By Polly Mikula
Killington has significant debt. Town Manager Chet Hagenbarth said the town has accumulated about $2.2 million worth of debt. Hagenbarth also projects about $14 million of future expenses, including the construction of a new $4 million public safety building, about $1.2 million in golf course upgrades, $3 million in recreation expenses and $7 million in road work. All are “things that we are going to have to address,” he said.
In order to cover both past debts and property budget for future projects, the town is looking at ways to increase tax revenues by either increasing the municipal property tax rate or bringing back the 1 percent option tax on sales, or both.
Hagenbarth and all three Select Board members (Patty McGrath, Stephen Finneron and Jim Haff) have each said that they want to put the town on a sustainable path moving forward, to stop “kicking the can down the road.” They are currently debating what plan to put in front of voters in March for Town Meeting Day.
Hagenbarth has presented options for borrowing money and the projected tax implications for the next 10 years under different loan scenarios.
“Should we go borrow the money now while the money is cheap?” Hagenbarth asked.
Board member Jim Haff thinks we should.
Q&A with Jim Haff
(Editor’s note: These answers are from Jim Haff only, and do not reflect the opinion of the entire Select Board. Look for more information and interviews with Select Board members in future editions.)
Mountain Times: How did the town get into this debt situation?
Jim Haff: In 2011 there was a storm that passed through called Irene. The town did over $3 million in work. We were promised a large amount to be reimbursed from the Federal government (a.k.a. FEMA) and the state, but we did not get everything that we anticipated. This has left us with around $600,000 of funds that have been carried on our books – funds that we had hoped to receive from FEMA. We have now realized that we are not going to receive this money.
On top of this, while we were arguing our point by appealing our case, FEMA has come to the town and has requested $259,000 to be returned.
So Irene accounts for almost $1 million worth of the debt.
We as a town were fortunate enough to have the funds on hand at the time to cover these expenses. Most other towns, back in 2012, had to borrow money at that point.
Additionally, the golf course has around $300,000 worth of funds that were lent from the general fund in 2015-2017 for shortfalls in operations. And the golf course also has a balloon payment of $1.4 million due in 2021, of which $217,500 is set aside in a restricted fund. This leaves us with $1.2 million for the golf course that the town will need to refinance.
So that’s the total $2.2 in debt that Chet refers to.
MT: What should be the funding priorities for the town?
JH: I believe that the $2.2 million in debt, fully funding our town roads, and having a sustainable capital plan for all our infrastructure so that we don’t have to borrow money for these needs, should be funded through the General Fund budget.
Additionally, I think the voters should vote on three separate articles for bond funding: $4 million for the proposed public safety building, $6-$7 million for improvements to Killington Road (lights, sidewalks on both sides and extending them to the resort and re-routing portions of the road), and $2 million for a future improved/replaced town hall and swimming pool project.
MT: Why should the town borrow money now?
JH: That’s a great question. If you go back over the past six or seven years of me running for the Select Board, I’ve been suggesting for a while now that the town does have a debt from FEMA, that the town does need to allocate additional expenses for the golf course, and that we’ve been underfunding capital needs required to keep our roads and infrastructure up to par. Some may say, why don’t we “pay as we go” but that would be a larger increase for the first few years.
Adding 1 cent to the municipal tax rate raises about $75,000. So, just to cover the $2.2 million in debt that we NEED to take care of now, the municipal tax rate would jump 30 cents per hundred!
So it makes sense to borrow these funds at today’s low interest rates, to smooth the payments out over the next 15 or 30 years, whichever way the board decides.
The second part is bringing our existing roads up to par. They are currently about $1 million behind. If we did the “pay as we go” it would add another 13.3 cents to the tax rate.
The other items that will be separate articles for the townspeople to decide, such as the public safety building, if passed, I would hope that no one would think that we could afford to pay for that all at once. For giggles, if we were to fund the $4 million public safety building in one year, it would add 53.3 cents to our tax rate. And if voters passed the recreation pool/town hall for another $2 million it would add another 26.6 cents to our tax rate. In total that would be 1.23 cents to the tax rate or a $3,690 increase on a $300,000 house – if we went the “pay as you go” route. That’s just plain crazy. And this is why I’ve suggested in the past, and now am glad to see our town manager is advising, that we borrow money now and finance such expenses over time.
By borrowing the money at the low rates today, owners of a $300,000 house would see about a $480 increase to their tax rate per year.
MT: You were a big proponent of getting rid of the sales portion of the option tax a few years ago. Do you believe the town should reimplement the 1 percent option tax on sales now?
JH: I personally do not, as a business owner. If I was not a business owner, I still would not want to bring the sales option tax back. I believe that we should act as a community and understand that all these items are necessities. And I’ve always believed in fair taxation across the board. I believe that when one takes into consideration the 7 cents projected to be raised by reimplementing the sales option tax, it would actually end up costing more for most people in town than simply raising the municipal tax 7 cents to cover these items. This needs to be the discussion in town.
However, I also believe that if the Select Board does not put this on the ballot there will be a petition that will require us to put it up for a vote. Instead of trying to avoid the inevitable, we might as well put the question of reinstating the sales option tax on the ballot and then work to educate voters about what it will mean for them.
One good argument against bringing back the sales option tax to pay for this is the same argument that was used last year to remove the sales option portion: that a typical household pays more in sales tax throughout the year than they would in property tax. But one must take into consideration the Grand List value of their house multiplied by the 7 cents. For example: A $300,000 house divided by 100 for the Grand List tax rate, multiplied by 7 cents, equals a $210 increase in the residential tax rate. For this homeowner, would $210 be more or less than what they’d pay in sales option tax? Only they will know.
In my situation, and I understand it’s just me, to be honest with you, it would be cheaper for me to pay the 7 cents straightforward in the municipal tax rate. I understand that this may not be the case for everyone and it may be the difference for others to vote to bring the tax back. That being said, if we are truly are a community and we are looking out for our whole town, we must also consider what the tax implications will be. One must understand that some investments for businesses (and I’m saying all businesses) may be dialed back because of bringing back the 1 percent sales option tax.
MT: Would reimplementing the sales option tax negatively impact town-resort relations? Would it cause a disincentive for growth and development plans (specifically strapping the Killington Village development and the proposed Bear Mountain development with additional costs should those projects get off the ground?)
JH: When we removed the sales option tax, the resort promised to take over $250,000 in costs per year from the town (mostly in events and activities the town helped to fund). If that tax is now coming back, then it would release them from that $250,000 commitment. The resort has invested some $25 million in their business this past year. One would have to believe that when they make an investment into their property, they take into consideration all costs, including taxes. If half of that $25 million was cost of goods, it would have cost them an additional $125,000 if assessed the 1 percent sales option tax. I don’t think that’s fair. The resort would need to look at their obligations differently.
I hope that regardless of the vote, it wouldn’t negatively impact the town-resort relationship, but I understand that it could affect their business decisions and slow growth.
MT: If the sales option tax is voted to be reimplemented, are there other strategies you’d support to help foster development and/or alleviate cost to developers?
JH: First, we are not talking about using the option tax to pay for the first two items in the budget (paying our debt and for our roads and a sustainable plan for capital funding).
The discussion of the option tax really falls on NEW development such as the public safety building, reconstruction of Killington Road and town hall/recreation plans. The board has stated that if this tax is to be reinstated it would sunset upon those bonds being paid down.
At the moment, I personally am requesting that we look at IF the sales option tax brings in more than the anticipated 7 cents per hundred that we would use the additional funds for certain projects involving the resort/land company projects within the town property limits, such as maybe taking over the Killington Road from Glazebrook to East Mountain Road, which is currently owned and maintained by the resort, and also the same with Bear Mountain Road.
The last item I would like to see is working with the land company to finally bring a municipal water system to our town.
I’m not sure, but to me, if this tax is implemented, which I hope it is not, I believe this could be a discussion to help offset some of the biggest increases to these partners in our town.