Vermont Legislature SmartTranscripts:

[Speaker 0]: And Ken will tell us when we're live.

[Ken (Committee staff)]: And we are live.

[Speaker 0]: Okay, we are live. Good afternoon. This is the Senate Committee on Institutions. Today is Wednesday, 01/08/2026. We have one item, one very important item on our agenda, which is to hear from folks representing the CDAC, which I want to have the entire name, Capital Debt Authorization Advisory Committee. And that's a committee that meets once a year to look at various economic parameters and state and recommend what we are authorized to use in our capital bill. And it is advisory, but it is very good practice to take their advice. I think I'll, well let's go around there, Wendy Harrison, and I represent the Windham District.

[Robert Plunkett (Vice Chair)]: And I'm Robert Plunkett, Bennington District.

[Joseph "Joe" Major (Member)]: Joe Major, Windsor District. Russ Ingalls, Essex Orleans District Northeast Kingdom. John Benson, Orange District.

[Speaker 0]: And new member. So, whoever would like to go first.

[Jeremiah Breer (CFO, Vermont State Treasurer's Office)]: Yes, I am, for the record, I am Jeremiah Breer. I'm the Chief Financial Officer of the Safe Treasury. And with me, have Director Scott Baker. So I've been with the Treasury for a couple years now. There's a lot to understand in all of this. If you're asking me a really detailed question, I'm gonna call on my friend, Mr. Baker here probably. Just here to give you an overview of the state's debt management and debt authorization practices. So as mentioned, we have the Capital Debt Affordability Advisory Committee or CDAC, And that committee is chaired by the state treasurer. The secretary of administration is on the board, as is a representative from the Vermont Bond Bank, two appointees from the governor, a treasurer appointee, and then the state auditor, as well as the legislative economists serve on the board as non voting advisory members. As mentioned, it meets annually to review the state's net tax supported debt. There is a report each year due by September 30 to the governor and the general assembly that lays out the recommendation for how much debt to take out in the biennium. By statute, that report is advisory. In practice, it has always been adopted by the legislature and the governor, and the credit rating agencies look very favorably upon the fact that that recommendation is followed. The report looks at the criteria that the credit rating agencies use in evaluating the amount of debt that can be prudently handled by the state. So there are a bunch of different metrics. Chief among them are the amount of debt per capita, the projected debt service as a percentage of revenues and projected debt outstanding as a percentage of total state income. So in addition to looking at the metrics used by the rating agencies, CVAC looks at the total amount of outstanding, as well as we were talking about the amount that has been authorized and unissued. It looks at that ten year plan for issuing capital debt. So they're looking at the amount of debt outstanding, how much we can prudently handle based on these metrics, and then also what the needs are in the future. On slide five, it shows me some benchmarks that the committee looks at. And the state of Vermont is double a rated, so that's the second highest, rebel a plus. So that is the second highest rate credit rating that you can get. When we're benchmarking ourselves, we often, compare ourselves against, triple a rated states, of which there are 17. And You can see there's a list of AAA rated states there on slide five. Slide six shows you one of these metrics. This is looking at the amount of debt per capita and it's benchmarking Vermont against, again, those AAA rated states. And what you can see here is, I mean, obviously a lower number is lower debt per capita, so a lower number is better here and a higher number means a higher debt burden. And you can see if that we're benchmarking ourselves against those AAA rated states that Vermont is one of the higher debt burden states, completely at the top, but we're kind of in the top third of states in that ranking. Similarly, seven looks at debt as a percent of personal income. And you can see that Vermont again is sort of in the top third, not all the way in the top top, but in the top third, and a little bit above the median for that metric. Then yes, go ahead.

[Speaker 0]: Do you mind?

[Jeremiah Breer (CFO, Vermont State Treasurer's Office)]: Yes. Anytime. Yes.

[Speaker 0]: So I don't know if everyone has the slides. I think you do. I think you're looking at them. And for those folks who are watching, it's on our website. I just think having the debt as a percentage of personal income, that's that's a real meaningful amount to me. And so 2024, so we're at 1.6 and Delaware, the highest one is 6.8. Maryland's 3.9. Minnesota's 2.1, Georgia's 1.8. So some go into like 0.7, but I think that shows that our debt is at a very reasonable place. And this is a great way to measure.

[Jeremiah Breer (CFO, Vermont State Treasurer's Office)]: Yes, it's at a reasonable place. Again, this is benchmarking against the most top rated states. If benchmark Vermont against our peers in AA, we'd probably be even We would look even better by comparison. But I think it's sort of everyone's goal that if Vermont could improve its credit rating, that would be a benefit. This sort of gives you an idea of where we would need to be in order to perhaps get to that next echelon of the credit rating.

[Speaker 0]: Yeah, but it also shows that we're not being foolish.

[Jeremiah Breer (CFO, Vermont State Treasurer's Office)]: Right, right, yes. I think that it of gets more into this in future slides. There are some pluses and some minuses when it comes to the total debt burden in Vermont. We do have a little bit more debt per capita than some of these AAA rated states, but by no means are we being foolish. We have very prudent and disciplined practices for managing our debt and very reasonable debt metrics, which is why, even though we are not AAA, we're AA plus, that AA plus is very solid. There's really no immediate danger that will deteriorate, and the last time that that was evaluated with the credit rating agencies, they confirmed that as a stable outlook.

[Speaker 0]: And the premiums are good.

[Jeremiah Breer (CFO, Vermont State Treasurer's Office)]: Yes, the premiums are good. Well, actually, Vermont, there is a robust demand for Vermont debt in the market, so we actually sometimes get interest rates that are more comparable to a AAA rated state. So we joke that maple bonds are really sweet in the market. And part of it is that there just aren't a lot of Vermont bonds issued. So there is supply and demand in the marketplace. But that also indicates that the market has a certain amount of faith, perhaps they're ahead of the flavor you need to see too. Who knows?

[Speaker 0]: Thank you.

[Jeremiah Breer (CFO, Vermont State Treasurer's Office)]: Yes, you're welcome. The next slide ranks Vermont against all states. So we were ranking Vermont against those AAA rated states and here it shows our debt ranking among all of the states. So a higher number is better here. So we're about in the middle of half among all states. And you can see that that has deteriorated a little bit since 2011 and 2012. And the reason for that is that Vermont has been issuing less debt over time than some of our other states in the country have been issuing debt. The decline in their debt issuances has been even more steep. And also a lot of states have seen much more robust recoveries in their economies post 2020. But to your point Senator, to your point, Madam Chair, we are still in the middle of the pack there. So we are well ahead of the Illinois of the world for sure. And then the next slide, slide nine shows you kind of a breakdown of the population of states by their debt rankings. So you can see all the way to the left there, you have the AAA rated states for each of those three credit rating agencies. That's where probably a plurality of the states reside, and then the next largest bucket where you can see Vermont is in that AA rated situation, and it just shows you kind of where we fall on the peer universe of those rankings. Slide 10 of breaks down some of the factors that go into our credit rating. The economy is something that the credit rating agencies pay a lot of attention to. That is something that is a little bit of a drag on Vermont's rating in that the credit rating agencies express concern about the demographic situation in Vermont. You know, the aging population is a drag on the economy and how that will play out in the future. So anything that we can do to attract younger demographics and more workers and more children to Vermont is a plus to the credit rating evaluation. Something that we get a lot of credit for is our governance practices. So we have very disciplined history of prudent reserving practices in the budget, very much like that. We always pass a balanced budget that is looked upon very favorably. We have very much so like that we have the BAA process, that there is that mid year adjustment, and they very much look favorably upon this whole CDAC process, Not only that it exists and that we're evaluating these metrics to determine how much debt is prudent, but also the fact that CLIP's recommendation is adopted by the legislature and the governor. Next slide, slide 11 just shows you projections for where some of these metrics are gonna go in the future. I won't spend a lot of time here. In a nutshell, Vermont has been issuing less debt and we expect debt to decline in the future. So we expect these ratios to all decline, which will be an improvement. Slide 12 shows you a breakdown of the different categories of debt that the state of Vermont has on its books. So the first largest category and what we primarily is the focus of the CD activity report is the net tax supported debt. So there's $663,000,000 in net tax supported debt outstanding at the moment. The largest portion of that is $550,000,000 of general obligation bonds, but that amount also includes there's 26,000,000 of these property tax transfer, VHFA bonds, 65,000,000 for leases. So per accounting standards, leases are counted as part of your debt. And then similarly 22,000,000 in these technology arrangements is SPIAs, which are essentially software releases. So these are like subscription, long term subscription agreements that function like a lease and therefore function like debt. So that gets you to $6.63 in total. Additionally, there is debt issued by instrumentalities of the state that use the state's moral obligation. And so that includes the Vermont Law Bank and the Housing Finance Agency and BIA. And there's $890,000,000 or $8.08 90,000,000 in outstanding of moral obligation bonds. So those are not directly on the state's folks or directly backed by the paper credit of the state. They do use the moral obligation. So it is strongly implied that the state has an obligation to support that debt should those organizations not have the cash flow or the assets to do those themselves. Slide 13 shows you kind of a dashboard of some of the metrics that we have gone over in these other slides. I will draw your attention to this rapidity of debt retirement statistics. So this is a measure of how quickly we are paying down our debt and Vermont gets a lot of credit with the rating agencies for this as well, because we typically take out debt for reasonable amounts of time and pay it off relatively quickly. So this assumes that we issue no more debt. This is just a snapshot in time. So if we stop issuing debt today, we would pay out almost 50% of it in the next five years, 80% of it in the next ten years, and it would all be gone in twenty years. And of course, we're gonna keep issuing debt, so that's not actually gonna play out like that. But it gives you this benchmark to show you that we are paying our debt off in a very timely fashion, is obviously, that's really quite prudent and looked upon favorably.

[Speaker 0]: Just a question.

[Jeremiah Breer (CFO, Vermont State Treasurer's Office)]: Yes.

[Speaker 0]: So that amount, that's $663,000,000?

[Jeremiah Breer (CFO, Vermont State Treasurer's Office)]: Yes.

[Speaker 0]: So in twenty years, what do you think that we're gonna have? Oh, guess you're just saying that I'm thinking about the technology arrangements because those are kinda to infinity in a way, assuming that we're gonna keep having technology.

[Jeremiah Breer (CFO, Vermont State Treasurer's Office)]: Well, think they they said there typically is

[Speaker 0]: Well, I mean, each one sorry.

[Scott Baker (Director, Vermont State Treasurer's Office)]: Yeah.

[Speaker 0]: Each one is not to infinity. That would not be logical. But when you I doubt that we're gonna ever not have that.

[Jeremiah Breer (CFO, Vermont State Treasurer's Office)]: Right.

[Speaker 0]: Because they will be renewed.

[Jeremiah Breer (CFO, Vermont State Treasurer's Office)]: Yeah. Well, I mean, the debt is really the same way, right, because we're gonna keep issuing more debt. Yeah, I mean, I think it takes into account whatever the contractual period is of whatever the current arrangement is. And so, you may renew that when you get into end of it, but it's kind of looking at a snapshot in time. If you have the arrangement for the next ten years, it's looking at what you have grievably obligated yourself to pay for it at the moment.

[Speaker 0]: So is it accurate to say that none of those go for longer than twenty years?

[Jeremiah Breer (CFO, Vermont State Treasurer's Office)]: I believe that is correct.

[Scott Baker (Director, Vermont State Treasurer's Office)]: Yeah. Think they're all less than ten.

[Speaker 0]: All less than ten?

[Scott Baker (Director, Vermont State Treasurer's Office)]: I believe so. Yeah. Okay. Thank you.

[Jeremiah Breer (CFO, Vermont State Treasurer's Office)]: And if you think about it, I mean, what that mechanism does is it just says, you can call something a lease or you can call something a subscription. But if you're obligated to make payments for x number of years, it's debt. Those subscription agreements are essentially ten year bonds. When they mature, when you paid it off, you might issue a new bond. It's sort of like the same. It's similar.

[Speaker 0]: No, I can see why it's in that.

[Jeremiah Breer (CFO, Vermont State Treasurer's Office)]: Slide 14 shows you the debt authorizations over time. You can see that those have been declining since 2015. The current recommendation from the CDEC committee is $100,000,000 for the buy ins, so 50,000,000 for both this year and last year. And then slide 15 shows you the amount outstanding. So that's what has been authorized. This is what's been outstanding. You can see that there is quite a difference between what has been authorized and what is outstanding, kind of circling back to our conversation before about the fact that sometimes debt is authorized, but then it's not able to be utilized because the projects are not completed due to various factors, shortage of contractors or prioritizing other projects or what have you. And then the next slide just shows you the amount of debt outstanding adjusted for inflation, which tells you a pretty similar story. There's a pretty pronounced decline since about 2015 or 2016. And then 2017 shows the amount authorized and the amount that has been authorized but unissued. And the $192,000,000 bar all the way to the right, that is cumulative, so that is currently, there's currently $192,000,000 that has not been issued, that is authorized.

[Speaker 0]: Yeah, so that's not normal. Just, I mean, that's a function of COVID and all sorts of different things. So that 192,000,000 is not being used but it's segregated from the rest

[John Benson (Member)]: of Right.

[Scott Baker (Director, Vermont State Treasurer's Office)]: So there are projects that have been authorized in previous capital bills, but the aren't the money's not being spent right now, so we're not issuing the debt until we're able to spend.

[John Benson (Member)]: It was within the five years or whatever the technical bill says that we have to recall that debt or reissue it through the capital bill as money said. Projects we approve, but they aren't shovel ready yet. We've said, the project, here's the funding for it, and we're gonna issue the bonds when you are ready to go.

[Scott Baker (Director, Vermont State Treasurer's Office)]: Right. Yeah. When we do a bond issue, a portion of it is for reimbursement for money we've already spent, and we always survey the departments for all of the projects and say, How much are going to spend in the next six months, twelve months, eighteen months? And we'll make the decision. We just issued bonds in December, and we some of that money was for reimbursement, and we projected what we could spend out through June, so we went forward basically six months. So that's a current bond issue. So that's the general framework.

[John Benson (Member)]: How fast are the processes that, I'm sorry, I apologize. How fast are the processes that once you've made that decision to win the actual bond is issued and there's money in hand?

[Scott Baker (Director, Vermont State Treasurer's Office)]: It probably takes three months, three or four months. It's the process.

[John Benson (Member)]: I got one last question, I apologize. Do

[Scott Baker (Director, Vermont State Treasurer's Office)]: we have any restrictions about who can buy our debt? Restrictions? No.

[Jeremiah Breer (CFO, Vermont State Treasurer's Office)]: No. So No. It's it's on the it's on the open market or so anybody because we do we do have a program, citizen bonds that is targeted at, like, Most of the bonds are just they're on the in an open market and it's largely institutional investors, know, the Van Aureys and BlackRocks of the world. We we do segregate a a certain percentage of it for citizen bonds, which are sold in smaller denominations and are targeted towards mom and pop folks. Not a 100% of that does go to individuals because there isn't always enough capacity for those folks to buy it, that is an effort to try to get normal people to be able to buy them. So there, in that bucket, there's a preference towards those individuals, but even there, it's not like a hard and fast rule that it can't be bought by other folks. It's more so like if we get to more orders than we need, then we will prioritize those individuals.

[Speaker 0]: Mr. Benson?

[John Benson (Member)]: Just following up on what Senator Ingalls said, I assumed that that would apply to, like, the woman's crescent. That would be what's counted in that because we aren't really approved the money for it, but we aren't at a point to actually implement that. Right, yeah,

[Scott Baker (Director, Vermont State Treasurer's Office)]: a portion of that, authorized by unissued, is for the women's prison for previous capture of those grants.

[Speaker 0]: But we have not, this does not include the total amount, is my

[Scott Baker (Director, Vermont State Treasurer's Office)]: Only what's been authorized. Right. I think it's, yeah, maybe $15,000,000

[Speaker 0]: so whatever,

[Jeremiah Breer (CFO, Vermont State Treasurer's Office)]: like cumulatively whatever's been approved in capital bills passed that hasn't been spent, is what that 192. So, only a portion of the work that's presented was in the capital. Right,

[Speaker 0]: and we've had it in multiple capital bills at a certain amount, differing amounts. My understanding is we don't have the complete amount yet. And I am asking questions about why can't we start the process because we know we're going to get the complete amount.

[Jeremiah Breer (CFO, Vermont State Treasurer's Office)]: Yeah, mean, Scott, correct me if I'm wrong, but I think also like, you know, if a project, I mean, a project doesn't have to be completely priced upon for either, right? If you're starting to spend money, we can reimburse that line, so that's another consideration, I guess. Yeah. So

[Speaker 0]: we'll talk about that more later. That okay? Okay. Keep going, please.

[Jeremiah Breer (CFO, Vermont State Treasurer's Office)]: All right.

[Speaker 0]: Oh, I'm sorry. Go ahead.

[Scott Baker (Director, Vermont State Treasurer's Office)]: Sorry. So the thought on that is if if we let's say the women's prison is a $100,000,000. It was the last number I heard. Would and we have 15. Would you bond the the other page five? I mean, how much

[Jeremiah Breer (CFO, Vermont State Treasurer's Office)]: In order for us to bond, the project has to be authorized in a capital bill, and then you have to actually spend the money. So if you put 15,000,000 in the capital bill and then you spend $5,000,000 of it, we can bond for $5,000,000 We can use the state's cash to pay the bill and then issue the bond proceeds and reimburse that afterwards. We can also, if, as Scott was mentioning, there's a reimbursement process, there's also, if we have reason to believe that the money is going to be spent in the next of it, twelve months, eighteen months?

[Scott Baker (Director, Vermont State Treasurer's Office)]: Generally eighteen months, but it's thirty six if it's finally placed into service. They're different. Generally eighteen months.

[Jeremiah Breer (CFO, Vermont State Treasurer's Office)]: So anyway, we can

[Scott Baker (Director, Vermont State Treasurer's Office)]: eighteen months before the shovel hits the ground, or eighteen months before the shovel price?

[Jeremiah Breer (CFO, Vermont State Treasurer's Office)]: It's before the money is spent. I see. It's all about cash flows. What happens is, not to get too far in a week, but when we bond, we get cash. If we have that cash and it's not either reimbursing capital projects that have been spent or soon to be spent on capital projects, then we we end up having to essentially pay a tax on it to the federal government because you're you're issuing this tax exempt debt, which has a lower interest rate than, like, what we're earning on our deposits in the bank. And that that's the whole the whole reason for this is that the federal government took a money to them. They have these tax rates about using the money on their intent, year end.

[Speaker 0]: Well, that's good to know. Good question. Yes.

[John Benson (Member)]: What makes a determination about how long you bond for? Is it a set amount every time, or you're saying whatever, you're looking at market conditions, or what shall, the length of time of a bond, what makes that decision? Do you guys make that decision, obviously? No, so for

[Scott Baker (Director, Vermont State Treasurer's Office)]: the general obligation bonds, which are anything in the capital bill we issue GEO bonds for, it's in the statute that we will issue twenty year bonds.

[John Benson (Member)]: Okay, it has to be twenty years, mean, because I know that that's the statute of how we do it, it is always twenty.

[Scott Baker (Director, Vermont State Treasurer's Office)]: Yes, and they also have to be in equal or diminishing principal payments. So say we issued $100,000,000 we would have $5,000,000 maturing each year for twenty years. If it's, you know, If it's $95,000,000 the last maturity or two would be a little bit less. Now, did issue the transportation infrastructure bonds back in twenty ten, twelve, and '13, those were three smaller issues, but those we could issue up to thirty year bonds for those, but those were special revenue bonds from a portion of the gas tax or whatever.

[John Benson (Member)]: And as we've gone to a cash system on some of what we're spending on there, we're using some of that cash to pay off bonds early. There's no prepayment penalty.

[Jeremiah Breer (CFO, Vermont State Treasurer's Office)]: Correct.

[Scott Baker (Director, Vermont State Treasurer's Office)]: Right, yeah. Usually, whenever we do a bond issue, we always look at refunding opportunities as well. We'll get to the last slide, but this last issue, we had a portion, we issued one series of bonds, which was for new money for projects. We had another one, refunding bonds, which is basically like refinancing your mortgage. You issue bonds at lower rates, pay off some of the older ones. When we issue, generally there's kind of like a ten year log out. So once we issue them, we can't refund that issue for ten years. And then once they're refundable, we kind of look at those.

[John Benson (Member)]: I apologize for Don being a lot of messenger, but what would typically be an interest rate on a bond that somebody would buy? What type of return would they be looking to make on a bond? Usually between, I mean,

[Jeremiah Breer (CFO, Vermont State Treasurer's Office)]: a fluctuate from what I've spent between 304% in the So when we, you know, it changes, it changes every day. Right, no one does. But when

[Speaker 0]: we're

[Jeremiah Breer (CFO, Vermont State Treasurer's Office)]: refunding, so like Scott said, the bonds have to be at least ten years old because they're non callable for that period. But then we're doing an analysis of what the original coupon and interest rate was on the bond and then what we think we can give in the market now to figure out if it actually makes sense. So if we're going to be able to save money by refunding something that we didn't otherwise, I guess, obviously, we don't, but that's all the Department Marketing Commission as well.

[John Benson (Member)]: So would the outrageous to say that is, you know, the economy is, if it improves, like, it's looks like it might, that we might be going back to retire some of those older bonds with new bonds too because of a lower interest rate. Yeah. We

[Jeremiah Breer (CFO, Vermont State Treasurer's Office)]: well, yeah. The last couple of years, we have done several re retirements or, you know, we issue new bonds to pay out the old ones and we're saving money. So yeah, every time we go out to issue, we do an evaluation of looking at all the bonds that are currently outstanding and looking at what the interest rates and coupons on those bonds are versus what we think the market is going do to see if there are any opportunities. And I mean, sometimes there aren't, right? And sometimes there aren't. So whenever there is, then we when we do a bond issue, we'll just do a portion of it as a refunding issue. If we can save a couple million dollars or whatever, then obviously that's free money. So slide 18 looks at Vermont's ratings of debt burden among the 50 states when taking into account pension and OAB liabilities as part of the debt. And you can see that a lower, a higher number here is better. So you can see that we have some of the higher burdens as a percentage of our state gross domestic product and per capita when it comes to OPEB and pension liabilities. So the credit rating agencies have started to pay a lot more attention to those liabilities. In Vermont, those liabilities are larger than our actual geo debt. And so there's been a lot of work, as I'm sure you know, in the last few years to get both the OPEB and the pensions on a plan to pay off that debt. The pensions will be paid off in the 2030s and the OPEB will be paid off in the 2040s. So we got a few more years, but as we continue to pay off those liabilities, that is also something that will lift our credit ratings. And then the next slide is similarly just showing a ranking of Vermont as it considers these rankings and showing you these liabilities as a percentage of personal income and state GDP. You can see that we are somewhat of an outlier in that we have very high ratios in that regard, but we are making a lot of progress in paying off those debts. And then just to kind of drive us on a little bit more, on slide 10, it's showing you these colored bars. If you take the states like total liabilities of the OPEB, the pension, the GEO debt, the tech supported debt, and showing you the components of the total. And you can see that the green and the orange red color would be the pension pieces. And you can see that the net tax supported debt is very much so dwarfed actually by that. And you can see that we are, again, kind of in the top third, if you rank all the states for their total amount of debt.

[Speaker 0]: So the capital bill is the little capital bill? Or in the

[Jeremiah Breer (CFO, Vermont State Treasurer's Office)]: blue one. Yeah, the capital bill is part of the little blue one. So that's just a really interesting consideration because you've got $630,000,000 in net active core debt, but the open and pension liabilities are in the billions. Continuing to make the 8x on those and continuing to pay them down is very much so important. A few years ago, there was less attention on this from the rating agencies, but they really started to factor this more into their ratings for obvious reasons. Just a plug for our continued efforts to pay down those liabilities. And then just this next slide, slide 21 goes over a little bit the CDEC recommendation. So the CDEC had put out preliminary recommendation of $100,000,000 when it did the 2024 report, because we project out in the future what we think the recommendations were to be. And then that was affirmed in the latest report. So it's $100,000,000 for the current biennium, $50,000,000 is the recommendation for '26 and '27. And one of the things that keeps the CNAC from recommending higher amounts is just the inability to spend the money. The state actually probably has a greater capacity to take on debt, but it's the ability to actually get the money spent.

[Speaker 0]: Yeah, let's just make sure that, because my understanding is that we haven't been able to use the authority that we've already had, and that's a relatively new situation.

[Jeremiah Breer (CFO, Vermont State Treasurer's Office)]: Yes. Yeah. And I think it, like you said, it's very influenced by COVID. I mean, I think it's the pipeline of contractors to get the work done. I think it's also the limited amount of labor of state employees to be able to manage those projects and also the fact that we have to spend all of the federal money that we received for stimulus money in the in the pandemics by the 2026. And so efforts those projects are prioritized because that that money expires over, you know, perhaps spending state money.

[Speaker 0]: Thank you.

[Jeremiah Breer (CFO, Vermont State Treasurer's Office)]: And then to your question, Senator Ingalls, on this last page, it just shows, you know, last time we went out to issue that we were able to do $66,000,000 in refunding and a net present value savings of $2,300,000 That would be fun.

[Speaker 0]: Good.

[Jeremiah Breer (CFO, Vermont State Treasurer's Office)]: Yeah. So was Those were good days. Yes, they're very good days.

[Scott Baker (Director, Vermont State Treasurer's Office)]: And also those show the two series, the tick, which is the true interest cost. So among the twenty year bond, overall cost was about 3.58% interest. Again, those are twenty year bonds. The refunding is a little bit lower because remember, we're locked out for ten years. So those are basically ten year, one to ten year maturities. So up to 100%. So still very good rates, higher than the last issue we did, but still historically very good.

[Jeremiah Breer (CFO, Vermont State Treasurer's Office)]: So that's an overview of the CDAC. I also, the creditor asked me if I would give you guys a heads up on some language in the treasurer's omnibus bill about the CDAC, just some minor changes to the the statute there. So I can go over that unless you have any other questions about the CDAP presentations. Yeah.

[Speaker 0]: Just one sec. I think these are all the same. Right? Which is for everybody? Sorry? Are these for everybody's they they look like they're all the same.

[Jeremiah Breer (CFO, Vermont State Treasurer's Office)]: Yeah. Yeah.

[John Benson (Member)]: Those are us. Okay. I should

[Scott Baker (Director, Vermont State Treasurer's Office)]: I have.

[Speaker 0]: Or you don't need one? Did you?

[Scott Baker (Director, Vermont State Treasurer's Office)]: Can I

[Speaker 0]: So is this what you want us to look at next?

[Scott Baker (Director, Vermont State Treasurer's Office)]: Oh, there's one It's a page already done. Oh,

[Jeremiah Breer (CFO, Vermont State Treasurer's Office)]: Oh, I'm sorry. Just realized we kinda didn't have it for you. Yeah. This is this is what we just what we

[Speaker 0]: just Right. Right. Right. Okay. So we have a bunch of those. But then you guys have gave away

[Jeremiah Breer (CFO, Vermont State Treasurer's Office)]: There might be a one I mean, it's fairly simple. I can also just go over it verbally, but

[Speaker 0]: Okay.

[Jeremiah Breer (CFO, Vermont State Treasurer's Office)]: Might be, like, a one one pager that was part of all that as well. Yeah.

[John Benson (Member)]: There was

[Scott Baker (Director, Vermont State Treasurer's Office)]: yeah. That's There

[Jeremiah Breer (CFO, Vermont State Treasurer's Office)]: you go. That's it. Yes. Those.

[Speaker 0]: Oh, okay. Great. So does anybody want this?

[Scott Baker (Director, Vermont State Treasurer's Office)]: That's just two statements taken out of the omnibus, right? It's not the whole thing, but it's Okay, thank you.

[Jeremiah Breer (CFO, Vermont State Treasurer's Office)]: So just two very minor changes to the CF statute. You can see there is adding this language, crossing out this language that says other Well, the committee will consider, it used to say other metrics at the committee's discretion, crossing out that committee's discretion piece and putting in metrics adopted by bond rating agencies. So just recognizing that the metrics that the rating agencies use change and just flexibility to use whatever metrics the rating agencies are using. And then on the next page, so it used to say that we consider capital asset depreciation ratio reflecting unfunded capital maintenance costs and just inserting this language, it says, we will consider measuring, reflecting the remaining useful life of state infrastructure and the potential for future capital maintenance and replacement costs. So just a little bit of a finer point on considering the deferred maintenance of state building infrastructure. Happy to take any questions about that as well.

[Speaker 0]: So are these defined some of the depreciation ratio that's defined somewhere, right? So are you choosing not to use that?

[Scott Baker (Director, Vermont State Treasurer's Office)]: I believe it is in the bill, but yeah. Again, this is just two pages in the bill, but yeah, we'll make sure that's it.

[Speaker 0]: I'm just curious about that.

[Jeremiah Breer (CFO, Vermont State Treasurer's Office)]: Well, I think it's giving us the flexibility to use that and other measures of useful life, I would think. Because I think the depreciation ratio is one measure reflecting that remaining useful life of infrastructure and it's just sort of giving a little bit more flexibility there.

[Speaker 0]: Because it includes future capital maintenance and replacement costs?

[Jeremiah Breer (CFO, Vermont State Treasurer's Office)]: Yes.

[Speaker 0]: Not just Right. Okay. Don't have any questions now, anybody? Okay.

[Jeremiah Breer (CFO, Vermont State Treasurer's Office)]: Awesome. Alright. Thank you. Good. Thank you. Thank you.

[Speaker 0]: Well, we have another person. Alright. Michael.

[Michael Gaughan (Executive Director, Vermont Bond Bank)]: Hi there.

[Speaker 0]: There he is.

[John Benson (Member)]: Oh, hey, Michael.

[Speaker 0]: Hello. So, Michael, do you have anything we should be looking at or will you be just talking with us?

[Michael Gaughan (Executive Director, Vermont Bond Bank)]: No, I I didn't plan to provide a presentation but I can introduce myself and give a few few follow-up comments.

[Speaker 0]: Yeah, that would be great if

[Scott Baker (Director, Vermont State Treasurer's Office)]: you don't mind. Thank you for being here.

[Michael Gaughan (Executive Director, Vermont Bond Bank)]: Yes, so nice to meet everyone. Michael Gaughan, I'm the Executive Director of the Vermont Bond Bank. Our relevance to this conversation is kind of twofold. On one hand, we kind of flip flop with the state in terms of the most debt outstanding depending on where they are in that cycle of reimbursing expenditures that was discussed. And so I don't know where the state is after the December issuance, I think somewhere around $720,000,000 or something like that, but we're at about $755,000,000 outstanding or so and just to give you sort of economy or a sense of size and scale and we're in the market at least twice every year, if not more, so we have a pretty good handle on what's going on with munis generally. We have a stat, the bond bank as an organization has a, I guess like statutory seat on CEDAC in large part because we're the largest user of the state's moral obligation and that's effectuated via a debt service reserve fund on our bonds. The way that works is that if our debt service reserve fund was ever depleted for any reason, then we notify the governor and the governor requests of you all in appropriation to backfill that. That's never happened. Never expect that it will, but it is a very helpful credit enhancement tool and we, you know, the state treasurer and the governor approve our bond issuances for that reason because of this state credit enhancement, but we're actually underway right now to reduce our use of the state's moral obligation. But regardless, as it relates to CDEC, our other form of credit enhancement is what's called a state intercept whereby if a borrower in our portfolio does

[Jeremiah Breer (CFO, Vermont State Treasurer's Office)]: not

[Michael Gaughan (Executive Director, Vermont Bond Bank)]: pay us, we can ask the treasurer to redirect state aid funds to the bond bank to backfill that debt service, another tool that's never been used, but is extremely useful and both of those tools together result in the fact that our rating on our bonds is essentially a derivative of the state. So for example, the state is AA plus S and P, we're AA plus S and P, the state is AA1, I believe, Moody's and we are AA2, just a notch off that. That is because of the quality of the state's rating. So we're very vested in the state maintaining a high rating. And as a result, local government in Vermont as well as school districts benefit from that high rating. And so I have done, you know, just two, I guess, things to add to Jeremiah and the comments that Jeremiah and Scott gave. I am our bond banks representative to CEDAC. You know, this sort of, I guess, overwhelming money that has come through the system has been very material to the decision of CDAC to really lower debt authorization levels over the last couple of years, the past two bienniums. But there's no avoiding the fact that construction costs in the Northeast on indices have risen by over, you know, nearly 50% since COVID. And I think that's going to be something that we're going to have to be grappling with in the coming years and is a noteworthy addition to this conversation. And is one reason there was some really mild congenial disagreement on the CDAC recommendation this past session. The other thing is that while it's not an explicit category in the rating agency analysis to date, it's certainly something that's discussed with management. The deferred maintenance is being viewed, which is, you know, part of the, I think the, very supportive of the language that Jeremiah discussed because that's going to increasingly be a topic of consideration for the rating agencies. The think tanks in the public finance space are already very focused on this. There's been some big reports that have come out recently and I think some folks are viewing it like the new pension essentially, you know, going back to really the great financial crisis is where it came to a head. The rating agencies and the public finance industry spent a lot of time thinking about unfunded pension liabilities, which has obviously stimulated

[John Benson (Member)]: a

[Michael Gaughan (Executive Director, Vermont Bond Bank)]: lot of conversations in Montpelier, and folks are starting to view deferred maintenance the same way. There's a note in the CDAC report that overall debt levels from states have gone down, and to some degree that was because they were using pay as you go, you know, through, you know, in the period prior to COVID, but in some, but there's probably a suspicion that some of that was also deferred maintenance, And so, I think we're going to see more credit attention on deferred maintenance generally. So, I also think it's something that we need to spend some time thinking about. Oregon, for example, has a component. By the way, we're one of 23 states that have debt affordability committee and it's really like A plus practice in the industry and so we need to continue to do this, to have the legislature respect the report and it's incredibly important, but there are some things that other states are doing that are interesting. Oregon has a FCI score that they consider for their buildings to sort of get a handle on deferred maintenance, and to some degree we have that with the BGS projection that Scott mentioned. And then also, and this is going to be, I think part of the next biennium is taking into account our pension liabilities. So Rhode Island is an example of a small state that also does that. And as you saw by the numbers, the pension liability and the annual contributions required of that really crowd out or overwhelm the debt service number. So, you know, there's a plausible argument that we could have some additional debt issuance without really stressing anything because the pension number is just frankly so big. So, but yeah, and that's a trade off, right? Like you got to stay ahead of things. Like we obviously need to pay off that pension liability, but we also want to make sure that we're not sort of digging a hole at the same time on deferred maintenance. So think I those are just some like highlights, but generally just wanted to reiterate how important CDAC is and following the recommendation. As we look at really major facilities and infrastructure problems in the state like school construction, maintaining the state's rating is extremely important to lower the cost of that endeavor. We expect that that debt will be issued through the bond bank, but again, we are a derivative of the state. We can probably, it relates to school construction, take on more debt than the state could without a rating impact and really kind of leverage the state's rating. So it is very, very important to what we do in keeping tax bills lower for all communities in Vermont.

[John Benson (Member)]: Michael, it sounded like you just gave us don't cross those two lines, which was higher retirement pension debt and also being able to make sure that we were able to get our work done, construction costs and don't get it built up too high. And if those numbers were to go up, we would be looking at different scenarios as far as with a rating. Did I read that right? Did I sound what I heard? There a couple of things to that?

[Michael Gaughan (Executive Director, Vermont Bond Bank)]: I think, yeah, more or less the one caveat or the one nuance might just be that I think in reading and I don't see this firsthand, but in reading what's going on with the transportation fund in this project, the and limitation I see that because we are sort of operating in isolation, I think there's a reasonable concern about getting into your business as it relates to the capital bill, But at the same time, like the two things need to speak to each other, the sources and the uses. It might be appropriate to have more sources in the short term so that we can be better off in the long term if we can get ahead of some type of capital spending. And so, you know, that is one area where I think there's, you know, it's a little tricky to get the full picture because it is so multifaceted. There are so many parts of state government involved in that conversation, But I think the one that's noteworthy right now is just transportation. We've essentially retired the transportation infrastructure bonds and not knowing, you know, if where we're headed with that interesting

[Speaker 0]: and

[Michael Gaughan (Executive Director, Vermont Bond Bank)]: is of note. So I think if there was from my perspective, you know, not to speak for the committee, there's one small area that would benefit from a little more information. It's just better understanding any potential deferred maintenance statewide. That's also a very challenging task because it is so multifaceted, so interdisciplinary and that kind of thing.

[Speaker 0]: All right, this is helpful. Just about deferred maintenance. So in transportation, I think we have a pretty good handle on that just because of the roads and bridges. VTrans has a good listing of the age of these facilities. So in other types of state assets, are there parameters and metrics and methods for determining deferred maintenance because that can mean different things to different people?

[Michael Gaughan (Executive Director, Vermont Bond Bank)]: Yeah, and I don't know the answer to that. And that is why I think the language Jeremiah suggests is important. Like asset depreciation level is like a book value and may not represent the actual useful life of those assets. And so it's important we have experts evaluate that rather than just having what is essentially an accounting number. So that's the only thing I'd say. I think my only comment on the transportation side, yes, it's required. It's very important. I think my question would just be like, if you were to accelerate some of that spending, what does it mean in the long run-in terms of costs over time? That's something, you know, we just don't know necessarily given we have no debt in the transportation fund today.

[Speaker 0]: Right. No, that's a good point. Actually, transportation, if it goes past a certain amount, it's much more expensive to fix it. It's much more in the long term cost effective to keep it at something better than the middle.

[John Benson (Member)]: How does the bond make and the people associated with buying bonds, how do they look at what we have? I know other states either don't bond at all or they do have a cash bond. Is that helpful when people are looking at us to have the cash bond like how we've used it?

[Michael Gaughan (Executive Director, Vermont Bond Bank)]: Yeah. I mean, certainly that's kind of the trade off. So we look at our I can't speak sort of for all investors, but one thing we look at the bond bank are portfolio medians and the kind of the debt ratios we have at the community level. And on one hand, they all look terrific, right? There's like virtually no debt. Yeah, that's great. But then at the same time, like what's the unspoken thing about deferred maintenance? And so that's always the question. So to the extent there's a dedicated pay as you go program that's actually working, that's terrific and you're staying up with things. And so that's the key question because it's very painful to have cash sitting there, right, be used for capital in the budgeting process. It takes a lot of discipline. But yes, certainly that's helpful.

[Speaker 0]: Any other questions, comments? No. All right. Well, has been very helpful. Thank you. Thank you for being here. Thank you so much.

[Jeremiah Breer (CFO, Vermont State Treasurer's Office)]: Thank you. Thank you.

[Speaker 0]: Right. So we'll follow-up on this conversation. We'll have more, we'll need to discuss your language. And then I wanna talk more about the funding that's already been set aside and specifically like the women's prison. So that would be something that we'll be working on. All right? Anything else from Thank you, General. We will

[John Benson (Member)]: Very have a very good report. Thank you.

[Speaker 0]: All right. Thank you.