Select board, child care center reach out-of-court settlement in tax appeal

March 19, 2021 | By Kris Nine | Community News Service 

Hunger Mountain Children’s Center sits at the corner of South Main Street and State Drive in downtown Waterbury. Photo by Lisa Scagliotti

In 2011, Tropical Storm Irene flooded Waterbury, causing widespread damage to downtown Waterbury. 

Irene displaced the community’s largest child care center and preschool, Hunger Mountain Children’s Center, from the building it had rented from the state of Vermont for more than 30 years before the storm. 

Its longtime home at 123 S. Main Street was considered part of the state office complex. Although the building received minor flooding from the storm, it needed to be vacated in the aftermath as the state assessed its plans for the complex. 

Nearly six years later when the recovery was over, the nonprofit returned to its former location, this time though as the owner of the property, along with the building next door. It purchased both from the state and combined them into an expanded facility licensed to care for up to 60 children from infants to preschoolers per day, rather than the previous capacity of 40. 

That’s when a second flood of sorts hit the center, in the form of a significant property tax bill. 

Now, after two years challenging its property tax status, most recently in Washington Superior Court, the child care center and the town of Waterbury have reached a five-year Payment in Lieu of Taxes agreement. 

Commonly called a PILOT plan, the agreement calls for the center to pay its entire 2020 tax bill of $17,152. Going forward, however, the center will be exempt from property taxes, according to the agreement, and it “will pay on an annual basis an amount equal to the municipal tax that would otherwise have been assessed against the property.”

That amount will be calculated based on a customary property value assessment by the town listers. The center’s property value for its 2020 tax bill was assessed at $764,600 with the municipal tax at $3,914; the school tax portion was $13,238.

The agreement states that should the center’s payment increase by more than 25% in one year, the arrangement could be renegotiated. 

Tax exemption difficult to come by  

The center’s expansion took several years after Irene. It was added to the town tax rolls during construction in 2016 and the first bill was for $2,730, according to HMCC Executive Director Amanda Olney. 

In 2017 the center opened and its tax bill jumped to $16,142, Olney said. After paying the bill in 2017 and again in 2018, the center appealed to town officials in 2019. That was denied and the center didn’t pursue it any further. 

The PILOT agreement explains that in 2020, the center filed a grievance of its taxes on the grounds that the center is a public use and, therefore, exempt from property taxes according to the state law that exempts “public, pious, and charitable property.” The purpose of that provision in state law, the agreement explains, is “to allow organizations owning such property to dedicate more of their financial resources to furthering their public-service missions.” 

The catch is that it’s up to the nonprofit to ask its municipality for an exemption and prove that it meets the criteria. 

The town Board of Listers and Board of Civil Authority denied the center’s request for the overall exemption, and in November the center filed an appeal in Superior Court.

On March 1, the Waterbury Select Board approved the out-of-court settlement and Payment in Lieu of Taxes agreement. 

In an interview afterward with Waterbury Roundabout, Town Manager William Shepeluk explained why the appeal failed at the town level. “Following case history in Brattleboro and elsewhere in the state, the Board [of Civil Authority] thought the Center didn’t meet the qualifications for an exemption,” Shepeluk said.

Turning to the courts for a solution was a gamble as well. “If we go to court, it’s a toss-up if we will prevail,” Shepeluk said.

Citing legal expenses and the uncertain verdict, Shepeluk said he thought working out an agreement was better for the town than relying on a court decision. 

He said he thought limiting the center’s payments to what the municipal property taxes would be was warranted as the center and people connected with it use town services. “They drive on our roads, they use the fire and police, water and sewer services,” he explained. 

Both the center’s executive director and its lawyer declined to comment on the settlement. 

LetsGrowKids is a statewide nonprofit organization that champions early childhood education and development and lobbies for child care and preschool issues in the legislature. It supports PILOT agreements that lessen the tax burden – and in turn the operating costs – for child care centers in Vermont. 

“We’re very happy to hear that HMCC and Waterbury have reached an agreement that alleviates this significant financial burden from an organization doing important work in the community,” said Sarah Kenney, LetsGrowKids’ chief policy officer.

Shepeluk and Kenney agreed that statewide legislation to address property tax exemptions for early childhood education providers is preferable to individual agreements between child care facilities and municipalities. 

“We would be inclined to support exemptions for nonprofit private universal pre-K partners, and would like to take a closer look at a broader exemption for all private universal pre-K partners since we know many of these small businesses are providing a vital service to children, families, and communities, and are struggling on very thin margins,” Kenney said. 

The six-page agreement for the Waterbury center notes that, should state law change to exempt all child care facilities such as Hunger Mountain from paying property taxes, the PILOT agreement could be terminated. 

In his inaugural address on Jan. 7, Gov. Phil Scott discussed early education as a priority for his administration. He said his budget would propose a property tax exemption for licensed preschool programs.

State Rep. Tom Stevens, D-Waterbury, this session sponsored H.348, a bill to exempt property “owned by certain prekindergarten and child care providers from property taxation.” The draft bill has language that would not tax the first $40,000 of property value. The bill was assigned to the House Ways and Means Committee and has not been acted upon this session, however. 

Other legislation is moving forward in Montpelier this session including H.171 which addresses governance and financing for child care. A big provision of that bill, which is now in the House Appropriations Committee, involves increasing state funding for the tuition subsidy program to help make child care affordable to low- and moderate-income families. 

Community News Service is a collaboration with the University of Vermont’s Reporting & Documentary Storytelling program.