The legislature dove in with both feet this week as committees pushed to get new legislators up to speed. Already, the Senate has re-introduced the Clean Heat Standard (carbon-pricing) bill that Governor Scott vetoed last year. Committees in both the House and the Senate are also already taking testimony on the federal legal action surrounding school choice and public tuitioning.
Quote of the Week:
The Administration's plan is "Medicare Disadvantage."
CFV President, Pat McDonald
Message of the Week:
It is astounding that after years of sounding the alarm about our pension funds, the funds actually lost $233M on their investments last year. We have been overly optimistic about our rates of return for some time at the chickens are coming home to roost.
Vote for Vermont:
Vote for Vermont is back for a new season! State Rep. Jim Harrison joins Pat and Linda to talk about his blog, fiscal policy, and the new dynamics with the incoming legislature.
New Retired State Employee Health Plans
On Thursday, the Commissioner of Human Resources presented recommendation to the Committee to negotiate a customized plan for state employees under a group Medicare advantage plan. The state has worked very hard to develop a plan that is responsive to state employees and provides the same coverage as they have now with supplemental coverage. The Commissioner claimed that retirees will get what we have and more and can continue to use the same providers they currently see.
The cost will be lower than what state and employees pay now by about 20%. Coverage now went up by 11%. Provides a savings of $9M per year and a significant reduction in Other Post-Employment Benefit (OPEB) liability. State has met with many stakeholder groups. UVM has moved to this plan as well as the state colleges with success.
After questioning from the Committee, the Commissioner reiterated that the administration has the statutory authority to make this change on their own, it does not require legislative action.
Committee members have received lots of letters from employees and are wondering if there is some miscommunication out there. Employees think there is a problem with proposal.
It also came out that the savings generated by this plan are because the federal government is offering subsidies to encourage states to move this direction. It also more effectively shares risk which can reduce cost long term.
Steve Howard, head of the Vermont State Employees Association (VSEA) called the plan “medicare disadvantage”. The reasons he listed include:
- Vermonters understand you keep your promises. You do not sever relationship with members who bargain our benefits.
- They do not want to be part of a private entity who does “not have a good track record”. According to Howard, they believe in Medicare but not the “privatization of Medicare”. Cigna, which sounds like the new provider, is being sued for questionable practices and fraud. “It aint broke don’t fix it,” said Howard.
- They are also worried that the Medicare trust fund will be bankrupt, and that Congress will not continue with the subsidies. If they leave the current plan it is unlikely they could ever go back if the new plan doesn’t work out.
Thermal Sector Carbon Reduction
Legislative Counsel provided an overview of S.5 on Friday, which is meant to set out ways of “affordably meeting the mandated greenhouse gas reductions for the thermal sector through electrification, decarbonization, efficiency, and weatherization measures.”
The bill builds off of H.715, which was vetoed by Governor Scott last session. Chairman Bray introduced the premise that they are seeking to achieve the goals in the Clean Heat Standard, and that he has already had conversations with Administration officials (Secretary Moore was mentioned) and constituents. Deep concerns around affordability still exist.
Bray then asserted the opinion that the costs associated with present fossil fuels, given recent price increases, were worse than the cost associated with the ongoing price pressures built into the bill that are meant to incentivize a transition off of carbon-based fuels.
Senator MacDonald asserted, and Bray agreed, that this bill is large scale delegation of powers for the purposes of seeking a rule to implement these policies. Essentially the entire process would be governed by the Public Utilities Commission (PUC).
MacDonald went as far as to say, “it’s a big change in the surrender of our job of just passing laws.” However, Senator White believes there is a balance to be struck here, where they give a little guidance and they expertise to achieve their carbon goals in the form of a rule.
Bray stated they need to balance against the responsibilities towards these Goals versus the need for equity and affordability. He acknowledged the responsibility of ceding to others authority but needs to see they retain final authority for the outcomes.
One change from last year is technical in nature but it allows for other technologies, aside from the ones specified in the bill, to be utilized in the reduction of carbon emissions. Apparently, there were some who saw the language from H.715 as exclusionary of newer technologies that my have not yet hit the market.
The bill will mandate reductions in the carbon mix of fuel sources over time. While this is theoretically possible by introducing mixes of bio-based fuels into traditional fuel sources, the Committee was light on details of the feasibility of this.
A new Clean Heat Standard Technical Advisory Group (TAG) will be created to develop the standards and schedules for depreciations and life spans for credit values. It is unclear how the group would be composed what their powers and duties would be.
To supplement this group, Clean Heat Equity Advisory Group will also be created, primarily to assist in developing economic equity formulas and procedures and includes specific mention of renters (which the Committee felt was important).
One key piece in the proposed rollout of the rules is that the legislature would have an entire session to review them before they are adopted by the administration. This is meant to allow the legislature to intervene should they feel the proposed rules are inappropriate in any way.
Bray specifically mentioned the “interest on the part of some parties to have us not take action until all the financial impact analysis is complete” and these are allowed to be completed in parallel with the “break” of Rulemaking that allows the Legislature to demand changes based at least in part.
The bill would create three new positions at the PUC: a lawyer and two analysts in addition to $800K for consultants.
This bill does not have a date certain for when the carbon pricing schemes need to be fully implemented, which is one of the differences between it and H.715 (which did have one). However, the timelines laid out in the bill suggest a January 2026 full adoption for the rollout.
Bray indicated that next week and the week after will likely focus be on S.5 witness testimony – signaling the Committee plans to move quickly on passing a bill.
Current State of Pension Funds
On Thursday the Committee met with in a joint hearing with Senate Government Operations for a presentation from the Joint Fiscal Office (JFO).
At the beginning of the presentation, Chairwoman Kitchel talked about the importance of dealing with both the pension liabilities and the cost of health care in an effort to address the liability issue for both the teachers and state employee retirement systems.
New legislators on both committees to read the pension committee report from last year to have a better understanding of what the issues are and why the legislature did what it did and what still needs to be done.
FY2022 pension overview:
- Act 114 was the reason that the pension systems gained any ground in FY2022. Otherwise, the unfunded liabilities would have increased.
- After a very strong year in FY2021 pension investments saw NEGATIVE returns in FY2022.
- Inflation caused actuarial losses due to higher than assumed salary growth and cost-of-living adjustments (COLAs) for retiree benefits.
- The $200 million one-time payment ($75 million for state employees/$125 million for teachers) was invested in June and offset some of the losses from inflation and investments.
- The new Actuarial-Defined Employer Contribution (ADEC) ‘plus’ payments (basically an “overpayment” of the pension liability) are anticipated to begin in FY2024 and last until each system is 90% funded. These ‘plus’ payments will flatten the growth in employer amortization costs in future years.
- Changes to employee contribution rates reduced employer normal costs and will continue to do so as higher contribution rates are phased in over the next few years.
Change in assets and liabilities:
- Unfunded liabilities decreased by $144M and funded ratios improved.
- The market value of assets declined by $232M, however, the actuarial value of assets grew because deferred investment gains from FY2021 were ‘smoothed’ into the funding calculations. But now, deferred losses exist that will be a drag on the system as those losses are recognized in future years.
When all else is equal, deferred investment losses are expected to result in lower funded ratio in future years as those losses are smoothed in unless they are offset by future investment or other gains.
COMMENT: This is what we have warned about for years with overly optimistic projected investment gains.
Vermont Housing and Finance Agency
Maura Collins, Executive Director of the Vermont Housing and Finance Agency (VHFA), presented to the House General & Housing Committee and identified its mission, its business model, and projects that the organization has been involved in. She mentioned its position on what defined the housing market failure and how VHFA's programs addressed the situation. She asked to be invited back to dig into these topics.
VHFA continued to explain that it was presenting at a very high level and not getting into great detail. It’s theory as presented was that if projects cannot meet their goals and sell the inventory then the legislature prior had failed. VHFA’s mission is finance and to promote affordable safe and decent housing, reminding the committee that it had helped 30,000 homes which is about 15% of the market in Vermont with 14,000 rentals existing for subsidies of which VHFA assisted with 9,000 participation.
Collins reminded the Committee that in 1974 the legislature approved the Federal allowance for bonds to be issued where no taxes on earnings would yield a lower rate of return, i.e., getting money from bond issuances. This required borrowing money from investors, by creating mortgages at approximately a point higher than the investments so that the investors would get paid back their equity investment and the VHFA mortgage holders would earn a point. It was a public/private partnership that VHFA endorses. There are other entities that work in the similar fashion: the VT Bond Bank, VSAC and VEDA. They are all allowed to issue exempt bonds for certain charitable economic purposes.
VHFA has Burlington offices and serves the state with 40 staff members. They claim not to ask the legislature for funds but yet accepted funds from the legislature when it was appropriated to them. They want to work in partnership with the state on everything they do. They service all multi family loans and securitization mortgage backed securities. All single family homes they service out to contractors which would be the majority of the Vermonters served.
They discussed tax credits and availability rule and how the tax credit worked if someone grew out of the median income amount and no longer qualified. That the tenant could stay in and would not be thrown out. They explained the 4% and 9% tax credit rule and how the 9% tax credit rule was more valuable and enticing to developers/investors. That the 9% tax credits (not bonds) were all given out at one meeting per year and that pretty much they had a list of investors that were given these tax credits through a nonprofit partner of theirs called EverNorth. So EverNorth gets to control the list of who gets the 9% tax credits.
What VHFA considered market failures: Super low rates of private mortgages stopped people from going to government programs so VHFA focused on down payment assistance but there wasn’t enough inventory
VHFA has identified that 17% of VT’s housing stock is vacation homes but that the southern counties, 25% of the housing stock is supported by tourism. So when homes come on the market they aren't' always suitable for all year living. They have also identified that home ownership in Vermont is 74% white and 26% people of color.
Collins encouraged communities to set up Housing Commissions. Employers building housing for employees is the way to go provided that there can be a private/public partnership, which may require subsidies. Chairman Tom Stevens, said the committee would look at housing and service workers issue later on
Vermont Landlord's Association President, Angela Zaikowski, Esq., also presented to the Committee. She is an attorney with her own private practice where she represents landlords. She said that both sides, landlords and tenants, have bad actors. Prior to Covid there were approximately 2800 evictions annually, but post-Covid the number dropped to 1400. She believes that most complaints could be resolved with better communication.
Her organization presents information to educate, and support landlords with information on safe housing and other areas. Her organization addresses owner occupied homes, large rental blocks and also just rooms in houses that are for rent. Their main program has been funded through June 2025 to provide landlords/tenants with professional mediators. It was cheaper to resolve the issue than to remove people from the homes and house them temporarily while trying to find additional housing. VT Legal Aid recently issued a report that many evictions are related to tenants not paying rent for many reasons, not just that they can’t afford it.
She said that this is an unprecedented time in housing because of low inventory, they need more development to alleviate inventory issues.
Representative Burrows asked how often in court tenants didn’t have attorneys. The response was that it was just the opposite of what you might think. Most landlords were there without legal representation. That tenants have access to VT Legal Aid on rent and escrow processes. That most people are not aware of the fact that landlords were oftentimes not represented. Bennington and Rutland have the highest rate self-represented landlords while Chittenden County landlords are mostly represented by legal counsel. She also said that VT recognizes verbal leases and that whether they are month to month is determined legally by how the tenant pays the rent.
Agency of Education Goals & Priorities
Dan French (Secretary of Education) met with the Senate Education Committee on Tuesday to discuss the Agencies priorities for the year. He identified that there are accountability issues around special education and Individual Education Plans (IEPs), which are very challenging to meet the needs of.
There are a number of large efforts underway in the agency. For example, “Student Pathways” (Act 77) was restructured in 2013. A new data management system for school districts has also created problems because the software the state purchased lacked functionality. There is also still work being done by the Agency under federal programs.
One topic raised by Senator Williams was on teacher evaluations and making all teachers are contributing to high quality education. While this is generally outside the purview of the Agency of Education, there was some agreement in the room on this point.
Initial priorities French mentioned were:
- School safety via the Violence Prevention Task Force, which is looking at physical security of buildings, comprehensive hazards planning, and threat assessments. He stressed that all hazards elements are being included in threat assessments, including weather.
- Simplification of Home Study laws – he believes these could be simplified without degrading results.
- Continue to model anti-hate curriculum and racial equity policies.
- Increasing computer science capacity.
The Governor will have workforce development proposals around the Career and Technical Education (CTE) system upgrades, more details on this will be presented in the budget address.
Senator Hashim asked what “disincentives [exist] for kids entering CTEs?” French identified financing as a problem area because sending schools lose funds for sending students to Tech Centers.
Carson v. Makin (School Choice)
Legislative Counsel provided the House Education Committee with an overview of the Carson v. Makin and related court cases on Wednesday in order to introduce the topic to the Committee.
The supreme court’s interpretation of the first amendment of the United States, specifically the establishment and free exercise clauses. The most recent ruling determined that states cannot bar religious organizations from generally available education tuitioning without violating the free exercise clause of the first amendment. In Vermont any district that does not operate a school provides this option to their students to pick a school that best fits their needs.
However, many legislators are uncomfortable with public dollars going to religiously affiliated schools (even if those dollars are following the student). We saw some of this come out this week as legislator questioned how the courts might treat a challenge to the Chittenden case in light of the recent federal cases.
Falko Schilling, Advocacy Director at ACLU-VT, last year they advised the legislature to hold off on legislation until the Carson case had been decided. The Supreme Court has been clear that states cannot prohibit public dollars from going to religious schools.
ACLU identified two main options: only send public dollars to public schools (he urged the Committee to look at this), apply content-neutral generally applicable standards to all institutions receiving public funds (in essence what is happening now), or to designate specific schools.
There was a question from the Committee about whether public schools be held to the same standards as approved independent schools. Chairman Conlon suggested that they would hear testimony in the coming weeks on this topic.
The Senate Education Committee also heard testimony on this topic, receiving a very similar overview on Friday from Legislative Counsel. Senator Gulick questioned why the separation of church and state was not a compelling state interest. The short answer from counsel was that when two competing rights are in play, the state’s claim of compelling interest is not likely to hold up.
Chairman Campion indicated that the Senate will wait for the House to move a bill on this issue after their experience last year of putting forward a bill and the House not picking it up. However, after discussions with the House he is confident they will take up the issue.
Pupil Weighting Factors
The House Education Committee met on Thursday in joint meeting with the House Ways and Means Committee to review pupil weighting (Act 127).
NOTE: both chairs were on the pupil weighting factors study committee in 2021.
By way of a brief overview, the legislation did the following:
- Adjusted pupil weighting, which determines a school district’s taxing and revenue capacity Vermont’s education finance system.
- Artificially limited homestead property rate increases for FY2025 through FY2029 and suspended the excess spending penalty.
- Established categorical aid for school districts with fewer than 26 English language learners (ELLs) enrolled.
- Created a handful of new positions at the Agency of Education (AOE) tasked the Agency with the development of a universal income declaration form and required several reports.
- Amended the education quality standards.
NOTE: One committee member asked about any changes made to the education quality provisions. A new section was added which provides standards for facility management, business and governance practices. This is a new approach for the state in that it focuses on the business end of education and not on the just the learning aspect.
The House Education Committee touched on these topics again later in the week when discussing special education (Act 173) because there is some interplay between that and how the weighting formula works.
Pupil weights are somewhat complex. There was a great overview of how the weighting system works that was done by CFV last year. In general, the new weighting system includes factors such as grade level, second language learners, and school district size, rurality, and poverty level.
On Wednesday, the House Ways & Means Committee met to review the Education Fund Outlook and the December 1st letter from the Tax Commissioner (which is an annual estimate of property taxes for the following year).
Statewide spending growth is projected at 8.5% for FY2024, however, because statewide grand list growth is estimated to be 9.7%, property tax rates will likely drop from $1.386 to $1.307 per $100 of assessed value. Income rates would drop from 2.32% to 2.31%.
The average property tax bill would up about 4%, but this assumes that the legislature uses the entire $62.8M surplus to buy down property tax rates (last year they used a little less than half).
It is also important to point out that because of the rapid increases in property value, districts that haven’t had a recent appraisal will likely see higher adjusted tax rates because of the Common Level of Appraisal system.
The 8.5% increase would be the largest in over a decade. Craig Bolio, the Tax Commissioner, pinned this on inflationary pressures that school districts are under.
Things to watch for next week:
Carbon Reduction in the Heating Sector (S.5) - Senate Natural Resources (Thurs/Fri)
Housing Policy - Senate Economic Development (all week)
RAND Early Care and Education Financing Study - Multiple Committees (Wed/Thurs)
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