MIDDLEBURY — The Middlebury selectboard has decided to dip into the community’s local option tax reserve fund to plug a $1.8 million revenue shortfall in the funding of $17 million Ilsley Library expansion and renovation project.

The board made that decision at a special budget meeting on Tuesday.

Ilsley project boosters at that gathering confirmed they’d achieved a previously set goal of raising $6 million toward the project, but that they’d been unable to secure $2 million in grants that had been part of the original funding puzzle. It’s a puzzle that has also included a $4.5 million bond to be absorbed by local property taxpayers and what had been a $4 million commitment in local option tax (LOT) reserve funds.

Middlebury launched its local option tax in 2008 to help pay off debt on the $16 million Cross Street Bridge project. The 1% taxes on rooms, meals, sales and alcohol has been generating more than $1 million annually, substantially more than is needed for debt service and maintenance of the span. As of late last year, the LOT surplus fund stood at around $1.4 million.

The town each year sets aside $1 million in LOT revenues for debt service and maintenance on the bridge. During FY’23, the LOT raised $2,058,686. It raised $2.2 million in FY’24 and is expected to raised $2.4 million for FY’25.

Given the absence of grant money, the Ilsley project funding puzzle on Tuesday was still $1.8 million short of becoming a full picture.

The board on Tuesday agreed to raise the LOT reserve fund commitment to the project to cover the gap, meaning that the town will cover $5.8 million — instead of $4 million — during the 20-year span of the bond.

Selectboard members approved the plan with the proviso that Ilsley officials continue to solicit donations and grants to potentially reduce the final LOT commitment. Ilsley Director Dana Hart is now pursuing six grants, totaling around $1 million.

Hart was asked on Tuesday about the status of the Ilsley’s capital campaign.

“We set a goal (of $6 million), we reached it, and a lot of people dug deep to help us get there. As of right now, donations are absolutely welcome, but I’m not actively soliciting gifts right now,” she told the board, noting it was the Ilsley’s first major fund drive in more than 30 years.

But Hart stressed she’d be willing to try a second fund drive later this year, after giving prospective donors a respectful pause.

“I think we need to give a little breathing room,” she said.

The LOT reserve fund has given the county’s shire town a nice financial cushion during at budget time. The selectboard, with voter approval, has been using portions of the surplus to fund some capital projects that would otherwise need to be funded by property taxes.

And there’s another huge capital project looming — a $50 million upgrade of the town’s wastewater treatment plant. Voters will be asked to OK that project on Town Meeting Day, March 4. The town expects to secure some state and federal grant money, but a large portion of the payback will need to be reflected in municipal wastewater rates. And the LOT surplus could also be in play.

Selectperson Heather Seeley warned about the erosion of the surplus.

“We are continually pushing the bump out on this fund and at some point, it’s going to come back and bite everyone in the butt,” she said.

John Flowers is at [email protected].