Vermont Legislature SmartTranscripts:

[Marc Mihaly (Chair)]: Welcome, everybody, to the Committee on General Counseling. And today is 02/19/2026. And we have a number of items on our agenda. We just came from a joint hearing with the House Committee on Corrections and Institutions discussing the whole issue of employee safety for employees of the state. Now we're going to hear Ted Barnett give us his fiscal take on H-seven 75, which is the Rural Finance Bill, and then we're going to have an introduction of a bill and then the House floor. So, Ted, welcome back. Thank you. I think you know the members of the city, and take it away.

[Ted Barnett (Joint Fiscal Office)]: Sure. Ted Barnett, Joint Fiscal Office. I'm going to be spending a lot of time talking about the current 10% for Vermont program, changes in the bill that would expand the treasurer's capacity to make loans available through that facility, and then also talk about the fiscal ramifications of those changes. Would note that the treasurer's office is in the room. They know the inner workings of things are better than I do. So if I go off the rails, they can stop me.

[Marc Mihaly (Chair)]: I note the presence. And why don't you state your name for the record?

[Peter Trommelny (Vermont State Treasurer’s Office)]: Peter Trommelny, Director of Fudge States of Paris.

[Marc Mihaly (Chair)]: He's now been introduced, so anything is possible. Go ahead. Yeah,

[Ted Barnett (Joint Fiscal Office)]: so I'm going to do my 40,000 foot level take. First starting off with the current 10% for Vermont program, makes low interest loans with broad flexibility to invest in affordable market rate senior manufactured home ownership housing. The interest rates are low. We're talking about 1% to 2.5% depending on the loan term or amortization period. So a loan with the duration less than five years is a 1% interest rate, five to ten years 4.5% scales up. And the amount of lending under the facility, why it's called 10% for Vermont, is capped at 10% of the state's average cash balance. And the local investment advisory committee is routinely looking at the average cash balance, determining how much money it's lent out and adjusting the portfolio accordingly. So since the pandemic

[Marc Mihaly (Chair)]: I do have one quick question. When you say average cash balance, if the state has invested in various vehicles, it still can't, it's considered, the average cash balance means all of the state's cash, right? So if it's invested in instruments with ninety day, a ninety day period, it's still cash, right? Even it doesn't mean that it's absolutely liquid.

[Ted Barnett (Joint Fiscal Office)]: I would point to, I'm not sure, my sense is that it's relatively liquid, but the treasurer is making investments on that cash balance to maximize the state's return. But I don't know the composition of those funds.

[Peter Trommelny (Vermont State Treasurer’s Office)]: I'm happy to walk the committee through how we arrive at what we consider the average cash balance, that's helpful. But the short answer to your question would be yes, we would consider monies invested in a thirty six year, ninety day maturity to be capped for these purposes.

[Marc Mihaly (Chair)]: Great, that's enough for now. Thank you. And

[Ted Barnett (Joint Fiscal Office)]: since the pandemic, there's been a large increase in the average cash balance. So looking at fiscal year twenty twenty, the average cash balance was about $320,000,000, $321,000,000, but by fiscal year twenty three, it was 2,200,000,000.0. It's come down a little bit in fiscal year twenty five. So looking at the report I have here, the average cash balance was in the $1,600,000,000 range. And so what that's allowed the treasurer to really increase the capacity of lending through this 10% for Vermont program. They've announced most recently a $30,000,000 that was made available earlier this month for various housing investments. So it's the current program thinking about what would happen if you expanded that facility to 12.5%, of which 1%, so 11.5% for housing up to 1% for off-site construction, what that might do. So if overall increasing 10% of the average cash balance to 12.5% would theoretically allow for $30,000,000 in additional housing investment, of which of that amount, 12,000,000 could be used for off-site construction. This would have a budgetary cost. So in the January 2026 revenue forecast, the state as part of that revenue forecast, part of the available general fund that's used in the budgetary construct, 12,500,000.0 is interest income. And if you're committing funding to housing investments, those carry a lower interest rate and return to the treasurer's office than what they're able to receive in the investments they're making. So if you're assuming that those cash investments of $1,600,000,000 is 3.5%, and you assume 1.5% on housing investments, the general fund would lose about $600,000 per year, and that would be $600,000 less that the appropriators would have have available to them. I would note that that's assuming a certain interest rate, both on the open money market and also with housing loans. There could be a whole range of interest rates within that credit facility. And it also assumes that the full 30,000,000 goes out the door. And it may make time, there may not be a capacity to absorb 30,000,000, but yes, that is looking at that piece isolated and by itself.

[Marc Mihaly (Chair)]: Also, two questions about that. I get it, I mean, the 1.5%, did you arrive at that just as an average or you're just saying given that it could be one, two, because I know that they could charge up to what, I think it's 5% from somebody who wants money for twenty years, right?

[Peter Trommelny (Vermont State Treasurer’s Office)]: Charge up to 2.5%. The largest intermediary might have had spreads.

[Marc Mihaly (Chair)]: Right, okay.

[Peter Trommelny (Vermont State Treasurer’s Office)]: One and a half is about the average we see across the whole portfolio.

[Marc Mihaly (Chair)]: Okay, great, so that's accurate. The 12,000,000 for off-site, as I understand it, that's not money that is spent, That's money that is that that's money for a credit facility. The developer pays for the off-site housing. The question is or this is at least my understanding. The problem that we're trying to address is, let's say we accumulate or DHCD accumulates an order of 40 units of housing from various different sources. When those units are delivered, they will be paid for by the developer, but a manufacturer, say Huntington Homes, wants to know, is that real? How do we know, before we really step up to the level that you're asking us, how is it real? And my understanding is the treasurer is going to design some sort of a credit facility to backstop that, which would only be expended in the event that somehow the developers don't come through. Am I understanding this correctly?

[Peter Trommelny (Vermont State Treasurer’s Office)]: I think there are a couple of different ways we might structure this credit facility in order to support the bulk purchasing agreement. And maybe that it's a short term revolving loan facility that allows an intermediary to purchase housing as the factory makes it available before it can be offloaded to the final developer or the consumer. For the purposes of these numbers that we worked out of 10, we just assumed that we would lend that $12,000,000 at 1.5% like we do with the rest of the portfolio. Ultimately, the terms of what we might earn on that money in any kind of revolving credit facility would depend on how we end up structuring the pilot and consultation with THC.

[Marc Mihaly (Chair)]: So this is really a worst case in a way, it's basically assuming that they're really, it's just gone, rather than it just sits there to guarantee or it's a revolving fund that comes back, etcetera, right?

[Ted Barnett (Joint Fiscal Office)]: Absolutely, and it is typically the JFO role to come in here and talk to you all about the worst case scenario,

[Marc Mihaly (Chair)]: because we

[Ted Barnett (Joint Fiscal Office)]: don't like being a stunts of the party. You like that. Alright.

[Marc Mihaly (Chair)]: Did you have a question?

[Elizabeth Burrows (Member)]: I mean, the the worst case scenario is essentially what it costs us to build one affordable housing unit. Right.

[Marc Mihaly (Chair)]: Yeah. He's saying a $600,000 loss to the general fund in a really saying a would be it would be I I think that it's more like 400 because I think the credit facility isn't gonna end up being just an expense. I think

[Elizabeth Burrows (Member)]: it's gonna come back. Security. Yeah. Okay.

[Marc Mihaly (Chair)]: It's a lower It might be, at some point, when this is if this goes to ways and means, you might want to clarify that that's I don't think you should change the number. I'm not suggesting that. I'm just suggesting that you clarify. I mean, it's one thing for there's many different kinds of worst cases, but this is one that I think just won't happen, absent a catastrophic series of failures of the developers to come through.

[Ted Barnett (Joint Fiscal Office)]: Sure. Yeah. And the language would be yeah. And up to Yeah. Numbers. Okay. Yep. $600,000.

[Marc Mihaly (Chair)]: Yes.

[Elizabeth Burrows (Member)]: So wait. I thought that the $600,000 loss was considering that the 30 is used up. So that's why you're saying, well, no, because if 12 of the 30 is just used as a security to get a better to get the credit Yes.

[Marc Mihaly (Chair)]: Then It's not used up.

[Elizabeth Burrows (Member)]: It's not all used up. So you're saying, so two thirds

[Marc Mihaly (Chair)]: is Unless something really bad happens. But so there's two issues. One is he's saying it assumes that all the money go that that could go out for housing goes out.

[Elizabeth Burrows (Member)]: Yeah. And gets paid back.

[Marc Mihaly (Chair)]: No. That all of it goes out and, yeah, it gets paid back, but

[Elizabeth Burrows (Member)]: some of it's gonna go

[Marc Mihaly (Chair)]: over long periods of time. And then the second is the credit facility assumes is lost. Yeah. Okay. Wait a minute, I don't understand that last part. Okay, of the 30,000,000, 12,000,000 is the 1% that allows the treasurer to dream up whatever form of backstop credit facility is the fancy word, backstop that the treasurer can that will facilitate a program of bulk ordering. Chances are, whatever the treasurer comes up with, either will just be, I'm here, the money's here, if the developers fail to pay for it, in which case, if they do, nothing is expended. Or it might be, we are told, some sort of revolving loan fund where it'll be construction lending or something short term, but it comes back too, so it's not as if that money is lost. As in if they don't produce what was ordered, but they only produce Right. The amount. Right. Well, I think the fear is from a Huntington I'm just gonna pick a name, but it could be any manufacturer. From a Huntington Homes perspective, we come to Huntington Homes and say, we've got 40 orders for you, pal, and they're basically saying, oh, so you're asking us to hire more people and ramp up in the winter and do all this. That's do we how real is that? And, you know, how real? It's just this bunch of little little developers from god knows where who say I want three houses here and five houses there, but you're asking for 40, how do we know it's real? And the thought was the answer is this treasure is standing behind it. Go ahead. Sure,

[Ted Barnett (Joint Fiscal Office)]: yes, and we, for context, the appropriators, a couple $100,000 is what we're talking about here, whether depending on how much the treasurer decides, how they decide to structure the credit facility, it makes a big deal in the budget process. And so don't want to It's often helpful to assume the worst case scenario in the budget

[Marc Mihaly (Chair)]: construct. Okay,

[Ted Barnett (Joint Fiscal Office)]: so that is taking the piece of simply expanding the current 10% Vermont program to 12.5. There is a second piece in section two that you all have talked about, which is the treasurer retaining interest from their credit facilities. This is the 10% from Vermont, the new 2.5% expansion and 2.5% for climate investments. Within the full treasurer portfolio, as far as I understand, they estimate that $70,000,000 would be drawn down in fiscal year twenty twenty seven. This is within the current scope of lending. And that results, that generates about a million dollars in interest that is currently going to the general fund. So we changed that to go to the special fund that's created in the bill. And so that would be $1,000,000 that would go from the general fund to this new housing special fund. So that's kind of looking at where things are currently. If you looked at the full $180,000,000 that could continually be possible through adding the 2.5%, also including 2.5% for client investments, That could result in a $2,700,000 shift in revenue. Copywriting this with, again, that would be assuming the full amount of potential credit is made available to folks. There's been a discussion that unlikely that this full amount would be used, but just putting that out there for folks, that that would be the impact of the change in where interest goes. So combined with the previous provision, that would be $3,300,000 in total. That would not be available, but this is, again, taking an absolute worst case scenario. I don't think, given what we've information on the treasurer and how we discussed the off-site construction piece would work, that it wouldn't be that high. But again, worst case scenario, I'm presenting that for your consideration. Questions? So that's for section two. I may, I have two small in additional other sections of the bill. Would note that in section four, there's language that mentions for the off-site construction accelerator pilots that a municipal planning grant shall be made available to participating municipalities. We want to note that the source and amounts of those planning grants aren't specified in the bill. So that would be something to think about. And would also note that I've been in the committee previously the session talking about the property transfer tax and through the property transfer tax, there is a mechanism of municipal planning grants. So that might be a piece to think about. Though I would say that within the budget construct, the amount that they allocate to those planning grants were specified based on existing demand, what ACCD communicated to finance and management. So that's a potential source, but there may not be extra capacity in that source. So one is like that for you all. And then finally, the two positions currently don't have a funding source for amount in section seven. That was created. So from the JFOC, those were the fiscal provisions of the bill. Happy to answer any questions.

[Unidentified Committee Member]: Any questions? Sure. The intelligent ones? Maybe, maybe not. I need to create a visual flowchart of where, how this is all happening or the questions here. Am I reading correctly? We have the authority to establish credit facility of up to 12.5%.

[Marc Mihaly (Chair)]: No, up to 1%.

[Unidentified Committee Member]: No, well, I'm looking at the expanding of 10% for Vermont. Oh, to

[Marc Mihaly (Chair)]: 12 and a half. But that's for their whole thing.

[Unidentified Committee Member]: Yeah. Right. Old thing. Right. And then under that subsection, infrastructure projects. And and I I don't think I have the same version in front of me, so the subsections are probably a little different here. In addition to the provisions in, the first subsection, in addition to the state treasurer shall have the authority to establish credit facility of up to two and one half percent. Is that in addition to the 12 and a half or is that part of that? No. It's in addition to the 12. So now we're at 15.

[Marc Mihaly (Chair)]: Yeah. That's existing law.

[Unidentified Committee Member]: Mhmm. This is existing law.

[Marc Mihaly (Chair)]: And the two and a half percent is existing law, and it's in addition to the 10 in existing law for a total of 12 and a half.

[Ted Barnett (Joint Fiscal Office)]: And I think that was done with that.

[Unidentified Committee Member]: That's already there. This is already here. That's already there. Interest pays. Okay. And then the interest paid on the 12 and a half, 15% total of that that is set aside, is for capital for housing projects in Vermont and in the separate subsection, a credit facility. So I see two different applications of the interest. One is capital for housing projects, including the bulk purchasing of off-site constructed housing, and then separately, a credit facility of up to 1%. That am I reading that correctly? Does that sound right to you? I'm just trying

[Marc Mihaly (Chair)]: to figure out In other words, what we're saying is the way it's written is that there are, if you will, two sources of funds for the credit facility. One source is 1% of the 12.5%. Okay. And the other is the interest Okay. Mhmm. Sum of the interest on the 12.5%. Alright. I'm just

[Unidentified Committee Member]: trying to make sure I know which piece Right. Piece of each other piece. Okay. Thank

[Marc Mihaly (Chair)]: you. Sure. Further questions of Ted? I I have one, but members of the committee? Could you just go back over for a minute on the retention of interest? For 2027, you mentioned 70,000,000, what is that?

[Ted Barnett (Joint Fiscal Office)]: So that is information provided by the treasurer talking about within the current structure, how much lending activities, how much is low value they imagine to be drawn down or out the door essentially at the end of fiscal twenty seven. So in the current universe within fiscal year '27, the amount of interest income that's currently going to the general funds is about Right, a billion

[Marc Mihaly (Chair)]: it's the interest on the 70,000,000. Yes. Yeah, average interest on the 70,000,000. Question for the treasurer. I remember a conversation where I thought that number was 700,000. Is that just sorry. Remember badly.

[Peter Trommelny (Vermont State Treasurer’s Office)]: Can you clarify?

[Marc Mihaly (Chair)]: I just remember thinking that, and in fact telling a few people that I'd heard, that the current interest income was more like 700,000.

[Peter Trommelny (Vermont State Treasurer’s Office)]: Oh, I see. We had a first sort of rough look at the portfolio and more refined look at where we think it would be in the next fiscal year.

[Marc Mihaly (Chair)]: Okay, great. So, okay, and that's fine. You've agreed? All right, I'm there. Okay, thank you. Any other questions? Ted, a thousand thank yous. Of course, and I will

[Ted Barnett (Joint Fiscal Office)]: note before I get out of the chair, I do have rough notes that I'm hoping to clean up a little bit because I understand it's hard to just hear words without visuals, so hopefully I'll be

[Marc Mihaly (Chair)]: able to provide that to you all through. Yes, thank you. Right, this will, Bill, will obviously be going to a bunch of places, and one of them is going to be a prose?

[Unidentified Committee Member]: Yes.

[Marc Mihaly (Chair)]: Okay. Yep. I'm not sure about ways and means. Ways and means seems to think it's going to ways and means, but I'm not sure.

[Elizabeth Burrows (Member)]: Well, was this tax stabilization piece But that's gone. Right. If it's gone then.

[Ted Barnett (Joint Fiscal Office)]: I I think because interest is considered revenue and that is part of the consensus revenue forecasts Yeah. I imagine they would wanna see it.

[Marc Mihaly (Chair)]: Okay. Yep. Great. Okay. Thanks. Mhmm. This is gonna have a lot, and a couple of flybys too, so all right. Thank you so much. Of course. Both of you, appreciate it. Of course. Okay, so at 02:15, 03:15, we're hearing from Sandy Pinsonell about her bill. Hi, Elizabeth. I see you up there.

[Elizabeth Burrows (Member)]: Hi there.

[Marc Mihaly (Chair)]: So, I don't that's five minutes from now. Why don't we just go offline for five minutes and then come back?