by Phil Dodd, republished from The Montpelier Bridge

Montpelier is considered by many to be a desirable place to live. The schools have a good reputation, the historic downtown is attractive and active, and the city’s neighborhoods have a solid sense of community. One measure of Montpelier’s desirability is that real estate prices and rents are high compared to most nearby cities and towns. 

But Montpelier is not without problems, and with the pandemic, problems increased. The shift of state and other office employees to working remotely has hurt the downtown economy, while homelessness has grown significantly. The July flood added additional pressures. This article focuses on the accumulated financial challenges facing the city government and school district, challenges that could potentially increase Montpelier’s already high property taxes.

City Flood Expenses

According to City Manager Bill Fraser, flood damage to city-owned properties totaled $10.8 million, with the single biggest being $5 million to rebuild City Hall so it can re-open in 2025. He said the city hopes to recover a substantial amount from insurance and FEMA, but the city will still register a significant loss. 

The flood cut into city revenues from parking fees and the local option rooms and meals tax; tax abatement requests from owners of damaged properties will further reduce city revenues. All told, the flood has put an estimated $1.5 million hole in this year’s budget, and prompted Fraser to enact a hiring freeze and call for reduced spending. In an August email to department heads, he wrote: “The city’s finances are in bad shape.” 

The city ended fiscal year 2023 last June 30 with a general fund deficit of approximately $750,000. That reduced the general fund’s unassigned fund balance (used to cover future shortfalls) to about $720,000, well short of the City Council’s reserve fund policy target of $2.4 million.

School Needs

The basement of Montpelier High School was flooded with 1.5 million gallons of water in July, but most of the cost of pumping water out and replacing equipment will be covered by insurance, according to Andrew LaRosa, director of facilities for the Montpelier Roxbury Public School District. Exterior work such as repairing the athletic fields is not covered by insurance, but could be partly reimbursed by FEMA, he said. 

The flood has prompted the district to defer investments, such as a new track at the high school, and to seek a consultant to study school facilities. Some residents have suggested the high school be abandoned and a new one built elsewhere, which would be very expensive (Burlington is currently building a new high school, larger than Montpelier would need, at an estimated cost of $209 million). Others have suggested merging with U-32, although that district has said this is not a good time to discuss merger as it is conducting its own facilities study.

Montpelier High School could potentially avoid future basement flooding in a similar size flood. Water this year entered the high school through holes in the foundation for pipes and wires, which have been plugged since the flood, LaRosa said. Water also entered through a bulkhead. LaRosa said the district will be studying possible ways to raise the bulkhead.

Meanwhile, the School Board was presented with a “District Space Needs” report on Sept. 20, which concluded the high school is “out of space.” Although not addressed in the report, this raises the question of the school district’s capacity if hundreds of new housing units are built, which is a city government goal.

To solve the immediate problem, the report examines the costs of moving district staff from the high school to City Center offices currently occupied by the League of Cities and Towns. Rent would be about $240,000 per year, plus operational expenses. Overall, the size of the central office staff has increased 61%, by 11 positions, in the last five years, the report says. 

Roads and Infrastructure

A common complaint in Montpelier is that the roads are in bad shape and getting worse. Why is that? 

“It’s money,” Fraser said. “People should speak out if they want more paving.” He noted that the City Council approves the final budget, and that he proposes a budget based on Council priorities.

The FY24 paving budget is $118,000, much lower than the usual $750,000 for paving. According to city officials, the paving budget was cut this year because the city spent a bit more than average in recent years and this year it had other capital fund needs, and also because the state was paving Routes 2 and 302. “We knew there would be a huge amount of state paving in sections of the community, so we thought it was okay if we backed off our own paving,” Fraser said.

Department of Public Works Assistant Director Zach Blodgett, who oversees the paving program, told The Bridge he would ideally like to see $1 million per year spent on paving, but Fraser warned that is unlikely in the near term. “It is going to be a tough budget next year,” he said.

The $7.2 million, two-year East State Street project — approved by voters in a bond vote in 2022 — was originally planned to start last year, then this year, and was eventually pushed off to 2024. Now, because the city has an unfilled position for an engineer and the other engineer still on staff will be busy with flood recovery work, the East State Street work probably won’t start until 2025, both Blodgett and Fraser said.

Paving projects are part of the city’s Capital Plan, which also covers sidewalks, bridges, storm drains, buildings, and equipment. The city has been aiming to spend about $2.4 million on those projects every year, but funding levels for items within the fund shift from year to year. This year paving came out on the short end.

The goal of spending $2.4 million was originally set in 2012. According to Fraser, capital spending gradually rose and reached the target in FY21 and has been kept nearly at that level since then. However, if the $2.4 million target was adjusted for the inflation that has occurred since it was set in 2012, the capital budget should now be $3.2 million.

Water and Sewer

Locals are familiar with the problems of the city’s water system: high pressure that can cause property owners’ pressure-reducing valves and appliances to fail and older water lines that burst every week or two, damaging roads and prompting boil-water notices. The city has a 50-year plan to replace those pipes, one that was described in a 2021 memo.

The 50-year plan would replace half of all water and sewer pipes at a cost of $166.4 million, with most of the repairs taking place after FY42 because current bonding capacity is limited. The 2021 estimates were based on an inflation rate of 1.7%, well below the inflation rate of the last couple of years.

Meanwhile, the city is finalizing a hydraulic study required by the state in order for the city to get a drinking water permit. The study is being conducted by a consultant in the form of a preliminary engineering report (PER) that suggests replacing pipes and not attempting to reduce the pressure, even though it is well above recommended levels.

In a June 28 letter to Montpelier officials, the state Drinking Water Division said it wants the city to replace its aging water pipes at a much faster rate than had been proposed in the city consultant’s PER. Faster replacement would likely lead to higher costs for water system users.

A schedule of pipe replacement work has not been agreed to by the city and state but should be in place before the city begins work on its budget later this fall, Fraser said. Dana Nagy, drinking water community operations section supervisor for the state of Vermont, has said the city’s current 50-year plan, scheduled to be updated in 2026, is unacceptable. “It’s just kicking the can down the road,” he said in February. 

Another potential cost facing the city is protecting the wastewater treatment plant, which escaped flooding in July, but just barely. Fraser said the city increased flood protections there after a 2011 flood, but is now considering raising the grade of Dog River Road to create a higher barrier from the river.

Recreation

The original motivation for buying the Elks Club property was to find a location for a new recreation center to replace the existing rec building, which is in bad shape. However, some residents would prefer having a new rec building located closer to downtown where it would be more convenient for families and young people. 

Fraser said no final decision has been made about whether or where to build a new rec center, but staff members and the Council will be having that discussion soon. Costs for a new recreation center will depend on its size and amenities, but Fraser said a pre-COVID estimate was “something like $17 million” to build a much larger facility.

Separately, the city will soon have estimates for modernizing the existing rec building, according to Chris Lumbra, the city’s sustainability and facilities coordinator. Two options being studied are to continue using the building as a rec center or to turn it into a homeless shelter. A third estimate is looking at adding a ramp to allow access for public restrooms, he said.

The estimates for the three options are due in the next few weeks, but Fraser said a pre-COVID estimate for entirely rehabbing the rec center was in the $6 to $8 million range. 

Elks Club Property

The city purchased the Elks Club property on Country Club Road for about $3 million, using nearly $1 million in Recreation Department funds and a $2 million bond approved by voters. The city has also paid White + Burke Real Estate Advisors about $500,000 to develop plans for the property. 

In June, White + Burke issued a 330-page “Actionable Master Plan” that says the cost of building infrastructure to serve the property could amount to $15.3 million in additional spending. This would include $5.6 million for new roads, sidewalks, and trails; $3.3 million for new water and sewer lines; $2.9 million for a new connector road; $2 million for a new signal or roundabout at Route 2; and $1.5 million for a new water/sewer pump station.

The city is currently working with FEMA on a plan to install 36 trailers on the site to house flood victims for up to three years. FEMA would not pay to use the land but would install water, sewer, and electrical infrastructure that would reduce some of these costs.

Any remaining infrastructure work to support housing would require a city bond. White + Burke suggested this could be paid through use of a state or local Tax Increment Financing (TIF) district, which allows property taxes from new development to pay off bonds. The scheme depends on finding developers who would build housing on the property once the city-installed infrastructure is in place.

City Councilor Tim Heney has said the city doesn’t know nearly enough about the property to understand its true development potential. At the Sept. 13 Council meeting, he said the city’s best option may be selling the property and regulating it through zoning. “We’re not developers,” he said.

A second access to the property may be required for any large development. One possibility is to build a road from Towne Hill Road. Another much more expensive idea is to build a road with bridges from the end of East State Street across Sabin’s Pasture to the Country Club property.

“That would help access Casey Ellison’s property as well as Sabin’s Pasture and would allow people to access a new recreation center without going out Route 2 and up the hill,” Fraser said. He said he regularly confers with the owners of Sabin’s Pasture about their plans for a housing project and has asked them if they would sell the city the property, which is appraised at $1.5 million, but “they never said they would sell.”

One of the Sabin’s Pasture owners, Alan Goldman, told The Bridge he and his partner Doug Zorzi have plans to build housing at the bottom of the property, but that Fraser asked them to hold off until after the city has created a new TIF district covering Sabin’s Pasture and the Country Club Road property. Fraser said he has provided Goldman and Zorzi with “a timeline for moving forward.”

Other Expenses

Other financial challenges include the growing homelessness problem. Fraser said the issue has put a strain on the city’s police and fire department, and has led to the city this year paying Good Samaritan Haven $41,240 for street outreach and $16,500 from the Community Fund. Additional costs could arise if the Rec Center is converted to a homeless shelter.

Meanwhile, the senior center is losing money in the wake of the pandemic and the loss of its director. And the city’s district heat system, which operates at a loss every year, lost another $200,000 in FY24. Flood damage to the district heat utility’s equipment in customer buildings amounted to $285,000.

One other potential expense, building Confluence Park on the river, will be discussed and possibly voted on at the Council’s Oct. 11 meeting. The estimated cost has risen over the years from $600,000 to nearly $3 million. Park advocates have been trying to raise grant money to make up some of the difference.

Bonding Needs and Policy

Much of the spending being considered by the city would require bonding. The City Council has a debt policy it established about a decade ago that states: “Total direct debt service (principal and interest) for the city as a whole will not exceed 15% of the total budgeted revenues of the city.” School bonding is not covered by the policy.

The city is now at or above its target. Over time, existing bonds are paid off and the city will gain more capacity. But the potential demand for bonds for things like water and sewer lines, major road projects, housing infrastructure development, a second access to the Country Club Road property, and a recreation center or homeless shelter are currently larger than the bond policy allows.

Fraser said it was possible the city could decide to change the policy, which he said is “well below the legal limit for Vermont municipalities.” He noted the Council could “raise the limit for a couple of years and then drop it back down if we have this confluence of needs.” Montpelier Mayor Jack McCullough said the Council could conceivably choose to not include TIF bonds when calculating debt limits. In any case, new bonds issued by the city would require higher payments than in the recent past because interest rates have soared in the past year.

Property Taxes

Montpelier has among the highest property tax bills in the state, particularly on the municipal side. But the city budget generally is approved by a healthy margin. McCullough commented that “Montpelier residents do appreciate all the services we offer.”

One reason for Montpelier’s high municipal taxes is that a considerable amount of Montpelier property is owned by nonprofits, including churches, which do not pay taxes. State-owned property is also not on the tax rolls, although the state does pay a significant amount each year through the PILOT (payment in lieu of taxes) program.

Another reason for the high municipal tax bills is that the city has a relatively high number of employees for its size, with the count currently standing at 122.37 employees (eight of those positions are currently vacant, however). That’s up from 108.71 employees in FY09, or about one new employee per year on average. Fraser noted some of these new employees were shifted to the city when the Recreation Department and Senior Center moved from school administration to city control, but others are new positions.

At full staffing of 122.37 employees, Montpelier has one city employee for every 66 residents. By contrast, Barre — a slightly larger city — has 100 city employees, or one for every 84 residents. Employee wages and benefits make up about 60% of Montpelier’s city budget, Fraser said.

On the school side, property tax bills are expected to jump sharply next year. A law passed in 2022 changes the state’s complicated education funding formula starting in FY25 to assist districts with high numbers of students in poverty or learning English, as well as rural school districts. Although the Montpelier Roxbury district has a small school in a rural town (Roxbury), the new formula provides no relief to the district. A legislative projection shows Montpelier school tax rates jumping 11% next year based solely on the formula change, even as they might drop 6% in the U-32 district.

Hard Choices

Clearly, Montpelier officials will be facing some tough choices, both in terms of next year’s budget and in the long term.

Fraser admits the city has a lot to juggle. “What are the priorities?” he asked. “Is it the bonding policy, or the tax rate, or the infrastructure need or this particular service. Those are the hard decisions we make every year.” McCullough said the Council could be looking at spending cuts in this year’s budget process, which begins later this fall.

Both said dealing with the flood’s aftermath has been stressful, but indicated they are up to the challenge and expect to continue serving the city. Fraser, who has been city manager for 28 years, said he is inclined to serve out the remaining 2.5 years on his contract and then see where things stand.

McCullough, elected mayor for the first time in March, has not made a final decision about running again next year, but added: “I am assuming that I will run again and don’t know of anything to prevent it. I would feel bad leaving the city in the middle of this situation.”