Vermont Legislature SmartTranscripts:

[Chair Robin Scheu]: Good afternoon. This is the House Appropriations Committee. It is Tuesday, 05/05/2026. It's just after 01:30, and we are here to talk about a report that comes out every year that we haven't actually talked about in this committee that I'm aware of. It's called the report on unfunded budget pressures, and it usually is supposed to come out, I think, in January, or it's maybe a little later this year or whatever, but here it is. So we have forty minutes to talk to us about it. So probably thanks for coming.

[Hardy Mrowicki, Deputy Commissioner, Department of Finance & Management]: Thank you, madam chair. For the record, Hardy Mrowicki, deputy commissioner, with the department of finance and management. And you are, you are correct, madam chair, that a strict reading of the statute cited on the cover describes the form of the governor's budget recommendation. In 2016, statute was amended to add the unfunded budget pressures, the specific, all the specific criteria that we're required to report on here that we will walk through. And I have to apologize that we did not turn in the report on the date of the governor's budget recommendation, and the reason is actually one of the the last last pages of this report reports on a number of different funds projected to be in deficit at the end of this current year, and we require working with a lot of different departments to well, but, actually, we report on funds that were deficit at the end of f y twenty five Right. According to the ACFR. And one of the things we're required to report on is the projected ending position at the end of '26

[Chair Robin Scheu]: No.

[Hardy Mrowicki, Deputy Commissioner, Department of Finance & Management]: At the start of f y twenty seven. All the numbers we go through, they're primarily intended to to capture projections of what we expect unfunded liabilities to be at the start of f y twenty seven, and we did not have all the information ready at the time, which we we have to lean on depending on what funds they are, work and projections by other departments. However, I think once we got into the session, we somewhat forgot about this until our intrepid colleagues at the joint fiscal office called us up and reminded us of this. So I'd like to thank everyone involved for because we really do want to fulfill all our statutory duties.

[Chair Robin Scheu]: We hear you. You're on the record saying that, and we appreciate

[Hardy Mrowicki, Deputy Commissioner, Department of Finance & Management]: it. So so yeah. So the date is accurate on this. It was actually in March when we turned it in, and now here we are a little over a month later to talk about it. You're also correct that at least since I've been involved with finance and management, I started in the 2020. The FY '21 cycle was my first, and we have not presented to this committee on this report. And it actually and the history I understand from commissioner Gresham is there was actually a lot more interest in this report a few years earlier. It haven't been, written into law and started to be collected only in f y seventeen. So I think the legislators that were involved with that initiative paid a

[Rep. Michael Nigro]: lot of

[Hardy Mrowicki, Deputy Commissioner, Department of Finance & Management]: attention to this report, focused on this report more. And then as there was transition in the legislature, it hasn't been a a hot topic. However, I think it it's something that I actually use as a quick reference to go back to, and I'll go back to in budget development cycle next year in particular, looking at the the fund positions, the fund deficit positions, and it's a quick reference for that. And I think I hope the committee will find this useful. I think with the time we have allowed so we've got a half hour. Right? Another twenty five minutes.

[Chair Robin Scheu]: We can or more if we need it. I don't know.

[Hardy Mrowicki, Deputy Commissioner, Department of Finance & Management]: Well, I think we'll be able to step through every page, have time for questions.

[Chair Robin Scheu]: Okay.

[Hardy Mrowicki, Deputy Commissioner, Department of Finance & Management]: And we can take it from the top.

[Chair Robin Scheu]: Do you want to start by describing what you mean by unfunded budget pressures? What how is that defined? I mean, these bills is this legislation that we've done and we haven't funded? Or how do you look at that? I'm not

[Vice Chair Martha “Marty” Feltus]: sure I saw an actual definition in statute here.

[Hardy Mrowicki, Deputy Commissioner, Department of Finance & Management]: You know, it it's you know, that's an interesting question because I don't think in statute, it's not like in the definition assumption where it's actually defined what they mean, But in that statute, if you look it up, they ask for the very specific pieces of information

[Vice Chair Martha “Marty” Feltus]: Mhmm.

[Hardy Mrowicki, Deputy Commissioner, Department of Finance & Management]: That are then reported in this report along with along with the citations. So but, really, I think, well, it's easy in the skipping ahead to to the last page and the funds that are in deficit position. That's a that it's very easy to see how those are on on could be considered on on unfunded liability currently. These are you're familiar, for instance, because we've talked quite a bit this session about this communications and information technology fund. Right. That's one of the funds listed on this sheet. These are all the funds that meet the criteria spelled out, which is funds of a certain type being in a deficit position at the close of f y twenty five, and you you'll see that they, for the most part, with the exception of the general obligations bond project funder, projected to be in deficit at the end of f y twenty six as well. So in in terms of a in terms of from an accounting standpoint, we're gonna need to do something going forward to correct these deficit positions. Otherwise, these are basically liens on the general fund, okay?

[Chair Robin Scheu]: Right.

[Hardy Mrowicki, Deputy Commissioner, Department of Finance & Management]: And what that means, I guess, not to go too far down in the weeds, but like from an accounting standpoint, if we all of a sudden were like running it out like, if we were having a cash flow problem, when we look on our operating statements and we see what we have in reserves, for instance, in the general fund, which we've done a good job funding them to their statutory maximums for the most part, But our operating statements on a cash basis don't take into account these other calls that may be on the general fund. Okay? So those if we really all of a sudden were in a cash crunch, those full reserve amounts wouldn't actually be there because we would have to

[Chair Robin Scheu]: Right, we're gonna get that page correctly. Ours came out Oh, okay. So we'll so but this doesn't include all special funds. This just includes certain funds. Correct. Correct? Because there's 400 special funds, and we'd love to reduce that number, but these are key ones. So why don't you just walk us through from the beginning?

[Hardy Mrowicki, Deputy Commissioner, Department of Finance & Management]: Okay. From the beginning, the first criteria that we are required to report on is maintenance. It's the the rubric is maintenance of transportation, road, and bridge infrastructure at current levels. These numbers and the projections all come from our colleagues at the agency of transportation. If you wanted to learn more about how these calculations are performed, I I could not speak to that methodology, but we are we call them up each other and each year rather, and and hound them to complete these projections so that we can include them in the governor's report. So what they're reporting here is an annual need of just over $1,000,000,000. Again, the the the the rubric that they're were required to report on is to maintain transportation, road, and bridge infrastructure at current levels. Annual need, a little over 1,000,000,000, and then avail available funds, they're they're reporting to be 934,000,000. So there's a gap there that they're calling an unfunded budget pressure of a $108,000,000. Now what I will do is just offer for, some a little more perspective and context. I looked back to the first one of these reports I was involved in putting together, which was f y twenty one, my first year on board here. And that was also I think it's a good year to pick because that sort of marked the real change in our in our economic picture when all of a sudden a lot more revenue and a lot more spending started to happen. And in in rough terms, the revenue and expenditures since f y twenty one have increased about 50%, right, across across all funds in state government. So to compare to these f y these are numbers projected for the start of FY twenty seven. What we reported for the start of FY twenty one was an annual need of $849,000,000, available funds of $616,000,000, and that net funded number in the f y twenty one report was 233,000,000. So I only add this context to which I wanted to look up myself. I mean, like, so what does this mean exactly, and what does this mean over time? I guess the good news here is that our what we're reporting in transportation as an unfunded budget pressure is half of what it was, some six years ago. So I guess that's moving in the right direction. Again, if you really wanted to hear more about what does this mean, how is this calculated, AOT would need to come in and talk to you about it, and that would be a more involved discussion. I guess, in summary, as a financial manager, I look at this and say, well, we're going at least in the the right direction in terms of that gap is now half of what it was. And in fact, the available funds for all our concerns on the revenue side about the t fund, the number being reported as available funds here is some 50% higher than it was when it was reported at at 616. Again, that's about all I can say on it except the high level.

[Chair Robin Scheu]: About two questions, Mike and then Wayne.

[Rep. Michael Nigro]: And and just so I understand, like, how this I mean, when we look at that unfunded amount, does that mean that that's the amount rolling forward into next?

[Hardy Mrowicki, Deputy Commissioner, Department of Finance & Management]: No. What that means is I think this is this is the way we would interpret that, Mike, is that, I think we're not maintaining the transportation infrastructure at current levels, and that's that's the gap, and that's the amount of the pressure. That's what you would that's what you would be by this by whatever formula of estimation they use, that amount extra would be required to maintain at the same level. So I guess, again, the good news is we were farther off the mark in dollar amounts six years ago. I guess

[Chair Robin Scheu]: that's That would be to have in this report. Is, we have So, no even if there was a, every five years you just add another year on and drop the other one off or something like that since you pick 2021. It would be really helpful to see what the trends are because this doesn't tell us any of that information.

[Hardy Mrowicki, Deputy Commissioner, Department of Finance & Management]: Well, tells you what's required by statute at least, But it's

[Chair Robin Scheu]: not as useful when you don't know what it means. So as you said, in 2021, we were $233,000,000 apart. Now we're only 106. So that's good news.

[Hardy Mrowicki, Deputy Commissioner, Department of Finance & Management]: And it is. And that's precisely why, yeah, I had the same thought. What does this mean in terms of context? Look at a few years so that, you know, I could be prepared to Yeah. Provide. Because, frankly, this isn't I look I spend a lot of time, and I'm very aware of that last page with the fund deficit positions, which are real in terms of accounting and draw on general fund and like real liabilities. This is a different kind of liability. Right? This is more like this isn't a financial liability. The liability is on the transportation infrastructure. Right. Right. It's not actually going into we're not going into deficit, right, in the in the t fund. The t fund is balanced, but what is happening is that presumably, the dollars are not being spent to maintain at the same level the infrastructure network, and this is the amount in dollars of of the gap. So

[Chair Robin Scheu]: Okay. And

[Rep. Wayne Laroche]: so having been involved with transportation and some in the

[Hardy Mrowicki, Deputy Commissioner, Department of Finance & Management]: past, my guess is that they've looked at all of their infrastructure, bridges and everything that's out there. And they probably have a with all this done and they're looking at a maintenance schedule or there's something that bridge has to be replaced every seventy years or whatever. They've got that all all lined up. This provides the estimate of what the annual amount they would need in order to make all those whole. And it may change through time as things get fixed or as their model. It would change. I think you're correct. And tying back again to the criteria of the report, these are supposed to be projected liabilities as of the beginning of f y twenty seven. So that's the point of time we're talking about. And this work was done earlier this winter, and so it was projecting you know, it's taking into account what they thought would happen for the rest of f y twenty six, and then looking at the f y twenty seven budget, which they are assuming will be approved as it currently stands, and then that's where it stands.

[Rep. Wayne Laroche]: It's fine for helping you to come up with what you need for budget, but also the main thing is probably to watch that trend, like to make sure that that it doesn't widen.

[Chair Robin Scheu]: Nice. That's why it would be nice to see a few years worth. John had a question.

[Rep. David Yacovone]: Would be helpful too to see a few years here, you know, maybe the trend in different place changes here, the actual needle key versus steady gap or maybe it's getting a little better here, especially what's happened the last few years with what will be coming along here, and at some time frame is replacing all the bridges, they're all temp bridges I talked to, asked Joe Flynn about that flat operator here, so those can kind of last for a time period here, but at some point, those have to be replaced, because they're not going to hold up forever. You know, the temporary runs are really, you know, high traveled areas here across the state. Right, right, I dream around. Yeah. So interesting to kind of see what that's gonna look like here once they get to those dates of needing to make those kinds of, not just maintenance, but replacement needs.

[Rep. Eileen “Lynn” Dickinson]: Mike, do you have a question to me?

[Rep. Michael Mrowicki]: I did, I just wanted to add to this mix that what we have seen in Windham County, as an example, parts of Route 5 are being paved right now. This was scheduled for three years ago. Joe Flynn explained, the last two years we've had major flooding which meant priorities had to get shifted, some maintenance gets pushed back. So that deficit you talked about grows. So I think somewhere along the line, when we look at budgeting, I think we need to look at that weather, however you want to attribute it, is going to continue and these incidences are going to continue to be a factor to put into the maintenance phase.

[Hardy Mrowicki, Deputy Commissioner, Department of Finance & Management]: Thank you, I'll move on from

[Rep. Trevor Squirrell (Clerk)]: Go ahead. Again, to the legislation, we're supposed

[Vice Chair Martha “Marty” Feltus]: to be clearing a report on

[Rep. Trevor Squirrell (Clerk)]: the current service obligations And in theory, the current service obligations could vary over time if we decide to put in a whole new interchange, that's probably Fed won't we not ours, but we did something major like another interchange on one of the interstates, then that's adding to our infrastructure and it's adding to our responsibility to keep it mandated. The current service level might change over time.

[Chair Robin Scheu]: Right. Yep. Okay.

[Hardy Mrowicki, Deputy Commissioner, Department of Finance & Management]: So shall we move on to the next section? We're required to report on pension liabilities for Vermont State Employees Retirement System and for the Vermont State Teachers Retirement System, and also the other post employment benefit liabilities, which is primarily related to health care expense. So pension and OPEB for the two systems, These numbers that are reported are actually the unfunded actuarial liability as of 06/30/2025. This information comes to us from the treasurer's office, but it is consistent with the ACFR and other financial reports. The pension system values are using what's called the GASB 67 accounting standard and the OPEB values using the GASB 74. That's government accounting standards board. Not to get too far down in the weeds, but the only reason I'm really mentioning this is that these numbers may look different from other actuarial reports you may have seen that may that are involved in budget development because they may have they may have used they may not have followed the same accounting standards, but we're using in this report the numbers that basically tie to the ACFR. And these numbers here describe the positions as of six thirty twenty five. I thought what I would do is as I did with transportation compared to f y twenty one for some context. And when you see Visa's pension, the $985,000,000 unfunded liability number, that's actually up a 170,000,000 from the 815,000,000 number that was reported in f y twenty one. So I think the takeaway there, just with that snapshot, is, you know, in spite of making we we've done employer contributions that met the ADEC. They they met the actuarially determined employer contribution every year. And then in in addition to that, we also did these pension plus payments of $9.12, and 15,000,000, and now we're at the 15,000,000. But in spite of those actions to fund what the actuaries tell us to and then dump in extra, And in addition to actually, there was the 100,000,000 too, I believe.

[Chair Robin Scheu]: We did 200, a 100 to each.

[Hardy Mrowicki, Deputy Commissioner, Department of Finance & Management]: Right. The 100 there was a 100 each first as part of that same legislation that created the pension plus. So in spite of those actions, our unfunded liability reported by the same methodology in the pension system for VCRs has increased a $170,000,000. So what that tells me is it's a good thing we probably took those actions. However, the the trends have have not gone in our in our favor. Since then

[Chair Robin Scheu]: in '24?

[Hardy Mrowicki, Deputy Commissioner, Department of Finance & Management]: No. I no.

[Chair Robin Scheu]: I'm just wondering if it's starting to come down. I mean, because we I mean, we can some pensions at some point, and so it was going at a bad

[Hardy Mrowicki, Deputy Commissioner, Department of Finance & Management]: And this is really and I'd again, I hate to I hope this isn't too much of a cop out, but really to hear about the trends and the and the and the factors is really it would really be the treasurer's office that I think he would wanna talk to if there's a matter of concern. And if you really wanted to hear an expert opinion I understand that. I'm These are the drivers.

[Chair Robin Scheu]: Spreadsheet that had five years of it. So when you do your report, you have five years of it. So that's not the treasurer telling us. It's you putting down whatever the numbers that they give you, as opposed to having a conversation. So Mike, and then Mike.

[Rep. Michael Nigro]: Well, and maybe you don't have the answer. Maybe the question is for the treasurer, but I was under the impression that this number was reducing because we were looking at being fully funded by 2030. Yeah. That sounded like you said something that this is not moving in the right direction.

[Rep. David Yacovone]: Well, I

[Hardy Mrowicki, Deputy Commissioner, Department of Finance & Management]: just compared the number in '21 with the number as it's currently being reported six years later, and I'm aware of a number of steps to put money into the system. And I know that we've made the employer contribution because we've increased the rates substantially over that time, and and that's all that I can affirmatively report on. And I'm and, you know, we we can we can provide if it if it's of such interest another five years, you know, just summarizing this report for the past six years as we've reported them.

[Chair Robin Scheu]: Okay. I have lots of questions. Mike M, Wayne Linn, and John. I'm writing them down again.

[Rep. Michael Mrowicki]: Maybe I'm not remembering, but I thought the treasurer wasn't here and reported on this, and his report was we were on track. So I'd love to hear how that discrepancy,

[Rep. David Yacovone]: if you can ask the treasurer to come back.

[Chair Robin Scheu]: I just find the report. We must have the report. Okay,

[Hardy Mrowicki, Deputy Commissioner, Department of Finance & Management]: so moving to the next line, OPEB liability.

[Chair Robin Scheu]: I got three more people left questions before you go.

[Hardy Mrowicki, Deputy Commissioner, Department of Finance & Management]: Okay. I'm sorry.

[Rep. Wayne Laroche]: My question so much is, and again, it's the trend that seems like it's the most important thing here. Right? A trend through time. Are we narrowing the gap or is the gap widening?

[Chair Robin Scheu]: It's going up and down.

[Rep. Wayne Laroche]: We're not going to pay it off. Everybody dies, we're not going to pay it off to be in a deficit. This is something that flows through time rather than, it's nice to have it balanced, but it flows through time. It's not as if everybody's gonna die tomorrow and you gotta pay all their pensions.

[Rep. Eileen “Lynn” Dickinson]: Lynn? Yeah, was just gonna say sort of the same idea. It's not static between 2021 and 2025. There are a problem with people retiring, as there will be each year going forward based on our demographics. Question is, is that being accommodated actually early in our plans a few years ago, looking at 2038? Those are suspected same things happening with the teachers.

[Chair Robin Scheu]: Well, and we have the teachers here, so maybe,

[Rep. Eileen “Lynn” Dickinson]: guess, we've had 100 more people retire, which would have an impact on both your OPEB and your

[Hardy Mrowicki, Deputy Commissioner, Department of Finance & Management]: I guess I wanted to first comment on the OPEB line. Yeah. So for the vCER system, that 1,120,000,000 unfunded figure, that is down some $80,000,000 from the $1,200,000,000 figure that appeared in FY twenty one. And I can confirm that, you know, part of the the pension reform initiative involved prefunding OPEB, very expensive. It's now built into our employer contributions each year. That was really the driver in some of our really large percentage increases, employer contributions. So there, you can see that there there has been there there is a noticeable shift, and it's actually a greater so So what are the numbers for Easters for from 2021? They are this $1,625,000,000 number in the current report compares to a 1,550,000,000 figure in the FY21 report. So that's an increase of $70,000,000 approximately. And then on the OPEB side for vistas, it's flat. It's a billion now and it was a billion net. So those are the numbers. Okay,

[Chair Robin Scheu]: great. Now I still have John and Marty on the list. Do you still? Yes. Okay.

[Rep. David Yacovone]: They're on the list.

[Rep. Wayne Laroche]: You good? You have I a need, I need.

[Rep. David Yacovone]: Okay. Yeah, so it's kind of more of a comment that even might be a question here too, and if it's something from twenty twenty one, twenty twenty five or '26, and there may not be any more people in the system, but accumulates over time here, so it's going to go up, we're making that same observation. That's Essex is going to add to our upbrief, even though we're getting to a better place to put more into that over time. So with those two things just in combination, we're going tend to see some fluctuations with that.

[Hardy Mrowicki, Deputy Commissioner, Department of Finance & Management]: With this, are many variables. Yeah, there are many variables at play here. And while the number of contributors is fairly similar, the amounts being contributed are much higher. We're contributing now, The the the state is contributing 30¢ on every payroll dollar into this system, and that was 21¢ back in f y twenty one. So it's changed, you know, that's 50% increase in a and if you look at in absolute dollars. But I am, I feel like I'm really not, well equipped to describe, the pension trend. What what I'm equipped to do is report, you know, the numbers that are coming up Yeah. That are consistent with the most recent annual comprehensive financial report. And and I think so what may be useful is it's prompted some questions. If there are if there are questions that are now of interest to the committee, there's an opportunity to follow-up and ask more questions and better understand underlying trends.

[Rep. Wayne Laroche]: Yeah, thank you.

[Rep. Trevor Squirrell (Clerk)]: My only comment was since we're talking about trend lines, maybe in this year's budget, we need to go into the E section and modify those original strategies that says report all this stuff, but also give a trend line for the

[Chair Robin Scheu]: last five years. Yes, was thinking the same thing. So let's do that.

[Rep. Wayne Laroche]: Good ten years better than five.

[Chair Robin Scheu]: We'll see what we do, but thank you, we'll take that under consideration.

[Rep. Wayne Laroche]: Longer is a little better.

[Chair Robin Scheu]: Well, and then there's also COVID dismissed everything up.

[Rep. David Yacovone]: You should see it.

[Chair Robin Scheu]: Okay, let's go on to the next page.

[Hardy Mrowicki, Deputy Commissioner, Department of Finance & Management]: You. So, the top of page three, reporting on the childcare financial assistance program. We have nothing to say there. It's fully funded. So we're making that comment as required by statute, but really since the dramatic changes to our child care and child care funding system, and the child care contribution, and those funds being raised, this is no longer we're no longer reporting any gaps here. Section then the the next section at the bottom of page three is we're required to to report on reach up. And so what we're reporting here, the methodology is to report on full benefit obligations, including the standard of need for the current fiscal year prior to any rateable reductions made pursuant to 33 VSA 1103A. And what that section requires is that expenditures for the programs can't exceed what's appropriated to programs. And so the way that's controlled through the rateable reduction processes, DCF is able to use rulemaking to limit maximum reach up grant amounts, and that rulemaking is done to make sure that the expenditures and the appropriation balance and the current ratable reduction is is 49.6%. So what that translates to into the numbers, see it's being the obligation to meet the standard of need for the current fiscal year would be the 51,430,000. The program's appropriation is 25,510,000. So the gap between the two would be 25,920,000. And I'll again offer context from FY '21, and the numbers were very similar. They've all increased by about $4,000,000. So there was that obligation was calculated at 45,700,000 in the FY21 report. The base appropriation at that time was 21.8, so the amount for full funding was 23.9 at that time. So the top two numbers were both changed by about 4,000,000.

[Chair Robin Scheu]: So we basically back into the number.

[Vice Chair Martha “Marty” Feltus]: Can I? Yes. Go ahead. Yeah. Well, I'm You know, we This concept of a rateable reduction I I don't know when was that instituted? Do you know?

[Hardy Mrowicki, Deputy Commissioner, Department of Finance & Management]: I would have to research the history on that. I did I'm familiar with the statute. I don't know when that statute was last amended.

[Vice Chair Martha “Marty” Feltus]: I guess I'm puzzled by it because we say that we know that we're not we don't I mean, this presentation really is about unfunded liabilities. And we've talked about ways to try to reduce the gap between fees collected or revenues and the actual costs that we can calculate to cover the kinds of projects or needs that are served by those revenue sources. And I guess what I'm saying is, we've kind of accepted as just, we've just accepted that this rateable reduction, we're

[Chair Robin Scheu]: not going

[Vice Chair Martha “Marty” Feltus]: to do that with this rateable reduction. I know we've had a couple of reports that DCF has put together to look at, well, what would it cost us to kind of reduce this over time? But do you know how long the rateable reduction of has been in place?

[Hardy Mrowicki, Deputy Commissioner, Department of Finance & Management]: I I don't accept to say that the numbers are it looks like it was about the same in f y twenty one.

[Vice Chair Martha “Marty” Feltus]: Yeah. I think it's been in place for a

[Rep. Thomas Stevens]: long time.

[Hardy Mrowicki, Deputy Commissioner, Department of Finance & Management]: And and what I can say from reading the statute recently in advance of this meeting is that there the statute spells out that the the rule can't be changed to change the rateable reduction unless there is, like, a change in the appropriation. Right? So, or a significant change in the appropriation. They're like, there's a tie. Here's the formula and unless something really changes like the input, like we have a bunch more money, we can't change the rule also. That's just what I read in the statute. So there's a rulemaking process that I'm not familiar with. There's the statute that I looked at, and there's the statute that requires us to report this information provided to us from DCF.

[Vice Chair Martha “Marty” Feltus]: I would just assume that the same is the same. I mean, it's the same for transportation. We get in certain revenues based on the fees, taxes, etcetera, that come in. And I'm just expressing a concern that we're just accepting. We know what, okay, this 50% reduction is a reduction in, again, as I understand it, in what we know it costs, to support family of one, two, three, mean it has to be two, three, whatever. And the housing allowance is based on a 2,001 figure market rate. And I think we're fooling ourselves if we say that the Reach Up program is actually meeting needs. And I know that there are reasons for not fully funding needs, and yet a 50% reduction in helping know the very basic needs a family has, it's really problematic. And I won't be here to help you wrestle with that, but I just feel it important to say because we've just accepted this 50% reduction year after year. And of the basis on which that threshold was founded, like the housing rate. And it's just we don't approach other things that same way and I'm just kind of curious about why we've just accepted that this is what we're going to do. And it may be philosophical, I'm sure, I know there are budget pressures, but it's just a problem.

[Chair Robin Scheu]: It'd be interesting to know what other states do actually.

[Vice Chair Martha “Marty” Feltus]: Right, the ratable reduction, I mean, does every state have a ratable reduction? Do we know? I mean, Dave you probably would be the one on this committee who

[Rep. Eileen “Lynn” Dickinson]: would know most about this.

[Rep. David Yacovone]: You mean are there other examples?

[Vice Chair Martha “Marty” Feltus]: Well, do states generally have a ratable deduction?

[Rep. David Yacovone]: I don't know. I just was told that we our contributions are higher than many other states. You've heard that too probably.

[Vice Chair Martha “Marty” Feltus]: Well, I don't know what that

[Rep. David Yacovone]: Which doesn't make it right to make Exactly. That

[Vice Chair Martha “Marty” Feltus]: You know

[Hardy Mrowicki, Deputy Commissioner, Department of Finance & Management]: We don't provide enough.

[Rep. Eileen “Lynn” Dickinson]: I don't

[Vice Chair Martha “Marty” Feltus]: know if that's a per capita or it's just based on the things we cover. I don't want to get us down around.

[Chair Robin Scheu]: Well, no, but I'm thinking we could ask NCSL or somebody to take a look at that. That might be an interesting question just to understand what to do. James is nodding his head, so he's spreading this all down.

[Rep. Eileen “Lynn” Dickinson]: Lynn? I just want to say that I don't think that's the only place we do a ratable reduction. We do it in everything healthcare that the state supports with Medicaid. And we did it for years in schools. We had a foundation plan years ago that did not pay the full amount that it was supposed to pay to schools. I think it's just what happens with government. You're generous, and then you sort of attest it based on what you've got for revenue. We do it with a whole bunch of things. I don't think it's just reach out. I think it's the whole A lot of human services is like that. We just never have enough revenue.

[Chair Robin Scheu]: Where states choose to spend it? Yeah. Okay, let's continue.

[Hardy Mrowicki, Deputy Commissioner, Department of Finance & Management]: Okay, the next page, page four. It's not so much it's just required to appear in the same report. I wouldn't really describe this as a it doesn't really fit the rubric of an unfunded liability. We're just required to report on the funding levels from the property transfer tax to the variety of different places it's sent. So to the current use administration special fund, the Vermont Housing and Conservation Fund, and the municipal and regional planning fund. We also are showing the amounts to the general fund and how the amount to the municipal and the planning fund is then split up. I I I will walk through I'll walk walk through these lines from the top. The these are the these are forecasted amounts for f y twenty seven. So this is if things go as planned, this is based on e board forecast for property transfer tax revenue for f y twenty seven. They're forecasting 82,000,000, okay, and if that's what comes in, there's a flat amount to 2,500,000, and this line it says to Vermont Housing and Conservation Board, it's actually a little more complicated than that if you read the statute. It's actually a transfer to VHFA to pay principal and interests on bonds issued pursuant to 10 VSA six twenty 01/22, and then the proceeds of which VHCb shall use to create affordable housing pursuant to another statute 10 b s a three fourteen. I guess, from our standpoint in the accounting world, this has just remained constant at a 2,500,000 a year amount. This is the same level it was at in that f y twenty one report that I that I referenced. The next line is I have I I caught that this is a mislabel in our in our report. It says 2% to the current use admin special fund. However, act one eighty one, an act I'm sure you're all familiar with, made a number of changes to the property transfer tax, including it it lowered this amount to 1.5%. The number has changed. Or No. The number the the the the label is incorrect. The numbers in the report are correct. So the numbers are all accurate in terms of these are the amounts.

[Chair Robin Scheu]: But will change.

[Rep. Michael Nigro]: Okay. But but what what I so

[Hardy Mrowicki, Deputy Commissioner, Department of Finance & Management]: the the the error is where we label it 2% to current use admin, that should read 1.5 to current use admin because I reconfirmed statutory citations before coming before the committee. And what we had was an analyst did not do their due diligence and see whether the statute had changed. The formulas are correct in the spreadsheet, so that 1,192,000 number represents 1.5%.

[Chair Robin Scheu]: Okay. Tom had a question.

[Hardy Mrowicki, Deputy Commissioner, Department of Finance & Management]: Yeah. So I just wanted to apologize for the inaccuracy of the label there. There are a couple more that I will also point out as we go through here. Okay. Based on changes in act one eighty one that recent fairly recently took effect, and and this report had some of its titles were not changed to reflect correctly.

[Rep. Thomas Stevens]: On that first number, the $2,500,000 to VHCb, I understand that's the that's the pay down of bond. But my understanding, unless that would change by recent legislation, is that a certain amount of that came from capital budget or clean water fund, not from a clean water fund, but it was, is there money that's supposed to go to the clean water fund that takes the sick into account? I mean, every time we see it in the budget, we see 1,500,000 is cut from VHCb, and then another million dollars or something comes from either the capital fund or the clean water fund. I'm just curious that I mean, the number is again, the number is right in my memory. It's just the sources are it's more than just the it's more than just PTT that pays down that bond. I'm

[Hardy Mrowicki, Deputy Commissioner, Department of Finance & Management]: not Yes. There are other sources, but we are only in this section of of this particular report reporting on the distribution of PTT. That's all we're we're doing in this report is break is showing how that PTT amount of 82,000,000 is spread out. We're only reporting on the PTT here. And then

[Rep. Thomas Stevens]: on top of that, isn't there a small very small percentage that is supposed to go to

[Rep. Michael Nigro]: the Clean Water Fund out of

[Rep. Thomas Stevens]: the PTT, like a like a point 2%

[Hardy Mrowicki, Deputy Commissioner, Department of Finance & Management]: statutorily? I would have to recheck on that.

[Rep. Thomas Stevens]: That was something I would have done ten years ago anyway, and it's it's it's not de minimis. It's a de minimis percentage, but it's not a synonymous payment. Yeah.

[Rep. Eileen “Lynn” Dickinson]: Yeah. He does a surcharge. And I wonder if that's approved in to go.

[Hardy Mrowicki, Deputy Commissioner, Department of Finance & Management]: I would have to check, but I think it may be a separate a separate amount in addition to the PTT, if it's a cert if it's a PTT surcharge. We'll we'll be happy to con we'll be happy to confirm those details for the for the committee. Yep. So moving on down, after those those two amounts come off the top. Okay? And then you're left with the 78,300,000 remaining remaining to be allocated. And then per 10 VSA three twelve, which statute has not changed in quite some time, 50% per statute goes to VHCb. So that's the 39,150,000 you see here. And then in the next line, it was formerly 33% to the general fund. However, that number has changed to 37% per act one eighty one. And if I recall correctly, I remember things were happening really fast with that bill. I think it was in ways and means, but I think you'll recall Act 181 also created the land use review board.

[Rep. David Yacovone]: Yes. With a

[Hardy Mrowicki, Deputy Commissioner, Department of Finance & Management]: significant general fund component. Now we've got 6 figure salaries on the board that used to be, you know, per per diems and so forth. And I believe the mechanism to sort of balance that with the budget was to increase the revenue to the general fund from

[Rep. David Yacovone]: Okay. Right.

[Hardy Mrowicki, Deputy Commissioner, Department of Finance & Management]: The property transfer tax. So this number was changed in act one eighty one from 33 to 37%. And then, likewise, the amount to the municipal and regional planning fund was cut from 17% to 13. So so again, I apologize that some of our title descriptions here did not change to reflect the updated legislation, but I believe the numbers in the breakdown are actually correct on the on the right hand side of the sheet. What I can say is even though that for instance so and they were able to get away with cutting that amount to the municipal and regional planning fund because that revenue to the PTT has grown so much at the same time. So we're now the PTT is $82,000,000 in FY '27 where it was at a $48,000,000 level in FY twenty one. So the municipal municipal and regional planning fund is still getting 2 and a half million dollars more in f y twenty seven than it was in f y twenty one, even with the cut in the percentage allocation, if that makes sense. And and at the same time, more was diverted to the general fund. I I believe there is a nexus between that change to the general fund and the funding of the land use review board, which was also part of act one eighty one.

[Rep. Thomas Stevens]: And just a further clarification on the I mean, 50% of the Vermont Housing Conservation Board, that's correct. But within that, there's a certain percentage that I'm never quite positive if it's six what the split is between housing and conservation. So that's right. That 39,000,000 is right to VHCb, but x amount of that 20 whatever. I think it's I know during COVID it got switched because there was so much other money coming in. Right. And so but the idea here is just for clarification is what goes to housing and what goes to constipation. That's right. Important delineation in the amount

[Hardy Mrowicki, Deputy Commissioner, Department of Finance & Management]: of I believe it's in the statute if you look it up. I've seen that but I don't remember the numbers off the top of my head either, Tom.

[Rep. Thomas Stevens]: Yeah, it's just I mean we sometimes the HDB is a target for for well, there's 40 there's $39,000,000 there for housing. It's like, it's not for housing. It's for housing and conservation, and it leverages a whole bunch of other money, which doesn't have to be on this on this thing. I just

[Hardy Mrowicki, Deputy Commissioner, Department of Finance & Management]: make that clear that that Yeah. And I and while I can't remember the exact percentage splits, I know from reading their annual reports, they delineate that well. And and they're careful to show their statutory compliance in terms of how much for housing and how much for conservation and that's instructive as well. That's a good point. So again, to finish out this page, that approximately $10,200,000 is then in turn allocated according to this 7030 split, which has remained constant in statute for quite some time, at least during my my tenure here. So so this is again, this is this is just information, I think, that we're I guess when the report requirements were created, the legislature thought these would be numbers that would be instructive to have at their fingertips, but they do not they're somewhat they do not fall into the category of unfunded budget pressures the way the other report requirements do. Just we're not really reporting liabilities here. We're we're saying this is we're clarifying where it's going because it's when you read the budget language it's somewhat confusing.

[Chair Robin Scheu]: And then the next one if you be sure either you have this one that's landscape or you look on your screen because it's landscape because the one that got printed out got it chopped in half. This has, if you're online, you're fine. If you got a printed piece, you need the new printed piece. Okay, So these are all the other special funds that you need to be included in this?

[Hardy Mrowicki, Deputy Commissioner, Department of Finance & Management]: These are the funds identified in note three b of the notes section of the most recent annual comprehensive financial report. And So, any fund described in the falls into that category, that triggers its inclusion in this report, along with the years of history, so that you can see the trend with the fund.

[Chair Robin Scheu]: That's what we want, right here. Picture trends. Yeah. And

[Hardy Mrowicki, Deputy Commissioner, Department of Finance & Management]: this chart is very, I find, as I mentioned, this is the part of the unfunded budget pressures report that I often pick up and and look at. It's a it's a very concise reference of these are the areas I wanna keep my eye on. And so I'm happy to step through column by column. I did want to preface by saying, the funds that are included changes from year to year. And so for instance, even though we are we are not, for instance, even though the the statutory citation describes it refers specifically to the Workers' Compensation Fund, the State Liability Insurance Fund, the Medical Insurance Fund, and the Dental Insurance Fund. The Liability Insurance Fund was for years in a deficit position, it no longer is, It was not at the close of FY twenty five. So you'll see no state liability insurance fund listed here. You'll also see no dental insurance fund listed here. And I also wanted to add that a fund that had been on this report for a number of years in a row no longer is, which is the liquor fund. The lottery fund still is on this report. I wanted to add the footnote explanation here that the liquor and lottery funds, as enterprise funds, they get kind of a bad deal, and they aren't really I would not describe them even though the lottery fund is showing a deficit position as it's required to be reported in the act for that's because, essentially, it has to do with their their unfunded pension liability. Like, their share of that has to be reported as as part of their their fund, which is different as an enterprise fund than all the other funds here. And so for instance so I guess those unfunded liabilities that we we reviewed on back in the beginning of this report did not include anything as associated with the at least on the ACFR basis, associated with the enterprise funds. And they have to show them uniquely, but the lottery fund guess, long story short, the lottery fund isn't really in a deficit position there. And it's because of the way they're required on the act for to report retirement. And the liquor fund was reported as being in deficit. It wasn't really either, but now it it it's also now showing it's not even showing according to the act for the way it was because the direct apps were too high for a while, but now they're back in more robust position, and they're only transferring to the general fund the amount that's actually over and above their operating profit. So anyway, I wouldn't pay aside from, I maybe already spent too much talking about liquor and lottery, but there are no problems there. The other funds here are primarily internal service funds with the exception of the general obligation bonds project fund.

[Chair Robin Scheu]: So what happened there that we that there's 114,000,000 added into that fund? That's called selling revenue bonds. So what we do What happens is it what

[Hardy Mrowicki, Deputy Commissioner, Department of Finance & Management]: so Yeah. So this is miss it's a again, I'll explain just so that you can understand the information here. But this is a normal course of events for there to be out of the general obligation bonds project fund, which is actually it's technically eight separate funds, and if you aggregate them together, we show them as one here. If you're familiar with the capital bill, you've got the eight sections of government, and they're actually eight special funds. And so one year, the spending will be going into deficit, and then the next year, they're gonna be going out and selling bonds. And then there's a big and then there and so it's it's seesaws because we we typically aren't going to market every year. It's more like every other year, and that's a normal course of events. But following the criteria of the report, we're if if at the close of f y twenty five, there was a negative position required to put it on this report. Next year, we won't because it won't be in a negative position. So I guess long story short, I wouldn't spend a lot of time on I just wanted to know what it was. The GO bonds.

[Chair Robin Scheu]: That's all I needed.

[Hardy Mrowicki, Deputy Commissioner, Department of Finance & Management]: The things the things that are relevant, I think, to keep an eye on are the other internal service funds. I mean, workers' comp fund is going in the right direction, at least. The medical insurance fund, I know we talked about at length in FY twenty six when we injected a a transfer in a budget adjustment of nineteen million. When you look at this this sobering information, it's a good thing we did that, but we are still we we thought at the time that that would right the ship and put it into a and really eliminate the deficit because spending continued at such a pace to as it did, we're still projected to end in a $22,000,000 deficit position at the end of this year, which is going to be improved from the $27,000,000 position, but still a real challenge in terms of the medical insurance fund. I mean, the postage fund has just kind of been, these aren't huge amounts, but it's been what it is. It's been a perennial, it's been just kind of carrying something of a deficit position that's somewhat less than it has been in prior years. So it's at least moving in the direction that we want to see it go. The property management fund is somewhat more concerning.

[Chair Robin Scheu]: That's BGS running that one, right?

[Hardy Mrowicki, Deputy Commissioner, Department of Finance & Management]: Yes, the next two. Property management is basically rental property. And then the facilities operations fund is the fee for space.

[Rep. Wayne Laroche]: Right? Yeah, so I was looking at postage funds, facilities operations funds. We know the communication IT fund, that's the one We put

[Chair Robin Scheu]: $15,000,000 in last year.

[Rep. Wayne Laroche]: Copy center fund, state surplus fund, federal fund. Those are all BGS things, right? Except for IT? And the lottery.

[Hardy Mrowicki, Deputy Commissioner, Department of Finance & Management]: BGS is postage, prop man, facilities operations, copy center, and the surplus properties. Yes. So they're

[Rep. Wayne Laroche]: all BGS. The question I have is how come we run-in funds like that and we don't adjust them in BAA or anything? They're just sitting there and we're deficit we're not deficit spending. Now some of like the IT, the $2,828,000,000 there. I assume that that's a deficit because, there's a plan to build some IT software.

[Chair Robin Scheu]: No, it's not. There's a whole lot they haven't figured out.

[Rep. Trevor Squirrell (Clerk)]: Internal service funds that go into it and then ADS is spending the money out the door.

[Rep. Wayne Laroche]: They're spending more than what they put into it.

[Chair Robin Scheu]: More than what you

[Rep. Trevor Squirrell (Clerk)]: get from the other organizations within our group.

[Rep. David Yacovone]: Yeah. So Right. It's

[Hardy Mrowicki, Deputy Commissioner, Department of Finance & Management]: And so you may recall

[Chair Robin Scheu]: how to charge it. Right? And then it goes

[Hardy Mrowicki, Deputy Commissioner, Department of Finance & Management]: You may recall that their their whole structure of their budget was changed pretty dramatically for FY '27. And I remember walking through this with the committee some, you may have also spoken with ADS, but there is a significant amount of general fund now In addition, essentially, what departments are being charged for IT services is essentially well, actually, the the the spend is being essentially doubled, and about half of that is being passed on to departments, and about half is being borne by the general fund because it didn't seem appropriate to charge to departments because it was basically backbone infrastructure costs. That.

[Rep. Wayne Laroche]: So so are these all are these dollars or are these estimates?

[Hardy Mrowicki, Deputy Commissioner, Department of Finance & Management]: Are are they So the real dollars are f y '26 starting balance and then everything above that. Those are all real actual financial numbers. Estimates The projected ending balance at the very bottom line, what's happened is, that will not be final until June 30.

[Rep. Wayne Laroche]: So how can a a surplus property fund go deficit when you're selling surplus property? Right?

[Hardy Mrowicki, Deputy Commissioner, Department of Finance & Management]: The short answer is that their expenses are exceeding their revenue. So it's costing more to sell the stuff than you bring it in.

[Rep. David Yacovone]: Or perhaps to maintain it before they can.

[Rep. Wayne Laroche]: Gonna be a combination. Well, got BGS in my portfolio, maybe I should talk to them next week.

[Chair Robin Scheu]: I think you've got six items there. It's gonna keep you busy all the through the conference, so it's great.

[Rep. Thomas Stevens]: You can stop fighting us for a buck.

[Chair Robin Scheu]: Awesome and double. Yeah. Okay, so I think that we kind of understand all that, so the numbers change a

[Hardy Mrowicki, Deputy Commissioner, Department of Finance & Management]: little bit. And I'll just add a couple of comments. So for BGS, I'm a lot more focused on, for instance, the Facilities Operation Fund than those surplus property and copy and postage that are just sort of they're fairly small deficit amounts, and they're not really changing a lot. When I see something change more dramatically, like the deficit double in the Facilities Operation Fund, that's when we have a lot to talk about and get involved with, and that's partly what explains a double digit increase in fee for space rates, which I think a lot of folks were unhappy with in the FY '27 budget, but we there is some course correction being taken. So that's how essentially with an internal service fund, well, you've either you've only got two options, you either transfer in general fund to mitigate a deficit, or increase what you're charging. So you charge more than next just what's required next year that you're charging enough to refill the deficit, or some combination of the two. With ADS, it's some combination of the two because the amount is so large. With fee for space, our hope is that we can start making the revenue now fit the expenses and fill some of the back deficit that just started to be created here over the past two two fiscal years. And that property management fund, that's also BGS, and that there's that that should fit in together with your facilities, operating fund. Right? That that should be also an issue. Yes. So what we've got and part of the issue there is a that's that's been in a deficit position for many years. And and and you're you're correct. The cause for concern is that it's now it it's increased a bit during the past couple years of actual ex experience, but that has been you may recall there were a number of, you know, just sort of bad deals that created this really large deficit that is still something of a legacy here. So like like that Burlington Building with the had the big parking

[Chair Robin Scheu]: down in the Cherry Street.

[Rep. Wayne Laroche]: Cherry Street. Anything Yeah. Some of those issues Add add it into this.

[Hardy Mrowicki, Deputy Commissioner, Department of Finance & Management]: Yeah. So you can see that in f y twenty at the start of f y twenty three, there was an $11,000,000 deficit position. That was in fact the largest of any of our fund deficit issues there. And we have been so we're we're still carrying we're still carrying that, but, in addition, representative Laroche, yeah, it's gone a bit it appears to be going a bit not in the in the right direction. So while it's not really the majority of that deficit is not a recent problem, right, unlike the ADS that now requires, like, corrective action, but it's gonna it's still hanging on there, and so we are we we need to we need to to work with BGS to address that situation. You're absolutely correct.

[Chair Robin Scheu]: Any other questions on this this point? Great, well this was helpful. Thank you for coming in and illuminating a few things.

[Hardy Mrowicki, Deputy Commissioner, Department of Finance & Management]: Pleasure, it's been a while.

[Chair Robin Scheu]: I know, I know, we've seen you a lot at the beginning of the session and lots of fun.

[Hardy Mrowicki, Deputy Commissioner, Department of Finance & Management]: Much more pleasant walk across than it was earlier this winter.

[Rep. Michael Nigro]: Didn't need

[Hardy Mrowicki, Deputy Commissioner, Department of Finance & Management]: to bundle up. So

[Chair Robin Scheu]: thank you very much.

[Hardy Mrowicki, Deputy Commissioner, Department of Finance & Management]: Well, sure. I hope this was helpful. And if I'm not in front of the committee again before the end of the session, I hope you have a great summer and see you again next year or not as the case may be. But thank you very much.

[Rep. Michael Mrowicki]: Thanks, Hardy. Okay. So

[Chair Robin Scheu]: the committee, we have a bill, but we're not going to hear it tomorrow. We're going to hear it on Thursday at eleven. It's 02:43 relating to Justice Krumovone. It's come out of human services, somebody there said, there should never even been a bill in the first place, because the money is in the Office of Racial Equity, but here it is. So there's no new money, and you don't have to worry about it from that same point.

[Vice Chair Martha “Marty” Feltus]: I actually received a note from the member who's coming. Yes. And I think that she asked if we

[Chair Robin Scheu]: could meet 15 earlier than this. The question was getting legislative counsel. Okay. So I can chat with her.

[Vice Chair Martha “Marty” Feltus]: Because they are all going to be at Rep. Oh, that's right.

[Rep. David Yacovone]: Yeah.

[Chair Robin Scheu]: Okay. We'll work something out. Okay. But we need to get less counsel, and that's the first time that she's available at eleven. So maybe we have her come in. So stay tuned. We'll do something. Some of you have gotten us your budget portfolio based on what the Senate did with the budget. And we've gotten some emails or lovely memos saying, here's what we know and here's what's a priority. And here, it's Okay. I don't really care what happens to this. So if you all could be looking through your portfolios and letting us know what you think about that, just sending an email or whatever would be helpful. So we have something in writing. If you just tell me, I will not remember at this point. I can't promise I'll remember. So take a look particularly now your budget areas, now that we had our three hour walk through last week. And we're not closing it anytime soon, but that would be helpful. We're going meet again tomorrow for half an hour in the committee conference at 01:00 if Senate approves, then we'll probably meet on Friday. Tomorrow is still a little bit more orientation, so not expecting big things. Again, it's gonna be a few weeks before, because the budget will be the last bill. We're not in

[Rep. David Yacovone]: a rush. Two weeks. Two weeks?

[Chair Robin Scheu]: I'm hoping for that. Yeah, well, I did not believe it existed in mine, but I remember a lot of this myself, so we'll see what happens. We may actually have some people come back in for some testimony on some things that were changed in the budget, just so we can get people here to give us testimony and all of us can hear what's happening. So I'm going work on a couple of those items that were in the budget where the House and Senate were completely in opposite ends of the spectrum in particular. So more to come on that. That's something that'll be working. And then, yes, I think that's all

[Rep. Wayne Laroche]: I've

[Chair Robin Scheu]: got for being on.