Report by the Advisory Finance Committee – December 6, 2021



I. INTRODUCTION AND SUMMARY


On behalf of the Advisory Finance Committee, I welcome Town Meeting voters to this Special Town Meeting to discuss and vote on three scenarios developed by and for the Selectboard to demolish buildings located at the Nichewaug Inn and Academy (“NI&A”) site.


The Advisory Finance Committee serves the voters by carefully considering components of the town’s budget and making recommendations to the Town Meeting. In our deliberations we seek the input of residents, the Selectboard, and our town’s departments. Tonight, we consider three articles detailed in Articles Two through Four of the Warrant. Each calls for the demolition to varying degrees of the buildings on the NI&A property at estimated costs ranging from $721,000 to $777,000.


A. Recommendations


Article 2 (Demolish All Buildings Except the Garage): Recommended with reservations


Article 3 (Partial Demolition): Not recommended


Article 4 (Partial Demolition Alternate): Not recommended


To fund any of the above, we recommend: using $100,000 from the Stabilization Fund, borrowing $500,000, and taking the remainder from funds provided to Petersham through the American Rescue Plan Act


B. Estimated impact of borrowing on property taxes


Our Town Treasurer conservatively estimates that the annual cost to service a loan for $500,000 would range between $32,500 and $60,000. If this amount was added to the FY22 budget, the total tax levy would increase by 1 to 2 percent, which would raise the tax paid by the average property owner by $75 to $125 per year.


II. ANALYSIS


A. Approach


Evaluating these three scenarios as part of a Special Town Meeting, as opposed to considering them as part of the regular budget process associated with an Annual Town Meeting in June, presents special challenges. Among them is that we must consider the nature, scope, and cost of the project along with its impact on town spending without the benefit of knowing what the schools and town departments will be requesting as part of the budget process for FY 2023, which starts in early 2022.


To help guide its analysis, the Advisory Finance Committee has therefore looked at the increased spending in the context of the current FY22 budget that ends on June 30, 2022. In other words, the Advisory Finance Committee looked at these spending requests as if they had been made as part of the part of the FY22 budget process to best gauge the impact of the increased spending on town finances and ultimately the taxpayers.


B. Impact on Stabilization Fund


The town plans for future contingencies by means of the Stabilization Fund, which, simply put, is the town’s savings account. The Finance Committee has worked to maintain a healthy balance of approximately 8% of the total budget in that fund. The town currently has approximately $381,123 in the Stabilization Fund, which amounts to 8.4% of this Fiscal Year 2022 budget. Transferring $100,000 from the Stabilization Fund would leave $281,123 in the Stabilization Fund, representing 6.2% of the FY22 budget.


C. Use of ARPA Funds


The town has received $376,632 as a result of ARPA. The Selectboard has already allocated $222,000 of that amount for particular items/projects, leaving an available balance of $154,632. The Selectboard seeks to use between $121,000 to $127,000 of that available balance, or between 78% to 82% of the remaining ARPA funds, depending on which scenario is approved. Should the voters approve Warrant Articles Two, Three, or Four, it will affect other projects presented to the Selectboard for consideration for ARPA funding.


D. Impact on Town Debt


Again, the Warrant Articles for your consideration all anticipate borrowing $500,000. The town treasurer has provided estimates for the carrying costs of a 10-year or a 20-year note (the term options available to the town) with interest rates of 1.5% or 2%. Please note that the actual cost of the debt service will not be known until the loans are secured. However, 1.5% and 2% interest rates seem to be a reasonable upper estimate based on more recent borrowing by the town. In short, the estimates for the first year’s principal and interest payments range from $32,500 to $60,000.


In this Fiscal Year 2022, the total amount the town is spending to service its debt is $254,602, which represents approximately 6% of the overall FY22 Budget. While it is not clear what other projects may require borrowing in the next few years, please note that two school construction loans, which amount to loan payments of roughly $127,000, per year will end in 2025.



E. Impact on the Tax Rate


It is not possible to provide with any specificity what the impact of the approval of any of the Warrant Articles would be on the tax rate. Nevertheless, the Advisory Finance Committee offers the following analysis to provide some sense of the tax impact presented by the Warrant Articles.


Our analysis assumes that this additional $500K loan was included in the town’s approved budget for FY22, that the debt service for this loan is consistent with the Treasurer’s estimates stated above, and that the added debt is entirely serviced by taxes.



Based on those assumptions and figures, the dollar amount that an average household would have paid in FY22 would be $125 on a $60,000 budget item, or $75 on a $32,500 budget item.


F. Reservations


In addition to the challenge of evaluating the impact of the three scenarios outside the regular budget process, the Advisory Finance Committee feels obligated to point out that the actual costs of the three scenarios remain unclear.


Estimates for the amount of fill needed are rough, as are the estimates to close up any portions of the Inn should the town vote to keep the Inn and/or the Chapel standing. While there is a 5% contingency built into the estimates, how the contractor will perform its work is also unknown.


The potential future costs to the town of partial-demolition Scenarios 2 and 3 are even less clear. The Selectboard has not authorized a current structural evaluation of the portions of the buildings potentially to be saved. The Town could incur future expense to maintain or demolish portions or all of these structures at some later point.


Addressing these issues at a Special Town Meeting rather than at an Annual Town Meeting potentially means that fewer voters will determine the town’s course of action. The Advisory Finance Committee respectfully requests that the Special Town Meeting Voters appreciate the importance of their votes on the town’s future as well as the tax bills of their neighbors.


Finally, while we have discussed the financial impact of taking some action on the Warrant Articles now, there is also a cost associated with taking no action now.


From a financial standpoint, the best-case outcome is that doing something later will cost more than it would now. However, we worry that any such increase will not be balanced by a similar increase in family income for many of our residents over that same period. Also, given the town’s inability to reach an agreement regarding the future uses of the property, it seems unlikely the town would be deemed eligible for grant monies for demolition any time soon.


The worst-case outcome of inaction is that the problem will be addressed under emerging circumstances and mitigation may be extraordinarily expensive. Beyond financial risk, the buildings continue to pose risk to the health and property in the center of town.


G. Conclusion


For these reasons and others and with these reservations and others, the Advisory Finance Committee recommends the passage of Warrant Article 2, and it does not recommend the passage of Articles 3 and 4.


Respectfully submitted,


Richard Cavanaugh

Chair, Advisory Finance Committee