New Vermont State Hospital could cost $38 million — $10 million more than originally proposed

BISHCA Commissioner Steve Kimbell. VTD/Josh Larkin

State officials planning the new psychiatric hospital in Berlin are preparing for a “worst-case scenario,” which would cost the state and taxpayers roughly $38 million — $10 million more than originally projected.

Officials from the Department of Mental Health and the Department of Building and General Services submitted the hospital’s financing plan to the Department of Financial Regulation at a Friday public hearing in Montpelier.

Steve Kimbell, commissioner of financial regulation, issued a certificate of need for the plan on Monday.

The 25-bed in-patient facility will partially replace the Vermont State Hospital in Waterbury that was ruined by floodwaters from Tropical Storm Irene more than a year ago.

The Shumlin administration’s new community-based mental health system for the highest need psychiatric patients in Vermont was approved by lawmakers last legislative session. In addition to the 25 beds slated for Berlin, the Brattleboro Retreat is scheduled to provide care for 14 “level one” patients with serious needs and the Rutland Regional Medical Center will offer another six beds.

The 45 beds that will be made available in Berlin, Brattleboro and Rutland facilities will replace the former 54-bed Waterbury facility, which officials said had 51 patients when it was inundated by floodwaters.

The financing plan that officials unveiled on Friday showed funding from one source: State bonds at an interest rate of 3.4 percent. Officials said they have to prepare for this contingency, as the state currently has no insurance reimbursements in hand for the former state hospital and no funding from the Federal Emergency Management Agency.

This fiscal arrangement would drive the cost of the project up from roughly $28 million to $38 million. The additional $10 million would be for debt financing expenses, including interest and bank fees, according to Kimbell.

Judy Rosenstreich, senior policy adviser to the Vermont Department of Health, told Kimbell and other financial regulators on Friday that the state expects to hear from FEMA in January.

“Do you have any idea what the FEMA contribution will be?” Clifford Peterson, general counsel to the regulatory department, asked Rosenstreich.

“No, we do not have any specific figure,” she said.

Mike Kuhn of Buildings and General Services explained how the costs break down and how difficult it has been dealing with FEMA.

“The cost figures you have before you are a worst case scenario, assuming all of the funds come from the capital construction budget,” he said. “Anything that we receive from the insurance company … as well as funds from FEMA … will only go to reduce the cost for the state’s general obligation funds.

“We have been working very closely with FEMA … to maximize our reimbursement funds from FEMA, and it’s a struggle,” he added.

The Shumlin administration has maintained that the Brooks building, where the Vermont State Hospital was housed in the Waterbury State Office Complex, was destroyed. FEMA officials have said the structure was damaged. In order to qualify for public assistance and a 90 percent reimbursement level, the state needs to show the building was destroyed. The federal agency reimburses based on replacement value.

Kuhn expects to break ground on the facility in December and finish by January 2014. Bids for the project and the demolition of five structures on the property are out, and he expects to complete the permitting process by the end of November. He said the project still needs permits from the Agency of Natural Resources and a conditional use permit from the Berlin Development Review Board, which it will meet with on Tuesday.

Kimbell, who signed the certificate of need on Monday, explained why the project was fiscally sound.

“Even if it doesn’t have funding from (FEMA and insurance), it has the financial wherewithal to be complete,” he said last Friday after the hearing. “From my standpoint, the question is not do they have the financial resources to complete the project, it’s just a question of where it’s coming from.”