Photo: Belmont Middle and High School is now considered the source of revenue generating debt, according to the state.
When the details were released of the Biden Administration’s $1.9 trillion COVID relief plan – dubbed the American Rescue Plan Act – signed into law this past March that Belmont would be receiving upwards of $8 million for the town and schools, there was a segment of the population in the Town of Homes that cheered the news, not so much as a fiscal salve to a battered budget but as a political accoutrement.
“We definitely don’t need an override now!” came the clarion call on the No Override Now Facebook page of March 16, as the austerity-based group viewed the community-based bail out as a, albeit, short term solution to the worrying structural deficit facing the town.
The news became a game changer in the override battle, making it easier for many voters sitting on the fence on the proposed $6.4 million override to check the “no” box on the ballot less than a month later.
While town executives and elected officials cautioned at the time it was far too premature to assume the funds were heading into town coffers until there was more clarity of the rules, others were eager to champion – and begin spending – the windfall.
“This money can, in part, be used to offset revenue shortfalls and operating expenses,” proclaimed the No Override Now campaign in ads and opinion articles.
Well, it turns out, maybe not.
Under recently released interim final rules written by the state for allocating ARPA funds by cities and towns, Belmont is facing the prospect of have little to no leeway to use any of the $7.8 million to offset the substantial lost public revenue the town incurred since March 2020.
“What we found was a little troubling … because what we’re showing is no revenue loss based on the state guidelines,” said Town Administrator Patrice Garvin at the Monday, Dec. 6 meeting of the Select Board.
And the reason the state has pulled the ARPA rug from under the town’s feet is located at 221 Concord Ave.
After a careful reading of the rules and regulations, the town’s auditing firm determined that during the tight 18 month window the state is using to calculate lost revenue, the 2018 voter-approved debt exclusion used to finance the building of Belmont’s new Middle and High School, as well as the state’s partial reimbursement of expenses constructing the building is seen by Beacon Hill as a revenue “gain” for the town.
So in the ultimate example of bad timing, while Belmont has shown where revenues had fallen off a cliff, in the eyes of the state which dictates the funding, Belmont was awash in dough during that year-and-a-half reporting period because it borrowed funds to pay for a new school.
As Homer Simpson would put it: “D’uh!”
“We’ve had the issue of a … short-term budget distortion from the high school because it’s such a large number just as Covid hits … seems totally unjust to be counting that as revenue because that’s not what it is,” said Adam Dash, chair of the Select Board.
As the town seeks to have its state and federal legislators attempt a hail Mary to convince the state to reconsider its regulations, the prospect of a revenue shortfall for the upcoming fiscal 2022 budget has become only all too real.
Under the provisions of the ARPA, Belmont’s $7.8 million allocation can be used in one of four ways; pay for Covid-related expenses, make premium payments to essential workers, and invest in water, sewer and broadband infrastructure. It was the fourth “bucket,” the replacement of “lost public sector revenue” caused by the pandemic, which austerity groups and town officials saw as getting plugged into the budget. Just how much of the town’s share can be used in an unrestricted manner is based on a formula provided by the state’s Division of Local Services.
It was this rule making from the state – dictated in the federal law – is when Garvin said she and other municipalities began “hearing rumblings” as state officials began writing the regulations.
“I had been concerned from the beginning … [that] sometimes the state does like to get involved in defining how the money can be expended,” said Garvin. One such red flag from as far back as the first days of summer was how the rule makers first defined as revenue.
Is a debt exclusion a revenue windfall? The state thinks so
“At that point, I decided it was important to get the auditors involvement” and allow them to do a “deep dive” into the town’s revenue figures in regards to the state regulations, said Garvin.
Craig Peacock, a partner with the town’s auditing firm of Powers and Sullivan, told the board that since the summer what the state has deemed eligible for reimbursement “has been a moving target” resulting in attempting to make calculations “a little confusing.”
What Peacock first had to determine the revenues in fiscal 2019 which the feds was using as the base year and compare it to losses in calendar 2020. While the town did show a decrease in its general funds of $1.6 million, there were two unexpected line items which offset that lost revenue.
One is the on-going cost reimbursements building the new school from the Massachusetts School Building Authority, which is paying nearly $85 million of the $295 million project, a significant amount – $24 million – being received in calendar 2020. Even with the MSBA reimbursement figure removed, said Peacock, the state also views the $213 million debt exclusion the town is using to pay for its portion of the building’s cost as yet another source of revenue, with Belmont “collecting” an additional $11.7 million in calendar 2020. Without these items, Peacock said the town by the state’s reckoning did suffer a revenue shortfall during the 18 months.
The end result is while Belmont can use the funds for the three of the four buckets, ARPA funds will not be going into the one ARPA bucket the town most needs to fill. While the town will have $7.6 million to spend – in two $3.8 million segments with the second available next fall – “it has made it much more difficult for us to use it,” said Garvin.
The news didn’t go down well as Select Board Vice Chair Roy Epstein calling the state’s rules an accounting exercise that “frankly makes no sense to me,” pointing out that the reason the town undertook the debt exclusion was to pay for a school which can hardly be seen as a revenue windfall for Belmont.
“I think the treatment of a debt exclusion that are earmarked for particular capital projects to just really seems nonsensical,” said Epstein as Dash questioned whether the federal government understands the New England-concept of debt exclusion which could have been exempted in the ARPA law.
The Select Board’s Mark Paolillo asked Peacock who in state government can the town question how they rationalize school debt and reimbursement of expenses as “revenue.” The answer was less than encouraging.
“We are not aware of any caveat in the interim final rules that would allow us to remove the debt exclusion and we are not aware of any agency that would be willing to review and discuss that because currently it is in the rules”, said Peacock.
As it currently stands, without the ability to replenish the lost public revenue and if there are no big ticket infrastructure projects ready to go into the ground, Peacock said there is a chance Belmont will return a portion of the ARPA funds back to the US Treasury.
If there is a glimmer of hope, the guidance is being written by the state and there are several communities feeling the same pinch by the state’s rules writers, said Peacock.
“As they say, the squeaky wheel gets the grease so I don’t think it ever hurts to try to contact” state legislators, advised Peacock. “I do know other communities that are contacting their state reps who have very similar attributes” that are preventing them from reporting revenue losses and are “trying to change the rules before the final rules become final.”