A public forum on the Capital Improvement Plan (CIP) for fiscal year 2021 (FY21), held as part of the June 15 Town Council Meeting, brought to the surface questions about the affordability of two of the four major capital projects the town is considering.
During the Charter-mandated public forum on the CIP, resident Ludmilla Pavlova asked about the Town’s borrowing capacity and how the town might be able to pay for the capital projects, especially the proposed renovation/expansion of the Jones library and the construction of a new/renovated elementary school.
Town Comptroller Sonia Aldrich responded that the Town’s borrowing capacity is about $113 million, although this is a theoretical limit that is constrained by the town’s ability to actually repay such borrowing from annual capital budgets.
In attempting to address the affordability question, Council President Lynn Griesmer described how the library and school projects were grant-dependent while the proposed new fire station and replacement Department of Public Works building were not and so were “further down the list.” Griesemer said the issue is not just borrowing capacity but making sure the Council is in sync with what Amherst residents want, as well as the Town’s ability to pay back loans.
The Council has not formally discussed the major capital projects since public listening sessions last fall. Data from the listening sessions showed that of the four projects, the library expansion had the least support and the school project the most.
Finance Committee member and Chair of the Joint Capital Planning Committee (JCPC), Councilor Cathy Schoen said that, in addition to the borrowing capacity, they will have to look at what percentage of property tax revenues can be allocated to capital each year to pay back loans.
Post COVID-19, the allocation to cash capital has been reduced by half to $2.7 million, or approximately 5% of property tax revenues. This is because, as town revenues drop, more is needed to shore up the operating budget. Griesemer said hotel, restaurant, and parking receipts are all down due to the pandemic. After accounting for existing debt, the $2.7 million is reduced to $1.4 million.
For FY21, Town Manager Paul Bockelman has proposed dividing the $1.4 million available cash capital into three pots – $530,000 for roads, $170,000 for sidewalks, and a $706,651 reserve for urgent projects that may arise between now and the fall. Finance Director Sean Mangano said $5.9 million of projects that had been requested to be funded in FY21 have been delayed. Mangano said the CIP will be revisited with the JCPC in September to develop a plan moving forward.
Cash capital is used to pay for building repairs, vehicles, equipment, and facility improvements, as well as repaying debt on borrowing for larger projects. If the Council decides to put one or more of the major capital projects to the voters for a debt exclusion override and it passes, that debt service will not come from cash capital but rather will be added to property tax bills.
Both Schoen and Bockelman mentioned the importance of project timing in their response to Pavlova. Schoen said 2022 to 2025 are the years that particularly apply to the school and the library in terms of their grant cycles, so the Town will have to look at the ability to pay back borrowing on two major projects simultaneously.
Councilor Dorothy Pam said she has received many questions from residents as to whether the Town will be able to move forward with the library expansion project given the reduction in capital allocation. Grisemer responded that it is a Council decision whether to move forward on either the school or library projects.
Mangano said that when they looked at the situation before COVID-19 hit, there was “some ability to do all four projects,” acknowledging it required decisions on how to allocate resources and set priorities. “Post-COVID, it’s a different story, at least in the short term. Some of those models that we looked at before COVID happened are not going to be the same picture,” he said. Bockelman’s presentation at the capital projects listening sessions last fall acknowledged that financing the projects would require at least one debt exclusion override.
Using a debt service calculator on the mass.gov website, the Indy plugged in a figure of $22 million (the $35.6M library project estimate from 2016, less the state grant) at a theoretical interest rate of 4% for 30 years. It returned an annual debt service beginning at $1.6 million and reducing over time. This year, the total amount available for cash capital after accounting for existing debt is $1.4 million. If the Town is unable to increase the capital allocation significantly in the next couple of years, debt on a single project could consume all available funds, leaving no Town funds for roads, sidewalks, maintenance, repairs, equipment, or other major projects.
The 2016 library cost estimate of $35.6 million was based on a construction start date of July 2019, so does not account for the typical 4% cost escalation per year for a likely year of construction of 2021 or 2022. The estimate also has not yet been revised to take into account required changes in the design and sustainability measures that will likely raise the total project cost.
An alternative to pursuing the library expansion project is a renovation project that would address building needs and accessibility issues without expanding the footprint. A recent Accessibility Study and Review of Required Building Improvements by Kuhn Riddle Architects estimated $12.1 million for all interior building improvements (phase 1) and $2.2 million for exterior improvements (phase 2). The interior work includes atrium skylight and south elevator replacement, mechanical/electrical/plumbing (MEP) systems, interior, structural, and accessibility improvements. Kuhn Riddle estimated this first phase would take one year and require the library to be closed and relocated for that period. (The expansion project would require closure and relocation of the library for about two years.) According to the report, the exterior work could be done after the library is reopened.
There will be a presentation and discussion of the Kuhn Riddle renovation estimate at the Town Council meeting on July 13th from 6-7pm.