This week Campaign for Vermont introduced an extensive list of workforce development recommendations to the legislature covering a number of bills in motion, including H.703, H.159, S.226, and S.234. As a state we must recognize the issues before us and view them with clarity. Economic vitality is critically linked to workforce participation, recruitment, and housing. Our businesses are starving for workers and those that can move elsewhere will if the problems become worse – hampering the long-term prospects of our state. We cannot practically solve the housing crisis quickly enough to correct some of these issues, however, moves we make now will have profound impacts on that outcome and the equity of our housing system and even the broader economy in years to come.
The public pension reform bill is headed to the House Floor next week after the state treasurer poo-pooed a defined contribution plan for new hires. The current solution being offered only addresses less than half of the pension deficit and disproportionately impacts taxpayers. The legislature will need to come back for more in future years. At the same time, the legislature is considering pension divestment of fossil fuels, benefits for interim educators, new pension groups, and other measures that could actually have a negative impact on the deficit.
Two education initiatives - Student Weighting Factors and Universal School Meals - also passed key committee votes this week and are anticipated to hit the House Floor in short order.
Quote of the Week:
“Campaign for Vermont has been at the vanguard for Vermonters ensuring transparency and ethical standards are in place at our statehouse. Their recent comprehensive analysis comparing state employees and teachers compensation with the private sector “The Public Sector Myth” was timely and compelling. These are just two of the many reasons I support CFV.” - David Coates
CFV Introduces Recommendations to the Legislature Around Sustained Workforce Development
CFV President, Pat McDonald
Message of the Week:
We were thrilled to introduce our workforce development proposals to the legislature this week. Many of the necessary components for lasting impact are being worked on by the legislature and will a little more forethought and synergy they can be packaged together into a comprehensive package to drive economic vitality for years to come by addressing both short and long-term challenges.
Vote for Vermont:
This week, Pat talks to one of the best known businesses in central Vermont about ways to address Vermont's housing shortage.
Defined Contribution Options
Treasurer Pearce reviewed findings from her department around defined contribution plans with the House Government Operations Committee on Tuesday. They do not believe that moving new hires to a defined contribution plan will save the state money or reduce the pension liability. Because the state's funds are "professionally managed" they believe that returns are better in that system than one where employees manage their own retirement investments. As such, she recommends Vermont stick with our current defined benefit plans.
We would call this into question, simply because Vermont's pension plans have historically been one of the worst performing in the country. If our plans were performing at the national average, than yes perhaps employees would fare better but we don't believe that has proven to be true in our state with the size of the pension funds we manage.
S. 286 - Public Pension and Other Post Employment Benefits
The House Ways and Means Committee took up S.286 on Tuesday. David Coates and John Pelletier followed up on testimony they provided last week, saying that to reach a meaningful, long-term solution and to reduce the volatility of the annual state/employer contributions, the following should be part of the legislation:
- More frequent review and adjustment of assumptions and rigorous stress testing.
- Alternative plans for new hires.
- Move towards risk-sharing between the state and employees (state currently carries all the risk).
Given the scale of the challenge, providing benefits structured more in line with other Vermonters does not seem unreasonable, nor does asking the state workers and teachers to share a more equitable portion of the burden in solving this critical issue that continues to threaten the financial well-being of our state and the retirement benefits promised to public sector employees.
The pre-funding of pensions only reduces the unfunded liability by $300M, just 10% of the current liability. The other $1.7B reduction in liability results from an accounting change. Prefunding the retiree health care benefits permits the use of higher assumed rate return (7%) compared to the current (2.2%).
These extraordinary benefits, not generally found in the private sector, remain unchanged. Surprisingly the bill created a brand new, and potentially very expensive, Cost of Living Adjustment (COLA) benefit for the teachers. The full cost of the COLA benefit changes could be as high as $300M.
The Committee passed the bill out without amendment.
The House Appropriations Committee reviewed the bill next, looking at changes that the Government Operations Committee made last week. They made several technical changes to the bill – none of which changed the recommendations of the Task Force but did add an amendment regarding the establishment of Group G for corrections workers. There is also language being worked on regarding the new contribution plan for teachers because business managers were concerned about their ability to respond to the new requirements around marginal withholding structures. This will likely be offered as a floor amendment.
Chairwoman Hooper was concerned that they would have to appropriate funding and still don’t know how much. Representative Gannon (from Government Operations) said the fiscal impact would be negligible – perhaps less than $20K impact on the teachers pension fund.
The proposal would be an interim measure, with an alternative contribution rate structure for FY2023. This system would charge flat rate on every dollar earned by an active member based on which bracket their contract salary falls within. There are eight proposed brackets with effective rates ranging from 6.00% to 6.65% (see table 8). Estimates by the Joint Fiscal Office based on active payroll data suggest that this alternative rate structure will yield virtually the same amount of revenue in FY2023 as the originally recommended structure.
The Committee came back on Thursday and, after some discussion about reporting requirements, they voted 11-0-0 in favor.
Pensions - Group G
The House Government Operations Committee reviewed language on Wednesday related to a new Group G in the Vermont State Employees' Retirement System. Group G was designed for actuarial neutrality and is meant to provide a more stable benefit employees from corrections who, because of the nature of their jobs, can retire at age 55 (similar to state troopers). Group F (the standard group) members can elect to switch to Group G by June 30, 2023.
By September 15, 2022 the Department of Human Resources shall issue a list of eligible positions which primarily include facilities employees in the Department of Corrections and the Judiciary, security officers, and other qualifying employees. Contribution rates are based on hourly pay rates similar to Group F, however contribution rates are higher because of the lower retirement age. This plan was developed by the State Treasurer's office and the Vermont State Employees Association. Calculations were verified by the Joint Fiscal Office and presented to the Committee.
H. 572 - Retirement Allowance for Interim Educators
After Treasurer Pearce came out against H.572 last week, even the NEA is getting cold feet. Testifying before the House Government Operations Committee, the Vermont Principals Association (VPA) and the Vermont School Boards Association (VSBA) are still pushing for this interim benefit. See our write up on this from two weeks ago.
The VPA and VSBA are now proposing a one year pilot program to allow these benefits and superintendents would have certify that they have exhausted all reasonable options to employ a qualified active educator before turning to a retired educator to fill the position. Under the program a retired teacher would be able to receive full retirement pay, but would not receive any additional vesting in the system. No retirement contribution by either the retired teacher or the employing school district would be required during the year of emergency service. However, health care costs would be paid by the employing district, relieving the retirement system of that cost. Districts would also pay a $2500 administrative fee to the retirement system as both recognition of administrative costs and as a disincentive to use the program unless absolutely necessary.
Pearce is still concerned that if a teacher freezes their pension and works for five more years they may meet a new pension requirement. There are 18 teachers who have already frozen their pensions so they can work. If they were to do this over a period of time they might trigger a ‘new pension’ obligation. She appreciates these changes but still can't support the bill without knowing potential increase in cost.
Chairwoman White proposed that, recognizing the "emergency" we are facing, the bill should be rewritten to incorporate these suggestions and make this proposal for one year only. The Treasurer would still oppose it, but White asked for legislative counsel to draft language to present to the Committee.
Emergency is likely overstated here. While we don't have exact data from during the pandemic, we know that pre-Covid Vermont was one of the highest staffed states in the country with a student teacher ratio well below the national average. Recent estimates show that we have moved more in-line with regional neighbors (but still the lowest), so perhaps this resourcing issue is actually more about distribution and utilization of staffing and less about a lack of staffing.
H. 510 - Child Tax Credit and SSI Exclusion
The Senate Finance Committee voted on H.510 on Thursday. The proposal on the table was a strike-all amendment to the bill with a clarification that the program would not impact Medicare benefits. A student loan interest deduction is still included, but with a three year sunset. The deduction would 50% of federal benefit. The child tax credit itself shrunk from $1,200 to $1,000 and the income thresholds were slashed from $200k to $55k. However, the senate version removed the income eligibility requirement for the federal child and dependent care subsidy program. Essentially what they are trying to do is swap state dollars for federal in order to keep this program going in years ahead. The Senate version also adds expenditures for a number of other programs, including manufactured housing, disabilities, and childcare workers. The bill passed out of the Committee unanimously.
S. 226 - Expanding Access to Safe and Affordable Housing
The House General Committee took testimony on an amendment to S.226 on Thursday. Josh Hanford (Commissioner, Department of Housing and Community Development) reviewed the proposal with the Committee. It would dedicate $5M to support municipal housing development for ARPA projects to help communities to build new housing. He noted that at least five communities that want to build and support more housing. The idea is to help build infrastructure such to make it more appealing for developers to build housing within the municipality.
Local communities want more stake in the process, but have had access to funding to enable them to do this. Without money they won't be able to make these investments to support more housing. Housing costs and availability are a huge barrier for people moving into the state. Schools are even looking at providing money to help build housing for teachers. There were mixed reactions from the Committee but some consensus around the role of state and local government in infrastructure development. Hanford closed by saying that that we do investments subsidized housing, flood plains, and in downtowns. What we need to do is build middle income housing in new areas that are safe from flooding rather than invest in areas that are at risk.
H. 159 - Community and Economic Development and Workforce Revitalization
Originally, H.159 was supposed to go to the Senate floor on Tuesday, but amendments were offered that caused a delay. Senator White requested that all remaining Vermont Yankee economic development funds and loan servicing be transferred to the Brattleboro Development Credit Corporation to administer. She believed they could do a better job managing these revolving loan funds because they know Windham County the best.
The second amendment offered was around sports betting. The department of Liquor and Lottery is requesting the creation of this program to "revenue share" with online sports betting. The goal is to replace revenue loss from the lottery system. We cover more of this below.
The bill passed unanimously on voice vote Thursday after Senator Sirotkin withdrew his amendment around sports betting (it seems likely the House will take this up). Both he and Senator Brock introduced anew amendment with a State and Local Tax (SALT) deduction for pass-through businesses incorporated in the state. These sorts of amendments allow business owners to avoid being double-taxed if they operate in multiple states.
After the scramble in the Senate, the House Commerce Committee took up H.159 on Thursday. Wendy Knight (Commissioner, Department of Liquor & Lottery) shared that they were working with Senator Sirotkin and likely the study around sports betting will be replaced with an implementation plan to take advantage of the NFL playoff season. The proposal may become part of H.730 or included in this bill. The Agency of Commerce and Community Development prefers a “revenue sharing” model (like New Hampshire) which captures 51% of net revenue.
Vice-Chair Kimbell reminded the Committee they are simply doing due diligence regarding the issue in case it remains in H.159. They will be coming back to the House for review but may end up as a conference committee topic. Knight provided an overview of pros and cons regarding abuse and addiction as well advertising guidelines which would be adopted by the Department through rulemaking. As with liquor and lottery, there will be education around responsible consumption of these products.
They are anticipating $2M revenue the first year, depending on the final revenue share. Knight noted that the customer base for the sports betting market is completely different than lottery, saying that "lower-middle income folks in a grocery store buy lottery tickets, while the sports betting audience is male and college educated." The lottery revenue stream is currently dwindling after a boom during the Covid-19 lockdowns and she attributes these changes to reductions in “disposable discretionary income” and pointed to the advent of sports betting to help offset these deficits.
The Joint Fiscal Office gave a great overview of the spending items in the bill and their likely economic and fiscal impacts. Some programs, such as the paid sick leave reimbursement, are very difficult to forecast because a new Covid surge could totally blow projections out of the water.
There was some interesting discussion about minimum wage. It was pointed out that inflation can actually decrease minimum wage, although these impacts tend to average out over a few years. While there are no definitely numbers, minimum wage increases will push some low-income workers off of federal benefits which may create a net-decrease in their income. JFO also predicts a net decrease in federal aid dollars coming into the state. However, the delay in getting census data prohibits them from forecasting an actual number. Because inflation is so high, we may actually hit the 5% inflationary cap on the CPI adjusted minimum wage and we would reach the $15 per hour threshold just as fast as if we artificially raised it.
Also hotly debated was the controversial worker relocation grants. JFO and other economists stated that they did not have clear data to evaluate ROI on these programs, but that the highest income earners (who net the state the most tax revenue) do not participate in relocation programs. Doug Hoffer (state Auditor) repeated his skepticism of the meaningful effects of the program. Relocated workers are not building new homes so it is displacement, not replacement, substitution not addition and their incomes should be seen as similar if they afford the same homes (essentially we are just replacing people who leave the state, not adding new workers). He would eliminate about $10M in spending between this program and the Tourism & Marketing budget.
Tom Kavet (state economist) favors the unspent federal Covid-19 relief dollars being structured as “forgivable loans” that act like grants. He doubts they will see it “oversubscribed” because the many recovered areas in the economy include recreation & tourism services. He hopes these will provide a lifeline to these few who have not bounced back as of yet. The advantage of having VEDA administer them is that their existing guidelines should allow them to administer this program and remain responsive.
Hoffer also voiced his regular concerns about TIF districts (there is a project-based TIF program in this bill that was debated last year and is now included here). Aside from accountability concerns, he argued that “a project based TIF system” is not simple and requires a great deal of staff time (both for the municipality and his office as well). If the legislature adopts a different approach, like a revolving loan fund as he proposes, he is happy to help and thinks it will save the state money.
Later on in the day Abbie Sherman (Executive Director, Vermont Economic Progress Council) defended TIFs and showed the Committee a map with existing TIF districts, along with Towns that have shown interest and also some projects she has identified that would possibly benefit from project-based TIFs (AKA mini-TIFs). One of the major benefits of TIFs is that they allow for grant program matches while also accessing revolving loan funds (the TIF doesn't count as either).
The scale of the project-based TIF program is much smaller than a TIF district and they can be manageable for smaller towns that wouldn't be able to take advantage of a full TIF district. She suggested amending the bill to only require two audits instead of three to limit cost and complexity for municipalities. She also rejected the revolving loan fund idea because it would lead a radical rise user fees that TIF's can help offset because it isn’t a simple loan program.
As the Committee was resuming testimony in the afternoon, they received word that the Senate had passed the bill - hearing that Sirotkin had withdrawn his sports betting amendment but that SALT amendment had passed.
The Committee briefly discussed the worker relocation program and the consensus was that if there was pushback on the House floor or in the conference committee with the Senate they would likely drop that provision. No one felt strongly about defending it. However, that was a sentiment that we should be gaining insights around why folks leave, maybe even commission a study of that.
They moved on to discuss the $4.2M in funding for regional concierge services for workforce development and recruitment. There was concern that the funds may not be enough set up an entire statewide system and perhaps they would be better used to create services in regions that have none currently. There was additional concern that these programs may have little to show in the form of data to evaluate performance.
Chairman Marcotte expressed uncertainty around why we even need look at minimum wage again because the markets are adjusting it already; he is afraid we are only adding more challenges for small businesses on top of the inflationary pressures and potential upcoming recession. The Committee was split, but seems in favor of leaving it in the bill even though there isn't a strong push for it.
Before adjourning, the Committee decided to axe the Film & Media Task Force and a few study committees they didn't feel were necessary.
H. 727 - Organization and Separation of Union School Districts (Act 46 Divorces)
The Senate Education Committee is preparing to pass H.727, which would make the Act 46 "off ramp" much more strict. Most of the changes in the Senate have been technical, but this is a massive 180 page bill with a number of different processes laid out depending on the governance structure of a school district. We have not done an extensive review of this legislation given its size, but we will continue to follow its progress through the legislature.
S. 287 - Adjusting the School Funding Formula (Weighting Factors)
There were a number of technical changes to S.287 that were reviewed by the House Ways and Means Committee on Thursday.
One of the challenges discussed is circumstances where a school district's change in year-over-year tax rate would be capped at 5%. Under the current proposal, this cap would be in effect from FY2025 through FY2029. The bill would also suspend the excess spending penalty during the same years, but would be replaced by the formula change noted below.
The second change worth noting to the definition of ‘education property tax spending adjustment’ which is used to determine spending per student number used in tax rate calculations. The formula would now count spending above the excess spending threshold twice in the calculation.
While still in draft form, the Joint Fiscal Office estimated that the bill would result in about $1M in fiscal impact to the General Fund for FY2023 and would have an unclear fiscal impact to the Education Fund.
A 11-0-0 vote was taken on both the underlying bill and the technical amendments. Notably absent was the proposal discussed last week to replace the weighting factors with the alternative block grant model.
The bill moved to the House Appropriations Committee, where Representative Kornheiser (a member of the weighting task force) presented S.287. She reminded the Committee Vermont is the only state that has a constitutional requirement for equitable access to education for all students throughout the state. The first attempt at equalization occurred in Act 60. However, we realize now that although the money was equalized not all students cost the same to educate. The result of that realization is this bill.
One major change was the way the state would now measure poverty. The state would create a universal income declaration form which every family would be required to complete. This form would be designed to collect data relative to poverty within the school district. The data would be used to determine the poverty level within a district which would leverage more funding through the weighting formula. Other weights factor in geographic isolation, grade level, special education, and primary language.
The Agency of Education (AOE) was asked to explain the necessity of the six new positions requested in the bill, which totaled nearly $1M. Three of the positions would support calculating and reviewing the weighting factors for each district, two positions would be working on the poverty data implementation, and one would support the new English Language Learner grant program. The target implementation date is FY2025, but the weighting factors themselves would likely be phased in over several years. There is a cap in the bill that prevents tax rates from increasing by more than 5% annually so the districts with the largest tax hits would also have the longest on-ramps.
On Friday, the Committee came back and approved only five positions (cutting the third data position) for AOE with a total payroll allocation of $200K from the General Fund, the remaining costs would be funded out of the Education Fund (property taxes). AOE will also be required to come back to the legislature with funding proposals for these positions going forward. The Committee passed the bill and a 11-0-0 vote.
S.100 - Universal School Meals
The House Appropriations Committee reviewed the Universal School Meals bill, S.100, on Thursday. Representative Harrison announced that he could not support the bill because it is using one-time monies for an ongoing program without a clear understanding of where future funding was going to come from. It also concerned him that there was little understanding of the overall costs of the program.
There was some concern from other members of the Committee that if the federal government implemented their own universal meals program, it was unclear what would happen to the funds they would allocate here. The prevailing logic is that the funds would revert to the Education Fund. The bill was voted out of Committee 7-4-0.
S. 285 - Reform Initiatives and Data Collection
On Thursday, the House Health Care Committee presented their recommendations on S.285, which relates to health care reform initiatives, data collection, and access to home-and community-based services. Their recommendations include some amendments to the original bill from the Senate regarding payment reform for a new All-Payer model agreement. This would be developed by the Director of Health Care Reform in collaboration with the Green Mountain Care Board (GMCB). They would develop a proposal for a renewed agreement with the Centers for Medicare and Medicaid and Medicaid Innovation to secure Medicare’s sustained participation in multi-payer alternative payment models in Vermont.
They recommended that any alternative payment models should include value-based payments for hospitals should take into consideration the sustainability of Vermont’s hospitals and the states’ rural nature. They proposed that it should include appropriate mechanisms to convert fee-for-service reimbursements to predictable payments for multiple provider types. Additionally, the proposal should include opportunities for meaningful participation by the full continuum of health care and social services providers, payers, and other interested stakeholders.
The Committee stressed that it should be determined how best to incorporate value-based payments, including global payments to hospitals, or accountable care organizations. They also recommended a methodology for determining the allowable rate of growth in Vermont hospital budgets. The state's Director of Health Care Reform and the GMCB will be required to report back on their activities pursuant to the this bill.
To support payment and delivery system reform, they recommended $1.4M be appropriated from the General Fund to the Agency of Human Services in FY2023. Additionally, another $3.6M would be appropriated from the General Fund to the GMCB for FY2023.
They also made recommendations about data strategy for the Health Information Exchange (HIE) Steering Committee, including continuing to create one statewide health record for each person that would integrate data types to include health care claims data; clinical, mental health, and substance use disorder services data; and social determinations of health data. They concluded that the GMCB should collaborate with the Agency of Human Services and participants in the Agency’s initiatives in the development of a comprehensive health care information system, as well as being HIPAA compliant. The data allowed by HIPAA would be available to various health care groups.
Things to watch for next week:
VOTE - Vermont Child Tax Credit and SSI Exclusion (H.510) - Senate Floor on Tuesday
VOTE - State Employee and Teacher Pension Funds (S.286) - House Floor on Tuesday
VOTE - Student Weighting in the Education Funding Formula (S.287) - House Floor on Tuesday
VOTE - Universal School Breakfast and Study of Universal Lunches (S.100) - House Floor on Tuesday
Expansion of Affordable Housing (S.226) - House General Tuesday and Wednesday
Rewriting the Rules on Act 46 Mergers and Divorces (H.727) - Senate Education Tuesday and Wednesday
Goals and Reporting Requirements for the Vermont State Colleges (H.456) - Senate Education on Tue and Wed
Homestead Property Tax Yields and Rates (H.737) - Senate Finance on Wednesday
Housing-Related Changes to Act 250 (S.234) - House Ways and Means on Wednesday
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