Senate Institutions hears administration on capital bill, CDAC decline and proposed cash fund

Nick Kramer, chief operating officer of the Agency of Administration, told the Senate Institutions Committee on Jan. 15, 2025, that Vermont’s capital budget has “historically been funded through the issuance of general obligation debt.” He outlined why the administration is proposing to increase the use of a statutory cash fund as an alternative to borrowing for capital projects.

The cash‑fund proposal would set an annual transfer equal to 4% of the most recent total general fund appropriations minus the state’s current debt service obligations and use that amount to pay capital projects rather than issue general obligation bonds. “If we can stay the course with declining authorizations… those aggregate debt service costs will continue to drop and that transfer to the cash fund will continue to grow,” Kramer said.

Why it matters: state technical guidance has recommended lower borrowing levels as Vermont faces shrinking CDAC (Capital Debt Affordability Advisory Committee) authorizations, rising construction costs and large unfunded pension liabilities. Kramer said CDAC’s current recommended borrowing cap is about $100,000,000 and that the committee’s recommendation has fallen from a peak near $160,000,000 in fiscal 2014–15. He also said the state’s unfunded pension liabilities are “roughly speaking… in the order of $5,000,000,000.” Those factors, he said, combined with higher interest costs, reduce the state’s appetite and ability to rely solely on bonding.

Key details from the presentation

- Debt service and scale: Kramer said annual aggregate debt service payments have been about $70 million to $80 million in recent years and that those payments equal a little over 4% of the general fund budget in recent years. He warned that at current interest rates borrowing is costly: “every dollar we go out to borrow costs taxpayers ultimately a dollar 50 over the life of a 20 year bond,” he said.

- CDAC and credit context: Kramer described CDAC as a multi‑member technical advisory committee used by rating agencies and said its lower recommendations are driven by demographic pressures, economic trends and the state’s overall debt portfolio (including pensions). He noted the administration and the treasurer participate in CDAC and pointed to a statutory framework for CDAC’s work.

- Cash fund construct: The administration’s cash fund (also described in testimony as a “sinking fund” or pay‑as‑you‑go vehicle) is designed to capture a stable portion of the general fund and use it to pay capital projects directly. Kramer said the fund has two subaccounts: one for the ongoing statutory transfer (the administration calls this “cash fund A”) and a second subaccount used in one prior year to set aside one‑time money that leveraged federal Infrastructure Investment and Jobs Act (IIJA) funds. He said that second subaccount was an “extraordinary circumstance” and the administration’s focus going forward is on the statutory transfer account.

- Early seed and leveraging: Committee members remembered an initial seed of $10,000,000 for the cash fund in an earlier session and discussed a prior use of roughly $17,000,000 that officials said leveraged substantially larger federal awards (participants described drawdowns on the order of hundreds of millions of federal dollars for transportation and natural resources projects).

Committee concerns and process issues

Members pressed on several points: which committee should decide cash fund appropriations, how to prevent the cash fund from being swept into other uses, and whether the cash fund will replace bond financing or supplement it. The administration told the committee it prefers that capital committees (not the big appropriations committee) control how cash fund dollars are spent once the statutory transfer is made: “that faucet, once turned on, that bucket should go to this committee to decide how it's spent,” Kramer said.

The administration also acknowledged congressional/timing constraints for projects. Officials said capital appropriations that become effective earlier in the legislative calendar allow state agencies to begin construction in the prime season (late spring and summer) rather than waiting until July 1 when some operating‑budget appropriations take effect.

No formal actions recorded

The hearing was a briefing and discussion; committee minutes and the transcript do not record any motions, votes or formal decisions on the capital bill at this meeting.

Ending

Administration staff said a detailed capital bill and policy recommendations will be presented to the committees in a few weeks. Officials asked for continued collaboration with committee chairs and the treasurer’s office on statutory language, the transfer formula and committee jurisdiction.