Like many of Vermont’s municipalities, the City of Montpelier’s coffers were strained by the Covid-19 pandemic.
With local businesses bringing in fewer sales tax dollars, fewer people parking in town and less revenue from city fees, Montpelier lost more than $1.5 million since March 2020.
To avoid running a deficit, Montpelier has shut down recreational programs, left vacant staff positions open, and delayed maintenance and road projects, according to City Manager Bill Fraser.
City officials have been hopeful that recently approved federal aid for local governments provided by the American Rescue Plan Act will give Montpelier the boost it needs to help bring services and projects back online.
“Our thought was if federal money comes, that’s what we will use it on — to put back the things that we took out, so that our future budgets can be what they would normally be,” Fraser said.
But initial guidance from the U.S. Treasury on how the federal American Rescue Plan Act dollars can be spent poses a challenge for Vermont municipalities expecting to use the funds to recover from the pandemic.
The legislation will provide more than $200 million for local governments in Vermont, including $76 million for Vermont’s towns ($19 million of that specifically for Burlington) and $121 million for Vermont’s counties.
Given that Vermont’s counties offer limited government services compared to its municipalities, state officials expected the U.S. Treasury would provide flexibility so that towns and cities receive the additional $121 million.
The initial guidance on American Rescue Plan Act funds, released by the U.S. Treasury in May, failed to grant that leniency. Unless it’s changed, Vermont’s counties would receive the majority of local government aid.
For Montpelier, this means the city would see an infusion of only $771,000, as opposed to the $2.16 million it had anticipated, according to Fraser.
“If it does go to the counties, we’d only be receiving about a third of what we had planned on, which would be a big hit for us,” Fraser said.
Fraser is hopeful that the situation will be straightened out. He said the issue is on the radar of Vermont’s congressional delegation and Gov. Phil Scott.
Scott’s spokesperson, Jason Maulucci, said that the governor is advocating alongside the congressional delegation to change the treasury guidance. Unlike in most states, “Vermont counties are not multi-purpose governments,” he said.
“In many other states, counties — not municipalities — have jurisdiction over schools, roads, police, water/utilities, public works, etc. In Vermont, those functions (other than what the state handles) largely fall to municipalities, which is why we are advocating for the change,” Maulucci wrote in an email.
In a joint statement, U.S. Sens. Bernie Sanders, I-Vt., and Patrick Leahy, D-Vt., and U.S. Rep. Peter Welch, D-Vt., said they “are working to ensure that Vermont would not be penalized because it does not have organized county governments.”
“The current proposal by the Treasury Department would hinder the use of COVID recovery funds that our cities and towns are counting on,” the congressional delegation said in the statement. “We will continue to work with Treasury to make sure that these funds are available for Vermonters as soon as possible.”
In a letter to U.S. Treasury Secretary Janet Yellen, Vermont Secretary of Administration Susanne Young said Vermont’s counties “do not possess the resources or infrastructure necessary to administer federal funds in a manner consistent with federal rules and regulations, nor do they have the comprehensive authority of our State and local governments.”
The treasury granted a handful of states, including Connecticut, Rhode Island and Massachusetts — where county government is also limited — flexibility to pass the funds onto municipal governments. But it’s still unclear why this was not extended to Vermont.
Vermont’s counties, which are run by elected assistant judges across the state, oversee the administration and finances of local courthouses and allocate money to the state’s sheriff’s departments.
They control small amounts of money. Except for Chittenden, all counties will have operating budgets under $1 million in the upcoming fiscal year.
A report released last week by Vermont’s Joint Fiscal Office found that because counties “play such a limited role” in Vermont government, the American Rescue Plan Act money they would receive under the treasury’s guidance would “far surpass the size of their budgets.”
For example, Addison County would receive $7.14 million of the federal funds when its budget next year is $269,000. Chittenden County would receive $32 million, while it manages only a $1.24 million budget.
Steve Klein, who leads the Joint Fiscal Office, said given that they oversee such small budgets, the system of counties is “not a natural fit” for receiving the windfall of federal dollars.
If counties received the federal funds, they technically would not be required to spend them.
The Joint Fiscal Office report notes that American Rescue Plan Act guidelines provide leeway for counties to transfer the funds to the state, private nonprofit organizations and other entities.
In addition, the budget bill that Scott just signed into law requires that counties receive approval from Vermont’s secretary of administration before spending any of the federal dollars.
The Vermont League of Cities and Towns, which represents the interests of Vermont municipalities, is also pushing back against the federal guidance.
Karen Horn, the league’s director of public policy and advocacy, said the legislation talks about sending direct aid to “units of general local government.”
“And in Vermont, counties are not units of general local government,” she said.
Horn said that towns and cities could use the American Rescue Plan Act funding for a variety of initiatives — from broadband buildout to wastewater system upgrades to replacing the revenue lost during the pandemic.
“It’s a lot of money, but it doesn’t really cover the entire waterfront in terms of needs,” she said.
