State treasurer briefed Corrections & Institutions on bonding, CDAC recommendation and pension liabilities

State Treasurer Mike Pieciak told the Corrections & Institutions committee on Thursday that Vermont generally issues long-term bonds to finance multi‑generation capital projects and that the Capital Debt and Affordability Advisory Committee (CDAC) has recommended $100 million in net tax‑supported debt authorization for the 2026–27 biennium.

"We generally issue debt once a year," Pieciak said, outlining the state’s multi‑month process that includes legal documentation, ratings agency engagement and either a competitive or negotiated sale.

Why it matters: the committee heard that Vermont’s ability to borrow at favorable rates depends on its credit ratings, trends in unfunded pension and OPEB liabilities, demographic expectations and how much previously authorized capital remains unspent. Pieciak and Treasurer's Office staff said those factors drove CDAC’s biennial recommendation of $100 million — split as $50 million in each year as a baseline — with an explicit note that the committee will revisit the second‑year number next year and could increase it if conditions change.

The treasurer’s office presented several figures: the office reported roughly $600,000,000 in net tax‑supported bonds outstanding. In its most recent issuance the state sold about $76,000,000 of new‑money bonds and completed a $37,000,000 refunding (a refinancing) that yielded about $3,700,000 in net present‑value savings; the sale also produced about $6,900,000 in bond premium. Pieciak noted that rating agencies pay increasing attention to the state’s unfunded pension liabilities and demographic trends when assigning credit ratings.

Pieciak summarized Vermont’s current ratings as "double A plus," one notch below triple‑A on the major ratings services, and said the rating agencies have highlighted the state’s strong budgeting practices, reserves and fiscal management while pointing to pensions and demographics as areas needing attention. The treasurer’s office also told the committee that pension reforms enacted in 2022 have driven four consecutive positive years of pension funding progress and that, per the presenters, pension liabilities are on a schedule to be paid down by 2038 and OPEB (other post‑employment benefits, chiefly retiree health care) by 2048.

A long backlog of authorized but unissued capital is a central concern. Staff explained that projects authorized in past capital bills have accumulated because some programs did not spend their appropriations promptly — for instance, ARPA and other federal funding created prioritization and encumbrance deadlines that delayed other capital work. CDAC reviews departments’ expected near‑term spending before bonding; the treasurer’s office said that if an agency expects to spend only part of an authorized appropriation in the coming 12 months, the debt issuance will cover only that portion.

CDAC’s methodology and benchmarks led to the $100 million recommendation, the presentation said. The advisory group runs 10‑year projections using three core metrics: debt per capita, debt as a percentage of personal income, and debt service as a percentage of revenue. The committee set a guideline of 1.8% for debt as a percentage of personal income and 4% for debt service as a percentage of revenue (the latter reduced from 6% in past years). Under the presentation’s projections, continued issuance at the recommended level would keep Vermont within the committee’s guidelines.

Committee members asked for more detail on related items. One member asked about the possible reclassification of correctional officers into a different retirement plan (a law enforcement plan) and what cost or pension impacts that change would produce. Pieciak said the state would need to consider whether a change would be applied going forward or would be made retroactive, and emphasized the need to ensure employer contributions remain actuarially sufficient if benefits change. He said the treasurer’s office would analyze such options further if the policy discussion advances.

Presenters also described how Vermont’s strong rating helps lower borrowing costs for municipalities and school districts that issue debt tied to the state’s credit; they named entities that commonly access capital markets — the Vermont Economic Development Authority, Vermont Housing Finance Agency, Vermont Bond Bank and the Vermont Student Assistance Corporation — and explained the difference between general‑obligation state debt (full faith and credit) and “moral obligation” support for certain quasi‑public issuers.

The presentation concluded by urging continued focus on: (1) paying required actuarial contributions for pensions and OPEB, (2) maintaining strong reserves and fiscal management, and (3) building the state’s cash fund so the state may rely more on pay‑as‑you‑go funding over time. CDAC’s recommendation will be one input for the administration’s capital bill process; staff said that how the authorization is split across the two fiscal years can change so long as the biennial total remains within the advisory limit.

What’s next: CDAC will reconvene in advance of final capital planning for FY27 and may revise its second‑year recommendation up or down depending on market conditions, project progress, labor availability and other factors.