Vermont Legislature SmartTranscripts:

[Michael Marcotte (Chair)]: Good morning everyone. This is a joint hearing between the House Commerce and Economic Development Committee and the House Education Committee. We have with us John Gray, our legislative counsel, who will walk us through the statute on the higher education town of Boston. I'm not if you could give us a better idea of what the statute says. It's been there for quite a while, guess, but I know we haven't heard much about it. Don't know. No. It made the news when it turned out there was a lot of money going into it. It's becoming an interest, I guess, so I think we need to learn more about it. But John, thank you for joining us this morning.

[John Gray (Legislative Counsel)]: Good morning, everyone. John Gray, Office of the Representative Council. I hope to bore you guys this morning, but we will see what happens. Vermont Higher Education Endowment Quest Fund. Let me zoom in a little bit because I think that might be Right, that might be as good as it gets. We're in title 16 and we're looking at section 2,885, the Vermont Higher Education Endowment Trust Fund. And we can think about I think it's gonna be relatively simple, but just to organize the subsections we're gonna go through, we're gonna talk about what's in the fund. So what money is going into this fund. We're gonna talk about the trust aspect of it to the extent that you can build out any sort of intuitive sense of what a trust fund is within it. That's gonna be management of assets by the treasurer. We're gonna talk about the annual equal allocations of up to 5% of assets. It's sort of the kind of core function. There's also a permissive allocation on a yearly basis based on an annual determination of up to 2% of assets. And that would be used for, permanent endowments as it gets to 5%, which is made available for non load financial aid. So things like grants, scholarships, and the like. Some technical aspects carrying forward funds year to year, and then some reporting provisions. So an annual financial report from the treasurer and an impact report from the beneficiaries of the trust fund itself. So just gonna walk through fairly slowly, but happy to answer questions as we go. Subsection A creates, it's establishing the trust fund in the office of the state treasurer. So this is managed by the treasurer's office, and it comprises a set of different fonts. So appropriations made by the general assembly, we're gonna jump to three and then I'll come back to two because two is the most complicated, contributions from any other sources, so just general catch all. But two, and I think this is the piece where folks saw an influx of money into the fund and why this has generated some interest, in any fiscal year in which a general fund surplus exists and general fund stabilization reserve is funded which required statutory level. So that's just have you filled out these? Do you have a surplus and have you filled out the reserve as statutory required? Then we ask, did the funds raised by the estate tax? Were they more than 125% of the amount projected by the emergency board into July annual forecast? So each year, as you know, there are revenue forecasts, January, July. This asks, look to that e board determination in July. It's an excess of 125 of that estimate, then those funds raised by the estate tax would go into this trust fund. So those are the three components of the trust fund appropriations, this estate tax piece, then contributions from other sources. Subsection b, just a simple sentence here, but I think that this is kind of establishing the intuitive sense of the trust aspect. Otherwise, you're kind of only left with the fact that it's titled a trust fund. You can title things all sorts of times. So subsection b says that the state treasurer may invest the monies in the fund, and you can think of this as kind of a classic trust element. A trust is someone holding property on behalf of someone else, a beneficiary, and managing those assets on their behalf. In this case, the state treasurer is your trustee in this function. And then we have, as you'll see in subsection C, a set of beneficiaries, the University of Vermont, Vermont State Colleges, and Vermont Student Assistance Corporation. But subsection B is just establishing that authority for the treasurer to invest those monies, which means that they will be tied up and you have to dispose of the release fund. So subsection C, this is kind of the core, what I would describe as the core of this piece. In August of each fiscal year, beginning in the year 2000, the state treasurer shall withdraw and divide an amount equal to 5% of the assets, and I'm gonna come back to the equal to 5% because it's actually not equal to 5%, it's up to 5%. Divided amount equal to 5% of the assets equally among the University of Vermont, Vermont State Colleges, and Vermont Student Assistance Corporation. So those are your three what we might think of as beneficiaries under the trust fund. As And you can see, dividing those assets equally, and it's gonna be an up to 5% of the assets. The next sentence spells out how we're capturing what assets are. So we just talked about the treasurer would be investing these assets. So you're gonna need to pull out funds if dividing up or allocating those assets. So you may have to sell off investments or dispose of them in different ways. So when are we capturing what constitutes assets? And that's what the next sentence tells us. Assets means the average of the fund's market values at the end of each quarter for the most recent twelve quarters for all quarters of operation, whichever is less. So it's a three year average of of the asset values, the market values in the fund. I said before, we have this first line about dividing an amount equal to 5%, but I did note in the next sentence, therefore, up to 5% of the fund assets are hereby annually allocated pursuant to this section provided that the amount allocated shall not exceed an amount that would bring the fund balance below the initial funding made in fiscal year two thousand plus any additional contributions to the principal. So the reason, the person that says this divide 5% of assets, but you're actually limited by this proviso provided that the amount allocated shall not exceed an amount that would bring the fund balance below the principal contributions basically. So there's a minimum amount below which the allocations are not meant to take the trust fund. So you would divide up 5% of the assets, but if in doing so, it would take you below that limit, you would be limited by this per visa. So that's why it's actually up to 5% of the fund assets are here by any applicant. And then we have specificity as to what the funds are to be used for by the recipients. So the University of Vermont and the Vermont State Colleges shall use the funds to provide non loan financial aid to Vermont students attending their institutions. And then the Vermont Student Assistance Corporation shall use the funds to provide non loan financial aid to Vermont students attending Vermont post secondary institution. So those are your three recipients or beneficiaries under this fund. And again, the idea is you're targeting 5% of assets, divide that equally amongst the three, and distribute for non loan financial aid. So that's kind of the core of the trust fund. Subsection d deals with a permissive fee. Subsection c was Chow, right, but here we have a May. Subject indeed is during the first quarter of each fiscal year, the secretary of administration or designee and the council, which we'll come to shortly, but there's a council created within this section for purposes of this discretionary piece. Secretary of administration and the council may authorize the state treasurer to make an amount equal to not more than 2% of the assets available in equal amounts to the University of Vermont and the Vermont State Colleges for the purpose of creating or increasing a permanent endowment. So unlike subsection c, which is shall on an annual basis, 5% assets for the purpose of non loan financial aid, Subsection d is about permissive as a discretionary determination, and it's up to 2% of assets available. It's a very similar structure with the same per visa in place. And it's for the purpose of creating or increasing a permanent endowment. You're gonna see under subdivision d two a very similar definition of asset. And I think the reason that you see this done twice is because there's a different time of determination. Under subsection c, it's in August of each fiscal year. And in subsection d, we're dealing with the first quarter of each fiscal year. And so the assets that would reflect a twelve month rolling average would be done in a different time of determination. So that's why you see this plus. So assets is the average of the fund's market values at the end of each quarter for the most recent twelve quarters or orders of operation, whichever is less. Up to 2% of the fund assets are annually allocated percentage per section provided that the amount allocated shall not exceed an amount that would bring the fund balance below that contributions to principal. One half of the amount allocated shall be available to the University of Vermont, and one half shall be available to the Vermont State Colleges. I do wanna pause on this usage of the phrase should thou be available. That is an intentional choice of words as I take it, because the next sentence spells out that even if they are available, those entities may not fully access the full amount they have. University of Vermont and the Vermont State Colleges may withdraw funds upon certification by the withdrawing institution to the commissioner of finance and management that it has received private donations that are double the amount it plans to withdraw. So there's a condition that each of the institutions would need to meet to be able to withdraw those equal amounts that are made available to each institution.

[Michael Marcotte (Chair)]: So a quick question. Are these additives? In other words, if there's enough money available, it could be as much as 7% coming out with five?

[John Gray (Legislative Counsel)]: Yes. Yes. You're saying between c and d. That's right. And they're taken at different times. So even the percentage that you'd be determining of what the assets are would be a different amount. Subsection E, this is just your financial reporting piece. Annually on or before September 30, and you think about this, this is following both the discretionary 2% piece for permanent endowments and the August piece, which is related to your annual 5%, for non month financial aids. So annually on or before September 30, the treasurer shall render a financial report on receipts, disbursements, earnings of the fund for the preceding fiscal year to the secretary of administration and the council in subsection h. So letting the folks know, and those are we scroll back up to d, you can see that those are the parties that are making this determination whether to authorize the treasurer to make those that 2% available. So they are receiving a financial report from the treasurer on how the how the trust fund is doing. Subsection f, just technical carrying forward. So all balances in the fund at the end of any fiscal year shall be carried forward and used only for the purposes set forth in this section. Earnings of the fund that are not withdrawn shall remain at the fund. Subsection G is a piece that comes to the legislature. So before we had a financial report that's going to the discretionary decision makers for the 2% that might go to permanent endowments. Here you have a kind of impact report that's coming to the legislature. So each of the beneficiaries, the University of Vermont, Vermont State Colleges, and the Vermont Student Assistance Corporation shall review expenditures made from the fund and evaluate the impact of the expenditures on higher education in Vermont and report this information to the House and Senate Committees on Education each year in January. Subsection H, this is the council that has been hinted at a few times. This is one of the bodies that's making that determination if that 2% is gonna go out for permanent endowments. There has created the Vermont Higher Education Endowment Trust Fund Council to perform the duties set forth in subsections D and E of this section. Technically, they have no duty under E, but they do have a duty under subsection D. The council shall be attached to the office of the treasurer for administration purposes and composed of these members, the president of the University of Vermont, chancellor of the Vermont State Colleges, the president of the Vermont Student Assistance Corporation. So those are your heads of each of the beneficiaries. And then additionally, the president of the Association of Vermont Independent Colleges, a representative from the business and industry community selected by the Vermont Business Roundtable, and then two legislative members, one from the house and one from the senate. And that is really the whole of it. Just again, A is setting out the composition of the funds in the trust fund, by that trustee role that the treasurer may invest the monies in the fund. C is describing your core annual 5%, potentially 5% allocation of assets equally among the beneficiaries for non loan financial aid. D is a determination to be made by the secretary of administration and the council whether to authorize the treasurer to extend this 2% for permanent endowments. And then you have a set of reports, financial reporting to the decision makers within the fund. And then you have an impact report to the legislature. Happy to take any questions folks might have.

[Unidentified Committee Member]: Can Can I ask you questions about the report or is that

[John Gray (Legislative Counsel)]: I don't know about Sorry. Yeah, I'm sorry.

[Michael Marcotte (Chair)]: Correct me I'm wrong, this is very tightly defined as to the use of the money.

[John Gray (Legislative Counsel)]: It is prescriptive as to the We can see in subsection C, for instance. So just to back up a little bit, the trustee is managing the funds on behalf of the beneficiaries. They can't use it for their purposes. It's for the purposes of the beneficiaries. And then the funds that are used by the beneficiaries have prescriptive uses. And what we see is under C to be used for non loan financial aid, and then under D for the purpose of creating or increasing a permanent endowment. And then I think there's a line here. Yes, all balances to be carried forward and used only for the purposes of working the section. So it is clear as to what the purpose is of these.

[Michael Marcotte (Chair)]: And do you know any of its history? Will say recent history?

[John Gray (Legislative Counsel)]: I do not. I'm happy to look into that, if that'd be helpful to you guys.

[Michael Marcotte (Chair)]: How much it is and how much it's been passing off and for its recent large change here.

[John Gray (Legislative Counsel)]: Yeah, I mean, I think this is a version of rep granny's question. We can look through reports and see, I think folks know that the recent press is the, what's happening with the estate tax, which is of course affecting the sun, etcetera. And I see that representative Cooper has his hand raised.

[Jonathan Cooper (Member)]: Thank you, John. I think this is a pretty brief question. At one point, the treasurer is directed to make disbursements. Is is the treasurer allowed to not, or is is the directing of the treasurer to do something making the treasurer do something?

[John Gray (Legislative Counsel)]: That that is making the treasurer do something. I think the simple answer to your question under I think the easiest way to get at this is the difference between c and d. Right? D is dependent on an authorization from the secretary of administration and the council that they can authorize this, but it is a direction to the As I understand, it's a direction to the treasurer to do so. Like in C, we can see the first line, in August of each fiscal year, the state treasurer shall withdraw and divide. It's a outright direction to the treasurer.

[Michael Marcotte (Chair)]: There's nothing in the statute that directs the council when they should meet. They have no chair. They call for meetings.

[John Gray (Legislative Counsel)]: Jump out not within the trust fund statute itself, I'm just looking through the remainder of this chapter. Nothing in the remainder of the chapter. Yeah. The only the only statute in which the council is even referenced is this trust fund. So the extent of direction within the green books of the council is what we see in subsection h, which is just creation of the council attached to the officer office of the treasurer for administration purposes.

[Michael Marcotte (Chair)]: Does that give the treasurer the authority to call the meeting?

[John Gray (Legislative Counsel)]: It's not clear, is what I would I mean, we can say that the treasurer is the entity that is instructed to run and manage the trust fund, right? So it would be intuitive that it would be the treasurer doing that, but there's nothing here to say that's the But I think in subsection A, established in the office of the state treasurer, straight treasurer to invest the monies in the fund, It's clear that the management of the fund itself is through the treasurer's office. And even the council itself, as you can see, is attached to the office of the treasurer. So I think intuitively that's the answer, but if you're asking for is there a clear statutory directive? There is not.

[Michael Marcotte (Chair)]: And so again, responsibility of the council is really to oversee the fund, not to oversee the allocation of the money because the 5% is where do we define how the money is to be allocated?

[John Gray (Legislative Counsel)]: I think of the council's responsibility as participating in the determination as to whether or not to authorize the two percent for the permanent endowment. Otherwise, it's the state treasurer withdrawing and dividing these amounts. It may be that practically the treasurer's office leverages the council in different ways than contemplated by the sit, right? They're utilizing it to assist in decision making. But here, you are just reading the statute and saying, what is the council's role? Really, the extent of their role is this.

[Unidentified Committee Member]: Where's the oversight to the funds that are allocated? Like whose job is it to make sure that the funds that are allocated are used for the purpose for which they are?

[John Gray (Legislative Counsel)]: Yeah, I think that's part of why you have reports back on the impact on the pieces. But if you're just asking who is tracking, it's the treasurer's office that's tracking the thoughts themselves.

[Unidentified Committee Member]: I

[John Gray (Legislative Counsel)]: think the reports will be helpful. And I'm sorry that I am not able to sit through them.

[Michael Marcotte (Chair)]: With letter D, it leaves the Secretary of Administration and the Council that they may authorize the Treasurer to make a 2% allocation. What's the sort of definition of how do you divide up? Is it a fiftyfifty council and secretary of administration or is the secretary of administration just part of the council and it's a majority of

[John Gray (Legislative Counsel)]: Oh, in terms of the division of power? I honestly don't know, I don't know.

[Michael Marcotte (Chair)]: It's not clear here. I

[John Gray (Legislative Counsel)]: think it would be natural to think that, but I just, I'm sorry.

[Unidentified Committee Member]: Question on timing. Subpart C here sets up the amount they can take every year for non loan fund purposes. That's simply to set up that pool of accounts and then it can be allocated throughout the year. There is no deadline or date specified herein where they have to actually allocate that money.

[John Gray (Legislative Counsel)]: I think it's saying that in August, the treasurer withdraws that amount. So it's not just an accounting mechanism. It's not just saying we have this thesis, withdraw it and divide it amongst those three in August of each fiscal year. I think that I'm a little worried at my inability to answer the practical things that keep coming up and would offer that talking to the treasurer's office will be helpful to understand how they actually practically implement this. But I take this to be that in August, the state treasurer shall withdraw and divide that amount equally amongst them. So happening at that time as I understand it.

[Unidentified Committee Member]: It just seems to me that August isn't the ideal time to find out what your full financial aid package is for the semester returns the next

[Michael Marcotte (Chair)]: month. The proposition and the budget of utilizing $15,000,000 of the fund, we've created a trust fund, but because we're using tax dollars to fund trust fund, I'm assuming that the legislature could utilize notwithstanding language in order to move those monies out.

[John Gray (Legislative Counsel)]: Yep, That is my perspective. You could not withstand the language and allocate it elsewhere. You could even think of it even more like, you could characterize it as, oh, we not withstand because there's an outright conflict. You're taking money from a fund for its purpose. You can even think of it more simply, there's not even an inconsistency in purpose between taking money out and the way that the statute works. The way that the statute works is up to 5% of the assets available. If you remove money, you're just affecting the amount of assets available. So just to say that's even further away from what people might deem, I guess, questionable. But of course the legislature has the authority under the constitution to change the laws as they see fit. We do encounter in some other context running up against issues, like in the pensions world. Sometimes you have to deal with existing contracts out there, but I don't see that same risk in this place. If this is a line of inquiry folks wanna go down, I can dive deeper into potential concerns there. But my perspective is, yes, the legislature has the authority to not withstand. And I would just note that we regularly in the budget, not withstand the Vermont Housing and Conservation Trust Fund. Works slightly differently there, but there's a notwithstanding of and it's property transfer tax revenues go to the Vermont Housing and Conservation Trust Fund. And then I've seen in the budget for a few years that we take a certain percentage that's been deposited into that trust fund and move it to the general fund. Can't speak to the other flows of money within the budget to say whether they offset that, but just noting that the usage of notwithstanding language with a trust fund is something that the legislature has done many times in the budget.

[Michael Marcotte (Chair)]: Good question. I'll keep you in transit, but I think we might get some flexibility perhaps tomorrow if I bring the commission treasurer's office, you just get a sense of what the fund is and how it's operated. That's probably within our gear to better understand how it all functions.

[John Gray (Legislative Counsel)]: Yeah, and they will definitely have better answers to practical flows and the like. If you do have specific legal concerns or the like that you would like me to dive into, I'm happy to look for pieces. But I did hope to be boring this morning, and I hope that I was.

[Michael Marcotte (Chair)]: Thank you, John.

[John Gray (Legislative Counsel)]: Success. Thank you.

[Michael Marcotte (Chair)]: I think if there's no other questions, then I think we can finish the hearing and go back to our respective cubicles and continue our discussions on other things. I appreciate where you're from. Yeah. Thank you. Have a great day.