Senate committee hears CDAC recommend $100 million in debt authorization; bond bank warns deferred maintenance risks

Montpelier — Representatives of the Capital Debt Affordability Advisory Committee told the Senate Committee on Institutions on Jan. 8 that CDAC recommends $100 million in new debt authorization for the 2026–27 biennium, and staff and the Vermont Bond Bank urged lawmakers to account for deferred maintenance and use rating-agency metrics in future reviews.

Jeremiah Breer, chief financial officer for the State Treasury, said CDAC's report — an advisory document statutorily due each year — examines the state's net tax-supported debt using credit-rating measures such as debt per capita, debt service as a percentage of revenues and debt outstanding as a share of personal income. "By statute, that report is advisory," Breer said. He added that in practice legislatures and governors typically adopt the recommendation and that credit rating agencies value adherence.

Breer told senators the state currently carries $663,000,000 in net tax-supported debt, including about $550,000,000 in general obligation bonds; he also itemized other components reported in CDAC materials: $26,000,000 in VHFA bonds, $65,000,000 in leases and $22,000,000 in technology subscription arrangements that are accounted for as debt. He noted a substantial gap between what has been authorized and what has been issued: CDAC staff identified roughly $192,000,000 of previously authorized capital debt that remains unissued, largely because some projects are not yet shovel-ready and COVID-era supply, labor and prioritization issues have constrained spending.

"The committee looks at the criteria that the credit rating agencies use," Breer said, and described Vermont as AA+ rated with a stable outlook. He said Vermont sits in the upper third of states on several debt metrics but benefits from disciplined budget and debt-management practices that rating agencies favor.

Scott Baker, Treasury director (present with Breer), explained practical limits on timing and structure: by statute general-obligation bonds for capital bills are issued as 20-year bonds with equal or diminishing principal payments and typical issuance and reimbursement workflows are driven by project cash flows. Baker noted that issuing tax-exempt bonds earlier than necessary can trigger federal arbitrage rules if proceeds are not promptly used to reimburse capital spending.

Michael Gaughn, executive director of the Vermont Bond Bank, told the committee the bond bank benefits from state credit enhancements (a debt service reserve and an intercept mechanism) but is working to reduce reliance on the state's moral obligation. He urged lawmakers to treat deferred maintenance as a credit consideration. "Deferred maintenance is being viewed ... as the new pension," Gaughn said, adding that rating agencies and public finance practitioners increasingly factor long-term maintenance needs into credit assessments.

Breer and Gaughn also discussed potential statutory adjustments the treasurer's office is proposing for CDAC's enabling language. One change would remove a sentence giving CDAC "committee discretion" to consider unspecified metrics and replace it with a directive to use "metrics adopted by bond rating agencies" so the committee's analysis stays aligned with market practices. A second, more technical insertion would ask CDAC to consider measures that reflect the remaining useful life of state infrastructure and potential future maintenance and replacement costs, broadening the committee's view beyond book-value depreciation measures.

Committee members raised questions about how long bonds run, who buys state debt and whether unissued authorizations could be accessed earlier. Breer and Baker explained that most bond demand comes from institutional investors but that the state also sells smaller-denomination "citizen bonds." They reiterated that the state can reimburse expenditures when projects begin spending and typically forecasts near-term spending horizons of six to 18 months when deciding issuance size and timing.

No formal vote occurred. The committee said it will follow up on the proposed statutory language and on capital funding that has already been set aside for projects, including a discussion flagged for the state's women's prison funding.

Why it matters: CDAC's recommendation helps set the ceiling for capital-bonding authority in the coming biennium; adhering to the advisory guidance has historically supported Vermont's credit standing and borrowing costs. Lawmakers will weigh the recommendation and the proposed language change as they draft the capital bill and consider how to address deferred maintenance without harming the state's credit position.

Sources: Remarks and slides presented to the Senate Committee on Institutions by Jeremiah Breer (Chief Financial Officer, State Treasury), Scott Baker (Director, State Treasury) and Michael Gaughn (Executive Director, Vermont Bond Bank).