Vermont Legislature SmartTranscripts:

[Rep. Emilie Kornheiser (Chair, House Ways and Means Committee)]: Morning. This is a joint hearing between the House Transportation Committee and the House Ways and Means Committee. I don't know if we've we haven't done this in my time, and I am excited to be here with you all, even if under fairly mediocre circumstances. So I think as everyone knows, revenue for the transportation fund has been in trouble for a while. This fall, we had a rescission even, And so wanted to lay the groundwork that I think we've all talked about separately, but it seemed to make sense to do it together as we're starting what will likely be a interesting session. So I'm thinking about

[Unidentified male legislator (likely Chair, House Transportation Committee)]: I thank you very much for putting it together, and we look forward to what Logan has to say. Transportation is a core function of state government, and there's been longstanding trends going in the wrong direction in funding

[Logan (Analyst, Joint Fiscal Office)]: fiscal office. I have a presentation to show you. Thank presentation on the transportation front is obligatory for the slide that you've probably all seen a number of times now. For this presentation, I'm going to start by just going over the very basics. Just so we're all on the same page for people who don't know or maybe need a reminder. We'll look at how we take transportation, we'll look at the state, where the state money comes from, the revenue sources. Then we'll talk about the end, the FY twenty five year end, and we'll look at the T fund year to date so far. Talk about the things happened when you all were off session, and then it's Mary Anne who'll wrap it up with the conversation on some of the larger revenue challenges that we're facing. So starting off very basically, how does Vermont pay for transportation? It's through a mix of federal, state and local funds with federal funds to meet the majority. In FY '26, it was 51%. Can see there on the chart, that's the orange bar. They make up a large percentage most years of the transportation funding. With this federal funding, there's often a funding match. Typically it's around 80% federal, 90% non federal. It a little bit based on the project, but it's part of the standard. And not all things that AOT does can be federally funded. Things like the Department of Motor Vehicles and Maintenance are largely state funded, but a lot of our projects that do use federal funding. That brings us to state funds. We have the transportation fund,

[Unidentified male legislator]: which is

[Logan (Analyst, Joint Fiscal Office)]: the primary funding source, and then we also have the TIP fund or the transportation infrastructure bond fund. That's a sub fund of the TIP fund, is used to support some larger longer lasting projects and that has some dedicated revenue sources for that. And then we have local funds and some other funds periodically these are relatively small and are like the people mass portion for projects in their area such as that. That's the basics of how we pay for it. Now where does our state money come from? So most transportation revenues are generated by five main sources. We have gas tax assessment, have a diesel tax assessment, we have the purchase and use tax, the DMV fees, and then we have miscellaneous other fees and sources. And I'll get into more detail on these in the upcoming slides. So that chart there is the forecast that was presented in July. We'll be getting an updated one next week, next Friday. But as of July, the T Fund in FY '27 was projected to bring in $321,100,000 and the T Fund will bring in $16,600,000 from those funding sources there. You can see if you look on the far right hand side there, the forecast CAGR, the FY26 through FY30, this is the projected growth rate of these different revenue sources. You'll see that both the first two, the gas tax and the diesel tax are projected to be declining revenue sources with the gas tax declining almost 1% between zero point six and thirty. The third one there, the purchase and use taxes. One of the growing revenue streams we have, this one is expected to grow at 3.81% of the DMV fees and the miscellaneous revenues are both growing but at a very modest 1% around there. And then the tip at the bottom, much like big gas diesel packs for the T Fund are also projected to decline. Total state transportation revenues are expected to grow about 1.23% between 2630. So we'll talk about these sources just a little bit so that we all have an understanding of them. The gas tax, Vermont has a hybrid gas tax system. This means we have a fixed portion and then two variable assessments, which I'll talk about in a minute. All gas taxes and assessments are levied as cents per gallon and they're levied on the distributor level. They're not paid for by the individual gas stations, but if the distributors distribute to the gas stations. And these are collected by BNB monthly. So the top section of the chart to the right there is the fixed portion. You'll see we have total fixed tax of 13.1¢. Those are broken out. There's 12.1, which primarily goes into the T fund, but you'll see that there are some other small carve outs there for the DUI enforcement fund, facial modeling, such as that. So in total, the transportation fund gets 11.345¢ of that. There's then a 1¢ petroleum cleanup fee, which was the petroleum cleanup fund. And then you have the assessments there, which I'll talk about on the next slide. Those are 4% and a 2% assessment on the price of gasoline that equates to Right now it equates to 13.4¢ that goes to the transportation fund about 5¢ going into the dividend. There's some more nuance to that that I'll mention. For the total state tax and assessments of 31 and a half roughly and on the Fed's levy an additional 18.4¢ for a total gas tax fed and state of about 50¢, 49.9 this quarter. When we look at the assessments portion, so Vermont has a 4% motor fuel tax assessment and a 2% motor fuel transportation infrastructure assessment. These are levied on the tax adjusted retail price. And I won't be into all the details of the math, but essentially it's a 4% tax that goes into the transportation fund, but a 2% tax that goes to the tip fund. These fluctuate quarterly based on the price of gasoline. I have the equation there and some charts that sort of show you some historic things, but I won't go into all of it right now unless people are interested to go back.

[Unidentified male legislator (likely Chair, House Transportation Committee)]: Is that sort of one point? You say at the pump. So that's a percent of the retail price that the consumer pays, not the seller pays. Still paid by the wholesaler though.

[Logan (Analyst, Joint Fiscal Office)]: Still paid by the wholesaler, yep. The largest department of public services essentially collects the average for the quarter. And then the DMV calculates by going through the step what the next quarter's assessment rate will be that is then charged throughout that quarter. But it is based on the price at subtract out all the taxes you pay times it by 2% or 4% to get that motor fuel tax assessment rate that is charged for the next quarter. That's based on previous quarters. Makes sense.

[Rep. Emilie Kornheiser (Chair, House Ways and Means Committee)]: But it's all Collated is the wrong word, but sort of all of the gas that that distributor sells is what the tax is levied on.

[Logan (Analyst, Joint Fiscal Office)]: Correct. Yes.

[Rep. Emilie Kornheiser (Chair, House Ways and Means Committee)]: Regardless of where it's sold.

[Logan (Analyst, Joint Fiscal Office)]: Correct. Yep. So it would be the distributor will pay the tax based on how much they purchase. Thank you.

[Rep. Emilie Kornheiser (Chair, House Ways and Means Committee)]: Just clarification to make sure I'm following this. So, if I'm looking at the previous page and the bottom, total state and federal taxes and assessments, 49, is that like basically $0.50 added to one gallon of gas?

[Logan (Analyst, Joint Fiscal Office)]: Yep, that's a per gallon tax.

[Rep. Emilie Kornheiser (Chair, House Ways and Means Committee)]: No, Professor Lamoille. So then that same figure then appears, the next page, bottom right, very last one. Wait, we haven't done that slide yet. Hold your arms. Oh, okay, thanks.

[Logan (Analyst, Joint Fiscal Office)]: So the very far right hand column is just the total. It's the same number. It's the total state and federal taxes. So they should be the same. Perfect. I have some charts that we'll look at sort of the trends over the past, I guess back to '94, so a little while. This is gallons of gas that's taxed in Vermont. You'll see that consumption peaked in the early 2000s, has been declining since then. That big drop down is COVID, people stopped driving. It's come back a little bit, but not nearly to what we were saying. And then as forecasted, it is expected to continue to decrease in the future. So again, has been a trend that's been occurring since the early 2000s.

[Rep. Edward "Teddy" Waszazak]: Sorry, that's Vermont data?

[Logan (Analyst, Joint Fiscal Office)]: Yes, this is Dallas gas tax in Vermont. And then this is the essentially revenue collected from the gas tax assessment going back to June 2001. I've labeled here some shifts in the gas tax. There's been some changes. If we wanna get into the details of these, I can discuss them. You'll see there again, mirroring the previous chart during COVID, we saw the big decrease in gas tax and it's come back a little, but it's still declining in the dollars collected from that revenue source.

[Unidentified male legislator]: This is question of how if we didn't have a floor because currently we have a floor right now. So regardless of how low it gets, we still get a tax based on what is it $3 and change if if that wasn't in effect or we change that at all, how would it affect that chart up there?

[Logan (Analyst, Joint Fiscal Office)]: Yeah, so that's a good question actually. And I'll go back to this assessment page, which I guess I skipped over. You'll see there below the 4% and the 2% assessments, we have these minimums that are

[Rep. James Masland]: in

[Logan (Analyst, Joint Fiscal Office)]: place. So for the 4% that goes from the T Fund, there is a minimum rate that the state will collect, and that is 13.4, which if you do the math that occurs when the price at the pump is $3.87 We also have a maximum that of 18¢. So even if prices went above $5.08 to the pump, we would only ever collect the 18¢. For the 2%, we only have a minimum. So at $2.48 of the pump, we'd be collecting our minimum of about 3.9¢ there. So that allows for a little bit of sensitivity for pricing when prices go up, not only might people be buying less gas, but gas is more expensive for the state to use. So it allows for us to collect a little bit more time when we need it. And then when gas is cheap, we also decrease the amount that we collect. So by changing those, I will say the 4% going into the T Fund has collected the minimum for a very long time. I can only remember like two quarters in the past, probably four years or five years that has collected more than minimum, just because that's what the price of gas has been. The 2%, because it's a lower assessment does fluctuate a little bit more than that. Theoretically changing the minimum on the 4% would essentially equate to just raising the gas tax as it currently stands now. And that's based on consumption for every penny you raise the gas tax, it brings in about $2,850,000 So you can do the math there. Again, these are price sensitive. So the price of gas goes up, we will start collecting more. Right now we are collecting the minimum. Does that?

[Unidentified male legislator]: Yeah, no, it does.

[Rep. James Masland]: When did we last raise the gas tax in Vermont and how

[Logan (Analyst, Joint Fiscal Office)]: much did we raise it? Well, when we last changed the gas tax is when we included the assessment portion of it. And that was in 2013, essentially. So we did that by decreasing the fixed portion and adding in the assessments and they sort of faded in over time. So we added in the 2% assessment first and then we added in the 4% assessment afterwards. And that was along with then a decrease in which was a larger fixed portion decrease and we added in the assessment. As you'll see from this chart, the revenues, it did lead to more revenue and some money, but I would have to go back and see what the actual change on the total tax, gas tax was. But it wasn't 2013 was the last time we sort of adjusted the gas tax.

[Rep. Emilie Kornheiser (Chair, House Ways and Means Committee)]: And that's when Senator Westman was the chair of the House Transportation Committee, if you want some personal historic intel on it.

[Rep. James Masland]: Was gas low then?

[Logan (Analyst, Joint Fiscal Office)]: The price of gas? Yeah. I couldn't tell you.

[Rep. James Masland]: Because it seems like with gas being down 35¢ now might be a good time to consider that gas tax.

[Unidentified male legislator]: Moving

[Logan (Analyst, Joint Fiscal Office)]: on to the diesel tax assessment, Vermont levies two fixed taxes on diesel plus that petroleum cleanup fee that I mentioned. Gas tax, we have a 28¢ tax that goes to the TIF fund. So the cleanup fund for a total Vermont diesel tax assessment of 32¢. The feds then apply 22.4¢ for a total diesel tax rate of 56.4¢. In FY '26 forecasted to generate $18,100,000 for the T fund and 2,100,000.0 for the TID fund. Unlike gasoline, we do have some tax exempt uses for diesel such as agricultural or state and municipal uses. They don't have to pay the diesel tax. Then moving on to the motor vehicle purchase and use tax. So this is a 6% tax on the value of motor vehicle purchases. It's collected by the MB at the time of titling or when you initially get it registered in the state. And then there's 9% tax on rental charges for short term vehicle rentals. Under current law, two thirds of the purchase and use tax revenue goes to the T Fund, one third of it goes into the Education Fund. And FY '26 estimated to be $148,900,000 with 99,300,000.0 going to the T Fund and 49,600,000.0 going into the Education Fund. As we saw from the forecast, the purchase and use tax is one of the sort of few sources that we have that automatically sort of captures inflationary growth. As the price of vehicles increases, the amount of money we get from purchase and use also increases as compared to the gas tax and the other one, you should don't sort of capture any increase in in inflation.

[Rep. Emilie Kornheiser (Chair, House Ways and Means Committee)]: Representative Waszamal?

[Rep. Edward "Teddy" Waszazak]: The 9% tax on rental charges, two questions. One, does that include ride shares or is that separate? And two, if I'm doing a construction project and I need to rent a truck for four days to haul some debris?

[Logan (Analyst, Joint Fiscal Office)]: For the rideshares, no. I don't believe it is included in short term rentals. The other one, I guess I don't know the definition of short term, but I would imagine that if you rented a pickup truck, you would stop, but I would want to double check on that. You.

[Unidentified male legislator]: Just a point of clarification for my recollection is that the money that was going to the ed fund was roughly $55,000,000 that 49,600,000.0 Did that get downgraded when they did the revenue?

[Logan (Analyst, Joint Fiscal Office)]: So in July there was a revenue downgrade specifically in the purchase and use tax. We can go back to the forecast, but I have the same graph in a few slides that we can look at. I don't know if I have the downgrade on there, but it was decreased to get

[Unidentified male legislator]: Yeah, because I just remember 55 now that played into our budget.

[Logan (Analyst, Joint Fiscal Office)]: Sure, It likely

[Rep. Emilie Kornheiser (Chair, House Ways and Means Committee)]: And we have an update coming a week from today.

[Rep. James Masland]: Week from today. Yeah.

[Rep. Emilie Kornheiser (Chair, House Ways and Means Committee)]: So if, say, a different amount of money was going into the education fund and to the transportation fund instead, what would happen to the education fund?

[Logan (Analyst, Joint Fiscal Office)]: Absent of any new revenue, it would essentially be just a shifting of funds from one to another. And so either costs would have to be reduced somewhere or funds would have to make up for the funds that have been shifted.

[Rep. Emilie Kornheiser (Chair, House Ways and Means Committee)]: So property taxes would go up?

[Logan (Analyst, Joint Fiscal Office)]: That is yes. Okay. Thanks. Logan, do you

[Unidentified male legislator (likely Chair, House Transportation Committee)]: happen to know when or how often items are defined as purchase and use versus sales tax. For example, trailers and whatnot that are hauled all over the roads of vehicles and equipment and goods are sales tax and not purchase and use tax, which I find interestingly contrary to the kind of the kind of intuitively that I always thought the trailers would be purchased in use. Idea when the last time that may have been reviewed of any and we might be able to answer that in the future. It's something I'll take with me, I guess, for future.

[Logan (Analyst, Joint Fiscal Office)]: I don't know the last time that you gave, you are correct. Trailers paid the sales tax and then registration fees and stuff like that. They do not pay the purchase and use tax. I can't tell you why it is that way. That is the way it works now. I guess we can review that in the future. I could look into the history of that, but I don't have that at me.

[Rep. Emilie Kornheiser (Chair, House Ways and Means Committee)]: What's the difference between a sales tax and

[Candace Elkoye (Chief Financial Officer, Vermont Agency of Transportation)]: a purchase and use tax?

[Logan (Analyst, Joint Fiscal Office)]: I'm so sorry. Wow.

[Rep. Emilie Kornheiser (Chair, House Ways and Means Committee)]: I guess someone else.

[Logan (Analyst, Joint Fiscal Office)]: Well, think it's based on what they're lied to essentially. So it's a 6% purchase in use because it's on the purchase of a motor vehicle. I guess you could maybe consider that a sales tax. I don't know. I guess I don't know is the answer to

[Unidentified male legislator (likely Chair, House Transportation Committee)]: that question. I'm sure. Chris Rubin's

[Candace Elkoye (Chief Financial Officer, Vermont Agency of Transportation)]: When you were speaking

[Unidentified male legislator (likely Chair, House Transportation Committee)]: of trailers, are we speaking of tow behind two wheeled trailers behind a vehicle, or are we talking about a manufactured home? What's

[Logan (Analyst, Joint Fiscal Office)]: The first one.

[Unidentified male legislator (likely Chair, House Transportation Committee)]: I'm referring to trailers that you tow behind and registered.

[Rep. Emilie Kornheiser (Chair, House Ways and Means Committee)]: But it could have more than it could have lots of wheels it was towing. Right?

[Unidentified male legislator (likely Chair, House Transportation Committee)]: And I'm I am referring to the items that are then registered and driven over the road. I see that I would have thought that that money would be purchase and use, and it's not. It is sales tax oriented. It's something I wanted everybody to hear. So

[Rep. Emilie Kornheiser (Chair, House Ways and Means Committee)]: Christopher, do you wanna jump into testimony? You your face looks like you.

[Rep. James Masland]: I think if you want to, madam chair, if you join the whistle. I do think this is a a very great question for my colleague from alleged counsel to answer. Of chance to give you an appropriate answer. Would remind the committee that he's called it the purchase and use tax. It's formal name is the rear vehicle purchase and use tax. So I'm not a lawyer, but I would go ahead and say that the presence of a motor in the vehicle might have something to do with differentiating my tax follow-up.

[Rep. Emilie Kornheiser (Chair, House Ways and Means Committee)]: Well, think we will wait a moment for any attorneys to be available to answer that question. Thank you. Back to you, Logan.

[Logan (Analyst, Joint Fiscal Office)]: Of course. We good on Thank you. So here's another chart looking at the historic trends there.

[Rep. James Masland]: You'll see the call out there.

[Logan (Analyst, Joint Fiscal Office)]: This is when in 2,004, the purchase and use allocation was changed. It used to be one sixth going into the education fund with about 3¢ of the gas tax also going into the education fund. It was switched at that time to have no gas tax going into the education funds. The purchase and use was also increased 1%, maybe that was earlier, that is increased to two six or one third as it is today. That was in 2004. You can see the trends there. Again, during COVID, we saw a little bit of a decline, but then post COVID we've really seen the purchase and use tax exploding growth leveling out now. We can talk about how it's looking year to date. DMV fees. So these are fees that you pay for at the DMV. So there's driver placement, field registrations, a whole long list of them, expected to generate approximately $101,700,000 for the transportation fund. These fees are set by the legislative bureaucratic fee bills. The last time that happened was in 2024, very recently. There's some links if you want to look at it. There's nuance to the fees and then miscellaneous revenues. I also just stay on

[Rep. James Masland]: the fee

[Logan (Analyst, Joint Fiscal Office)]: bills. DMV fees go to pay for more than just what the fee is directly related to. It goes to pay for the entire transportation system as a whole. So this $101,000,000 goes to more than just sort of DMV. It also goes to roads, bridges and things like that, which is sometimes different than other fees. And then miscellaneous revenues is the variety of smaller sources. They're expected to generate about 21,800,000.0 in FY '26. And there are just a few of them. There are many more effects. So here's the historic trends of the PMP fee revenues with some call outs for the fee increases. You'll see the latest one there, effective 01/01/2024 increased it by, I think it was like across the board over 19% increase. But you can see then throughout the years the amount of times when we've changed it.

[Rep. Emilie Kornheiser (Chair, House Ways and Means Committee)]: It's actually interesting how much we really just brought it back into the line that it was running at before.

[Logan (Analyst, Joint Fiscal Office)]: Thanks.

[Unidentified male legislator (likely Chair, House Transportation Committee)]: And the concerning pieces on that is that it was 19 plus percent, and the actual revenue generated has not come quite close to the 19. And now you'll see a sliding down, we're going to see some significant more testimony on related to a number of things that are not happening in renewals and non inspected vehicles on the road and non registered and a whole lot of things. The 20%, 19% didn't come close to increasing 19%. But it does put us back on a trajectory that we need. But there's significant more work that's going to be done in our committee related to why it didn't come close to 20%.

[Rep. Emilie Kornheiser (Chair, House Ways and Means Committee)]: Great. Let us know. Yeah.

[Unidentified male legislator (likely Chair, House Transportation Committee)]: Well, did you know the inspection sticker fees? How much goes to the state out of that? I guess we'll talk about the for that.

[Logan (Analyst, Joint Fiscal Office)]: So we get $8 per sticker issued and One second. As of 06/30/2025, inspection sticker fees brought into the state $3,205,776

[Unidentified male legislator]: Yeah and just to sort of piggyback on that question which is a good question because there's some discussion about changes to inspection requirements But and it was a question I asked in committee, hope to get an answer at some point, I'm sure we will, is the cost of managing that program. So the costs associated with managing all the people and verifying their inspectors and running the computer systems that they use. So that sort of is offset by something. We don't really know at this point what that is.

[Logan (Analyst, Joint Fiscal Office)]: Moving on, now we'll look at sort of the year end, what happened off session and then look at revenues year to date so far. So when we ended FY '25, the transportation fund was $7,400,000 below estimate. You can see that on the right side of the screen that cumulative year to date, this revenue was largely due to the purchase and use tax and then also the D and B fees falling behind what was forecasted. So we're below about 2.3% at the end of the year. We then got the July forecast which downgraded the transportation fund in FY twenty six, but then also downgraded purchase and use and the DMV fees all the way out during the forecasted period. So this downgrade of $7,500,000 in FY26 triggered a required reduction in the FY26 budget to sort of bring it back into balance. So the agency, and I'll just talk about this briefly because someone from the agency is here to discuss this more detail with you. But essentially the agency, we had to bring the transportation budget back into balance. So they presented the transition plan. It's adopted on September 18. And then looking at the transportation revenues this year, so this is through July through December. As of December, where total revenues are sort of right on track forecasts. For those of you who have seen versions of this portion, this has changed in the last few months. Purchase and use has had a few couple of good months. So you'll see there on the right hand side, cumulative to date purchase and uses above what it was forecasted to be now, 3.2% above target. A lot of our other revenue sources are still below target year to date, but because of the over performance in the purchase of use these past few months, we're now sort of right on target. I guess I don't know what to say about future years. We'll see if that trend continues hopefully. Purchase use continues to grow. Before this it had been not meeting its targets. So it'll be interesting to see how it continues in future months. That might be something that I'll be keeping an eye on.

[Rep. Emilie Kornheiser (Chair, House Ways and Means Committee)]: Do you have any idea of how much of this year's like, month to month anomalous purchase and use numbers was about processing? Oh, probably. And how much of it was actual purchasing patterns? I know I'll ask Tom next.

[Logan (Analyst, Joint Fiscal Office)]: Yeah. So I don't know specifics. I know November, like, reporting based on the holiday at the end of the month and how I know there were some weird reporting things with that. I don't know if this is sort of abnormal to other years or sort of if it is truly purchasing or truly sort of a reporting type of deal. That would be a question maybe for DMV who collects all this information and maybe something they could look at in the future. Okay, the last section now is we'll talk about some of the larger transportation fund challenges, which you've seen a lot of it through the beginning of this presentation. And that's essentially that most transportation fund revenues are stagnant. They don't keep up with the inflation rate. We have the decreasing gas consumption due to increased fuel efficiency, as well as electric vehicle adoption. We have demographic constraints which limit vehicle purchases and registrations leading to flat fee revenues. The T Fund revenues, as we sort of already mentioned, are projected to only grow at 1.33%, which is lower than recent inflation levels have been. When we look at specific costs, matters related to the transportation and construction industry specifically, we see that nationally construction costs have increased by about 62% since 2020. That's according to the National Highway Construction Cost Index. Then And along with salaries and benefits, have been increasing statewide, all these things are representing cost pressures on a fairly stagnant transportation revenue sources. So here's just a look at the forecast. I've definitely looked at it, guess. The green line is the forecasted available transportation fund and then the red line is if you take that number and you adjust it for inflation and make it into $20.13 dollars this allows you to look sort of at the purchasing power of it on a flat basis. Right now, think we're maybe just above where we were in 2013, but the forecast continues as it was in July, we will likely be below where we were purchasing power for 2013. And this is assuming 3% on inflation at the out years, which

[Candace Elkoye (Chief Financial Officer, Vermont Agency of Transportation)]: could be higher.

[Rep. Emilie Kornheiser (Chair, House Ways and Means Committee)]: I think it says it at the very bottom of the screen, but it's too tiny for my eyes. What is the inflator that you use for the transportation fund?

[Logan (Analyst, Joint Fiscal Office)]: So for this chart, we use the personal consumption index.

[Rep. Emilie Kornheiser (Chair, House Ways and Means Committee)]: But

[Logan (Analyst, Joint Fiscal Office)]: There are a number of ways you

[Rep. Emilie Kornheiser (Chair, House Ways and Means Committee)]: That seems really low to me from what I heard from folks about transportation So

[Logan (Analyst, Joint Fiscal Office)]: transportation, especially in the construction industry has seen far greater than 3%. This chart I chose to use 3% in this index because transportation is not only construction, I guess. And so this is one view to see it. I'll show you on the next slide, a sort of look at the growth and the inflation in the construction costs index specifically, which is more specific to building roads and paving and stuff like that. So it's just a different way to visualize it. But yeah, you could definitely The 3% assumption is probably conservative and would likely be higher than that in future years.

[Unidentified male legislator]: And just remind us, is 1.2% that were expected growth in the T Fund?

[Logan (Analyst, Joint Fiscal Office)]: Yeah, so T Fund itself is 1.33%.

[Unidentified male legislator]: 1.23%. Something's not adding up.

[Rep. Emilie Kornheiser (Chair, House Ways and Means Committee)]: We've got a little alligator situation So at the end

[Logan (Analyst, Joint Fiscal Office)]: to your point, this is another chart that sort of looks at the same thing. The gray line there is that change in the national highway construction cost index. That's the one that's specific. You'll see that since 2010, it's grown by over 120%, whereas the 100 reps have grown by maybe 15% since then. So this is gonna it's another way to look at the same thing.

[Unidentified male legislator (likely Chair, House Transportation Committee)]: I guess at this point, I would wanna interject, Logan, that our towns and municipalities face the exact same pressure with less options on revenue. Only in this last t g fund or t bill that we put in even any inflationary measure to increase town highway and structure funds, which is not even close to that construction cost. So as much as we know the discussions driven towards education and the purchase use tax and other funds, our ability to help the towns is significantly constricted and is not even part of this. But out of the t funds, PUM money for town highway and structure projects, and the state is t fund money is limited. And I just wanna add really emphasize that we are doing nothing within this picture to increase any help to or very little. I don't wanna say none, but we did put some small inflationary improvement in that area. But we are doing nothing extra to help the towns deal with that construction struggle like we're trying to address on a state level. We have not yet done something in that area. Thank

[Rep. Emilie Kornheiser (Chair, House Ways and Means Committee)]: you. Oh, sorry, your corner. Line

[Candace Elkoye (Chief Financial Officer, Vermont Agency of Transportation)]: So sorry, do you have national comparison data on that jump

[Rep. Emilie Kornheiser (Chair, House Ways and Means Committee)]: in transportation construction costs or whatever it's called?

[Logan (Analyst, Joint Fiscal Office)]: Yes, that is the national highway construction costs index.

[Candace Elkoye (Chief Financial Officer, Vermont Agency of Transportation)]: Is Vermont tracking national increase?

[Logan (Analyst, Joint Fiscal Office)]: Oh, like Vermont specific? I don't know that off the limit. I could probably find that or team might have some data specific to Vermont, but I don't have that at the moment. Could find that for you.

[Rep. Emilie Kornheiser (Chair, House Ways and Means Committee)]: Just Yes. Quick interjection. I'm just thinking about time, and I have this slide deck right in front of me. How many?

[Logan (Analyst, Joint Fiscal Office)]: I have three.

[Rep. Emilie Kornheiser (Chair, House Ways and Means Committee)]: Great. Okay. I just wanna make sure that we

[Logan (Analyst, Joint Fiscal Office)]: have time. I'll be quick. Real fast.

[Rep. Emilie Kornheiser (Chair, House Ways and Means Committee)]: I just wanna make

[Logan (Analyst, Joint Fiscal Office)]: sure we

[Rep. Emilie Kornheiser (Chair, House Ways and Means Committee)]: have time for questions.

[Logan (Analyst, Joint Fiscal Office)]: Yeah, yeah.

[Rep. Emilie Kornheiser (Chair, House Ways and Means Committee)]: Thank you.

[Logan (Analyst, Joint Fiscal Office)]: Good.

[Rep. Emilie Kornheiser (Chair, House Ways and Means Committee)]: We're slowing you, you're not the one slow.

[Candace Elkoye (Chief Financial Officer, Vermont Agency of Transportation)]: You're good, thank you.

[Logan (Analyst, Joint Fiscal Office)]: As I mentioned, federal funds make up a large portion of the transportation budget, so it's critical that we draw down these funds in order to fund transportation. This is another piece that actually the agency will conduct shortly, but there's projected to be a state match deficit in FY27 of $33,400,000 threatening our ability to draw down all of those funds. This deficit is expected to increase in the future, assuming nothing else changes. In addition to the federal match, which is just one portion, there's also other funding needs such as Town Highway 8, as Chair Walker mentioned, conductors, general maintenance, other things that all need to be funded. And then the last one, essentially if we can't maximize our federal dollars, keep up with our maintenance and capital needs, our infrastructure will continue to deteriorate and cost more to address in the future. Backlogs are difficult to dig out of, required years of sufficient additional investment, and infrastructure is always deteriorating.

[Rep. Emilie Kornheiser (Chair, House Ways and Means Committee)]: And I know that the Transportation Committee knows this, and maybe everyone else on the Ways and Means Committee already knows this, but I was really interested at transportation oversight this fall to learn just how much more it does cost to pave just a couple years after sort of it should be paved. Like, the incremental increase in cost was very remarkable. Maybe everyone but me knew that much about paving. I don't So if anyone wants to dive deeper, the JTAG testimony goes a little deeper on this

[Logan (Analyst, Joint Fiscal Office)]: stuff. This is that federal funds or federal match outlook, which Candace will speak to, so I'll talk about it briefly. But FY27 you

[Rep. James Masland]: can see the $33,400,000

[Logan (Analyst, Joint Fiscal Office)]: deficit. And I'll let Candace go into the details to answer any questions on that. And then my last slide is just one example of sort of the constraints we're facing. So in this year's budget FY '26, we spent our budget about $103,000,000 for paving projects. The entity estimates that if we're continuing to pay that level of investment, that by 2030, 60% of Vermont's growth would be in poor or very poor condition. You can see their chart there, which assumes that consistent January investment and the breakout.

[Candace Elkoye (Chief Financial Officer, Vermont Agency of Transportation)]: Yeah.

[Rep. Edward "Teddy" Waszazak]: Just naming in while looking at that chart that we continue to have some of the strictest inspection requirements in the country and some of the worst road conditions.

[Unidentified male legislator (likely Chair, House Transportation Committee)]: Vehicle inspection?

[Rep. Emilie Kornheiser (Chair, House Ways and Means Committee)]: Thank you.

[Logan (Analyst, Joint Fiscal Office)]: With that, I'll hand it over to Candace.

[Candace Elkoye (Chief Financial Officer, Vermont Agency of Transportation)]: Most extreme infection of Parkinson's. Thank

[Rep. Edward "Teddy" Waszazak]: you so much. You're listening

[Unidentified male legislator]: to her.

[Rep. Emilie Kornheiser (Chair, House Ways and Means Committee)]: It's boring. Candice, thanks for joining us. It's It's like slouch. It's falling over.

[Candace Elkoye (Chief Financial Officer, Vermont Agency of Transportation)]: That's right.

[Rep. Emilie Kornheiser (Chair, House Ways and Means Committee)]: It's so bad.

[Rep. James Masland]: Yeah.

[Candace Elkoye (Chief Financial Officer, Vermont Agency of Transportation)]: Hello, everyone. Hi. For the record, I'm Candace Elkoye, Chief Financial Officer for the Agency of Transportation. And I was going to go through our five year outlook that we presented at the Joint Transportation Oversight Committee in September, as well as our decision plan that was approved by the Joint Fiscal Committee in September. Does that sound good, Chair?

[Rep. Emilie Kornheiser (Chair, House Ways and Means Committee)]: Thank you.

[Candace Elkoye (Chief Financial Officer, Vermont Agency of Transportation)]: All right. I'm gonna share my screen then. Alright, this is small. I'm sorry.

[Unidentified male legislator (likely Chair, House Transportation Committee)]: Okay.

[Rep. Emilie Kornheiser (Chair, House Ways and Means Committee)]: It seems like that's as big as you're going be able to get and keep it all on the screen.

[Logan (Analyst, Joint Fiscal Office)]: I'll just believe the numbers are telling us.

[Candace Elkoye (Chief Financial Officer, Vermont Agency of Transportation)]: This was shared as well. But what we're looking at is a spreadsheet that the agency of transportation has historically created for the legislative policy committees. We did an update to it specifically in September, so this is a point in time snapshot. Up at the top, we have our federal formula funds from the IIJA. Then we go into noncompetitive grant programs, such as the Highway Safety Grant Program, and then other competitive grant programs, which do fluctuate year to year. And for the competitive grant programs, I like to point out that the difference between fiscal 'twenty eight and 'twenty nine not because we project that we're going to be applying for less competitive grants. It's more challenging to project what competitive grants will be available throughout. So you can see the difference between the 01/2010 and the '63, just because we can't project what will be available that far in the future. Here we have the $7,500,000 in fiscal twenty six that was part of the rescission plan in September, which I'll get to in a moment. But what we typically focus on during the session is this number here, the deficit in state match. Give me just one moment. I pull up my notes because there are a lot of assumptions that go into that figure. First off, one assumption is a 2.5% inflationary factor on federal funds. That assumption was what we used for the last iteration of the transportation funding study that was conducted by us and the contractor, CBM Smith. We don't have a more available estimate right now, so we are sticking with the 2.5% in federal dollars. And of course, that can change based on the federal landscape. So that's one big assumption. I'd like to remind everyone that when we balance last year's budget, we did use $12,500,000 of one time funds. That was a transfer from the cash fund to the transportation fund. It was from FY 2023, so before I was in this position. But that was well talked about last session. So part of this $33,000,000 deficit is because we balanced last year on 12.5. The remainder is, of course, the revenue downgrade and taking into account inflationary increases, what we just talked about. So the assumptions for inflationary increases here, the collective bargaining agreement for state employees, that's 5.3%. We assumed a 3% for health benefits, which was part of the instructions from finance and management for the start of the budget build process. We also assumed that same percentage for internal service funds. We also had assumptions for the increases to town highway aid, town highway structures, town highway class two roadway based on the stat statute. But everything else that goes into this deficit, I'd like to point out, is level funded, meaning that if we spent $103,000,000 on that paving program, it's assumed that once again, we'll spend $103,000,000 going out into the future. So if we're talking about an inflationary factor of 3% or even greater, if my chief engineer Jeremy Reed were sitting next to me, he would tell you all that construction inflation is 29%. So if it's $103,000,000 last year and $103,000,000 next year, what this deficit is saying is basically the delta of inflation is being absorbed by another cut in the agency's budget. And most likely a push to the project delivery schedule. That is all I had to talk about this outlook, and I could go into the rescission plan now, or I could take questions.

[Rep. Emilie Kornheiser (Chair, House Ways and Means Committee)]: I think we can go into the rescission plan. Thanks. Great.

[Candace Elkoye (Chief Financial Officer, Vermont Agency of Transportation)]: This is the rescission plan. It starts as a memo, and then the second page is what Logan had on the screen. So this is the plan itself. We also have an addendum that describes each one of these line items. That was also submitted to the committee, but I'm going to be speaking off of this spreadsheet here. And I can take questions as we go through them. So give me a second. All right, so the difference between the January 25 consensus revenue forecast and the July 25 consensus revenue forecast was $7,500,000 That was above the 1% threshold that required the administration to propose a funding reduction plan to the Joint Fiscal Committee. We presented a plan to JTAG first on September 17, and then once again to Joint Fiscal on September 18, where it's approved. And we'll go through line by line now if that sounds good.

[Rep. James Masland]: Okay.

[Rep. Emilie Kornheiser (Chair, House Ways and Means Committee)]: So this Sorry, I'm just going pause for one second. I think very few of us were here the last time there were a lot of rescissions in state governments. Does that seem accurate? Think you were here, though. Thank you for your service. And so this is just we are likely entering an economic slowdown, economic downturn. So this is interesting to hear about this specific case. It's also just the first time this has happened in a long time, and I don't want to say that more will definitely happen, but it's a reality that we need to reckon with in a real way. And so I just encourage folks to think about this single instance in that frame of what sort of is at stake in the year ahead and the years ahead. Thank you.

[Candace Elkoye (Chief Financial Officer, Vermont Agency of Transportation)]: All right, so the total amount that we were trying to find for the spending reduction plan, all transportation funds, 7,500,000.0. So our first line two here, dollars 270,000 reduction. This isn't a reduction in carryforward that was approved for summer and fall highway projects above and beyond what the project managers actually requested in carryforward. This was basically like a my discretion CFO add on to what the project managers had requested. So the reduction of this item meant that project managers did not have this money available for project overruns in the fall. And one question I got yesterday in house appropriations was how did that go? And I think it's going all the way. Line three is a delay to the Springfield garage project. We do have a lot of details about this project in the written addendum, but the most important piece of information here is that we learned from the City of Springfield this summer that there is an extension to a waterline to the project site that we would want to have completed before the start of this project. So in the absence of this Rescission Plan, this project would have been delayed to a future budget year until the completion of that waterline. Line four is a delay to another project, the Rutland Snow Removal Equipment Building, which is part of the Rutland Airport Complex. This is for employee compliance upgrades included running water and sewer lines to the building and constructing a new bathroom. This is a delay to a future budget year. Line five, a reduction in servicing and purchasing at central garage, hitting the maintenance budget. This effectively equates to the purchase of four fewer dump and snowplow trucks for 'twenty six. It results in 11 dump and snowplow trucks beyond their eight year lifespan. Central garage employees will be maintaining our vehicles for a longer period of time in fiscal 'twenty six, And they will be cycling in our spare vehicles, because 10% of our fleet is currently not on the road as part of a spare

[Rep. James Masland]: reserve.

[Candace Elkoye (Chief Financial Officer, Vermont Agency of Transportation)]: Line six, dollars 415,000 reduction in tree cutting. This item does 100% eliminate contracted tree cutting in this '26. However, 80% of a typical year's worth of tree cuttings is maintained in house anyway. So you can think of it as 80% of our tree cutting is continuing to happen, even though this reflects all of the contracting.

[Rep. Emilie Kornheiser (Chair, House Ways and Means Committee)]: Scorpio Waszazak?

[Rep. James Masland]: Sorry, next

[Candace Elkoye (Chief Financial Officer, Vermont Agency of Transportation)]: reduction in preventative culvert maintenance projects. So this line eliminates a handful of five preventative culvert maintenance projects, which typically exist to ensure paving over a failed culvert does not occur. But all of our maintenance districts did confirm that the culvert projects that would have been completed with these funds did not have a paving project scheduled for '26. So we're not paving over something that would have failed.

[Rep. Edward "Teddy" Waszazak]: Just noting that many of the flooding events we've experienced over the past couple of years have been made worse by failed culverts. So just naming that for the record and hoping that you took that into account when you made those comments.

[Candace Elkoye (Chief Financial Officer, Vermont Agency of Transportation)]: Absolutely. I would also like to say that I, as CFO, did not create the The executive leadership team, with all of their knowledge and supervisors, managers that report to them, were heavily involved in the creation of this.

[Rep. Emilie Kornheiser (Chair, House Ways and Means Committee)]: Thanks for saying.

[Candace Elkoye (Chief Financial Officer, Vermont Agency of Transportation)]: Yep. All right. Line eight, a $200,000 reduction of contracted mowing services. This is a 15% reduction in contracted mowing services for '26. Mowing typically goes well beyond the clear zone, so maintenance believes that with this reduction, there will still be enough space on the highway so a driver can see and have a reaction time. Line nine, dollars 150,000. This is the return or repurpose of iPads purchased for the Vermont Asset Management Information System. These iPads were purchased for truck drivers to be logging their winter trips in SALT this winter. However, the addendum goes into detail on how drivers are currently doing that in a different manner. So the decision was made to, from the surface, the iPads that had originally been bought for payments. Slide 10, dollars 421,000 for the cancellation of technology project to automate the Section eleven eleven permits. So, right. This project sought to simplify and standardize highway access permitting project, the current highway access permitting process for Vermonters. This project started in 2021. There was a contract associated with it. We have invested significant staff efforts, and we do have some costs associated with the project, but the decision was made to cancel the contract because the selected contractor struggled to implement our full business needs. So in the absence of the decision, it was doubtful that we could have achieved what we needed to from the contract. The sunk costs for the total project are $800,000 Line 11 of $500,000 This is a delay to a Rutland rail platform project. This delays the stabilization of the upward platform of the Rutland Amtrak station to a future budget year. We recently completed a temporary stabilization effort, which the rail team believes will stabilize the platform for the next few years. So design work for this project is occurring in fiscal twenty six, but construction has been pushed to a future year. Thanks. Line 12, dollars 100,000 in public transit. This item reflects excess state match budgeted for the 5,339 FTA capital projects for bus and facility procurements. So based on the current We receive new bus delivery schedules over time throughout a fiscal year. So, based on the current bus delivery schedule when we were creating this list, we were projecting $100,000 less of state match needs for this project. So, this 100,000 reduction doesn't result in any changes to grants, contracts.

[Rep. Emilie Kornheiser (Chair, House Ways and Means Committee)]: More like a budget adjustment process. Or service routes. Yes. Think we can skip all the line items related to the conference. Thank you for not going to conferences. The

[Candace Elkoye (Chief Financial Officer, Vermont Agency of Transportation)]: last, line 14, so 2254000.000 in position management savings. This is a reduction. This is the result of a reduction in force that was taken in September. I do have notes from our Director of Administration, Gina Morris, who is much more knowledgeable on this topic. There's also John Burkhardt, who spoke to this topic at the Joint Transportation Oversight Committee. But I can talk about the reduction in force from students I have.

[Rep. Emilie Kornheiser (Chair, House Ways and Means Committee)]: And we also spent a lot of time on that at the joint fiscal committee meeting.

[Unidentified male legislator (likely Chair, House Transportation Committee)]: And then I would really like to thank you. Apologize for interrupting. I I think that what I really wanna make sure is clear before the we hit the noon time frame. The drop in transportation revenue and the continued downward the continued pressures on cost triggered that a major recession, 7 plus million dollars, had to be made. It is almost entirely internally driven,

[Logan (Analyst, Joint Fiscal Office)]: at

[Unidentified male legislator (likely Chair, House Transportation Committee)]: the agency focused on an internal effort. It was also focused on projects that were likely to have already been delayed or headed that way or were internal projects at the agency that were for their own work, and there still were employees and people that actually lost their jobs at the end. And I understand that transportation is not the number one issue in this building this year. However, the next set in this trend, if we can't find a short term or long term solution, those projects will now be in our towns, in our municipalities. Those projects and those people, that number will increase. And the pressure with this work that they the agency and the administration did a job of really trying to focus on their own internal areas to cut. If we can't solve a short term or long term funding issue, the next round of cuts are going to be on in the white book, for those of you who familiar, that will be in our towns. The system degradation will continue to increase and follow from that, and actual jobs are on the line after that. So I do emphasize that as you talk to your colleagues and we work on the other solutions in the building, this one here is real and will be feel felt in each of our communities over time, and it has to be part of the other conversations. It's not the number one priority. It's probably not the number two or three for most, but I want you to understand what happened this fall will continue to grow until we address the short term and long term lines that are there. And I appreciate the effort of the agency to keep it as internally focused as possible in these savings, but they won't be able to do that forever. So thank you.

[Rep. Emilie Kornheiser (Chair, House Ways and Means Committee)]: Thank you. And I think this was part of our first week's testimony because it is an incredibly important part of state government, and those revenues are something we're responsible for. So thank you. Thank you, Candice, and thanks, everyone, for your I think we're gonna yes? I I just wanted to say, you know, there is another transportation funding study done last January that has recommendations that we should get most of the looking at. Yes, sure. Thanks. Represent Masland.

[Rep. James Masland]: Thank you. Looking at the marked charts of transportation, public quality, or I guess, It's kind of going in the other direction. And I guess your message, Mr.

[Unidentified male legislator]: Chair, is that we're all in this discussion and all that you have to

[Rep. James Masland]: be responsible to get all good.

[Logan (Analyst, Joint Fiscal Office)]: Thank you.

[Rep. Emilie Kornheiser (Chair, House Ways and Means Committee)]: You. That was a perfect story to end on. Thank you everyone. Have a great lunch. We're actually back in this room after lunch.