Treasurer's office urges $3 million reserve addition as federal grant receipts for teacher pensions fall

Tim Duggan, director of Vermont Retirement Systems in the Office of the State Treasurer, told the House Appropriations Committee on Jan. 15 that federal-grant receipts used to offset teacher pension costs have declined since pandemic-era peaks and asked lawmakers to add $3,000,000 to a reserve in the Budget Adjustment Act to cover a possible shortfall.

Duggan said the state uses a Federal Grants Assessment (FGA) charged to grant-funded teacher positions to recover the employer portion of retirement benefits. "This year that's 25.47%," he said, offering a $100,000-salary example to illustrate how the charge works.

The request is precautionary: the Treasurer's office estimated $13,300,000 in FGA receipts for the current year, which reduces the Education Fund's normal-cost obligation by about $2,600,000 and offsets a portion of the General Fund's unfunded liability payment. Duggan reported this year's Actuarially Determined Employer Contribution (ADEC) as roughly $212,000,000, split into about $41,000,000 in normal cost and $171,000,000 for unfunded liability amortization.

Duggan said FGA receipts spiked in 2021''24 because of ESSER and similar pandemic grants that funded additional teacher positions; as those federal funds phased out, positions often moved onto local budgets and no longer generate FGA revenue. Because the Treasurer's office sets annual FGA estimates well in advance and bills on a quarterly lag, projecting from the pandemic-era high yields an overestimate risk today.

To hedge that risk, Duggan said the legislature previously set aside a $3,800,000 reserve; FY25 did not require drawing it. The Treasurer's office asked the Appropriations Committee to add $3,000,000 to the existing reserve in the BAA so the state can "pay the ADEC and the plus payment in full" even if federal grant receipts come in below current estimates. "We think it's a good idea to add another $3,000,000 to that reserve," Duggan said.

Committee members asked about timing and data: staff said first-quarter collections begin to arrive in December and that the office expects a more complete picture by the end of the month and into spring as additional quarters close. Duggan said the FY27 FGA projection has been lowered to $8,000,000 but that the office will monitor receipts and may return with revised recommendations.

The Treasurer's office said it has communicated the issue to the administration and will appear before the Ways and Means Committee next week to discuss related funds. No formal committee vote on the reserve addition occurred during the briefing; the request was presented for inclusion in the BAA and for committee consideration.

Next steps: the Treasurer's office will provide updated receipts and projections as quarterly data arrive; the Appropriations Committee and Ways and Means will consider the BAA language and any reserve appropriation in upcoming budget work.