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<br />,.. ByBARNABYJ.FEDER
<br />~~ Vermont is the only New England
<br />'state that has not had a bank failure
<br />in' the current economic downturn,
<br />and its strict environmental laws -
<br />"oot shrewd Yankee banking -are
<br />`widely credited with saving [he state
<br />-from the worst excesses of the North-
<br />•east's real estate boom.
<br />- ~ "There are still problems here, but
<br />~tlowhere like those in New Hamp-
<br />shire, Maine and Massachusetts,"
<br />said Thomas Menson, a former chief
<br />!'operating officer of the Bank of Ver-
<br />r ttwnt. Mr. Menson also spent the last
<br />'five years as the top banking and
<br />financial adviser to Madeleine M.
<br />:"Kunio, who recently stepped down as
<br />- Governor.
<br />`_~ The environmental laws, known as
<br />'~ Ac[ 250, required such a long review
<br />process that they discouraged poorly
<br />Capitalized developers. Mr. Menson
<br />+'said the act "weeded out the poorer
<br />''projects, and you only get well-capi-
<br />' talized developers," and added, "You
<br />don't get someone who made a profit
<br />on one house suddenly trying to put in
<br />a whole development."
<br />The sharpest contrast, bank ana-
<br />lysts say, is to [he situation in New
<br />Hampshire, which has long been the
<br />New England state with the most
<br />laissez-faire attitude toward develop•
<br />meat.
<br />"I think all five of the largest banks
<br />in New Hampshire will require Fed-
<br />eral assistance unless the economy
<br />turns around," said Gerard Cassidy,
<br />who follows New England banks in
<br />the Portland, Me., office of the Tuck-
<br />er,Anthony brokerage firm.
<br />Act 250, enacted 2l years-ago, has
<br />some of the nation's toughest and
<br />most time-consuming environmental
<br />rules and procedures. It applies to all
<br />commercial and public developments
<br />as well as residential projects of 10
<br />units or more. Projects are reviewed
<br />by regional boards that consider 10
<br />criteria: conformance to local plans,
<br />water use, sewage disposal, energy
<br />efficiency, soil erosion, effect on traf-
<br />fic and municipal services, preserva-
<br />Continued on Page C7
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<br />Ti.~,. .
<br />/~~
<br />~,Termont Development Laws`
<br />=May_ Have Saved Its Banks, , } .~
<br />~_~ s t ~ "~ is-also a forme,; cFisirman of the re- ~~
<br />ued From First Business Page ` gional boattl` that reviewed Act 250°
<br />applications in_ f]tittenden County ~:
<br />-t ildlife habitats, historte sites, ;which includes Burlington an~ is the
<br />agr cultural soil and esthe4es. ~' state's miost urbanized county~~
<br />The reviews'serve as an umbrella ~' ~`
<br />fot•othei'state'and localpe~mlts. Ver=
<br />moot also has a stiff capital gains tax
<br />on short-term land speculation that -
<br />has helped to slow development:
<br />Fewer than,~2 percent of" the
<br />projects presented to the Act 250; re-
<br />gional review boards are ultimately
<br />denied permits, but many are m_ odi-
<br />fied. For ma'or developments, get-
<br />ting through ~e entire local and state
<br />review process can take several
<br />years and several million dollars.
<br />This comparatively stric[,regulatory
<br />climate has occasionally camped
<br />profits at Vermont banks, said Wil-
<br />liam Bruette Jr., the chief executive
<br />of the_('hi[tenden Bank from 1984
<br />until last year, when he moved to New
<br />Jersey to head Paine Webber Int.'s
<br />national banking operations. -
<br />"Some projects that would have
<br />been economically viable got halted
<br />in their later phases, putting the
<br />developers into cash-flow problems
<br />that they wouldn't have had if they
<br />had been allowed to go forward; ' Mr.
<br />Bruette said.
<br />-'But Mr. Bruette is one of many
<br />bankers who are convinced that Ver-
<br />mont benefited, on balance, from the
<br />regulations. Not only were fewer
<br />buildings constructed but those that
<br />came on the market ended up being
<br />more marketable because they were
<br />more environmentally attractive.
<br />~ ~ "A good loan depends on many of
<br />~ the criteria in Act 250; ' said John
<br />Ewing, president of the Bank of_ Ver-
<br />mont in Burlington. "There are
<br />ty of cases where developments
<br />r lack of a good infrastructure,
<br />ing things that banks don't nor-
<br />. take into account." Mr. Ewing
<br />A Troubled Regioa,<r ., ; u,. ,,~s _
<br />Of course; Vermont's banks have`
<br />not escaped New England's downturn'
<br />unscathed. All of the state's leading'
<br />banlts have recently reported sharp:
<br />declines in profits and have set aside
<br />more money to .covet bad loans..
<br />Banknorth Group Inc., the, iargesf'
<br />commercial bank, last month sus-
<br />pended its quarterly dividend. And
<br />the Chittenden Bank, the state's larg
<br />est until Banknorth was formed in a
<br />1989 merger, reported a $1.5 million
<br />loss for 1990.
<br />Among small, independent banks,
<br />the weakest Vermont bank, Valley
<br />Bank in White River Junction, which
<br />is just across the Connecticut River
<br />from New Hampshire, was formed in
<br />1987 by entrepreneurs. It has little in-
<br />~- volvement in Vermont real estate
<br />development, and more than half of
<br />its loans are in New Hampshire.
<br />But over all, the Vermont banks re-
<br />main strong by most historical meas-
<br />ures, like the ratio of capital assets to
<br />loans or the percentage of loans that
<br />cause problems.
<br />Too Close to'Ground Zero' '
<br />New Hampshire bankers doubt,
<br />however, that differences in environ-
<br />mental regulations have anything to
<br />do with [heir situation's being more
<br />precarious. They contend that the
<br />biggest factor is that New Hampshire
<br />- and southern Maine -are so close
<br />to Boston .that they have been
<br />swamped. by growth stemming-from
<br />the rapid expansion of the high-tech-
<br />nology and military contracting busi-
<br />nesses in eastern Massachusetts.
<br />Condominiums and shopping malls
<br />spread at a blistering pace over the
<br />hills of southeastern New Hampshire,
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<br />The New York Timex
<br />while the market for vacation homes
<br />flourished in the White Mountains
<br />and other scenic areas.
<br />When the Massachusetts economy
<br />crashed, New Hampshire inevitably
<br />crashed with it, they said. Vermont
<br />was too tar from "ground zero;' as
<br />the bankers now call Boston, to feel
<br />the brunt of either the boom or the
<br />bust.
<br />Infusion of Cash
<br />New Hampshire's vulnerability to
<br />the dangers of rapid growth was
<br />heightened by the conversion in the
<br />1980's of several of the state's largest
<br />mutual savings banks into publicly
<br />held companies. Analysts said that
<br />the conversions poured about $1.25
<br />billion into the banks' coffers, adding
<br />more than $10 billion to their lending
<br />capacity and encouraging bankers to
<br />listen eagerly to any developer who
<br />walked through the doors.
<br />Total deposits in New Hampsntre~s
<br />banks rose to $21.3 billion in 1988,
<br />from $9.7 billion in 1983. Vermont
<br />banks, by contrast, are smaller and
<br />serve a much more rural state where
<br />deposit growth has been modest.
<br />"1 think market forces created our
<br />situation," said 'Marcel Veiileux, di-
<br />rector of the New Hampshire Bank-
<br />ers Association in Concord. "I don't
<br />think stricter permitting would have
<br />slowed us enough for us to be in as
<br />good shape as Vermont. Massachu-
<br />setts has much more regulation and
<br />bureaucracy than we do, and it didn't
<br />save them."
<br />Some Vermont developers also
<br />doubt that Act 250 has had much ef-
<br />fect on the financial health of banks.
<br />"It certainly limits overbuilding, but
<br />not necessarily by weeding out the
<br />worst projects; ' said Peter Judge,
<br />owner of Judge Construction in Bur-
<br />lington. "It's basically a political pro-
<br />cessthathas supplanted zoning.ltad-
<br />mits state agencies with conflicting
<br />agendas and ritizens with an ax to
<br />grind into the process."
<br />Proposal for Change
<br />i Edwin Granai, a Stale Senator and
<br />real estate developer, has introduced
<br />legislation to "streamline" Act 250.
<br />One provision would exempt govern-
<br />ment-mandated projects, like new
<br />sewer systems and prisons, from re-
<br />view under the act. Others are in-
<br />tended to cut the number of oc^asions
<br />'when developers must re-argue
<br />issues like traffic impact before
<br />state, regional and local agencies
<br />with overlapping concerns.
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