Vermont Legislature SmartTranscripts:

[Chair Robin Scheu]: Good afternoon. This is the House Appropriations Committee. It is Thursday, 01/15/2026. It's 01:15 in the afternoon, we are going to hear from the office of the state treasurer on something that has come up while we've been doing budget adjustments, and so we need to hear about that. So we have Tim Duggan, and do we have a friend, Jeremiah? You're both welcome to come up if you want. We have chairs somewhere.

[Jeremiah Breer, Chief Financial Officer (Office of the State Treasurer)]: Okay.

[Tim Duggan, Director of Vermont Retirement Systems (Office of the State Treasurer)]: As long as I'm born a friend.

[Jeremiah Breer, Chief Financial Officer (Office of the State Treasurer)]: Yes.

[Chair Robin Scheu]: Okay. And Tim, you've testified in here before, yes? Yes. Last week. That's right. Well, he was sitting on the side. Right, now he's at the head of the table. All right, welcome.

[Unidentified Member/Staff (House Appropriations Committee)]: So you can start.

[Tim Duggan, Director of Vermont Retirement Systems (Office of the State Treasurer)]: Great, thank you very much. And may I share my screen? I have a presentation that I was Sure. Into your needs.

[Chair Robin Scheu]: Just introduce yourself for the record, if you don't mind.

[Tim Duggan, Director of Vermont Retirement Systems (Office of the State Treasurer)]: My name is Tim Duggan. I'm the director of Vermont Retirement Systems in the office of the state treasurer. And with me today is Jeremiah Breer, our chief financial officer.

[Chair Robin Scheu]: I will just quickly share.

[Tim Duggan, Director of Vermont Retirement Systems (Office of the State Treasurer)]: Great. So today, what we're here to talk to you about is the federal grants assessment. It's a tool that we use to fund the teachers' pension costs. And so what I was hoping to do was just briefly walk through what it is, why we use it, how it interacts with the funding of the pension system, and then just talk a little bit about the issue that's come up and the request that we have for the BAA. All right, so the FTA, it started in fiscal twenty sixteen. And basically, it's a charge that's applied to federal grants that fund teacher positions. So if you are a teacher in a public school in Vermont and that position is funded by a federal grant, the salary is funded by it, we also we apply a charge to reflect the cost of the retirement benefit associated with it. This year, that's 25.47 percent. So what that means in really basic terms is if there's a teacher that's grant funded, they make $100,000 just to say, because it's a round number, then $25,000 will be the cost of their retirement benefit that comes from that federal grant. And it was used as a way to offset the amount that the state has to come up with to fund the pension systems, because it's the state, not the school districts, that pay for the employer share pension costs. So how does it work? In our office, under Jeremiah's leadership, we set the FTA rate every year. And it's that percentage that's going be applied to teacher salary. And as I said before, it's calculated to reflect the amount that we need for the retirement costs. One feature of it maybe it's a bug, but it's a necessary component is that we receive we bill and receive money on a lag. And that's kinda why we're here today, because you really don't know what you're going to receive in a given year when you're setting the amount the year before as we're projecting the ADEC. So just a quick overview of how we fund the VISTA system. As I said, the state pays the employer costs. That has two components. The normal cost you can think of is just the cost to fund this year's benefit. So people are gonna be working another year. They're going to have another year's worth of service credit that they will accrue a pension for. And that normal cost reflects that amount.

[Chair Robin Scheu]: I think of that as the current cost.

[Jeremiah Breer, Chief Financial Officer (Office of the State Treasurer)]: Exactly.

[Chair Robin Scheu]: Normal always threw me off, but the current cost.

[Tim Duggan, Director of Vermont Retirement Systems (Office of the State Treasurer)]: The actuarial terms that we use. Yeah. So it is exactly right. It's the current ongoing costs for the pension system. The unfunded liability payment, that is the amount we need to pay down our unfunded liability in a manner consistent with our existing funding policy. And as I'm sure everyone in this committee knows, that is a closed thirty year period that ends in 2038, where we will get to full funding of our pension systems. So you have those two components. And the FTA, the revenues that we get from the school systems, it offsets the amount that this body needs to come up with to fund that total ADEC, normal and unfunded. And it's applied proportionally. So the normal cost is is think of it maybe about 20% rough number of the total cost, and the unfunded liability payment is about 80%. So about 20% of the FGA revenues goes to the normal cost,

[Jeremiah Breer, Chief Financial Officer (Office of the State Treasurer)]: and 80% goes to the unfunded liability, roughly.

[Tim Duggan, Director of Vermont Retirement Systems (Office of the State Treasurer)]: There is a third component that the state pays, and that's the Act 114 plus payment As part of that pension reform legislation a couple of years ago, the state committed to making extra payments on top of the actuarially determined amounts to help pay down the pension debt faster and to realize a lot of savings from doing so. That piece is outside of the FGA. That's just the general fund component that is a specific appropriation. So what's it look like for the current year?

[Chair Robin Scheu]: If you look at

[Tim Duggan, Director of Vermont Retirement Systems (Office of the State Treasurer)]: that column on the left, that is our total ADAC. The normal cost this year is $41,000,000 The unfunded liability payment is $171,000,000 for a total of $212,000,000 for the employer share. Coming out of general fund? Well, not all. The normal cost comes out of the education fund. And I think the idea there is, since it's the current ongoing costs of running the schools Right.

[Chair Robin Scheu]: It's in the right. But the other one comes out of the general fund.

[Tim Duggan, Director of Vermont Retirement Systems (Office of the State Treasurer)]: Exactly right. And so you see in that middle column, that's the FGA, the federal grants assessment. For the current year, we were estimating $13,300,000 is what we would receive. So when you apply that proportionally to the to the ADEC, that means $2,600,000 are are going to offset the normal cost. So they're saving the Ed fund $2,600,000, and 10.7 offsets unfunded liability payments, so it's saving the general fund by that amount. And just for your reference, because I know this committee loves the big bill, that's where you can find these amounts in last year's big bill.

[Chair Robin Scheu]: And so the $13,000,000 is the estimate that was put in by the administration to cover the teacher costs.

[Tim Duggan, Director of Vermont Retirement Systems (Office of the State Treasurer)]: And by us. I mean, we work to come up with that estimate. But it's well in advance of

[Chair Robin Scheu]: Actual life.

[Tim Duggan, Director of Vermont Retirement Systems (Office of the State Treasurer)]: Of when it's coming in. So when we were Jeremiah and his team were estimating this this time last year or even earlier. And he's only just getting the first payments. That's how much of a lag he's coming in on. If that's

[Chair Robin Scheu]: Payments are from what time period do you actually getting We're

[Tim Duggan, Director of Vermont Retirement Systems (Office of the State Treasurer)]: just getting payments now from the first quarter of this fiscal year.

[Chair Robin Scheu]: We July, August, September, we're getting payments for the first Is there a question, John?

[Rep. John Kascenska (Member)]: So what's the lag?

[Tim Duggan, Director of Vermont Retirement Systems (Office of the State Treasurer)]: So well, we need to understand I mean, it's sort of logistics. You need to know what someone's getting paid, who's working in the system. And so we have to close a quarter. And then once that quarter is closed, Ryan and his team have to put out the bills. And then the schools have to have an opportunity to pay it. So it's all very Just logistics. Logistics. Exactly right.

[Jeremiah Breer, Chief Financial Officer (Office of the State Treasurer)]: We're also, of course, doing budget like a year ahead of time. Right now, we've got the 2026, and we're developing 2027 budget. So that's the data we have to figure out a year from now, you know, what the receipts are going be.

[Chair Robin Scheu]: Thank you. Just backing up a little,

[Unidentified Member (House Appropriations Committee)]: In your first paragraph, you talked about a teacher position to cover the retirement costs.

[Jeremiah Breer, Chief Financial Officer (Office of the State Treasurer)]: Are you taking administrative costs coming out of that portion of the team? I assume you haven't got administrative costs in order to make all this work. Yeah.

[Tim Duggan, Director of Vermont Retirement Systems (Office of the State Treasurer)]: The administrative costs are part of the ADEC. So if you see that $212,000,000 ADEC, that includes administrative costs. Yeah. Actually, that was a that was a change, I think, Chris maybe could help me about five years ago, four or five years ago, where it used to be a separate appropriation for the administrative costs. Now we roll it into ADEC. So like any other assumption, investments, mortality, we could either realize a gain or a loss based on whether or not we are under what that assumption is or over what that assumption is. And now this is really the meat of what's going on here, this graph, because what it's doing is showing how we've projected the revenues going forward. That's the green bars going up. And then how revenues have come in. And you can see that revenues have gone up steadily. I think there's a steady increase in the early years. But then obviously, in 2021 through 'twenty four, that's a pretty huge increase. And that is going to be, I think, substantially due to ESSER and programs like that, where there were a lot of teacher positions in those grants, and schools were bringing on a lot. Those funds gave schools the capability to bring on new sources, and that's where they were funded. And so the FGA revenues came in associated with that.

[Jeremiah Breer, Chief Financial Officer (Office of the State Treasurer)]: This

[Chair Robin Scheu]: was pandemic related funding. There was ESSER one, two, and three to the school districts, and they were using it to hire teachers with federal funds. And I think they probably kept the teachers in some cases, but the federal funds are.

[Tim Duggan, Director of Vermont Retirement Systems (Office of the State Treasurer)]: Well, exactly. And so those teaching positions are moving into local budgets. So they're out of grant funded budgets, and they're into the school's local budgets. So that FGA revenue the teacher might still be there, but the FGA revenue doesn't come in.

[Chair Robin Scheu]: Because they're not federally funded anymore.

[Tim Duggan, Director of Vermont Retirement Systems (Office of the State Treasurer)]: Exactly right. Oh, sorry.

[Jeremiah Breer, Chief Financial Officer (Office of the State Treasurer)]: Did they hire those on as limited term positions?

[Chair Robin Scheu]: It depends on the school district, what they did.

[Jeremiah Breer, Chief Financial Officer (Office of the State Treasurer)]: So they did whatever they wanted to do, pretty much.

[Chair Robin Scheu]: Well, it's whatever the towns and communities, right, that's the vote of patrol, if they voted for it or not? Yeah. Gotcha. Yep, Lynn? Or they may have been merged. They may not be good. We don't know what's happening with those. Doesn't matter. What is it? We're hearing the federal money. Right. Exactly. Okay.

[Tim Duggan, Director of Vermont Retirement Systems (Office of the State Treasurer)]: We also heard anecdotal suggestion that I think school business officers understand a substantial charge, if there's a substantial charge associated with the teaching position. And if you're a school business officer, you have a grant, you have a decision to fund a position that's not a vistor's position, like an aide or a vistor's position, which one are you going to choose? You're going to choose the non vistric position because it doesn't come with a 25% surcharge. So there is some thought that there may be some migration of positions, just given the rational economic signal that's coming. So

[Chair Robin Scheu]: we were making more than we needed for a while.

[Tim Duggan, Director of Vermont Retirement Systems (Office of the State Treasurer)]: We were, and that was going to pay down anything more that came in would pay down that unfunded liability quicker. In our world, that's a good thing, obviously. But what Jeremiah was just mentioning about how far out in advance we're setting our estimates, you can see just as 25 drops off a cliff as the ESSER money goes away. But we're setting the estimate based on this gigantic '24 number. And so that's how we get up to 13.375 in 2026. And then Jeremiah and his team, they realized this in the last spring. And so we brought that to folks' attention here, and the legislature did put a $3,800,000 reserve. We were actually worried last spring about the FY '25, that we might not make the FY '25 number. So legislature put aside $3,800,000 to basically be there in case for FY 'twenty five and anything rolls forward into FY 'twenty six. Fortunately, didn't need it for FY 'twenty five, so that $3,800,000 is still there. But we're still we're looking at the FDA revising down the amount we're expected to receive based on the limited sample size we have right now. And we wanted to come to you as early as possible to say, this is an issue and that we think it's a good idea to add another $3,000,000 to that reserve so that come spring, if these federal grant receipts don't materialize, we still will be able to pay the ADEC and the PLUS payment in full, which is an important thing for the state and its credit rating.

[Chair Robin Scheu]: That's fair. And it's FY 'twenty six, not FY 'twenty seven, which is why it's in budget adjust. That's why you're requesting it for budget adjust.

[Tim Duggan, Director of Vermont Retirement Systems (Office of the State Treasurer)]: And you lead me into my final slide, a note about FY 'twenty seven. So the current projection that we're using, we have lowered it substantially to $8,000,000 But we need to watch it. We need to better understand what's happening this year. And we just need to figure out what's we're not going to be able to do that until we get some quarters of receipts under our belts. And then we'll be able to see how they're coming in and whether or not that $8,000,000 remains reasonable or if we need to come back to you.

[Chair Robin Scheu]: Well, that's a higher amount than what you think you're going to get this year.

[Tim Duggan, Director of Vermont Retirement Systems (Office of the State Treasurer)]: So I

[Chair Robin Scheu]: would be suspicious on whether the $8,000,000 is actually going to this didn't come in the normal course of budget adjustment because you didn't have a payment at that time. Is that correct?

[Jeremiah Breer, Chief Financial Officer (Office of the State Treasurer)]: I'm sure I

[Tim Duggan, Director of Vermont Retirement Systems (Office of the State Treasurer)]: can speak to when our first payments came in for this quarter.

[Jeremiah Breer, Chief Financial Officer (Office of the State Treasurer)]: They start coming in in December. So even at this point in January, don't have to give a majority of the first quarter in. But when the budget adjustment is being developed, we have

[Chair Robin Scheu]: much better data. It's too early than Yeah. We've been

[Tim Duggan, Director of Vermont Retirement Systems (Office of the State Treasurer)]: in communication with the administration about this, flagging this as an issue. And we just wanted to make sure I know our treasurer, deputy treasurer, sent over a memo to

[Unidentified Member/Staff (House Appropriations Committee)]: Yes.

[Tim Duggan, Director of Vermont Retirement Systems (Office of the State Treasurer)]: Appropriations chairs. We just wanted to flag the issue as soon as we could and thought that the BAA made good sense to add to that reserve at this point because we we do think that it will be needed. But again, with all appropriate caveats, we

[Jeremiah Breer, Chief Financial Officer (Office of the State Treasurer)]: just don't know at this point. Sure.

[Chair Robin Scheu]: Okay. Great. And John?

[Jeremiah Breer, Chief Financial Officer (Office of the State Treasurer)]: So we may get an update at some point to get a better more firm estimation. Yeah, I mean, know, by the end of this month, we get to the next month, we should have, you know, the majority of the first quarter and then, know, when we get into, we get into the spring, we get into like, you know, April, May, we should have like the second quarter coming in. I mean we don't have like a full year until like you know after the big bill is passed, but certainly the status of treasurer's office, I mean we continue to monitor this and to like update our projections as we go along and happy to provide these things to the future if that is helpful.

[Unidentified Member/Staff (House Appropriations Committee)]: No, it's just, think he explained to me this morning pretty well. Basically, a teacher who's funded by a federal grant, we're gonna have to pay their pension. But we get reimbursed for that by the federal government. And there's a part that is paid by the school where it's withheld by the teacher's salary and employer piece is paid by the school district. And then they go and give the money to us for the pension, because we are technically the state's employer. And then the feds will reimburse the district for the tax and then they pay the state. But

[Chair Robin Scheu]: if we don't have the lag, you don't

[Unidentified Member/Staff (House Appropriations Committee)]: have that issue. You have to put

[Chair Robin Scheu]: it in VA. So

[Unidentified Member/Staff (House Appropriations Committee)]: it's a lot less than it was previous year. It may very well go down next year.

[Chair Robin Scheu]: Right. Well, better the administration gets at estimating, the less likely it'll be. So this year, they estimated very optimistically. Yes.

[Jeremiah Breer, Chief Financial Officer (Office of the State Treasurer)]: So

[Chair Robin Scheu]: we don't know what's well we owe more than we Right.

[Unidentified Member/Staff (House Appropriations Committee)]: But we put it in reserves so we've got that.

[Chair Robin Scheu]: Exactly. But now we're going be needing to use it.

[Unidentified Member/Staff (House Appropriations Committee)]: So does that become a transfer?

[Chair Robin Scheu]: I'm seeing no from this side.

[Jeremiah Breer, Chief Financial Officer (Office of the State Treasurer)]: Of administration to be held in reserve so that they can be drawn upon if it is needed. So I would imagine that even here, a similar construct, and just appropriate funds somewhere where it will sit to be spent even when it's needed to make sure that it's our total profit.

[Unidentified Member/Staff (House Appropriations Committee)]: So that makes an appropriate Yeah.

[Chair Robin Scheu]: From the year. Right? Do have any questions on this? This makes sense?

[Jeremiah Breer, Chief Financial Officer (Office of the State Treasurer)]: Maybe we should have that conversation. Probably,

[Chair Robin Scheu]: this is, you also talked to GovOps, right? That's your other committee that you've worked. So Lynn, just if you don't mind just letting Matt or Lisa know, I should say inform them at You this might hear from them, but I think as long as we inform them then.

[Tim Duggan, Director of Vermont Retirement Systems (Office of the State Treasurer)]: We've been invited into Ways and Means next week on this topic as well.

[Jeremiah Breer, Chief Financial Officer (Office of the State Treasurer)]: Oh, Okay. The ad fund is great.

[Chair Robin Scheu]: Right. Okay.

[Tim Duggan, Director of Vermont Retirement Systems (Office of the State Treasurer)]: And then just the last thing I will note, any further questions, please don't hesitate to reach out. And I will commend to you a great fiscal issue brief written by Mr. Rube that covers all this in great detail. And he just wrote it last February. And it actually if you want to have further reading on this topic in a very concise and straightforward way, this is a really great resource. So we have the link in the chat.

[Jeremiah Breer, Chief Financial Officer (Office of the State Treasurer)]: Chris, I

[Chair Robin Scheu]: think it would be great to hear your voice. You

[Jeremiah Breer, Chief Financial Officer (Office of the State Treasurer)]: hear yourself.

[Chair Robin Scheu]: But that would be fun. Okay, great. So I'm not seeing any more questions. Thank you very much for coming in. We appreciate it. You turned that around pretty quickly for us, and we're glad and good. Great. So, committee, a couple of things before we take a break. Marty and I met with the chairs and vice chairs, and we went over the budget memo that you all got a copy of that we sent out to agencies in October. And we've been asking people if they've come in, are you remembering about the budget? Anyway, we went over that again. They all had it from before. But this time, we also put together, thanks to James and Emily, a list of questions and how to interview folks to follow-up on that, what we're asking them for, how to ask them good questions. So it's about oversight and accountability and transparency and really trying to understand what's going on. So it's suggestions and guidelines to help people think about how to ask good questions. So we presented that to them. They were very engaged. They were really happy that we did this. Thank you guys. And James is going to just fix a couple of typos in a memo, and then he's going to send it to me. I'm going to send it to you, and I'm going send it to all the committee members. Well, the players will give it to the committee. So we're not expecting perfection, we're hoping for progress and better questions and we'll all get better just as we go along. They aren't the only questions you can ask, but there's an idea and you may have other ideas. So it's a good start. So more to come on that. When we come back, we're going to start right at 02:00 with our security briefing. That will be an executive session. So the only people that will be in here will be us and Autumn. And I'm trying to find the language from Betsy Ann that says that we go live, say that we're going into executive session and then it happens. That's what we'll be doing at 02:00. And I think that's everything. Unless anybody else has anything? Nope. Then fifteen, Teresa's coming. Tom will be on the floor.

[Jeremiah Breer, Chief Financial Officer (Office of the State Treasurer)]: Yeah, it's only two bills along

[Chair Robin Scheu]: the road. If you need

[Jeremiah Breer, Chief Financial Officer (Office of the State Treasurer)]: it, I'll just let us At the presentation, I'll be there for a while.

[Chair Robin Scheu]: Okay. I'm sure it will go well.