Vermont Legislature SmartTranscripts:

[Emilie Kornheiser (Chair)]: It's so fun here. And it's still March 11, and it's Wednesday, and it's 02:30. And I think the next thing we're gonna do right before we jump to a conversation about school construction is a vote on H757. I believe we need to amend it and then vote on the bill as amended.

[Charles Kimbell (Ranking Member)]: Madam Chair, I would move that we adopt amendment version draft 1.1 on July.

[Emilie Kornheiser (Chair)]: Thank you. Representative Kimbell, it moves that we amend age seven fifty seven. Seconds. Representative Burkhardt seconds. Is there any

[Rebecca Holcombe (Member)]: The amendment, what did he goes too, Charlie.

[Emilie Kornheiser (Chair)]: You know what, actually, I'm gonna Let's withdraw the amendment. Let's withdraw the motion. Do you mind withdrawing the motion? Shoot. Thank you. Yes,

[Charles Kimbell (Ranking Member)]: madam chair. I would like to withdraw the previously offered amendment.

[Rebecca Holcombe (Member)]: Let's just, let's wait for about our next proposal. Actually, Jim. Jim? It was Jim's amendment. Yeah.

[Emilie Kornheiser (Chair)]: You made the motion?

[Rebecca Holcombe (Member)]: Yeah, you did. Okay. Do

[James Masland (Member)]: I withdraw the amendment?

[Emilie Kornheiser (Chair)]: The motion. Okay, great. Thanks. Do we have to vote for to approve his withdrawal?

[Rebecca Holcombe (Member)]: No. As long as some I vote in the seconder.

[Bridget Burkhardt (Clerk)]: I will draw my second.

[Emilie Kornheiser (Chair)]: Thanks, everyone. Okay. We're just gonna wait until tomorrow.

[Unidentified Member]: Okay.

[Emilie Kornheiser (Chair)]: Great. Okay. Us switch gears. School construction. Here we are. We've been talking about school debt, what to do about school debt in a scenario where district governance is combined, and that being sort of a leverage point for how to fund school construction under a foundation formula construct. John has some updated language for us that he can share with us. Treasurer's office has been thinking about this. The bond bank has been thinking about this. They're all still sitting on the bench from the last conversation we had, so they're going to talk to us. And I think that's all of my introduction. Tom, do you want to take us through the airfield? Can everyone just always copy Sourchan all emails that go to me because I can't check things anymore? For the next few weeks, you can stop after that.

[Rebecca Holcombe (Member)]: And then everyone. Hello, John Gray.

[John Gray (Office of Legislative Counsel)]: John Gray, office of legislative council. I think I've been in here a good bit today, but tonight okay. Fun.

[Emilie Kornheiser (Chair)]: Once you started that sentence,

[Rebecca Holcombe (Member)]: I thought, what are all the sentences learned?

[John Gray (Office of Legislative Counsel)]: I wondered the very same

[Emilie Kornheiser (Chair)]: thing. I

[John Gray (Office of Legislative Counsel)]: often start sentences without knowing where they will

[Rebecca Holcombe (Member)]: go. Active

[John Gray (Office of Legislative Counsel)]: thinking.

[Emilie Kornheiser (Chair)]: About what we're doing?

[John Gray (Office of Legislative Counsel)]: That's what I consider it. Okay. I have shared with this portion, and I pulled up my PDF, so I'll go ahead and screen share. This is a pretty simple textual change. You will recall the prior debt service draft that you saw that just touched the state aid for school construction program and provided in two separate subdivisions that a school district that receives final approval for school construction aid shall be eligible to receive construction aid of 100% of the eligible debt service cost. And in the prior version, I'll get to this in a second, but in the prior version, there was a separate subdivision that said that any school construction debt existed prior to 12/31/2025 would receive 100% aid. That's still captured, but it's captured in a different section now because that category has been expanded. If you think of that as the clearing of the slate, which I will show you in just a second. So what you have now is a new section three, and I'm gonna explain why I pulled it from the school construction section and just added it in here. This would be a new section of statute in chapter one thirty three, your state aid is your public funding of education. A new section for legacy debt aid, and this is just expanding beyond purely capital debt to say that all debt for school districts that exist prior to a particular date, in this case, 12/31/2025, would be eligible to receive 100% of debt service costs. So this may not broadly expand. I don't know what the extent of school district debt beyond capital indebtedness is, but this is a broader clearing the slate. If school districts have existing debt, then they would be eligible to receive 100% of the desk risk costs. It's subject to the same mechanism here. It would be annually awarded for annual debt service costs, subject to a similar cap, as you saw in the previous section that we talked about before, and subject to an annual appropriation. A couple things I would flag about this. While this would capture all of your capital indebtedness, it doesn't pick a position on what debt is. So you could have questions as to what sorts of liabilities fall within this. Do contractual commitments fall within debt? Is it anything that you owe to someone? Does that constitute debt? Would that be picked up? So I think that's an outstanding question with the way that this is drafted, but this is just a simple provision to say broader debt service costs clearing the slate. And I don't know the extent of how much this would expand beyond capital indebtedness for schools.

[Emilie Kornheiser (Chair)]: One thing that we talked about last time here was this idea is that there might be debt from, say, an outstanding piece. It might be too inclusive- It

[John Gray (Office of Legislative Counsel)]: could be too inclusive.

[Emilie Kornheiser (Chair)]: To find debt further. Exactly.

[John Gray (Office of Legislative Counsel)]: So this grant doesn't take a position on what should constitute debt, and I just wanted to raise to you guys that when you think through this question, we should think about what all the things you want to capture in that are. This uses the most capacious term, and I guess you could use liabilities, actually could be even broader. The one thing I would note about the existing language is because it does award aid in the form of annual debt service costs, that seems to contemplate that it would only go toward things that would be built out as principal and interest payments, so that might exclude contractual commitments and the like. But just to say, this is something for discussion. What sorts of things do you wanna clear the slate for? That is all that I have. And I should say, the reason that I moved the subdivision previously that had existing capital debt out of the school construction section is that it is a kind of legacy debt. I have a provision for all kinds of legacy debt. And unlike the other school construction projects that have to go through the state aid program, the proposal for that legacy debt for school capital is not that it would have to go through the state aid program. So I think, essentially, it makes a lot of sense to group in old capital indebtedness for school construction projects like any other legacy debt. You could, of course, take a different approach, but that's why I drafted it in this way.

[Emilie Kornheiser (Chair)]: And this would not create a rush on debt, which I find impossible to imagine, but just if that was possible because it has To the cutoff. It has a cutoff. But just so I'm clear, this

[Bridget Burkhardt (Clerk)]: would mean that previous projects, 100% of them are basically what's left to be paid off, would be financed by the state. Whereas all future projects are gonna have to go through a fairly stringent process of whatever the rules are about square footage per student, what's included or not included in a capital construction project. So there's a difference in how we're treating projects that were approved before we reinstated state aid and projects that are stated after.

[John Gray (Office of Legislative Counsel)]: That's right. And the easiest way to point to it textually is that the lead in for subdivision a here is a school district that receives final approval for construction aide, shopping eligible to receive. So it's those that are pursuing projects in the future have to go through this process. This other section is just speaking to legacy debt.

[Emilie Kornheiser (Chair)]: I don't necessarily think this is a good idea. I think it's a place for us to start adding more things to it, to build what needs to be both a plan for debt service and a plan for new school construction. And this seems like one piece of maybe a five part puzzle. So I guess one thing is I think it would be helpful for someone to volunteer to figure out if we want to define debt and how we want to define it, if anyone wants to volunteer for that task.

[Rebecca Holcombe (Member)]: I'm happy to do that. Thank you. Okay.

[Bridget Burkhardt (Clerk)]: I also have a question, and I'm going be creating more of myself. That's

[Emilie Kornheiser (Chair)]: what we're doing this week.

[Bridget Burkhardt (Clerk)]: I have a question about, are there other states in recent memory that have gone through this process of instating? I know that most states have state aid for school construction. Are there any recent examples of folks that have had to deal with this legacy debt issue as they reinstated? I guess it's really the combination of reinstating state aid at the same time that we're changing the whole school funding system, which is different than pretty much any place. I was just wondering if there's any example of other people and what they've done, but it sounds like we're in a fairly unique position.

[John Gray (Office of Legislative Counsel)]: Yeah, don't off the top of my head know the answer to that, but I can look into that and try to see how other states approach legacy debt.

[Charles Kimbell (Ranking Member)]: Also, with a foundation formula that does not have really an allocation for school debt, this does not say where the categorical grant to cover it is coming from. Correct. It could still conceivably be coming from the education fund unless another source of funds is identified.

[John Gray (Office of Legislative Counsel)]: Yep. This doesn't take a position, in some ways, while this looks super simple, it's very scary to me personally to draft things like this because I can't logic my way through. There's so many unresolved things that there's just not much for me to build out. Yes, this doesn't take position on where the revenue source is. The the provisions that I would say make that take into consideration that fact are including an annual cap. Right? So there is some consideration of trying to limit the exposure that you might have for this and then subjecting to annual appropriation. It would be, even if you didn't include that language, but there's doubly clear language to say that you wouldn't be overcommitting the state being of what could be provided.

[Charles Kimbell (Ranking Member)]: The other thing I just wanna add in, in looking at Vermont's particular case, of our statewide education property tax, many communities feel like they don't have any more tax capacity to support a local construction project. And they And right now, the way it's working is that other school construction projects are supported by everybody's property tax. So it's really kind of funky that way. So in other states, there might be a general fund allocation towards part of what that school debt may be, but the rest of it is relying on the school district. So when we have a statewide education property tax, it gets really weird to try to figure that out.

[John Gray (Office of Legislative Counsel)]: Yeah, and I think one of the driving concerns in this space has been how to navigate that in a way that protects the credit of the state.

[Emilie Kornheiser (Chair)]: And I think when we're done just getting our head around this building block with John, we're gonna ask Michael from the bond bank and the treasurer's office to sit up here together and have more of a roundtable discussion of what other puzzle pieces might be that we wanna bring into this. Yeah. Representative Holmes? I think

[Rebecca Holcombe (Member)]: that's a real problem. It's actually the same positive tip, right? That overlaying of both is not the same, it's the unit that benefits. And so there's weird asymmetry potentially. But I guess I'm curious again, can we start by defining what problems we're trying to solve here? Because I think that matters a lot. And historically, when you have a brand new building, you're carrying debt on your books. If you have a very deteriorated building, it's a depreciated asset, it's a fund of debt. And we say there's no value, but there are a lot of people who are also rushing to transfer their small school buildings to the municipality right now, even though they were built with Ed fund money. So these buildings do have value, even though, I wonder if we're, I'm just not sure why we would give carte blanche to people who were able to go out, especially given some of the constraints when what they've really done is just assume debt in a different form.

[Emilie Kornheiser (Chair)]: What would we do if we didn't do this?

[Rebecca Holcombe (Member)]: I speak to me this really Sorry, I'm gonna back up.

[Emilie Kornheiser (Chair)]: So I think there are two separate problems that we're trying to solve. One problem we're trying to solve is what to do with existing district debt as we move to a foundation formula, with a foundation formula that does not account for debt. There's possibly a happy second problem we're trying to solve that could be solved with similar tools, which is we absolutely need to find a way to both organize funding for school construction and fund school construction.

[Rebecca Holcombe (Member)]: I guess I'm going to go back again. I'm trying to figure out what problem we're trying to solve, because I don't even know how you have this without language from house education about what the purpose of future construction is. Because if the goal is to support development of regional high schools, then you actually don't want to reward backwards, you want to reward forwards. This is just a tool. What is it we're trying to accomplish here? I'm trying to understand our theory of government, because I feel we're very coherent, That's all. Whether

[Emilie Kornheiser (Chair)]: paying for past debt is rewarding or not rewarding, there's still past debt that needs to be managed somehow. And so I think one of the reasons that we were stopping, there's a clear date here, is so that it just is what it is and it's not a reward or not a reward. It's like, it's a debt that needs to be managed. But I hear what you're saying. And then there's the moving forward, which I think we're assuming is some version of regional high schools.

[Rebecca Holcombe (Member)]: I don't know that we know that. Okay. We have no language. Yes. Representative Ode, did you have a question for John?

[Carol Ode (Member)]: I did. It's a historical question. When we had state aid in education, was that general fund money?

[John Gray (Office of Legislative Counsel)]: Are You're talking about we used to do this through the capital bill? It would been bond it would have been bonding at that time. Right? It wouldn't have been through the the Ed Fund.

[Carol Ode (Member)]: So it wasn't in the Ed Fund. It was bondage.

[John Gray (Office of Legislative Counsel)]: General obligation. Yeah.

[Carol Ode (Member)]: Or thought.

[John Gray (Office of Legislative Counsel)]: Used I to go through the capital process first.

[Carol Ode (Member)]: And what year did that end again?

[John Gray (Office of Legislative Counsel)]: 2007, 2008, around that time.

[Carol Ode (Member)]: And before I'm just trying to figure out how we did it before Act sixty, sixty eight.

[John Gray (Office of Legislative Counsel)]: Oh, way it's like way back.

[Emilie Kornheiser (Chair)]: Oh, that's hard practice. Straight from back before Act 68. It was before it was done,

[Carol Ode (Member)]: not before it was just after it.

[John Gray (Office of Legislative Counsel)]: Surely after it.

[Emilie Kornheiser (Chair)]: I think that hurts.

[Carol Ode (Member)]: That's just okay. To me, I'd like to just So, do you remember?

[John Gray (Office of Legislative Counsel)]: I don't remember, I was a child.

[Carol Ode (Member)]: I do remember, Carol. I mean, I can't remember where the money came from, but I remember general fund, but I don't know where this came from after that. I'd like to know. Okay, you can have an Ed fund.

[John Gray (Office of Legislative Counsel)]: It's possible to know.

[Carol Ode (Member)]: Only that's the general fund, there was no Ed fund. No, it wasn't Ed fund, true. I just wonder, is it bonding? Did it be getting general fund? Just can't remember.

[Emilie Kornheiser (Chair)]: I can remember. I have a fun way we can find this out. I wonder if the NEA, who's very invested in school construction, can spend some time doing a history lesson on that and find out how we've made

[Carol Ode (Member)]: for school construction Well, teachers teaching,

[Emilie Kornheiser (Chair)]: that's my favorite. I know, isn't it so fun?

[John Gray (Office of Legislative Counsel)]: It's very fun to me.

[Emilie Kornheiser (Chair)]: Yeah, I thought so.

[Carol Ode (Member)]: Okay. Thank

[Emilie Kornheiser (Chair)]: you, John. So I'm gonna ask the three of you to come sit here, some coming from the two of you to sit here. Whatever you wanna do, there are chairs. We don't usually do this this way. We'll see how it goes. Colin, you're welcome to join for the brainstorming too, but only if you

[Rebecca Holcombe (Member)]: do your homework assignment.

[Emilie Kornheiser (Chair)]: I'm just kidding. You're welcome. I'm totally kidding. You're welcome to join brainstorms.

[Michael Gaughan (Executive Director, Vermont Bond Bank)]: I guess I need to reference some numbers.

[John Gray (Office of Legislative Counsel)]: Yes.

[Charles Kimbell (Ranking Member)]: Yes.

[Emilie Kornheiser (Chair)]: Colin. If you look at the first school construction task force report, you could find the answer to the range.

[Michael Gaughan (Executive Director, Vermont Bond Bank)]: I think I know

[Rebecca Holcombe (Member)]: the answer. Surprise.

[Michael Gaughan (Executive Director, Vermont Bond Bank)]: Michael Gaughan, executive director of the Bahrain Bond Bank.

[Peter Trebley (State Treasurer's Office)]: Peter Trebley helps state treasurer.

[Emilie Kornheiser (Chair)]: So we just have all these puzzle pieces, and I'm trying to put them all in the middle of the tape. This is not how we develop legislation, but everything goes this year. So we have some problems we're trying to solve in different ways. We have debt capacity, maybe. We have the credit rating of the state. We have lots of work that's been done about what our district debt looks like right now. So

[Michael Gaughan (Executive Director, Vermont Bond Bank)]: let's all talk. I can answer some of the questions that were out there. I'd like Thank to just respond to some of the things and make sure you get leases, I'd say probably most importantly in the definition of capital debt, but it'll look a little differently. Under GASB standards, basically anything that remotely smells like debt is now, needs to

[John Gray (Office of Legislative Counsel)]: be classified as debt. Audit's going to be a

[Michael Gaughan (Executive Director, Vermont Bond Bank)]: good place to look. There are questions and new rules around software as a service. And so that might be something that you might need to consider also. And also there are some Vimers legacy.

[Emilie Kornheiser (Chair)]: Sorry, you said software as a service is considered?

[Michael Gaughan (Executive Director, Vermont Bond Bank)]: Yeah, it's considered a

[Emilie Kornheiser (Chair)]: long term obligation.

[Michael Gaughan (Executive Director, Vermont Bond Bank)]: It's like everything.

[Emilie Kornheiser (Chair)]: Because you're dug in on this product that you've integrated this.

[Michael Gaughan (Executive Director, Vermont Bond Bank)]: That's some new GASB rules. It's just quite comprehensive. Then there are some districts that have legacy beamers requirements, such as to inform that discussion.

[Emilie Kornheiser (Chair)]: Carol Ode, do you have a question?

[Carol Ode (Member)]: I need this backed up, please, and start again because I'm writing capital debt and it looks like debt is counted as debt and all of a sudden we are into

[Michael Gaughan (Executive Director, Vermont Bond Bank)]: capital. If you're focused on capital, I'm just saying what sort of like our liabilities or obligations under the GASB standards, which is the accounting standard for governments and school districts. Each year it gets more comprehensive, but leases leases are subject to appropriation, equipment leases, things like that are going to be the most obvious and then it gets a little bit murky from there.

[Carol Ode (Member)]: Pieces and equipment leases

[Charles Kimbell (Ranking Member)]: are some

[Carol Ode (Member)]: of the things that can be considered.

[Michael Gaughan (Executive Director, Vermont Bond Bank)]: Those are 100%. Yeah, those are 100%. But increasingly, it's become more and more comprehensive with some of the new standards.

[Emilie Kornheiser (Chair)]: So the line between fiscal obligation and debt, there's no line It's like the line between software as a service and software as a product, really.

[Michael Gaughan (Executive Director, Vermont Bond Bank)]: Yeah, and now who knows?

[Emilie Kornheiser (Chair)]: That was a special gift for Charlie.

[Carol Ode (Member)]: So in a nutshell, how would you say it in a nutshell?

[Emilie Kornheiser (Chair)]: He can say that in a nutshell, I don't need to say it in

[Carol Ode (Member)]: a nutshell.

[Michael Gaughan (Executive Director, Vermont Bond Bank)]: I think you want to look at the dentist.

[Carol Ode (Member)]: Are you trying to say? Because

[Emilie Kornheiser (Chair)]: I want to make sure

[Michael Gaughan (Executive Director, Vermont Bond Bank)]: I'm- I just think your list of potential liabilities to the point made earlier is, I was just giving a heads up on some of the things to consider outside of debt service specifically.

[Carol Ode (Member)]: Okay. All right, I'm done. So it's a very long list of liabilities outside of debt service.

[Michael Gaughan (Executive Director, Vermont Bond Bank)]: That's right. Although the scale of them is odd. The other thing I'd mention kind of as a follow-up to some of this discussion to Professor Holcombe's point, TASS, I forget what it's called, the advisory committee, I think that I'm on. I can't remember if it's extrovert advisory committee.

[Emilie Kornheiser (Chair)]: I can never remember those things.

[Michael Gaughan (Executive Director, Vermont Bond Bank)]: It's very difficult to keep it straight.

[Emilie Kornheiser (Chair)]: Yes. The difference between the two? No, no one does.

[Michael Gaughan (Executive Director, Vermont Bond Bank)]: Well, think we are formally a thing. Advisory Advisory Board, there you go. That's I think why I'm getting so confused. There was some commentary on that, that sort of knowing the direction that the state wanted to go on facilities would be helpful. I think one of Rhode Island's then was like fewer and newer, for example, was a talking point. And so designing a program around how you do that prioritization was something that did come up in the discussions previously. But clearly, I think bigger picture, like we have a huge deferred maintenance need and we've been very focused on that for a long time. And then I guess the last thing I'd say to the committee is, I think to what Representative Kimbell was saying, other states that have this don't have so many constraints in terms of wanting to cap spending and have 95% to 100% of the funding come from the state. So they always have kind of a release valve in local property taxes. And we just don't have that in this circumstance. And that really kind of boxes us in quite

[John Gray (Office of Legislative Counsel)]: a bit, and that's why I think

[Michael Gaughan (Executive Director, Vermont Bond Bank)]: we're having this discussion about these very high levels of state aid.

[Emilie Kornheiser (Chair)]: Thank you, that's a great place to start.

[Charles Kimbell (Ranking Member)]: As we were talking about the capacity of the state to take on a lot of new school construction projects, even though we don't have the prioritization at this point, we know there's $6,200,000 in identified school projects just to bring them up to what's, you know, to not replace, but actually just fix up is what the study was. So the question is, what kind of capacity we've had these conversations, but what kind of capacity does the state have? Of borrowing capacity? Or is it the school district liability that has to be taken on? Can't just the state borrow the money? So I'd just throw it to you that way, telling a couple of the answers.

[Michael Gaughan (Executive Director, Vermont Bond Bank)]: So whether the state So I'll say

[Peter Trebley (State Treasurer's Office)]: as we read the language that John just walked us all through, and I want to confirm this because we haven't had the specific language to put to our advisors yet, but given that the state would be under this circumstance appropriating annually the payments to the school districts, both for legacy debt and for future construction, it would not, in that case, count as net tax or debt for the state because it would be subject to annual appropriations. If the state were to bond directly in order to support some of these projects going forward, right now, SEDAC recommends that the Capital Debt Affordability Advisory Committee for the state has had us set a recommendation of $50,000,000 a year in bonding $100,000,000 per biennium. We asked them to run a few scenarios to see how much higher we could go. And we could long term go out to $100,000,000 a year, 200,000,000 or biennium without realistically risking our state's credit score. So with an additional fiscal years '27 through '23, we could also do an additional 23,100,000.0 per year to make up for some unissued, some authorized but unissued debt in the past. So one of the challenges that the state is facing actually utilizing its debt is that our capital projects simply can't move forward due to labor shortages or material purchases in recent years. So that's assuming we're now dedicating our capital debt towards a new purpose that could move forward. We have some previously issued debt we could use over the next five years as well. So the short answer is, in the next five years, we could do about 73,000,000 more a year in bonding and long term 50,000,000 more a year in bonding.

[Charles Kimbell (Ranking Member)]: Thanks, thank you. And then just for the sake of argument, if you went out to bond, interest still has to be paid on the bond. So you're thinking that would be coming from the general fund or that would be coming from the education fund?

[Peter Trebley (State Treasurer's Office)]: That would be a policy decision for the legislature.

[Charles Kimbell (Ranking Member)]: That's a good answer. In the when the Treasurer used to kick from the capital budget, say it was 20% of school funding, it was 20,000,000 a year, let's just say that, in the past was the general fund that was repaying that bonding from the capital debt when the funds were then allocated to the schools. I don't actually know in our legacy school construction aid program where

[Michael Gaughan (Executive Director, Vermont Bond Bank)]: general fund, but typically with

[Peter Trebley (State Treasurer's Office)]: our go bonds, it's general fund or general obligation bonds.

[John Gray (Office of Legislative Counsel)]: It's Yeah. And

[Rebecca Holcombe (Member)]: we bonded with a small proportion.

[Michael Gaughan (Executive Director, Vermont Bond Bank)]: Yes. Then on the bond bank side, our capacity is not as constrained. We don't think we've threatened our rating with several billion dollars worth of issuance because of the benefit of state intercept. I think as we approach this future state, maintaining the underlying general obligation of that local bond is important for this. I think there's a known unknown about the way the rating agencies will perceive this new structure, but having the general obligation, should there be any shortfall, is important in this overall framework to avoid being net tax supported debt of the state and being on the one nice folks.

[Emilie Kornheiser (Chair)]: I think in previous, think it was last year or last biennium, we learned a lot about what Rhode Island and Massachusetts have done. Either Delaware, was it Delaware or Maryland?

[Michael Gaughan (Executive Director, Vermont Bond Bank)]: Maryland Couple of topics. Massachusetts is a sales tax lane. Maryland is whatever the county or the districts. And then in one Prince George, they did a

[Emilie Kornheiser (Chair)]: pretty In Prince George, tell us about what they did in Prince George.

[Michael Gaughan (Executive Director, Vermont Bond Bank)]: Yeah, think it was Corvius in Prince George County. They had a large Prince George County, it's huge, just like the size of Vermont. Well, it's probably bigger actually. And they had a huge deferred maintenance issue. They did a public private partnership to bring on a private entity who then was Project finance is all about segregating risk. So like delivery risk, construction costs, overrun risk, all these things are sort of segregated out. And so they contracted to have a P3 to deliver these new schools at a set price and time with certain guidelines on design. And I think that's a model that has a lot of applicability in Vermont because we're so constrained in what we're going to allow the district to do. Having a design build type mechanism where we say, we want this program, we want to have multiple sections that can be accommodated in the school, we want this solo orientation, we want this. And then district has a fixed amount that they contribute to that. And then any sort of management of the cost or risk is then borne in some way by the state that maybe is passed off to private partners. But we maintain the financing with the bond bank because it's always going

[Rebecca Holcombe (Member)]: to be less expensive than its private cost of capital. Representative Ode? So, I am aware of universities using public private partnerships, and being able to segregate that debt, and then more recently Moody's and Standard and Poor's said we are counting that instead against the universities.

[Michael Gaughan (Executive Director, Vermont Bond Bank)]: Yeah, it really just depends on how it's structured. A lot of the P3s in the private space have been like parking and housing. And the nature of the housing commitment in particular is a source of consideration for the rating agencies, how extensive that commitment is to fill those beds. So that's where sometimes they get in trouble with that. I'm not suggesting that we would try to offload it from a balance sheet perspective, but more so that we would use private parties contracting at scale, couple billion dollars to deliver the schools or the new construction portion of this equation in ways in which we offload some of that risk as a state.

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

[Charles Kimbell (Ranking Member)]: So we can there's no constraint from what you're

[John Gray (Office of Legislative Counsel)]: saying on

[Charles Kimbell (Ranking Member)]: going to the market to raise money for new school construction, as long as it's the school districts who are the borrowers.

[Michael Gaughan (Executive Director, Vermont Bond Bank)]: I think there's a known unknown with that, about how it would be treated in the rating agencies, but assuming current state, yes. However, obviously that has to be paid back.

[Charles Kimbell (Ranking Member)]: So that's- Looking at the consistency and stability of the repayment source. If it's not the school district's taxpayers and it's the state with the general fund's annual commitment to the debt service, then it's gonna be not reflective on the state ratings, but just the willingness of the legislature to commit that money. Yeah. That's how it works in Rhode Island.

[Michael Gaughan (Executive Director, Vermont Bond Bank)]: Yeah, and I think an example I shared is Kentucky has the school construction facility authority, something like that. They contribute a certain percent to the cost of construction, and then it's aggregated at a school level, and they consider that net tax supported debt, that contribution. The state does themselves, even though they aren't the ones doing the botany. And so that's an entirely plausible scenario. We just don't really know. So I think we should just protect ourselves and do what we think is right.

[Emilie Kornheiser (Chair)]: I think there are some trade offs on the decision to have districts carry legacy debt, and then the state essentially being responsible for paying those districts so they can pay that debt rather than paying off the debt and starting fresh. Do you have any thoughts on that? So

[Peter Trebley (State Treasurer's Office)]: I'm not sure I follow-up the distinction there.

[Emilie Kornheiser (Chair)]: So if we put different puzzle pieces together, and we have an opportunity to Sorry, it's like the day has been too many different things at once. Okay. So we have legacy debt that's sitting at the district level. Right now, the language we have in front of us, which is just one piece of the puzzle, would essentially tell districts that we're going to be paying them so that the Ed Fund will be paying them in a categorical grant so that they can pay their debt going forward. The education fund, if it is the education fund that does that, will then have less money to do something else with, like pay for new school construction, which we might then bond for at the state level to pay for some of it. What are the trade offs we should be thinking through about carrying that legacy debt at the district level versus paying it off and starting with new debt at the district level?

[Michael Gaughan (Executive Director, Vermont Bond Bank)]: Yeah. I think we should just keep it as is. Because, like, for example, we locked in a lot of that in 2021, 2022. We have, like, 2.5 coupons on some of those long dated bonds. Like, it's just like, that's a great deal. We wouldn't want to sort of screw that up. If And we try to do something else, we're going have to come up with a big appropriation or it's very obviously going to be part of net tax supported debt of the state. So I think your thinking around baking it into the foundation part was a good thought.

[Emilie Kornheiser (Chair)]: And I know that when we've looked at some of the numbers before, there's something of clumps of debt. We have some old debt that will be paid off fairly soon. We have some newer, larger debt that's sort of does it make sense to treat those differently in some way?

[Michael Gaughan (Executive Director, Vermont Bond Bank)]: Yeah, I just had that up. So you have the debt that is outstanding that was issued prior to say, I don't know, pick a year, 2020 is 125,000,000. You have with Burlington around $481,000,000 outstanding currently, that's obviously going to change soon. But just to give you some rough orders of magnitude there.

[Rebecca Holcombe (Member)]: In the committees or the tests or whatever it was called, the discussions, did you look at any states? I mean, the examples of states that you gave are all states that allow local revenues to cover bonding. Did you look at any states that are as tight or capping as much as far?

[Michael Gaughan (Executive Director, Vermont Bond Bank)]: I have not been able

[Rebecca Holcombe (Member)]: to find anything that resembles Vermont my research, yeah. What are the risks? I mean, I'm thinking there's a school going out with a capital campaign to raise revenue alternatively. What are the risks for us of approaching this?

[Michael Gaughan (Executive Director, Vermont Bond Bank)]: I think that's a great question. That's why I've sort of been conceiving of this Prince George County model where you have a P3, because the risk is that you have nowhere to go with any cost overruns and you are extremely constrained. Really what you're asking voters to do is just how you want to arrange the pieces within the bucket. And so how do you cover the risk? What's your risk management strategy? And so I think there has to be another entity that can ensure delivery at the cost that you can do within your constrained bucket. Does that make sense?

[Rebecca Holcombe (Member)]: Yeah, but I also think in Maryland, from what understand, they can raise revenues locally, including the municipal government, to pay for civil bond as well. I mean, so I'm wondering, we've always had this assumption of separation of church and state schools and municipal, but this, I'm just wondering what we're setting up here.

[Michael Gaughan (Executive Director, Vermont Bond Bank)]: Yeah, it's very, I think the only parallel is you do have states, Massachusetts being one of them, that have like tax bill or bill of rights type things, where they have a cap on the amount of property tax increases that are allowed without some sort of referendum. And so that's like the closest parallel.

[Charles Kimbell (Ranking Member)]: Even there are other kids, like in Rhode Island, think some of the municipalities were borrowing the money and lending it to the school system.

[Rebecca Holcombe (Member)]: That's what I saw in a lot of places. It's unfortunate.

[Charles Kimbell (Ranking Member)]: And that might exist in other states.

[Rebecca Holcombe (Member)]: It exists in metal.

[Unidentified Member]: This may not fall within one piece of the puzzle, but I was just thinking in one of my town meetings, they were asking me in regards to, it appears that they were going to put, let's say, 100,000 into a capital reserve for possibly a new roof down the road. And they were asking me how would that be worked out if for some reason the school had to be combined with a different school? Would that debt that they incur, would that be legacy debt or would that be some other just form of debt that would be included in the new district?

[Michael Gaughan (Executive Director, Vermont Bond Bank)]: I think that's The only experience we have is the historic experience for a consolidation and then it just did follow the new legal entity. But the advisory group, thank you, did lay out a number of different options for how you treat that.

[Unidentified Member]: And then just to follow-up, so they were asking me also about

[Emilie Kornheiser (Chair)]: I think there's a question of what is maintenance and what is construction, even if that construction's on existing buildings. I think I

[Unidentified Member]: heard you say that most all of it is considered debt, right? I mean, regardless.

[Michael Gaughan (Executive Director, Vermont Bond Bank)]: Yeah, not deferred maintenance. There isn't a standard for that right now, yet.

[Rebecca Holcombe (Member)]: I think a lot of districts also use that initial reserves, they build up a reserve to do an initial payment. That's what happened locally, but here we'd pay for 100% of it if you did it a couple of years ago, but you would lose that revenue if you merge now.

[Unidentified Member]: Again, to follow-up the other question they had, is it still in the bill in regards to, if that was to happen, the towns can buy the building back for a dollar?

[Emilie Kornheiser (Chair)]: That seems to be what towns are doing.

[Unidentified Member]: I'm sorry?

[Emilie Kornheiser (Chair)]: I mean, towns are doing that right now. But

[Unidentified Member]: again, I think that that in this whole equation has to be some consideration for towns as well, because they aren't gonna sit there with a building, you know, in some of my communities that's a huge mammoth of a building and what if they still have to maintain it, still have to put the new roof on it, you know, but they aren't gonna sell it to anybody that I know of. So I guess I'm just saying that somehow we need to consider that aspect of what a town's going to have to go through, keep that building maintained or sell it for complete loss? Does that money go? Is that going to the municipals' coffers?

[Emilie Kornheiser (Chair)]: Before the break, Representative Ode talked about working on a way of sort of using something like the Downtown and Village Center tax credits to help those properties transform into what's next step. I think representative Holcombe made a really good point about, like, should that and and I don't wanna speak for you, but, like, should that be the municipality's building? Like, does it does it actually belong to the education fund? And so it's actually all of our so selling it as a doll for a dollar to the town is maybe, you know, not fair to all the taxpayers that paid to make that building all over the state. So I think that's something that we need to figure out. I think that's a

[Michael Gaughan (Executive Director, Vermont Bond Bank)]: good point. The bond bank wears both hats. So we don't want that community to be hollowed out without that education asset. And I think there's a very, I think, substantive discussion of a land bank that could be And this could be an interesting use for that. Some of the sites Maybe some of the sites are appropriate for new construction, maybe some of the sites aren't, maybe some of our sites are appropriate for housing, maybe some aren't, and that's a great use of a land bank and bring some additional capacity to that community. Some

[Charles Kimbell (Ranking Member)]: of the sites may have some contaminants?

[Michael Gaughan (Executive Director, Vermont Bond Bank)]: Yes. Unfortunately, yes.

[Charles Kimbell (Ranking Member)]: That nobody wants. Right.

[Michael Gaughan (Executive Director, Vermont Bond Bank)]: Go ahead. I know we're sort of on the record here and it's not the perfect place to be really bold, but I just like, I just think of the constraints we have and, like, I don't know how you solve this problem. So, like, I feel like what you really need Like, the only thing you can really do is ask the community or that school district to commit to x percent of the budget towards debt service so that you don't have to extra pay into debt service, right? So whatever bucket you're going to give the schools with the foundation formula, you sort of need to say, Okay, your skin in the game is going to be whatever percent we want to decide is appropriate. The national benchmarks that we look at for Moody's is like 5.5%, 6% budget. So we say, okay, if you community vote to dedicate 6% of your budget to this plus some reserve or whatever, then we state or state entity or authority or whatever, we help you procure the new facilities and we will manage the risk aspects of that. And we will help you deliver that at the lowest cost possible with goals that are determined more sections per cohort, big enough scale to have languages, etcetera. We will put that amount that you and And you will give us our GO. You'll give 5% to 7% plus your GO. And then we will bond against that, create a pot of money that we will then use towards whatever authority state to determine when and where the schools go and basic designs of what they look like. What I think you can't do is say, you then go design bid build each school with this constrained bucket and you manage all the risks and everything else, but we won't give you any flexibility to go outside this bucket that we're giving you. So I think you have, in your fiscal constraint, you've already made a decision that you're going have consolidated procurement and delivery, but you still should have some local contribution, I believe. So I think that's the only way this can really go, I guess, after spending a lot of time thinking about it. Because unless you were to say, for purposes of school construction, you can levy taxes above and beyond that 5% budgetary flexibility that you'd already agreed to.

[Emilie Kornheiser (Chair)]: And I think the concern that sort of sits with that idea is that we have so much inequity right now in districts' willingness to raise revenue for schools, and that we are moving in some areas and moving towards in other areas a real emergency situation with our buildings. Right? And so if we enable that and some districts are able to pass those bonds, and some districts I really have a perfect topic table right here. And some districts are not able to pass those bonds. What does that mean for the equity of opportunity in this state? Because we already have proof that some districts are going to do that school construction and some districts are not, if it's up to the sort of local taxpayers' willingness to carry that. So the scenario that I

[Michael Gaughan (Executive Director, Vermont Bond Bank)]: suppose the scenario you envisioned is that folks would actually budget below whatever the foundation formula is or something or?

[Emilie Kornheiser (Chair)]: That it would be a categorical grant on top of the foundation.

[Michael Gaughan (Executive Director, Vermont Bond Bank)]: Yeah, mean obviously the other states have managed that by the level of aid that they provide.

[Rebecca Holcombe (Member)]: I'm just gonna say again, we can fix this anytime with a floor. We choose not to. For what? He He counts floor. The novelty of Act 60 when it first went through, and then 68, is by the minimum tax rate, actually set a floor on spending. And districts, some of them, like no one near me, almost doubled what it had to spend. Equity reasons, I don't understand why we don't set the floor now to help slate Mary and bury city blind, those kids have to wait till 2020 whatever. Time? I think that's a great question.

[Emilie Kornheiser (Chair)]: I think it's not the one we're talking about right now. I'm just It's so important. I understand it's so important. This school construction is the piece that over and over again, all of our communities are asking us to solve this problem, and we don't have a clear bill in front of us to solve this problem. And so I'm hoping maybe just putting everyone together in a room, people would just I like it. And I really appreciate that you're like, we're on the record, but I'm just going in on it. We have to figure this out.

[Rebecca Holcombe (Member)]: I just want to

[Emilie Kornheiser (Chair)]: spend the full thirty minutes trying to figure it out before we give up.

[Rebecca Holcombe (Member)]: Have a plan. I'm not saying we're going to up.

[Emilie Kornheiser (Chair)]: I'm just saying, can we at least try to spend everyone all in for thirty

[Rebecca Holcombe (Member)]: I think that's what we think we're trying to do.

[Charles Kimbell (Ranking Member)]: Ohio, just for giggles, looking at them, they have a state and local split depending on the adjusted valuation per pupil, and they use the district's taxable property, the average income, the average daily membership, and the state median income. Looking at these different variables to determine what would be a local share and what would be the state share. And that was really to address the same kind of inequity issues we think about with Brigham and how that affected it. Do you think that's workable?

[Michael Gaughan (Executive Director, Vermont Bond Bank)]: I think there, they're still in the property tax base. Do. I grew up in Ohio, you know, kind of middle income family, but like my area of this wealthiest school district in the state was gerrymandered to have the mall, one of the biggest malls in the state to create that additional value for this wealthy school district. So Ohio is very much a property tax based system.

[Emilie Kornheiser (Chair)]: Still And probably with a lot of inequities between the schools.

[Michael Gaughan (Executive Director, Vermont Bond Bank)]: Yeah, that was what, it was a Supreme Court case in Ohio that sort of paved the way for their reform in the late 90s, I think similar era to ours.

[Rebecca Holcombe (Member)]: I'm just gonna say also, I think this is where I go back to, we need education policy to inform the funding policy and the construction policy, because some of the districts that are voting down their budgets actually have a lower budget than the previous year, a lower tax rate. This is a very well documented formula. Some people will always vote their budgets down. So it's not that there isn't access to resources, it's that locals are making a different choice. So if we don't have a decision or a policy that says, at a minimum, kids need to have a building that doesn't have PCBs in there, or whatever it is, then I don't know how to lead this conversation. And if we do have an emergency, people, and I'm open to the conversation, but giving 100% funding to people who made a decision a couple of years ago when we had such extraordinary needs and the people who didn't move forward are probably people who didn't have access to some of the capital. I think we would want to have better information about the impact of that decision before making that decision. Sure.

[Emilie Kornheiser (Chair)]: And so I guess then the next question is, what is the next step for the districts that have not had access to that? How are we gonna fund schools in those areas where they have not been able to bond historically?

[Rebecca Holcombe (Member)]: And we don't even know what the education policy is. I think, again, and this goes back to the regional high school thing, and I think our lead is greatest at that level, and it's not always where people think it is. And so I think if we make that decision, it would be better to me if it was an evidence informed decision that was supported by co parent policy. And I've

[Emilie Kornheiser (Chair)]: heard over and over again in this building, and I'm sure I'm not the only one, that we can't move forward on education policy unless we have solved school construction, because no one can trust that we'll have the disease or whatever that policy is. And so we're trying to do everything at once. I really hear where you're coming from, that makes sense to me.

[Rebecca Holcombe (Member)]: And so whether we have 6,000,000,000 or not depends a lot on what we think the future looks like. I want to make a comment, follow-up on such things that you said, the kind is, one of the basic things would be health and safety of the students. If you get kicked out of the building, you have no choice, and if the cittings around you don't want to take you and combine with you, you have no choice and you have no building. So, it's not like people woke up one day and said, well, let's build a new high school. We were on a course in our city to renovate, which really in many ways, thank goodness we didn't because there was so much bad stuff in the building. We would have taken down the first wall and probably found so many PCBs what we had done. So I just think there's an element of no choice when you have an unhealthy building no choice when you're kicked out of your building. That's number one. Number two, I often think when you're doing a strategic plan, know, you're doing a strategic plan, you have to know what your vision and mission is, and I think you said earlier, is it newer and fewer? Is it, what is it? So, if we were to say newer and fewer, and we were to say the health and safety of the people who work in, who are educated in the building, would those be something that would be guiding principles, would somewhat answer hopefully what Secretary General Holcombe is talking about? Well, I think that both

[Emilie Kornheiser (Chair)]: the treasurer's office and the bond bank serving on the school construction advisory, whatever the last thing was.

[Charles Kimbell (Ranking Member)]: State of the School Construction Advisory Board.

[Emilie Kornheiser (Chair)]: Put forward those exact guidelines that were adapted into law in Act 73. So those are pretty comprehensive guidelines for when and how we're So

[Rebecca Holcombe (Member)]: we do have that. I thought you were saying we need that.

[Michael Gaughan (Executive Director, Vermont Bond Bank)]: I think there's still some questions with the advisory board about what exactly that direction is.

[Rebecca Holcombe (Member)]: Tell me what you think the direction, what did you put in your report? What more direction do you need? Because maybe we can at least solve that so we know the vision and mission here.

[Michael Gaughan (Executive Director, Vermont Bond Bank)]: I'm not the education expert. I'm the bond and construction delivery person. So not my field.

[Emilie Kornheiser (Chair)]: I think we are at the bell. So we're going to go to the floor. I encourage everyone to read the last report, and then we're going to all have this conversation again with an eye towards financing mechanisms.

[Rebecca Holcombe (Member)]: Thank you both so much.

[Emilie Kornheiser (Chair)]: I don't know what Charlie's symptoms are. No. Pretend. I'll send this one too. It's usually the email all night. Midstay. Okay. Thank you everyone. So we'll see you tomorrow morning

[Rebecca Holcombe (Member)]: at nine.