Northeast Kingdom Economic Report: Another up year, clouds on horizon

As part of the EB-5 settlement, Jay Peak was sold to Pacific Group Resorts in September 2022 for $76 million. Photo courtesy Jay Peak.

by Jeff Wakefield, Vermont Business Magazine

Like the rest of Vermont, the Northeast Kingdom bounced back from the depths of the COVID-19 recession reasonably well in 2021.

It’s fair to ask: Could the region continue its comeback in 2022, given its small population, long-time economic challenges and a slowdown in pandemic funding?

The answer is a yes, and then some, according to economic development officials and civic leaders.

“With all the work we’re facing, everyone’s maxed out, at personal capacity,” said David Snedeker, executive director of the Northeastern Vermont Development Association, whose organization promotes economic-development projects throughout the region.

St Johnsbury saw a record 22 new businesses open in its downtown last year, according to Gillian Sewake, director of the St Johnsbury Chamber of Commerce, surpassing 12 in 2021, the previous high.

And vacancy rates in residential real estate in the region reached an all-time low, though that is a decidedly mixed blessing.

Hovering over all the good news, however, and threatening to derail progress, according to many civic leaders, are two significant challenges other areas of Vermont share but which are keenly felt in the Kingdom: an acute lack of housing, especially middle-income housing, and a shortage of trained workers.

Ground Zero

If Newport was ground zero for the impacts of the EB-5 scandal six years ago — which left a vacant block in its downtown, where developers had torn down buildings to make way for a hotel that never materialized, and an empty building on the outskirts of town that was to be an improbable biotech facility — the town is also a case study for how municipal and state governments can work together to revive an area’s economic prospects.

“Newport bore the most visible brunt of the scandal,” said Joan Goldstein, commissioner of the Vermont Department of Economic Development. “It’s foremost on our minds that whatever development effort the town is making, we are there to assist with the full force of programming we can make available to them.”

The state provided that support directly through the Newport Development Fund, which Governor Phil Scott launched with monies from the EB-5 settlement. The fund made a total of seven grants, some as small as $20,000, to redevelop and repurpose the Gateway Center on the town’s Lake Memphremagog waterfront into a new tourism attraction and education center.

Photo: A landscaped “parklet” in downtown Newport was built on the site of a municipal parking lot. The green space is an element of the town’s new Waterfront and Downtown Development Plan, created in the wake of the EB-5 scandal with support from the Vermont Department of Economic Development. Photo: Laura Dolgin

Its largest, at just over $1 million, went to the Northeast Kingdom Development Corporation, with grant-writing support from NVDA, to close the book on one of the scandal’s unfortunate misfires: the abandoned Bogner plant, site of the would-be biotech facility.

NEKDC purchased the 46,000-square-foot building and its 25-acre lot in September 2022 and already has a tenant: Track Inc, North America’s largest dealer of high-quality snow-grooming vehicles and equipment. The company currently operates out of a smaller facility in Newport. The new building will allow it to expand in Newport rather than out of state.

The state also provided support to Newport indirectly through two planning grants that positioned the town to win a $250,000 Rural Community Development Initiative Grant from the US Department of Agriculture.

The grant “allowed us to transform the city of Newport,” said Newport City Manager Laura Dolgin, by providing the funds to implement the fruit of the town’s planning efforts: the Waterfront and Downtown Development Plan.

The city replaced streetlights, created a recreational trail along the waterfront, built a small park next to the municipal building, improved a major pedestrian intersection, upgraded landscaping and updated the municipal plan, and is now working on revamping the zoning bylaws and developing plans for how to best utilize the town’s waterfront.

The vacant lot remains an eyesore, but city officials hope it will be purchased and developed soon. The property is under the control of the EB-5 receiver, who is holding out for the right price, said Ryan Pronto, a broker with Jim Campbell Real Estate.

Jay Peak Under New Ownership at Last

September saw the beginnings of the breakup of the EB-5 logjam: the sale of Jay Peak, in receivership since 2016, to Pacific Group Resorts for $76 million.

Still remaining in EB-5 limbo, along with the vacant lot in Newport, is Burke Mountain Resort. The property’s sale is rumored to be imminent, with two potential buyers in the wings.

If the Jay Peak sale should lighten the step of the resort’s president and general manager, Steve Wright, that hadn’t happened as of October.

“I sort of expected there to be a bigger exhale,” he said. “It may still be out there. I’m hoping the final sale does that.” The sale closed Nov 3.

It could be that Wright is also on edge in anticipation of what looks like a record-breaking ski season — barring uncooperative weather — that will benefit from the return of the resort’s bread-and-butter clientele, Canadian skiers.

Photo: Snowboarding at Jay Peak Resort. Photo courtesy Jay Peak.

Thanks to a gradual easing of COVID restrictions for Canadians entering the US culminating in their elimination on Oct 1, Vermont’s northern neighbors are returning to the state — at least to its northern tier — in droves.

“Based on the golf season we had and by virtue of our season pass and lodging bookings, it is clear that the Canadians will be back in a major way,” Wright said.

Good business prospects are fine, but what impact will new ownership have on the fate of current management?

“Pacific Group Resorts is a middle market ski area, and they have only a handful of senior executives,” Wright explained. “They have a philosophy that their resorts need to govern and run themselves. They’re there to provide support on a macro level and fiscal support for capital expenditures. But in terms of operations, they leave it to the operators.”

Wright expects the company will invest in Jay’s infrastructure, from snowmaking to lifts, though the timeline is yet to be determined.

Brownfields to Green

When asked about economic-development projects in the Northeast Kingdom, the NVDA’s Snedeker first mentions the organization’s brownfields program, which clears the way for environmentally compromised sites to be rehabilitated and brought back online.

“It’s one of our most popular programs,” said he says. “We’ve helped fund or advance 25 projects in the region in the past three years.”

NVDA has used two $600,000 Environmental Protection Agency brownfields grants, from 2018 and 2020, to push the program forward, along with funds from the state’s Brownfields Revitalization Fund.

Projects ranged from the Albany General Store to St Johnsbury Distillery, a former hardware store that is now a popular hangout.

Brownfields funding helps not with the rehabilitation of a contaminated site but with upfront assessment and remediation planning, which is required before a bank will finance a project. Lack of those funds can stop a project before it starts.

“NVDA’s brownfields program does some of the most important early, first-in-funding work,” said Joe Kasprzak, St Johnsbury’s assistant town manager and economic development specialist. “It’s helped revitalize St Johnsbury and the region as a whole.”

Meanwhile the Yellow Barn Accelerator in Hardwick, in the planning stages for several years, will begin construction in 2023.

The project has two components. Cabot Creamery will open a retail store in the historic, 5,000-square-foot historic barn, which will be renovated. A 25,000-square-foot accelerator will be built adjacent to the barn.

It will house Jasper Hill Farm’s growing e-commerce division and Farm Connect, a rapidly expanding business serving small farms that cost-effectively delivers their produce directly to retail outlets.

Cabot’s retail store, which will also feature food products from other Vermont producers, is expected to be a food and retail destination. Its main entrance will front the Lamoille Valley Rail Trail.

(Image courtesy Coe + Coe Architecture)

St Johnsbury Renaissance

St Johnsbury Distillery is just one of St Johnsbury’s growing portfolio of success stories, part of a welcome new chapter for a municipality that once symbolized the Northeast Kingdom’s economic blight.

But even in the days when the town’s prospects seemed grim, and empty storefronts pocked the downtown, St Johnsbury had a lot going for it, says the chamber’s Sewake.

“Especially in the culture sector,” she said, “we have some amazing assets that make this a tourist destination, including the Fairbanks Museum, the St Johnsbury Athenaeum, Catamount Arts and Dog Mountain.”

Sewake points to one development in particular that was a turning point, enabling the rest of the town to catch up with its cultural attractions: the redevelopment last year of the New Avenue building in the heart of downtown into a mixed-use residential and commercial property.

Photo: To help local residents experience St Johnsbury’s transformation firsthand and take pride in their community, the town held an event on the last Friday of each summer month featuring live music and dance demonstrations, free face painting and gelato, and gallery strolls and sidewalk sales. Between 500 and 1,000 people attended each event. Photo courtesy St. Johnsbury.

“It was the headliner last year,” she says. “And to me it continues to feel like a tipping point that changed the private sector's willingness to really get down and invest in St Johnsbury.”

Assistant Town Manager Kasprzak agrees. One hundred years ago, the building “was an iconic hotel that served a railroad depot with 35 trains a day,” he said.

Over the past several decades, “an absentee owner had Section 8 housing on floors two through four,” Kasprzak said, “but he completely neglected the first floor. So, we had 10,000 square feet of basically blighted vacant commercial space that really made it difficult to attract new businesses.”

When the property was bought and redeveloped by Evernorth, “it was a game changer for downtown,” Kasprzak says.

Another newly refurbished brownfields property, the former Vermont State Offices building — purchased and renovated by MSI Realty — is home to 20 of the 22 new businesses that opened in downtown St Johnsbury in 2022, according to Sewake. Three new restaurants are on the way. And one of the town’s cultural icons, the Fairbanks Museum, is in the midst of a major expansion: adding a $5 million, 6,000-square-foot science annex to its campus that will open in spring 2023.

Canadians: A Mixed Bag

Tourism in the Northeast Kingdom is dependent to no small degree on Canadians traveling south. Canadian tourists may or may not have returned to the region, depending on whom you ask and where they’re located.

They’re back in force at Jay Peak, Wright says. Things look similar in Newport, according to Dolgin, where Canadian boaters gassed up at the town’s Lake Memphremagog pumps at nearly the rate they did before the pandemic, after a precipitous drop-off.

But for Todd Vendituoli, president of the Burke Area Chamber of Commerce, “it’s a mixed bag.” Burke Mountain had the third-best mountain-biking season in its history, he said, with many Canadians among its guests.

“On the other side of that coin,” he added, “Kingdom Trails is still nowhere near where it was because Canadians aren't coming down in the volumes they used to.”

Snedeker is focused on an area of the NEK’s tourism business that could include Canadians but isn’t dependent on them: regional buildout of the Lamoille Valley Rail Trail, a 93-mile bike and snowmobile track that follows the old Lamoille Railroad line from Swanton to St Johnsbury. LVRT, which the state of Vermont first began working on 20 years ago, will be substantially complete by December 2022.

Much of the most recent progress on the trail occurred in the Northeast Kingdom; completed in the fall was a 17.9-mile section that stretched from Danville through Cabot, Walden, Stannard and Greensboro to Hardwick.

To help towns fully exploit the significant tourism potential of the trail, Snedeker and the NVDA have commissioned an economic impact study of its Northeast Kingdom stretch, which could help municipalities win state funding through a new LVRT community grants program the Vermont Department of Transportation is offering. Funding could be used for trailheads, wayfinding signs and the like, Snedeker said, designed to bring tourists — and their spending — into town.

St Johnsbury is well along on its connecting spur, to be officially opened in spring 2024, that will bring LVRT users from the current trail to a pathway along the Passumpsic riverfront to a pavilion in the downtown. The project is part of a $1.7 million initiative, supported with a mix of federal, state and local funds, to connect downtown St Johnsbury, via an underpass beneath the old railroad tracks, to its riverfront, which is being upgraded with landscaping and signage.

Photo: Trailhead Pavilion. Courtesy photo.

Broadband Breakout

While Vermont’s push for universal broadband will impact all regions of the state, its effect on the Northeast Kingdom could be transformative. The region is already luring refugees from hotter, dryer, more congested areas of the country, attracted by the Kingdom’s natural beauty and outdoor recreation opportunities, who can increasingly work remotely.

The broadband initiative will only accelerate that trend. “We should see a big increase in people who could work out of New York and other remote locations but live here,” said Burke’s Vendituoli. “They’ll bring higher wages into the community,” which in turn will have a positive impact on the businesses already located in northeastern Vermont.

Bringing broadband to every corner of the Northeast Kingdom is no small feat. Between 2,200 and 2,800 miles of fiber optic cable will need to be strung on utility poles to connect the 21,126 addresses in the 56 NEK communities currently without broadband. The effort is being spearheaded by NEK Broadband, one of 10 Communications Union Districts, or CUDs, Vermont has tasked with implementing the statewide buildout.

The project is up and running — and at a good clip. NEK Broadband began the buildout at the end of 2021 and has already offered service to 440 homes in Concord, Lunenberg and Waterford.

Photo: A technician strings fiber optic cable on a telephone pole in Waterford, part of an effort spearheaded by NEK Broadband to bring high-speed internet service to the Northeast Kingdom. The community nonprofit has already connected 440 homes in Concord, Lunenberg and Waterford and will eventually bring broadband to 21,126 addresses in 56 NEK communities. Photo courtesy NEK Broadband.

The NEK buildout, with an estimated price tag of $185 million, had a watershed moment over the summer when it secured a $16 million grant from the Act 71 Broadband Construction Program to construct 215 miles of network, connecting 1,479 households. Early construction will be concentrated in Concord, Kirby and Waterford, with additional miles expected in Barnet, Brighton, Burke, East Haven, Lyndon, Newark, Sutton and Wheelock. Portions of Peacham, Groton, Ryegate, Walden and Hardwick will also be connected, with an additional $5 million grant from the Broadband Construction Program.

Earlier this year, the broadband provider launched a program that should further speed implementation: the NEK Broadband ARPA program. For those towns that contribute their ARPA funds — allocated by the state to towns from Vermont’s American Rescue Plan federal appropriation — both the Vermont Community Broadband Board and NEK Broadband will offer matching grants. Thirteen towns in the region are participating.

NEK Broadband is currently laying the trunk line for broadband connectivity that also includes infrastructure to facilitate connecting towns — the so-called middle mile — to the trunk as well as individual homes, the last mile. Towns with supplementary ARPA funding will see additional connections to the trunk line built out more quickly.

NEK Broadband Executive Director Christa Shute said the full NEK buildout could take seven years, due to workforce constraints, but that the project is off to a great start.

“We are proud of our progress and aware of the challenges in front of us,” she said. “Our speed to construct our backbone throughout our network, and spurs sponsored by towns’ ARPA fiscal recovery funds, is dependent on the poles being prepared by the seven electric utility companies in our area. We have already submitted over 450 miles of these make-ready applications.”

Real Estate: Red Hot Demand, Little Supply

It might appear that NEK’s residential real estate market cooled last year. Unit sales declined 22% across the region, said Pronto, the broker with Jim Campbell Real Estate, which does business throughout the region.

But total sales volume decreased by only 6%. The discrepancy is explained by rising per-unit sales prices, which increased by 21% last year, he said, driven by surging demand for the few available properties.

Inventory is at an all-time low — two to three months, compared to 14 to 15 months last year, and 25 or 26 months historically — Pronto said.

“Total listings used to average 1,200 to 1,500,” he noted. “Last year, they were down to 600. This year it’s 400.”

Most buyers are from out of state, some from as far away as Florida, Texas, Arizona and California, and of retirement age. “They pay cash,” Pronto said, and therefore are not impacted by rising interest rates.

On the commercial side, there is similar demand for manufacturing and industrial space — and even less supply.

“We have zero warehouse space; we have zero industrial/manufacturing space for sale or lease. There’s just nothing. Everything’s full,” he said.

Obstacles to Further Growth

While the news in the Northeast Kingdom is mostly good, a crisis looms over the region that could derail its bright future: a critical lack of housing — especially middle-income housing — and a shortage of trained workers to fill jobs.

“The challenges that we have around housing and workforce development are truly concerning,” said Sewake. “They have the potential to derail all the good momentum that we have here.”

The state has a number of programs in place to address housing shortages, said Josh Hanford, commissioner of the Vermont Department of Housing and Community Development.

The Vermont Housing Improvement Program has restored and brought back online 383 residences that had code issues and were uninhabitable or barely habitable, including 62 in the Northeast Kingdom.

The Vermont Housing and Conservation Board, a nonprofit instrumentality of the state, has been appropriated more than $281 million in federal and state recovery funding since March 2020 to build housing for the houseless, low-income and other marginalized populations, Hanford said. The program has added 80 to 100 units in the Northeast Kingdom, with many more on the way.

Hanford also previewed an initiative his department will launch in late 2022, called the Missing Middle Homeownership Development program, designed to increase the supply of much needed middle-income housing. The program gives developers of middle-income residences subsidies to make their projects profitable.

Currently, those projects don’t “pencil out,” Hanford said. “It's costing too much to build for what they can rent or sell a property for to meet the demographics of a region.”

That gap gets at a systemic issue Hanford said must be debated before Vermont’s housing shortage can be resolved.

Driving up the cost of developing housing, and making subsidies necessary, is an overburdensome regularly environment, both at the municipal and state levels. To loosen regulation at the local level, Hanson’s department is providing incentives to towns to update their zoning practices through its Bylaw Modernization Grants program, making it easier and less expensive to build density in town cores.

But Act 250, which allows costly objections to a development to be raised no matter their merit — often pricing homes out of range for middle-income buyers — also needs to be examined.

“Until we elevate the right to build housing up there with the right to have an agricultural field, the right to have a nice view, the right to have an historic village — until a majority of Vermonters feel that way — we’re going be hard-pressed to meet our housing needs because there are so many opportunities in the system to stop a project you don’t like.”

The labor shortages plaguing the Northeast Kingdom are intimately linked with housing shortages. Burke Chamber president Vendituoli points to a newly recruited teacher in the town’s elementary school who had to break her contract because she couldn’t find a place to live.

But several programs are in place to help address the issue. Economic Development commissioner Goldstein said a program the department has offered for some time, the Vermont Training program, designed to help employers upskill existing staff rather than recruit new managers, is gaining traction.

The University of Vermont, through its Professional and Continuing Education arm, offers a similar statewide program and has met with employers in the NEK to market it.

UVM’s Office of Engagement has also taken the lead in a program, recently funded by the Vermont Legislature, that offers loan repayments of up to $5,000 to any student earning a four-year degree, at any Vermont institution, who agrees to work in the state for two years after graduation.

The program currently applies only to students graduating in 2023, but Christopher Koliba, faculty director of the office, hopes it can be extended.

There is wide agreement that resolving both housing and workforce issues is critical for the NEK to realize its significant potential.

“The Northeast Kingdom has a very bright future,” said Jay Peak’s Wright, “to the extent we can get those issues resolved.”

Jeff Wakefield is a freelance writer from Burlington.