Treasurer’s office, Bond Bank push language to keep school construction debt off Vermont’s credit ledger

BURLINGTON, Vt. — On May 15, the Ways & Means Committee discussed a proposed technical amendment to the statewide school construction aid bill that would explicitly say debts incurred by school districts under the new aid program “do not constitute a pledge of the faith and credit or taxing power of the state,” and would name the Vermont Bond Bank as the fiscal agent for the program.

Ashley Dillon, director of policy in the State Treasurer’s Office, told the committee the change is twofold: it clarifies that district debt from the program is not state net tax-supported debt and it establishes the bond bank as fiscal agent. "The debt incurred by school districts as part of this new state school construction aid program is not to be considered to be net tax supportive debt of the state and not subject to the full faith and credit of the state of Vermont," Dillon said.

The amendment reflects a recommendation from the school construction task force that reported to the legislature in 2024 and is modeled on a Rhode Island approach, Dillon said. She and bond bank staff said consolidating district bonds in a bond bank pool should lower borrowing costs by leveraging the bond bank's credit standing and allow centralized market monitoring and refinancing over the life of the bonds.

"The bond bank is already acting as the fiscal agent for all but two schools in Vermont, Burlington and Winooski," Dillon said, and adding the bond bank as fiscal agent for the program would also make the program's transfers flow from the school construction aid special fund to the bond bank, which would then funnel payments to districts upon debt-service payments. That flow, Dillon said, "strengthens the state intercept mechanism and the bond ratings credit status."

Michael Gaughan, executive director of the Vermont Bond Bank, said the bond bank's role would also reduce duplicative administrative work at the Agency of Education by verifying debt payments and serving as the central payment and monitoring entity. "If we serve as fiscal agent ... we're going to be in the middle of this process, verifying all the school district debt payments anyways," Gaughan said. He added that, for large capital projects, nearly every district in the state already uses the bond bank except Burlington and Winooski.

Committee members pressed how the amendment affects risks for school districts. Dillon said districts remain responsible for making debt-service payments even if a state appropriation does not materialize: "The purpose of this language is to state explicitly that this award is subject to an annual appropriation on the part of the legislature, which I think implies that it's uncertain and that the districts know that going in when they go out to bond and choose to participate in this program."

Dillon and Gaughan described the state intercept as a backstop: if a district cannot make debt payments, the bond bank can ask the state treasurer to divert other state payments to that district to cover debt service. Dillon said that protects against defaults but would leave the district without the intercepted state funds for other purposes.

Members also discussed the structure of debt repayment. Committee members and witnesses noted that the state currently uses a level-principal payment approach for its general obligation bonds, which front-loads principal payments and can raise early-year pressure on education funds. Dillon and bond bank staff said the bill does not mandate a single repayment structure; districts could adopt different payment forms but the committee is watching how early-year payments might stress the Education Fund.

Representative O'Dea asked whether a district could bring a legal action against the state if an appropriation were withheld; Dillon said she could not provide legal advice and that the award language is explicit that awards are "subject to annual appropriation." Committee members said the question of existing debt and how to treat it will be part of ongoing work over the summer and next year.

No formal amendment vote was recorded during the committee discussion. Committee members and staff agreed to work with legislative counsel to draft conforming statutory changes across the bill and to continue outreach over the summer with the treasurer's office, the bond bank and the Agency of Education.

The discussion combined technical legal language, fiscal protection for the state's credit rating and practical concerns for school districts considering large capital projects. Committee members said they expect further drafting and analysis before final action.