FEMA ruling may prove costly
By Peter Hirschfeld
Vermont Press Bureau | November 29,2012
MONTPELIER — A ruling this week by the Federal Emergency Management Agency could reduce considerably the federal assistance on tap for Vermont’s post-Irene recovery. But the financial setback won’t stall plans to rebuild either the state psychiatric hospital or Waterbury office complex, key officials said Wednesday.
Officials at FEMA have determined that the 52-bed Vermont State Hospital, emptied of its patients after the 2011 flood, won’t be eligible for “permanent relocation,” a special designation that would have allowed the state to recoup 90 percent of the replacement costs.
Neither will the state win 90 percent funding for key components of the Waterbury state office complex damaged by Irene, namely the boiler house, laboratory and sewer pump room.
News of the FEMA ruling was first reported by VT Digger on Tuesday.
Administration Secretary Jeb Spaulding said Wednesday it’s too early to know how significant a financial setback the ruling presents, or if the state will appeal it. But the FEMA decision will by all accounts diminish the financial role of the federal government in a $182 million plan to relocate the state hospital and rebuild the office complex.
“From the state perspective, the (permanent relocation) was the best possible funding mechanism they could have achieved, and unfortunately it’s also a difficult standard to reach,” said David Mace, spokesman for FEMA, on Wednesday.
Spaulding and Rep. Alice Emmons, chairwoman of the House Committee on Institutions, said that regardless of the level of FEMA assistance, plans for the recovery will proceed unchanged.
“The feedback I’ve gotten today from (committee) members is they’re committed to going forward,” Emmons said.
Spaulding and Emmons, a Springfield Democrat, said they’ll find money for the Irene recovery plan in the capital bill.
The impact of the federal ruling will be felt most heavily in the hospital replacement plan, where Spaulding had earlier this year assumed that FEMA would pick up 90 percent of the $43 million proposal. He had based his projection on guidance from a FEMA consultant formerly assigned to the Waterbury case, who told administration officials they could count on winning permanent relocation status if the buildings were merely damaged.
In fact federal statute allows for that designation only in cases where the buildings are deemed “destroyed,” something Spaulding didn’t learn until FEMA issued new guidance in June. Mace on Wednesday said it had become clear to FEMA officials that Vermont wouldn’t clear that higher threshold.
“We’d done our due diligence and determined it simply wasn’t a viable option, and we felt the state needed to know that for their planning purposes,” Mace said.
The hospital replacement plan relies on expanded capacity at existing facilities in Morrisville, Rutland and Brattleboro, as well as a new 25-bed hospital in Berlin. The plan will also feature a seven-bed “secure recovery residence” slated for Middlesex.
State officials had also anticipated 90 percent reimbursement for the boiler room and Agency of Natural Resources laboratory flooded during Irene. But both of those projects — which carry a combined cost of more than $23 million — were also denied permanent relocation status in the new FEMA ruling.
Mace said FEMA aims to have firm federal assistance numbers for the Legislature by January, at which point lawmakers and administration officials will scramble to accommodate the new projections in the capital bill.
Between insurance payments, bonding commitments and other revenue, Vermont has already come up with nearly $63 million of the $182 million it will need to complete the hospital and office rebuild. The remaining $136 million will be split between FEMA assistance and additional bonding.
The less help from FEMA, the more pressure on the capital bill, and Emmons said that could lead to some tough decisions next year.
“People need to be prepared that some items that may have been there in the past may need to be postponed for a year or two,” Emmons said.
Spaulding sought to put a positive spin on the situation, noting that as recently as 2002 Vermont had capital bills as small as $39 million. The two-year bill for fiscal years 2013 and 2014, by contrast, is nearly $160 million.
Asked whether he’d consider raising the debt ceiling to accommodate Irene-related pressures, Spaulding said “that would be an absolute last resort and not something we see as necessary.”
Emmons, however, said she anticipates a proposal from members of her committee for a special Irene recovery bond that would seek debt authorization above what’s been recommended by the Capital Debt Affordability Advisory Committee.
“It still goes against your debt load, it still goes against your credit rating, but I’m sure that is going to be put on the table by some members of the committee,” Emmons said.
While ratings agencies may look unfavorably on debt beyond recommended limits and lower their bond ratings, Emmons said the state could avoid those negative consequences by creating a new revenue source to cover the additional debt service.
“That would be the prudent thing to do, and then your rating agencies wouldn’t be so concerned about it,” Emmons said.
She said, however, that when it comes to proposals for generating new revenue via tax or other means, “I don’t think there’d be the support to do it at this time.”