Assumptions About Major Building Projects Need To Be Revisited, Say Town Councilors
Amherst Central Fire Station. Photo: amherstma.gov
“The world has changed a lot since the last time we made projections on the four capital projects.” That was how Town Manager Paul Bockelman introduced a presentation on how to finance the four projects at a joint meeting of the Finance Committee and Town Council this week. “We don’t know what is going on with inflation. Nobody knows what’s going on with interest rates,” Bockelman continued. “The scenarios we’re presenting today we think are achievable, under today’s circumstances.”
Further framing the conversation, Finance Director Sean Mangano said, “all these models are based on the directive of ‘how we do all four’,” referring to guidance last year from the Town Council to pursue a new elementary school, fire station, public works facility, and the Jones Library renovation/expansion. “We’re looking for feedback on your comfort level with using a lot of reserves [“rainy day” funds] and/or taking on a lot of debt,” Mangano said. “Or maybe you’re not comfortable with any of [the models]. That could be an option too.”
The four different financing models presented by Mangano still assume a $15.8 million cost to the town for the now-roughly-$50 million Jones Library project. Mangano assumed $20 million for the fire station and $30 million for the DPW — significantly lower figures than had been estimated a few years ago. When asked if they had any net zero comparables to support these figures, Mangano said no. “At the end of the day, the town will have to move forward with what it can afford,” he said.
Variables in the models are the level of town reserves to be used (zero to $20 million), level of debt ($96 million to $111 million), percentage of property tax levy allocated for capital (10% or 10.5%), and how much money would remain annually for all other capital needs ($3 million or $3.5 million).
The elementary school project, which is currently estimated to cost about $100 million with 30-40% of that to be reimbursed by the state, was omitted from the model as Mangano said they are proposing the town’s share be wholly funded through a Debt Exclusion Override (a property tax increase for a specific purpose).
“Calling in” some of the underlying assumptions, and recognizing the critical importance of a successful debt exclusion override vote on the school, District 1 Councilor Cathy Schoen asked if some capital reserves could be applied to the school project to lower the amount asked of taxpayers. Last week, the Council voted to move $9.3 million into a new Capital Stabilization Fund; roughly $13 million more remains in the town’s general stabilization account, the “rainy day fund”.
Councilor Ellisha Walker, who serves with Schoen on the Elementary School Building Committee, supported Schoen’s comments, stressing the urgency of a Council discussion on how best to finance the town’s share of the school project. Mangano suggested holding off on that discussion until December when new cost estimates for the school project will be available.
Schoen also asked to revisit the decision to do all four projects in a compressed time period, as well as the decision that the new fire station must go where the DPW is currently. If a different town-owned location could be considered for the fire station, Schoen said, it would not have to wait until a new DPW was built elsewhere.
How quickly the projects could be completed was one of the factors considered in the financing models. To manage the level of debt and the draw on reserves for multiple large projects, Mangano showed a timeframe that stretched to 2035 for a fire station project to begin. This troubled resident member of the Finance Committee, Bob Hegner. “If you stretch out the fire station and DPW too far, they’re going to collapse,” Hegner said. “There is a limit to how far they can be pushed into the future.”
The percentage of the property tax receipts that would be dedicated to capital was also a concern for councilors and some members of the public. Increasing from 10% — a level only reached this year — to 10.5% will further squeeze operating budgets. Furthermore, committing more of the capital funds to repay debt on major projects leaves less for everything else.
This year, there was $5.7 million in “cash capital” for capital needs, and that is before debt repayments begin for any of the larger projects. Even with this amount, many projects were pushed off to later years. Mangano’s model proposes reducing it to $3.5 million or less which would mean fewer roads repaved, fewer building repairs, fewer vehicles replaced, etc. This concerned District 2 Councilor Lynn Griesemer who said she has heard constituents say that they may vote against the school override because they are not happy with the condition of the roads. “I’m dreading winter,” Griesemer said. “I don’t know whether our streets can take it. I just feel like we’re losing ground every day.”
This modeling of the “four major capital projects” has been presented multiple times over the past few years, but it has moved us no closer to a realistic solution to the capital needs of the town. This is because the hard questions are never tackled head on and those presenting have sole control over the assumptions and inputs.
The model had been made publicly available for a brief time in the past so that the public could enter in different values (interest rates, total cost of projects, year of construction/debt start, etc) and see their impacts. For some time now, however, the “options” have been limited to those that the Town Manager and Finance Director choose to offer and the output is carefully cultivated to demonstrate what message they want to convey.
For example, this is the first time this modeling has been shown since the much higher cost estimates for the Jones Library expansion project were unveiled in August of this year. This despite the fact that a request for modeling had been made before the Town Council was directed to vote on this project to understand the the impact of varying fundraising amounts on the town’s finances.
The entire point of models is to answer “what if” questions under different scenarios.
What if fundraising only covers part of the gap between project cost and available funding, and the town is on the hook for the balance?
What if interest rates increase beyond their current value?
What if we use some of the current $23 million dollars in reserves toward the school project to decrease the amount of tax increases to individual taxpayers in a debt exclusion override?
What if the fire station and DPW projects are re-envisioned as a single project? Or if the their total individual costs are are higher or lower?
The modeling tool used in this way could demonstrate what is actually financially feasible and what needs to be removed from consideration. The varying inputs should be based on demonstrably reasonable assumptions, with benchmarking from real world comparators in similar timeframes and scopes.
It’s time to stop using the model as a justification for a narrow argument and start using it to explore a different set of priorities and possibilities.
I remember when the modeling for different building scenarios was presented at a District 5 meeting by Sean Mangano. It was not fully operational then and I recall that the idea was that District 5 residents would see it again and be able to punch in different numbers to see how the budget numbers (and tax increases) play out.
Well, the numbers are really different now and I am almost fully in the dark about the total cost of the 4 capital projects, a new track at the high school — and the current costs of North Common construction and the roundabout at Potwine. This is getting to be a hefty list of expenses.
I hope that all of our Councilors have meetings with their constituents where they can work with the models and see future budget scenarios. I am sure people would be interested. I am.
The town has let us know that they will make the model available to the public again some time after January 2023. This is only a few months before voters will have to decide whether they will approve an override to raise their taxes to pay for the new elementary school. The problem, as Maria Kopicki has pointed out in this week’s Indy, ( https://www.amherstindy.org/2022/10/25/letter-the-point-of-financial-models-is-to-answer-what-if-questions-thats-not-what-were-getting/is ) is that the assumptions that went into Mangano’s presentation do not seem credible. It would be helpful to be able to plug alternative assumptions into that model now (Kopicki offers a few compelling examples),so that we can ponder the implications of say, a much more expensive library or fire house or school, rising interest rates, etc….
In response to a request through the “Financing our Future” page on the town’s website (https://engageamherst.org/financing-the-future?tool=qanda) requesting that the model be made available again to the public, Sean Mangano replied as follows: “The modeling tool will be put back up sometime after January 2023 once updated cost estimates for the school project are obtained along with a firmer estimate of the Town’s share. We also hope to have updated estimates for the Public Works Facility and Fire Station by that time.”
He did not specify what those updated estimates on the Fire Station and DPW will be based on but I can inquire. The school estimates will be important information, but the numbers January figures are not required for varying inputs to be applied to the model now since we have a reasonable idea of the range for the school.
Making the model available to the public now seems to be possible, just not permitted at the moment.
Forgot to address Janet’s point.
The model has been used so far by the town’s leaders with the goal of completing the “4 major capital projects” – that is the elementary school, the fire station, the DPW, and the Jones library. There is no modeling of the many other anticipated capital projects (high school track and field, middle school roof, Potwine roundabout, North Commons, etc) or the projects that aren’t even on the agenda yet (Youth Empowerment Center, Senior Center, Crocker Farm renovations, etc).
These show up in the model only as the amount leftover for all other capital needs, the <=$3.5 million/year Toni references in her article. It is also important to note that as a higher percentage of the total budget is diverted to capital needs (that's the 10.5% goal), the operating budget will be squeezed.