FAIRFIELD — Town officials agreed this week to withdraw a grant application for $1 million that was intended for the proposed expansion of Fairfield’s public water system.

Officials said they have encountered roadblocks with the funding for the project. They had also hoped to use money from the federal American Rescue Plan Act for the expansion, but are now considering using the COVID-19 pandemic relief aid for bonuses for municipal workers.

The Fairfield Town Council voted Wednesday to withdraw the town’s application for the grant from the Northern Border Regional Commission, a state and federal partnership focused on economic development in distressed counties in Maine, New Hampshire, New York and Vermont.

Town officials had hoped to use the grant, along with $8.4 million in discretionary funding requested by U.S. Sen. Susan Collins, R-Maine, and U.S. Rep. Jared Golden, D-2nd District, for the first phase of the $48 million public water expansion project. Town officials learned recently, however, they are no longer being considered for the discretionary money.

Without the greater amount of funding, the town would not be able to make significant progress on the project with just $1 million from the Northern Border Regional Commission, according to officials.

Councilors said they wanted to withdraw to allow other communities with more-defined projects to use the money. Fairfield officials will still have the opportunity to reevaluate funding opportunities and can apply for the grant again in the future.

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“I feel that it would be best to take our name out of the running so other people who have a firm plan in place can take advantage of the money,” Councilor Stephanie Thibodeau said.

The Town Council then reviewed options for using the $690,000 from the American Rescue Plan Act. Officials said previously they wanted to use the bulk of the money for the water expansion project, but Town Manager Michelle Flewelling asked councilors to weigh in again and create a plan for the funds.

Some of the money could still go toward the water project, but councilors discussed using it for improvements to town parks and staff bonuses.

Council Vice Chair Michael Taylor said he wants to see municipal employees receive sizable bonuses, with quarterly payments over the next year, as reward for working during the COVID-19 pandemic and a retention tool.

Thibodeau agreed, saying she wants to see bonuses in the range of $5,000 for each full-time employee and $3,000 for every part-time worker.

No final decisions were made Wednesday, and Flewelling said she will check with department heads to see if they have ideas for how the federal funding might be used.

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