Senate Institutions hears state treasurer on bonding, CDAC’s $100 million biennial recommendation

The Senate Institutions Committee on Jan. 22 heard the state treasurer and treasury staff explain how Vermont decides when to use long-term bonds or cash for public buildings and other capital projects, and why the Capital Debt Affordability Committee recommended $100 million for the 2026–27 biennium.

Senate Institutions Committee Chair Wendy Harrison opened the session and introduced the treasurer’s office; State Treasurer (name not specified) and his staff described the state’s approach to capital bonding, recent bond sales and how pensions and demographics affect Vermont’s credit ratings.

The treasurer’s office emphasized that Vermont currently has about $600,000,000 in general obligation debt outstanding. “We have about $600,000,000 that’s outstanding from the state of Vermont,” the State Treasurer said, explaining the difference between bonding durable assets and paying cash for shorter-lived items. The Capital Debt Affordability Committee (CDAC), a multi‑member advisory body that issues a two‑year recommendation, advised a $100,000,000 total authorization for the 2026–27 biennium (presented as $50,000,000 per year). The treasurer’s office said the committee may revisit the second year of the biennium if circumstances change.

Why it matters: the treasury said rating agencies (S&P, Moody’s and Fitch) consider long‑term liabilities — chiefly pensions and other post‑employment benefits (OPEB) — and demographic trends when assigning credit. Treasury staff said Vermont’s AA+ ratings reflect “strong financial management” and other governance factors but noted pension liabilities and demographics as ongoing challenges that influence the amount of debt the state can responsibly carry.

How bonding works and recent activity

Treasury staff described practical rules and recent transactions. Vermont issues 20‑year bonds by statute and bonds are typically not callable for the first 10 years, a market convention the treasury follows to secure more favorable pricing. The office said its most recent combined sale involved roughly $71,000,000 of new bonds; because investors paid a premium the sale generated about $79,000,000 for projects. The office also issued about $36,800,000 of refunding bonds that produced approximately $3,700,000 in net present‑value savings.

Scott Baker, director of debt management and financial reporting, outlined the CDAC process and calculations that produce the affordability recommendation. CDAC compares Vermont to AAA‑rated states across metrics such as debt per capita, debt as a percentage of personal income and debt service as a percentage of revenue. The committee produces a two‑year recommendation and reports to the legislature and governor; the committee was created in 1989 and its recommendations have typically been reflected in capital bills.

Cash fund, premiums and bond pricing

Treasury staff reviewed Vermont’s recently established capital cash fund as an alternative to bonding for some projects. The office said the fund gives policymakers flexibility to pay upfront for some capital work and thereby avoid interest costs; however, the office also noted it is early to quantify how much debt issuance the cash fund has displaced. The treasurer’s office said a prior appropriation authorized to buy down bonds (about $20,000,000) remains largely held in cash and has not yet been applied to reduce outstanding debt because the timing and lifetime savings depend on prevailing interest rates.

Baker explained bond pricing mechanics to the committee: some bonds sell with a premium from investors, which increases project proceeds though it affects coupon yields. He said Vermont’s latest issuance had an all‑in yield around 3.5 percent, higher than historic lows (the 2021 issue yielded about 1.43 percent) but competitive in the current market.

Pensions, OPEB and fiscal priorities

Treasury staff addressed long‑term liabilities and pension policy. The treasurer’s office administers three systems: a Vermont State Employees Retirement System, a Vermont State Teachers Retirement System and a Vermont Municipal Employees Retirement System (the state pays employer costs for the first two). The office said statutory schedules call for pensions to be fully funded by 2038 and OPEB by 2048, and that extra one‑time and scheduled contributions in recent years have improved funding ratios. The staff cautioned that large market downturns or other changes could affect those targets.

The committee discussed whether additional resources should flow toward pension amortization versus other priorities. Treasury officials said extra funding would accelerate progress toward actuarial targets and lower long‑term fiscal risk.

Other items discussed

Treasury staff reviewed “authorized but unissued” project authority — projects that have been approved in capital bills but not yet expended — and said that pipeline can inflate the appearance of capital need; the office noted some authorizations are reallocated or reassessed if projects do not proceed. Staff also described “moral obligation” backing for certain quasi‑governmental issuers (for example, housing finance or bond bank issuers) and said agencies must obtain treasury approval to use the state’s moral‑obligation authorization.

Treasury staff briefly described the Vermont Saves program, a state‑sponsored automatic IRA for private employers. The office said the program launched about a month earlier, is seeing early uptake (particularly among workers under 30), and reported an average participant savings rate above 4 percent.

Committee questions and next steps

Committee members asked about the cash fund’s earned interest (the office said interest generally flows to the general fund), the mechanics of premiums on bond sales, and the potential to revisit the CDAC recommendation for the biennium’s second year. The treasurer’s office said CDAC and the treasury will monitor market conditions, federal funds availability and project schedules and could propose adjustments if circumstances change.

The session concluded without formal committee action recorded in the transcript; CDAC’s $100,000,000 biennial recommendation will inform the capital bill drafting process and the legislature’s decisions on authorizations and funding approach.