managers.
Multi‑Factor Authentication (MFA) - Turn on MFA for email, financial systems, and grant‑related accounts.
Basic Cybersecurity Training - Teach staff and elected officials how to spot phishing emails. Free training resources are widely available.
Limit System Access - Give access only to people who need it. Remove access immediately when roles change.
Automatic Software Updates - Enable automatic updates on all municipal computers and devices.

These steps may require some planning or help from an IT provider.

Regular Data Backups - Back up financial systems and grant files. Keep at least one backup offline or in secure cloud storage.
Antivirus and Firewall Protection - Ensure devices have up‑to‑date security tools. Many are low‑cost or included in existing IT contracts.
Written Cybersecurity Policies - Create simple policies for passwords, acceptable use, remote access, and data handling.

These tools can be phased in over time.

System Monitoring - Track login attempts and unusual activity. May require IT support.
Vendor and Third‑Party Oversight - Review IT vendor contracts to ensure they follow strong cybersecurity practices.
Incident Response Plan - Create a plan for responding to a cyberattack. Conduct a simple annual tabletop exercise.

Bottom Line

You don’t need a large IT department to meet the new federal requirement. Start with the low‑cost steps, build gradually, and use partners for support. For example, PACIF offers grants for IT consultation services for cybersecurity risk assessments. Strong cybersecurity protects your municipality, your data, and your ability to receive federal funding.

VLCT Resources

This document was created in part with artificial intelligence and was reviewed by a human subject matter expert.

Publication Date

02/02/2026

Testimony to Senate Government Operations Committee Regarding Municipal Unassigned Fund Balance Authority, 1/8/26

Member for

3 years 7 months

Submitted by iminot@vlct.org on Mon, 01/12/2026 - 14:17

Testimony to the Senate Committee on Government Operations
Regarding Municipal Unassigned Fund Balance Authority
Josh Hanford, Director of Intergovernmental Relations, VLCT
Samantha Sheehan, Municipal Policy and Advocacy Specialist, VLCT
January 8, 2026

Act 57 of 2025 “The Flood Bill”

The Flood Bill included several actions targeting support to municipalities to enable the preparation, emergency response, and recovery from flood disasters and other all hazard events and changed the LOT withholding formula from 70/30 to 75/25.

Act 57 also enacted three new municipal finance authorities which were jointly developed and recommended by VLCT and the Vermont Bond Bank.
Section 6: Unassigned Fund Balance
Section 7: Emergency Borrowing; all-hazard event or state emergency
Section 8: Denominations; Payments; Interest (level debt service)

Types of “Fund Balances” Used in Governmental Finance

Think of these more like an adjective…..less like a budget line or bank account.

Restricted: resources that can only be used for specific purposes dictated by external parties (like grants or laws). In the municipal context, this can include charters. TIF revenue is an example of restricted funds.
Committed: resources set aside for specific purposes by the municipal legislative body requiring the same level of formal action (typically ordinance) to change or remove the commitment. Housing Trust Funds are a common example of committed funds.
Assigned: resources intended for a specific purpose, but not legally constrained. For example, recreational program revenues retained for same future purpose (this year’s parade registrations pay for next year’s parade).
Unassigned: the leftover, spendable amount in the General Fund after accounting for restricted, committed, and assigned funds.

Definition of a “Fund Balance”

Fund balance is a key component of municipal financial management, providing resources that help manage risk, stabilize tax rates, and maintain services.

Fund balance is the mathematical difference between assets and liabilities in a governmental fund, resulting in a surplus or deficit.
It is not a cash account and should not be equated with a municipality’s bank balance.
Fund balance reflects the financial position of a municipality and helps indicate overall financial health.
Fund balance is reported in accordance with Generally Accepted Accounting Principles (GAAP) and GASB Statement No. 54, which classifies fund balance based on legal and policy constraints.

Definition of an “Unassigned Fund Balance”

An Unassigned Fund Balance is not excess money accumulated unnecessarily to reduce or “buy down” taxes.

Is the residual category of the General Fund.
Represents resources available for general governmental purposes.
Is not restricted, committed, assigned, or non-spendable.

Adequate fund balance allows the municipality to continue public services during periods of constrained cash flow (before propertytax payments) without relying on short term debts such as a Tax Anticipation Note (TAN).

Graph: Healthy Municipal Budget Cycle - Fund Balance Covers Expenses
Image from New Hampshire Municipal Alliance

How Does It Work?

Act 57 grants the municipal legislative body control over these funds without additional voter approval.

Selectboards are encouraged to adopt a formal fund balance policy that:

Defines target fund balance levels (such as a percentage of the GF; VLCT recommends 15-17%)
Establishes conditions for use and replenishment
Identifies corrective actions if fund balance falls below targets.
Addresses treatment of excess fund balance (e.g., one-time uses, capital needs, tax stabilization).

Fund balance levels should be reviewed regularly and adjusted based on:

Economic conditions.
Revenue and expenditure patterns.
Debt obligations.
Identified financial and operational risks.

Benefits of Maintaining a Healthy Unassigned Fund Balance

Municipal cash flow is uneven, with expenses incurred year-round and revenues collected at specific times. In Vermont, municipal revenue authorities are very limited, and most municipalities rely primarily on municipal property taxes.

Supports stable and predictable tax rates over time.
Provides flexibility to respond to emergencies, economic downturns, and unforeseen events.
Ensures sufficient cash flow during periods when revenues are not yet collected.
Reduces or eliminates the need for short-term, emergency borrowing and associated interest costs.
Strengthens credit ratings and lowers interest rates for borrowing. From Moody’s Investors Service, “a fund balance between 15% and 30% of revenues is needed to receive a scorecard value of “Aa.”

What Else Should Vermonters Know About Unassigned Fund Balances?

The State of Vermont, like all 50 states, maintains a very healthy fund balance which contributes to our excellent state credit rating.
Maintaining a UAF is a prudent fiscal practice recommended by governmental finance organizations and auditors. The
Governmental Finance Offers Association (GFOA) says “It is essential that governments maintain adequate levels of fund balance to mitigate current and future risks.”
Actions by the legislative body to maintain or expend funds are subject to all normal requirements of the law (such as public records law, open meeting law, ethics law), policies of the town, and rules adopted by the body.
Act 57 created this new authority and does not require towns to use it ... but they should!

What’s Next?

The Unassigned Fund Balance authority created by Act 57 became effective July 1, 2025.

Town Meeting Day 2026 will be the first opportunity for many municipalities to utilize this new authority for their fiscal year 2027 budget.
VLCT will soon issue a new model Fund Balance Policy with guidance, available to all Vermont municipalities.
All members may consult with VLCT’s Municipal Operations Support team for questions, concerns, and assistance in establishing an unassigned fund balance and/or adopting a governing policy.