Vermont Legislature SmartTranscripts:

[Unidentified Committee Member]: I don't know. We're live.

[Alice M. Emmons (Chair)]: Yeah. Welcome to the House Branch and Institutions Committee. It is Thursday, April 9. We are starting our morning with the state treasurer's office. We've got two folks here. We've got Scott Baker, director of debt. Peter Trombley, who's director of legislative affairs, the office of state treasurer. I don't know which one's gonna go first. Are you gonna be in tandem? Scott, come on. Why don't you come on up? And I know you have a document that's up here.

[Unidentified Committee Member]: Peter,

[Alice M. Emmons (Chair)]: this. You're Also, want to also, Peter, I wonder if there's been conversations as well, place and means committee and the whole folks who've been working on this, if there's been conversations with the debt affordability committee as well. That's where some of this for our world goes through the debt affordability committee for recommendations in terms of our bonding capacity for our particular capital budget. So they need to be in the mood on this this

[Unidentified Committee Member]: morning. So

[Alice M. Emmons (Chair)]: welcome, Peter, if you could identify yourself for the record.

[Scott Baker (Director of Debt Management, Office of the State Treasurer)]: Scott Baker, director of debt management with the treasurer's office, and Peter Trom, lead director of legislative affairs, is also here. Starting out just to address where the $50,000,000 extra bonding capacity came from. So we were here in January explaining the CDEC process, how they look at the debt metrics, come up with a debt recommendation and their debt recommendation for this biennium, which this is the second year of the biennium, but last year they came out with $100,000,000 for the biennium or $50,000,000 a year. And that's was in the cap what's in the capital bill with the premium and yeah. So anyways, so the first page. So when CEDAC met in September 2024, they looked at a number of scenarios. They looked at 100,000,000, 108,000,000, 123,000,000, and then 172,000,000. And when I say they look at them, we plug in those numbers, that's for the biennials. Cut that in half, it's the same. But the $172,000,000 was the amount that the administration had in their ten year capital plan. So they had the two years needed, and then going out eight years, it was $685,000,000 or so for the remaining eight years. So it came out to $86,000,000 per year. So CDAC looked at those scenarios, they do the ten year projections, look at the debt metrics, compare them to the benchmark to the AAA states. And again, the main numbers are the debt per capita, debt as a percent of personal income, debt service as a percent of revenues. And we'll see that a little bit later. So, that was the maximum they looked at based on the administration's ten year plan.

[Alice M. Emmons (Chair)]: The Committee on Debt Affordability.

[Peter Trombley (Director of Legislative Affairs, Office of the State Treasurer)]: Capital Debt Affordability Advisory Committee, right. They're? CDAC.

[Scott Baker (Director of Debt Management, Office of the State Treasurer)]: Oh, okay. So, CDAC is made up of the treasurer, the secretary administration, member of the bond bank. There are two governor appointees, a treasurer's appointee, and then there are two non voting members, the state auditor and the legislative economist. I think I get everybody. They meet annually, and they issue a report in September with a recommendation of how much the state can prudently issue in debt. They submit the report to the legislature and the governor. The capital bill reflects that amount. The legislature has always followed that recommended amount, and that's something the rating agencies give us a lot of credit for, to have that independent committee and going through the legislative process if they're in agreement and they don't go over that amount. So that's been important and fast. And again, we won't get into it today, but if you want to, we can come back and talk about CEDAC some more, but I know we went through that. So anyways, so for the 2026 biennium, CEDAC came back with a $50,000,000 per year or 100,000,000 for the biennium. Again, they looked at those higher amounts. SEDAC, based on a number of factors, still had a lot of federal money that we needed to spend down. During COVID with the supply shortage of things, projects just were not getting built. And the administration did testify that anything over 50,000,000, we realistically couldn't spend in that, to go over that. So anyway, so that's why the recommendation was 50 that we came back with, that CDAC. So the next slide just shows the author, to remind you what the authorization amounts have been for the last twenty years. They've gradually been going down. And again, the twenty twenty six, twenty twenty seven amount was 50,000,000 per year. One of the other factors, the next slide shows, one of the other factors was the amount of authorized but unissued debt. And you can see that green bar of $192,000,000 That represents projects that have been authorized for spending, but the money is not being spent yet, so we have not issued the debt yet. So, we have about $550,000,000 of outstanding general obligation debt. If every project was getting done right now, it would be another. We would bond for another $192,000,000 and every project will get done. But there are a lot of tax rules. First, it doesn't make sense to bond if you're not spending the money. There are tax rules where once you do bond with tax exempt money, you have to spend that in a certain amount of time. There's spend down rules and all that. So that's why there's a significant amount of authorized but unissued. So that's one of the reasons it kept it down to fifty minutes.

[Alice M. Emmons (Chair)]: So there's about a 192,500,000 showing that's been authorized over the previous years. Mhmm. That has been on this. Is that all through the capital budget, our capital budget board?

[Scott Baker (Director of Debt Management, Office of the State Treasurer)]: Yes. This yes. This these are for general obligation, boss. Yes.

[Alice M. Emmons (Chair)]: Okay. So I know of that 192.5. I know a few years back, probably in '22? Twenty twenty one twenty two, we did not use all of the bonding capacity that we could have that year when we put together the capital bill. There was about nine or 10,000,000 that we did put aside purposely. So that will be calculated within that under '92.

[Peter Trombley (Director of Legislative Affairs, Office of the State Treasurer)]: Right.

[Alice M. Emmons (Chair)]: Correct. So really that's about, if we had not done that, would have probably shown up. We purposely that year, two committees in the administration agreed. That's the first year I think that the cash fund was starting to kind of come into play but there wasn't really any dollars yet, possibly. But we did say we have 9 to 10,000,000,000 extra bond. We didn't use all the bonding capacity in our capital bill that year. And we'll just put that aside. It's the first time we've ever done that in

[Unidentified Committee Member]: a long time.

[Alice M. Emmons (Chair)]: So this 192,500,000.0 is through our capital bill projects that we have all authorized those dollars, those bonded dollars to be extended towards those projects we've laid out in the capital. And because the projects are still in the beginning stages, haven't gone out to construction. Those bonds have not been issued to go out for those particular projects. So if that money gets pulled then when those projects are ready to go out, bonding capacity has been used some for ourselves. If that authorized and unissued capacity is pulled to be used for something else then when our projects on our capital bill are ready to go and goes out to bond, we may not have that bonding capacity available for some of our projects?

[Scott Baker (Director of Debt Management, Office of the State Treasurer)]: Well, when CDAC does the ten year projections, they take the authorized but unissued into account. So it's as if, not as if it was outstanding debt. The assumptions are that it'll be spent down over the next three or four or five years, scenario we're running. So assuming that these projects will get done at some point and we will bond for them. So we wouldn't be taking the authority away. Just timing of when the bonding would be done.

[Alice M. Emmons (Chair)]: So if you go back to your first page, where in September '4, CBEX looked at, for a two year budget of 172,000,000 and that was what they looked at for their ten year capital plan. Is any of that connected to the 192?

[Unidentified Committee Member]: No. No,

[Scott Baker (Director of Debt Management, Office of the State Treasurer)]: okay. So

[Alice M. Emmons (Chair)]: that's in addition to the 192?

[Scott Baker (Director of Debt Management, Office of the State Treasurer)]: Yeah, the 172 was just one scenario they looked at and settled on 100,000,000, but right.

[Unidentified Committee Member]: What's that blip in 'twenty two, 'twenty three, where there's zero amount issue?

[Scott Baker (Director of Debt Management, Office of the State Treasurer)]: The timing of when we did not do an issue at that time. Again, projects were not getting done, not being spent. We did a bond issue beginning of the next fiscal year, but just the timing of when it fell. Gotcha. Yeah, and that's why the next one looks Yeah,

[Unidentified Committee Member]: when we- There a

[Alice M. Emmons (Chair)]: lot of federal dollars that came in during that whole time, COVID dollars, ARPA dollars.

[Scott Baker (Director of Debt Management, Office of the State Treasurer)]: Right, yeah. We're trying to spend down the federal dollars instead of bond and money. When we go out and do a bond issue, we look at all the projects that have been authorized, work with finance and management, and survey all of the departments and say, which projects are going forward? Some of them have spent the money, so we're reimbursing it. And some of them we say, okay, we're going to bond for what's expected to be spent in the next six or twelve months. And that's when we do a bond issue. Again, we're not going to bond for something that is not going to

[Alice M. Emmons (Chair)]: happen at all.

[Unidentified Committee Member]: And if I'm reading the chart, bar chart, if we're back to about 10% total bonding more than 2006, so twenty years ago with inflation, is it given that we realize we're falling further and further behind in maintaining I mean, we don't have as much capital to work with, but we're maintaining the same size government etcetera, etcetera, etcetera. So, we're losing ground is what I've

[Alice M. Emmons (Chair)]: Well, are, but it's not just 50,000,000. We also have an additional amount for the general fund in our capital. And this year we had over 17,000,000 on top of this. Okay.

[Scott Baker (Director of Debt Management, Office of the State Treasurer)]: Cash fund. Right?

[Alice M. Emmons (Chair)]: Cash. Okay. If we didn't have that general fund, we'd be bonded.

[Unidentified Committee Member]: Gotcha.

[Scott Baker (Director of Debt Management, Office of the State Treasurer)]: All right. So the next we were asked recently regarding the school construction, basically, CDAC came out with the $100,000,000 and they had looked at several scenarios, including the 172. The 172 fit within the debt metrics, but again, we weren't spending any money. For several factors, they settled on 100. We were asked to run some scenarios to say, given our benchmark debt metrics, and again, we benchmarked against the AAA states. How much capacity could we have up to the maximum? So that's what we were asked to do. All right, so we ran several scenarios. So the first chart, this is the current amount of 100,000,000 per year or $50,000,000 per year. And this chart shows the ten year projections. The top half of the chart the history. The bottom chart shows ten year projections going out. These are the three main debt metrics that we look at. Debt per capita, the first box there. You can see the shaded piece. So we set a state guideline of the five year median average of the AAA states. And that's what the state guideline column is. You can see that just to the left of it, the shaded amount, that's what we are projected to have. They're shaded because we are out of compliance with that debt metric. So we are above the debt metrics that we benchmark against AAAs. Of these three debt metrics, this is probably the least important, especially given the size, the population of Vermont. We're a small state, we're comparing against much larger AAA states, so the debt per capita is generally higher. It's a metric that CDAC has always used, but it's not the most important one out of these. We've always followed these three and the pension and OPEB liabilities are more of a factor now that the rating agencies are looking at. So even though we're out of compliance with debt per capita, we have been for several years and that's not the most important. But you're still in compliance with Moody's. Well, so this is a state guideline we set and that's the average of the AAAs. So we say, Are we above or below? We try to stay below the median of the AAA states. The shaded numbers are Vermont's projected numbers over ten years. What's that next line on that ten sixty? So that's all states. That's all Okay, 50 okay, okay. Right. Gotcha. So, yeah, so the guidelines are based on the AAA benchmark states. The bottom line is all 50 states. So we're kind of right in the middle of all 50 states. But again, Vermont is rated AA plus, AA plus, AA1, which is the next highest rating. So one notch below AAA. And the last two bond issues that we've had, we pretty much priced as if we were AAA. There's not a lot of Vermont bonds out there, so it's pretty well received, which is another reason we're The higher you're rating, the lower your interest cost is going to be. So that's why we benchmark against the AAA.

[Alice M. Emmons (Chair)]: And I think the important piece to that is not just on the state level, when the state level goes out to bond or for whatever you do for a lower interest rate. And also imagine this happens where they can go out to bond and get a lower interest rate. So if credit rating goes lower, our interest costs will go higher on the state level, but also on our local municipalities and school districts.

[Scott Baker (Director of Debt Management, Office of the State Treasurer)]: Right, the majority of municipalities and school districts bond through the bond bank, and the majority of their debt has the moral obligation pledge of the state behind it.

[Alice M. Emmons (Chair)]: Not full faith in credit.

[Scott Baker (Director of Debt Management, Office of the State Treasurer)]: Not full faith in credit, but moral obligation, which meaning if they defaulted

[Alice M. Emmons (Chair)]: We're morally restrained.

[Scott Baker (Director of Debt Management, Office of the State Treasurer)]: Right, we pretty much have to to get that service.

[Alice M. Emmons (Chair)]: Well,

[Unidentified Committee Member]: it was more so if if that category is not the most important one, which one is?

[Scott Baker (Director of Debt Management, Office of the State Treasurer)]: So the the next two are are much more important. The middle one, debt as a percent of personal income. The CEDAC sets the state guideline at 1.8. That's kind of a volatile number with the AAA rated, with the other AAAs. So 1.8 is kind of on the high end of those, but that's what we said as a guideline. And again, if you do this based on issuing 50,000,000 per year over the next ten years, these are the numbers that we come out with. It also assumes issuing the authorized but unissued amount over from 2027 through 2031. So kind of rolling those out. Anyways, so these are the ten year projections. So this is one of the more important ones. This kind of represents the taxpayer's ability to to cover debt. So based on personal income. The last column is debt service as a percent of revenue, kind of indication of the state's ability to pay the debt. And set that at about 4% of revenues, debt service has 4% of revenues. This this was a change, a recent change. Long ago, it was 8%. The state guideline was back down to 6% recently. I think last by any end, lowered the state guideline to 4%. So just based on how other states have issued less debt and and where they're coming in. So again, they always look at the other states, set the guidelines based on that.

[Unidentified Committee Member]: But then why don't we have a state rank in that right side that is not available? And and we're not even addressing it. Yeah. So If that's if that's important, because I'm

[Peter Trombley (Director of Legislative Affairs, Office of the State Treasurer)]: just wondering why that that's not information's not there.

[Scott Baker (Director of Debt Management, Office of the State Treasurer)]: So movies recently changed the last few years. They put out a median, a get median report every year. The last few years, they're they're still focusing on these, but now there's more of an emphasis on long term liabilities, your pension and OPEB liabilities. Again, our net tax, our general obligation debt is about $550,000,000. And then we have, if you add leases and the property transfer tax bonds, it's about $660,000,000 of net tax supported debt. The pension and OPEB liabilities are about 4,000,000,000. So the debt is a small amount of debt. So Moody's is focusing more on that. They're not publishing things quite the same way. So yeah, we don't have that, the rank for that.

[Unidentified Committee Member]: Does that bother you?

[Scott Baker (Director of Debt Management, Office of the State Treasurer)]: No, it's mostly looking at the AAA states where they are and setting the state guideline, and staying within those guidelines.

[Unidentified Committee Member]: And the numbers below us look better, the state guidelines. If they're running four, and we're underneath that, that looks good.

[Scott Baker (Director of Debt Management, Office of the State Treasurer)]: Yes, absolutely. So anything that's not shaded, we're in compliance over the next ten years, for this scenario. Sure. So the next page. I'm sorry, I've

[Unidentified Committee Member]: got a dumb question. Other than federal money, and taxpayer money, and lottery money, where else do we receive funding that will pay off debt?

[Scott Baker (Director of Debt Management, Office of the State Treasurer)]: So the majority of the general obligation bonds are paid from the general fund. There is still a small piece that comes from the transportation fund back, I think up until 2009. That's part of the transportation fund was funded with general obligation bonds, so there's probably a million dollars left in outstanding debt that the transportation fund kicks in every year. The rest comes from general funds. So it's personal income taxes, anything that goes into the general fund, basically. Right.

[Unidentified Committee Member]: Yeah, when you say the state isn't in the position. Yeah. Guess I

[Alice M. Emmons (Chair)]: mean, in our state budget, we have a line item that pays our debt service.

[Scott Baker (Director of Debt Management, Office of the State Treasurer)]: Right.

[Alice M. Emmons (Chair)]: And it's about, is it high 70,000,000?

[Scott Baker (Director of Debt Management, Office of the State Treasurer)]: Yeah, 78,000,000. That's what you got.

[Alice M. Emmons (Chair)]: Right. It's in our state budget.

[Unidentified Committee Member]: The sources of funding to pay that and everything else is

[Alice M. Emmons (Chair)]: It's probably

[Unidentified Committee Member]: revenue. Money or state money or

[Alice M. Emmons (Chair)]: Revenues that come into the state, it could be through your corporate tax. Yeah, tax. Well, you gotta fund what you're providing services for, you gotta fund it. What government does is they have to have a revenue stream.

[Unidentified Committee Member]: Exactly, well, what I was hearing is the state funds, and the state doesn't fund anything. They redistribute what they stake in in taxes, and forget it. I'll assume that Yes, got it.

[Scott Baker (Director of Debt Management, Office of the State Treasurer)]: Okay, so the first scenario was the current CDAC recommendation. Again, we were asked how much debt could we issue and stay within the debt metrics. So the second scenario, we ran projections at 100,000,000 per year. Basically, the CDAC recommendation of 50 plus another 50. And you can see debt per capita, obviously still out of compliance. The remaining two metrics

[Alice M. Emmons (Chair)]: You need to change the screen. Are you with the next one?

[Scott Baker (Director of Debt Management, Office of the State Treasurer)]: Oh, scenario two? You're on scenario two. Yeah.

[Alice M. Emmons (Chair)]: So instead of 50,000,000 per year for our bonding capacity for the capital bill, if the projection was 100,000,000 per year, would be a $200,000,000 two year capital budget.

[Scott Baker (Director of Debt Management, Office of the State Treasurer)]: Well, if it's through the capital, right? If it's through the capital bill, correct. And again, when we ran the scenario at 172, we were in compliance, but settled on 100,000,000. So anyways, we ran scenario two at 100,000,000 per year, and we still showed that we were within the debt metrics that we measure against. The next scenario, scenario three, we increase that to 150,000,000 per year. And that doesn't look good. And we are out of compliance with all three debt metrics. So basically, well, going with these scenarios, we were asked to speak to House Ways and Means last week, and they were the ones that asked us to do this. They asked how much can the state absorb and stay within those metrics? And basically we said 50,000,000 extra was the max that the state could do and stay within compliance. This has not gone through CEDAC. These were just scenarios that we ran. Basically, this is what we ran.

[Alice M. Emmons (Chair)]: So that 50,000,000 per year would be on the top of what we stay current with our 50,000,000 per year for the capital budget, correct?

[Scott Baker (Director of Debt Management, Office of the State Treasurer)]: Right, right. Yeah, so 100 total, Yeah, wherever it

[Alice M. Emmons (Chair)]: so there would be 100,000,000 bonding capacity per year of which the capital bill would have half of that, if we did the school construction as it's being proposed.

[Scott Baker (Director of Debt Management, Office of the State Treasurer)]: Yeah, I mean, so the other thing is when the school construction task force met and issued their report two ago, one of the suggestions was Rhode Island did this several years ago, and it's RIbek. It's basically similar to the bond bank, but in Rhode Island. And what they did was RIbek issued the debt, like the bond bank would issue the debt. And the state makes an annual appropriation to pay the debt service. And it's not a pledge, it's an annual appropriation. They're not saying, they will do it every year. And they managed to keep that off of the state's net tax or the debt. So that was one of the things that they used. They're still appropriating the debt service, but it doesn't show up.

[Alice M. Emmons (Chair)]: But they're not issuing the bonds directly. They're paying someone up, but someone else is doing it. So if we did that same model in Vermont, because I know always means something to what I I know everybody's into the word I know. Would if you couldn't have the would the bond bank issue that, then we pay we won't be and would that The

[Scott Baker (Director of Debt Management, Office of the State Treasurer)]: bond bank would be the probably to the yeah. They wouldn't be the most likely to do that.

[Alice M. Emmons (Chair)]: And then would our state budget on a yearly basis pay? Start paying off that debt?

[Scott Baker (Director of Debt Management, Office of the State Treasurer)]: Yeah, you make an annual appropriation to pay that debt service, is the way it's working in Rhode And so the rating agencies are not including that as net tax supported debt of the state. My only caution is, remember back in 2018, when we wanted to do the housing bond, we had VHFA issue that and transferring the debt service. But because the property transfer tax is going to pay that, the rating agencies are including that on our books. So you never know.

[Alice M. Emmons (Chair)]: Well, we did something selling the TIP, the transportation infrastructure bond. We had a targeted revenue source.

[Scott Baker (Director of Debt Management, Office of the State Treasurer)]: Right, those are special obligations.

[William "Will" Greer (Member)]: Those are special.

[Scott Baker (Director of Debt Management, Office of the State Treasurer)]: Yeah, so those were not general fund dollars, only the revenues from that gas assessment, it's 3¢ per gallon of diesel or 2% of each gallon of gasoline goes into a transportation infrastructure bond fund, and that's what it's pledged to pay the debt. So those weren't GO bonds. Those were special obligation.

[Alice M. Emmons (Chair)]: I

[Unidentified Committee Member]: got a hint from the administration before Nick left the room on their position on this. Does the chart here have it?

[Peter Trombley (Director of Legislative Affairs, Office of the State Treasurer)]: Peter? Peter Traumley, Director of Relationship Affairs. So I would not characterize this

[Unidentified Committee Member]: as a proposal from the chair for his office, the Governor's Ways

[Peter Trombley (Director of Legislative Affairs, Office of the State Treasurer)]: and Means Committee. We're still evaluating the text of the bill as it came out this week and provided some technical feedback, but we'll likely have more feedback in the future. I'll assume. I'm unsure.

[Alice M. Emmons (Chair)]: Is there an issue at all? I mean, how are they looking at who issues those funds that 50 million capacity? Is it the bond bank that would issue that? Is that what they're looking at? I

[Scott Baker (Director of Debt Management, Office of the State Treasurer)]: don't know if we know that. I don't know if they're contemplating through the capital bill or the bond bank. I don't know.

[Peter Trombley (Director of Legislative Affairs, Office of the State Treasurer)]: I believe the current proposal is for the state to provide a portion of the subsidy for projects and its own bonding for pay go assistance to schools in some combination. And that is how Rhode Island did it. They had a couple $100,000,000 in write back issued bonds and about 500,000,000 in state issued bonds for pay go assistance at the same time.

[Alice M. Emmons (Chair)]: Do we know what the total need is out there in our districts for school construction projects?

[Peter Trombley (Director of Legislative Affairs, Office of the State Treasurer)]: The estimate from the school construction report issued two years ago was 6,000,000,000 over

[Unidentified Committee Member]: the next twenty years.

[Alice M. Emmons (Chair)]: 6,000,000,000 over the next twenty years? Yes. So that was about 300,000,000 plus per year.

[Scott Baker (Director of Debt Management, Office of the State Treasurer)]: As far as legacy, I know they're also talking about legacy debt, and the bond bank has the most of the school districts with outstanding debt have bonded through the bond bank, with the exception of Burlington and Wanuske, which are the two largest. But the remainder of them have gone through the bond bank, and that's estimated, we think about $480,000,000 of outstanding debt and debt service, this year's debt service on that totals, I think about $61,000,000 On Berlin Community Street. On all of them combined. Yeah. On all of Legacy.

[Alice M. Emmons (Chair)]: That's picking up all of their debt service, right? Correct. And has there been any decision that we determined how much of the district's debt service we pick up? Are we saying we're picking up all of their debt service? I mean, if we do that, we're gonna tank. We can't sustain something.

[Unidentified Committee Member]: It's frog. We're gonna start telling you the frog. Very proud person, taking lots of pictures. Yeah.

[Alice M. Emmons (Chair)]: Sorry. Joe.

[Scott Baker (Director of Debt Management, Office of the State Treasurer)]: Sorry, coach.

[Alice M. Emmons (Chair)]: Joe. Joe.

[Unidentified Committee Member]: Now, would proposed bonding be factored into the formula whereby the cash fund is derived for the capital budget?

[Alice M. Emmons (Chair)]: The formula doesn't well, the formula is

[William "Will" Greer (Member)]: 4% of the

[Unidentified Committee Member]: general fund

[Peter Trombley (Director of Legislative Affairs, Office of the State Treasurer)]: minus debt obligations

[Scott Baker (Director of Debt Management, Office of the State Treasurer)]: Yeah, I think this would, if you subtract out the debt service, yeah, I don't think there'd be a lot left in the cash fund,

[Peter Trombley (Director of Legislative Affairs, Office of the State Treasurer)]: if anything.

[Alice M. Emmons (Chair)]: So it really screws the capital

[Scott Baker (Director of Debt Management, Office of the State Treasurer)]: budget. Yes.

[Alice M. Emmons (Chair)]: I mean, it really feels like it ties our one hand behind our backs in terms of where we are with capital budgeting because even if we what this implies sort of is that we stay at bonding capacity for our capital budget at about 50,000,000 per year. That's basically what we're saying. And any other capacity on top of that that could be available for capital projects under the Ways and Means proposal will be taken away from us being able access to that.

[Unidentified Committee Member]: But on a positive note, you wouldn't have to worry about appropriations taking it away because it doesn't exist anymore.

[Alice M. Emmons (Chair)]: So yes and no because then it plays into the formula in terms of how much general fund is available and then that goes down how much cash would be available to go towards the capital project which really again puts much more limitation of that $50,000,000 funding capacity per year for the gap. But it seems like it really puts the capital, our world, into a precarious situation. That's what it seems like. Now I'm pretty naive here in terms of

[Unidentified Committee Member]: a lot of this. I doubt that.

[Alice M. Emmons (Chair)]: No. But that's my gut reaction to it. I need to be right off dates. I just don't know.

[Unidentified Committee Member]: My take is, you may have things that need to be done, including school construction, but if you take out the fact that maybe there's not enough people to do the work just on our side of the capital bill, there is way more needs than we already have that we have money. So eliminating that even further is huge. A new project is coming up.

[Alice M. Emmons (Chair)]: So my other question, can you use bonded dollars to pay off debt?

[Peter Trombley (Director of Legislative Affairs, Office of the State Treasurer)]: The legacy debt.

[Alice M. Emmons (Chair)]: Any debt, not even legacy debt, but going debt. Can bonded dollars be used to pay off debt?

[Scott Baker (Director of Debt Management, Office of the State Treasurer)]: I don't think you could do tax exempt. I mean, I suppose you could issue taxable bonds for pretty much anything, but

[Alice M. Emmons (Chair)]: Is anyone asking this question upstairs? I mean, we'd basically be using bonded dollars to pay off schools' portion of their debt, right?

[Peter Trombley (Director of Legislative Affairs, Office of the State Treasurer)]: I wouldn't want to speak for the Ways and Means opinion. The proposal, as they envision it, is that there would be a competitive aid process and that a district would be given a combination of state bonded dollars used only for PAYGO needs and subsidy for their debt service. So the idea, I think as they understand it upstairs, is not that any state bonded dollars would go to that debt service, but would lower the overall amount that the district has to bond.

[Alice M. Emmons (Chair)]: So it would almost be using our bonded dollars to pay directly for some of the cost construction. Yes. That then brings down the amount of debt. And do they know what percentage of the cost of that construction would be eligible for the state funded dollars?

[Peter Trombley (Director of Legislative Affairs, Office of the State Treasurer)]: My recollection from reading the proposal is that there would be an AOE rulemaking process and a competitive application process for the aid.

[Alice M. Emmons (Chair)]: And then they get prioritized?

[Peter Trombley (Director of Legislative Affairs, Office of the State Treasurer)]: The intent is that a minimum of 50% of project costs would be covered either by the pay go dollars district receives or the portion of the debt that the service of which is subsidized by the state, if that makes sense. So if a project is $20,000,000 they might get five from the state. That's 25% of project cost. And then the state would pay debt service on the remaining five of their own.

[Alice M. Emmons (Chair)]: So they're just looking at the total cost of the project and nothing about what would be eligible within that. They're just saying one way or the other we'll end up picking up almost half of the cost of a construction project?

[Peter Trombley (Director of Legislative Affairs, Office of the State Treasurer)]: A minimum half, maximum 95% based on the

[Alice M. Emmons (Chair)]: And the average construction cost is going to be about $150,000,000

[Unidentified Committee Member]: So brand new.

[Alice M. Emmons (Chair)]: But they're trying to get some brand new buildings for the school consolidation. So you're talking you're talking 75,000,000 from the state or possibly one project. There's no coming. Some of us have been down that road before. And that's why we ended up with a moratorium.

[Unidentified Committee Member]: But beyond that, it is I don't know. Given given the whole conversation about governance, re reform, and some other things in education, this entire scenario, which is very real, seems pretty mature to me. It's like picking out wall colors before you put the roof on the building. I'm talking about districts that could very likely be defunct before the very near future. So who is it that we're we we don't know what it is we're that we need to fund it.

[Scott Baker (Director of Debt Management, Office of the State Treasurer)]: So, I guess I will

[Unidentified Committee Member]: I I have two questions. One for Scott. I guess, would you say that the safer bet is the 50 per year than a 100,000,000 biennium, or are you saying also that we could that we could carry the 100,000,000 and 200,000,000 as the director of debt?

[Scott Baker (Director of Debt Management, Office of the State Treasurer)]: So we ran these scenarios basically at 100,000,000 per year or 200,000,000 for the biennium. That fits within the the guideline, the benchmark guidelines that CDAC has been using. Okay.

[Unidentified Committee Member]: Great. And then just a quick question to Peter. How much debt do our schools carry in the state of Vermont right now?

[Peter Trombley (Director of Legislative Affairs, Office of the State Treasurer)]: A little over $400,000,004.80.

[Scott Baker (Director of Debt Management, Office of the State Treasurer)]: Yeah. About $4.80. We think Again,

[Unidentified Committee Member]: that's $500,000,000 in debt that has to be paid that we gotta kinda wrap our heads around too. Well, to add on that, kind of leads

[William "Will" Greer (Member)]: to my next question, is all that debt to be paid by the school district, or is any part

[Peter Trombley (Director of Legislative Affairs, Office of the State Treasurer)]: of that would

[William "Will" Greer (Member)]: be covered by The

[Peter Trombley (Director of Legislative Affairs, Office of the State Treasurer)]: proposal out of House Ways and Means is that all legacy debt taken on as of 12/31/2025, would be the service of which would be paid 100% by the state. Although they have a placeholder annual appropriation cap in the bill, but no figure for that account as of that.

[Alice M. Emmons (Chair)]: Say that again.

[Unidentified Committee Member]: You're to say that again.

[Alice M. Emmons (Chair)]: So we pay that 500,000,000 The

[Peter Trombley (Director of Legislative Affairs, Office of the State Treasurer)]: current proposal out of housemates means is that state would pay, subject to annual appropriation, 100% of the debt service costs for the debt issued before 12/31/2025 by school districts.

[Alice M. Emmons (Chair)]: And that's about $480,000,000?

[Peter Trombley (Director of Legislative Affairs, Office of the State Treasurer)]: That is about $480,000,000. I think first year would be somewhere north of 60,000,000 in debt service combining. 61 this year and then dropping down to about 49 next year. And then obviously, as the debt

[Scott Baker (Director of Debt Management, Office of the State Treasurer)]: gets paid down, drop it from there. But we can get you that we can get you that number.

[Alice M. Emmons (Chair)]: So they're that debt service for the $480,000,000 that's out there, they would be paying $1,000,000 the first year. Would that come from that 50,000,000 capacity?

[Peter Trombley (Director of Legislative Affairs, Office of the State Treasurer)]: I don't believe that's the intent. I believe the intent is to do three things. One, pay the debt service of legacy debt through annual appropriation.

[Alice M. Emmons (Chair)]: Where? Annual appropriation of general fund?

[Peter Trombley (Director of Legislative Affairs, Office of the State Treasurer)]: That would be a policy decision for the appropriations. I'm not sure if they have a vision yet upstairs about which fund that

[Scott Baker (Director of Debt Management, Office of the State Treasurer)]: comes from.

[Peter Trombley (Director of Legislative Affairs, Office of the State Treasurer)]: Then second, bond $50,000,000 a year for paygo assistance. And third, subsidize up to 95% of debt service costs for future school construction through a competitive process.

[Alice M. Emmons (Chair)]: And what's their competitive process? Maybe they know more finances than we do, but I just don't know if that's sustainable.

[Unidentified Committee Member]: Well, it's like you're running for Alan Fund.

[William "Will" Greer (Member)]: I'll tell you the other word that comes to mind is that's gonna create a lot of inequity because there's gonna be some districts that get projects right out the door, and there's gonna be others that are left behind. And I'm just gonna say right now that legacy debt of $480,000,000, I mean, that's decisions that local districts made knowing they would carry the full freight of that. And we have a lot of districts around the state that have delayed projects for a long time hoping that the moratorium will be lifted. And now we're basically saying, well, you could have done it and we'll cover it. And this is an ongoing problem. I mean, we should not be relieving them that they should pay every penny of that back.

[Alice M. Emmons (Chair)]: I

[Unidentified Committee Member]: can't agree more, Will. You get the high school in High Gate. They can't even pass the stand alone items for to pave the driveway, and then you're gonna stick them with paying off these, you know, half $1,000,000,000 on most state authorized construction projects from other districts. That's just I mean, on the other hand, we know they they they need to do something, but I think we have to you know,

[Peter Trombley (Director of Legislative Affairs, Office of the State Treasurer)]: I see they're trying to

[Unidentified Committee Member]: get creative here to get money for the state because we need it desperately for these schools.

[Peter Trombley (Director of Legislative Affairs, Office of the State Treasurer)]: I want to say that, clarify that this is my understanding of the proposal.

[Alice M. Emmons (Chair)]: Right. You're not the bearer I of the

[Unidentified Committee Member]: understand how take care of somebody the on

[Peter Trombley (Director of Legislative Affairs, Office of the State Treasurer)]: Ways and Means to make sure I'm correct. So

[Alice M. Emmons (Chair)]: is CDF going to get involved here before there's any finalization of these proposals?

[Scott Baker (Director of Debt Management, Office of the State Treasurer)]: Presumably. We just perhaps. Yeah, it'll certainly be discussed. I'm not sure when things are getting done.

[Peter Trombley (Director of Legislative Affairs, Office of the State Treasurer)]: Understanding that it's an ongoing and fast moving conversation. I think we've had some conversations in our office. Our preference would be that CDAC would meet and look at whatever proposal or such proposal would get passed.

[Unidentified Committee Member]: Fundamentally, at my simple levels, we need to double our bonding per year. Where's the interest payments gonna come from? We're saying the taxes are too high, and yet now, race and means apparently thinks we can double our bonding capacity. I mean, where do they think this money's gonna come from? Good To

[Alice M. Emmons (Chair)]: pay the interest would be out of the general fund.

[Unidentified Committee Member]: Well, yeah, if the general fund doesn't have anything that doesn't come in from taxes, that's what my original question was. We're missing words here. We can't afford what we're already doing, much less doubling our bonding, can

[Alice M. Emmons (Chair)]: we? Shawn? Peter,

[Unidentified Committee Member]: again, I probably, I don't know if you know this or not, but with the debt that schools have, this $480,000,000 is that pretty evenly spread out throughout the state, or are there there's there's towns and municipalities that have zero debt?

[William "Will" Greer (Member)]: I'm sorry.

[Unidentified Committee Member]: There a is there a place to see that?

[Scott Baker (Director of Debt Management, Office of the State Treasurer)]: Yeah. So I can I have one copy? Okay.

[Unidentified Committee Member]: That'd be that would be very good.

[Alice M. Emmons (Chair)]: This is from

[Scott Baker (Director of Debt Management, Office of the State Treasurer)]: the bond bank. Michael Gone had posted this one one of the testimonies. So

[Unidentified Committee Member]: that shows just ignore that topic.

[Peter Trombley (Director of Legislative Affairs, Office of the State Treasurer)]: Burlington.

[Alice M. Emmons (Chair)]: Yeah. Burlington's earning $16,000,000

[William "Will" Greer (Member)]: state Thanks, Burlington. I'll

[Scott Baker (Director of Debt Management, Office of the State Treasurer)]: take it. Yeah, Michael.

[Peter Trombley (Director of Legislative Affairs, Office of the State Treasurer)]: So the $4.80,

[Unidentified Committee Member]: half of that Anyway, thank you for providing that. You can have that. It's just helpful for us to see that, to see the equity or inequity and to

[William "Will" Greer (Member)]: a lot of inequity I'm seeing. That's exactly why I said that word. I'm sending it.

[Alice M. Emmons (Chair)]: Well, for the committee, what my understanding is that Ways and Means hopes to vote the education bill out to include the structure of the foundation as well as the structure for school construction to book that out committee tomorrow and go to appropriations next week and then the bill will be on the floor supposedly by the end of next year.

[Peter Trombley (Director of Legislative Affairs, Office of the State Treasurer)]: But we're not going to see that as older than the capital bill.

[Alice M. Emmons (Chair)]: As what?

[Peter Trombley (Director of Legislative Affairs, Office of the State Treasurer)]: We're not going to see that as bonded

[Unidentified Committee Member]: suggestions here. That's not necessarily coming through our committee.

[Alice M. Emmons (Chair)]: It really has implications.

[Peter Trombley (Director of Legislative Affairs, Office of the State Treasurer)]: Yeah, that's why, yeah.

[William "Will" Greer (Member)]: I've been very curious to know who's pushing that proposal. There's an endgame with that, and it's not

[Scott Baker (Director of Debt Management, Office of the State Treasurer)]: a fair one.

[Alice M. Emmons (Chair)]: Couple school districts will make out really what I would say.

[Scott Baker (Director of Debt Management, Office of the State Treasurer)]: So, as Peter mentioned, met within the office. We had a number of questions. We're working with our financial advisor, but if you have anything specific, any specific questions, let us know. We can.

[Alice M. Emmons (Chair)]: We appreciate you coming in.

[Scott Baker (Director of Debt Management, Office of the State Treasurer)]: Thanks, Doctor. Rajiv. Thanks, Rajiv.

[Alice M. Emmons (Chair)]: Maybe you want to get the debt affordability together real quick. The train's leaving the station.

[Peter Trombley (Director of Legislative Affairs, Office of the State Treasurer)]: Oh, you're welcome.

[Scott Baker (Director of Debt Management, Office of the State Treasurer)]: You know what? We can there's there's another page. We don't have to

[Peter Trombley (Director of Legislative Affairs, Office of the State Treasurer)]: hear anything. Maybe they will. Awesome.

[Alice M. Emmons (Chair)]: It's okay. Doctor. Ahead. Anything else? Because we're kinda running right here. Yep.

[Unidentified Committee Member]: Other don't than.

[Alice M. Emmons (Chair)]: They haven't hit your folks in directly.

[Scott Baker (Director of Debt Management, Office of the State Treasurer)]: So it's the debt service, but we can keep paying

[Peter Trombley (Director of Legislative Affairs, Office of the State Treasurer)]: it out. Not having been since this proposal has put this paper on the table. We had come in to answer 10 questions, the numbers we've shown you today, when they were considering what bonded value to put the bill.

[Alice M. Emmons (Chair)]: I'll try to take a real quick

[Scott Baker (Director of Debt Management, Office of the State Treasurer)]: Yeah, can you take five?

[Alice M. Emmons (Chair)]: I'm sorry for the other folks. We need to clear our head when we're doing. Let's take let's