 Thank you, Andrea. Good morning. This is House Government Operations on April 8th, 2021. And we're back here to discuss pensions with Chris Roop from Joint Fiscal Office. And we're going to focus on a single sentence in the task force portion of the draft bill that we have, which is setting a pension stabilization target number. That is one of the duties that is currently given to the task force, but we thought it would be good to have a discussion amongst the committee about whether the legislature may want to set that target number, because it may take the task force a long time to get there, and it may be good for the legislature to consider that. So Chris is going to testify this morning about some concepts and things that we may want to focus on with respect to setting a target number for the task force. And I think he traded emails with him yesterday about the need to focus on both reducing the budget pressure, but also reducing the unfunded liability. And I think that it's important that we focus on both of those goals in order to really stabilize the state employees and teachers' pension. So with that, Chris, thank you very much for coming this morning. Thank you, Representative Gannon for the record, Chris Roop from the Joint Fiscal Office. So I'm stepping a little bit out of my normal fiscal analysis role here today, and I sent over to Andrea and it's posted on the website just a few slides that were really intended to try to stimulate some thought among the committee based on some prior experience I've had working in government where setting up a task force or a working group to look at anything, probably the hardest thing to do other than figuring out who should be on it is defining the work and trying to be really, really clear and focused on what it is this group is tasked with doing. And I was involved when I worked for the city on a group that looked at an issue with our oil refinery, and we spent weeks looking at this very question. And it was probably the most significant question through the whole process to really hone in on and trying to be specific about because if you don't define it early on, nobody knows what they're doing. And that will be the first question in the first meeting. And whenever you're trying to tackle really, really big challenges in really, really limited time frames, the more clarity and focus you can inject into the structure of the group at the beginning will pay off down the road in dividends. So with that sort of thought in mind, I just I put some words to slides because the way my thought process works is I like to see words that I can react to and start thinking about and then, you know, that stimulates more thought and more conversation. So I'm hoping that will have a similar impact here with this group. I just want to be clear that, you know, I'm not putting forth any specific suggestion. I'm suggesting some questions that might be helpful for the group to think about toward answering this question. So the second slide I have here starts off with a really, really obvious question. But the answer is not that obvious. What is the problem you're trying to solve? And I think making sure that you define that problem at the outset is going to be really, really important to making sure that everybody goes into this process on the same page and viewing things through the same lens. And, you know, forming groups to do analysis and do fact finding, that stuff is great. But there needs to be an end to that, you know, because other that is the key between making sure that you come up with a report that's actionable with real recommendations that can make a difference, or whether it's a report that sits on a shelf. So making sure that you connect the fact finding and the analysis to a goal I think is really, really important. And this sentence that Representative Gannon mentioned we try to drill down on here is the setting of pension stabilization target number. You know, what is that? I think depending on where you sit and what your perspective is, that can mean a huge range of different things. But if there's a way to sort of put some parameters and some clarity around defining that in the statute, that could go a long way toward clarifying the purpose of the work over the summer. So I'm on my third slide here. What is the desired outcome? I think is a really, really important question to ask, you know, why are we setting this group together and what putting this group together and what do we want to come out of it? You know, I think when you look at the fiscal target issue, it's really important to focus on both the liabilities and the budgetary pressures because if you only focus on one and not the other, it is going to distort the recommendations and the analysis you do. I think it's very intentional that the Treasurer's report from January looked at both of those issues because, you know, they're both critically important to address holistically and not just focus on one and not on the other. It's also important, I think, to establish some numerical targets or some desirable parameters at the outset. You know, if you want to create a, if you're defining a fiscal target, having a number associated with that adds a lot of clarity and removes a lot of ambiguity. You know, I think just as important as looking at, you know, the fiscal target is you do need to balance that with consideration for the workforce. You know, you can, if you disregard that, it's really easy to come up with solutions that can hit a financial target. But, you know, we don't live in a world or an environment where you can do that, nor should you. So, you know, I think it's important to ask, you know, throughout this process, you know, what is an appropriate and affordable retirement benefit package in the broader context of total compensation? You know, this is a big question, but you know, we're not just talking about an expenditure line here. You know, we are talking about financial implications of the state that have very real implications on the operations side and on, you know, the state's ability to attract and retain a workforce that, you know, has to provide critical services to the public on a day-to-day basis. You know, it's also important in that context to think through how do you distinguish how you treat existing active employees versus new hires. You know, I think that's something that this group has been, this committee has been aware of and been wrestling with for the last few weeks. And I think defining that through this process is important. And then, you know, similar on that vein of new hires is, you know, does it make sense to make tweaks to the existing plans or does it make sense to offer additional retirement benefit options? You know, it's not to say it has to be a DB or a DC plan or one or the other, but you know, what are the needs of your workforce and what is an attractive retirement package for different elements of the workforce? And how do you make sure that the state is offering a range of options that are attractive to the workforce going forward? So these are all sort of questions that I think are worth thinking about and thinking about in terms of how do you define this at the outset of the work? And I put here in red to try to really make it stand out here that, you know, this whole process I think is not going to, you're going to have a lot of missed opportunities if you don't at least understand what has gone wrong in the past and try to avoid repeating that in the future. You know, I think all throughout human history, we have a tendency to repeat the mistakes of the past. And, you know, at any point whenever we're being retrospective and looking at what's happened to get us to this point, I think, you know, it's important to understand why, what the contributing factors were and how to avoid getting back in the same position later in the future. So these are, these may seem like obvious questions, but whenever you think about them, they quickly become very big questions that can be challenging to answer. But I think trying to put some parameters around these types of questions at the outset could go a long way toward narrowing the scope of the work group over the summer and making sure that that effort results in a actionable product that can really make a difference. So I'm going to move on to the next slide here and really drill down on fiscal targets. You know, I just can't stress enough that I think it's really important to evaluate the liabilities and the budgetary pressures together so you can assess the full picture. Because if you only focus on one without looking at the other, you might end up with recommendations that don't solve underlying structural issues or could lead to long-term costs to the state. So the most obvious example that jumps to my mind is if I was only focused on reducing the budgetary pressures, you know, you could do a lot of things with the amortization schedule and refinance it. You know, that could reduce your budgetary pressures, but it could result, but it would not reduce your liabilities, and it would result in additional expenses in the form of interest payments on the road. So, you know, the practical effect of that is, yes, you might address one piece of the issue, the sort of near-term budgetary pressures, but you give that can a real hard kick down the road, and that could impact the bond ratings, which could lead to other fiscal challenges for the state. So this is just one example of why it's important, I think, to look at both sides of the issue. Because if you're only looking at the payments, you can easily go down a path that that needs you to avoiding sort of the structural issues when you really do need to look at both. I see a hand raised, so this may be a good time to take a breath. Representative? I don't want to interrupt you. Mr. Chair? If you have a question that's relevant to Chris's testimony, please go ahead. Thank you. So you just mentioned the word, if you re-amateurize, you take an interest hit. But this has always been, I have to admit, kind of confusing to me because we're basically pre-funding, so we don't really have a bill because the bill hasn't arrived yet. So when you say interest, are you using that as synonymous with earnings, which would offset future costs, or are you using it in the context of we have a loan and we're being charged interest because I've always been under the assumption that, quite frankly, the unfunded liability is a non-existent entity until we get to the future. And unless we're in back to the future, we never get to the future. It's always a number that is in front of us. So can you elaborate on that at some point in time, not necessarily now in the presentation, because I think it's a very interesting point of, gee, how is this figured out? That's a great question. And this can get kind of confusing. So whenever you're dealing with an unfunded liability, it's not just the principle you have to pay back. It works like a credit card or a mortgage in a way where the unfunded liability is your balance and every amortization payment you make, a portion of it goes to principal and it goes to interest. In your home mortgage, your interest is what you're paying the bank for the privilege of using their money to buy your house. In pensions, think of interest as sort of the proxy for lost investment opportunities. So you're paying basically a 7% interest rate on this day. And just like whenever you have a student loan or a home mortgage, those first 10 years of payments or so, a whole lot of that money is going toward interest and not a whole lot is going toward principal. And the further and further down you go on the schedule, more and more starts chipping away at the principal. So it works similarly with pensions where you have to pay not just a portion toward the principal, which would be sort of the shortfall, if you will, but you need to make a payment to represent the lost investment opportunities that the fund would have realized if that principal was invested at the time period it was supposed to be invested. So the practical effect of extending the amortization period without making any other changes is kind of like being in year 16 or 17 of your 30-year mortgage and then rolling it over into a new mortgage or taking your credit card balance and putting it on another credit card with a longer repayment period. Your regular payments could go down a little bit, but you're paying more because of the longer period of time because you're paying interest over a longer period of time. So did that answer your question? Well, yes and no because in your analogy, we never got the money. So in terms of the context of a home mortgage loan, nobody ever gave me money to buy a house. They're giving me money to buy a house in the future. There has been no financial transaction. So that brought about my, are we talking about interest on a loan or earnings potential on an investment? And I think you're leaning towards us being a lost earnings potential, which eventually means that more money has to come out of the budget as opposed to money coming out of our earnings, right? Yeah. I think both is true. And it's kind of complicated that in a way, if you short the ADAC payment or your unfunded liability grows, for example, well, let's just use the example of shorting the ADAC payment. It's not that that money just disappeared into the ether. That money almost went on the state's credit card, if you will, and then it has to be paid back in the next year's ADAC payment and the year after that's ADAC payment. So the state's still on the hook for making that obligation but if you don't make it up, if you don't pay it in full at the time you need to pay it according to the amortization schedule, you have to pay more later. So it's kind of like pay now or pay more later. So there is an actual cost to us holding on to this $150 million and not attributing the longer it stays in the bank quote unquote. So I'm not sure that's necessarily true because right the current numbers don't factor in the $150 million. So if you put the $150 million and invested it, that would certainly have an impact that would grow over time as the money grows over time. For the sake of argument, $150 million invested at 7% could grow to $440 million, $450 million. You're not going to realize that whole $440 or $450 million immediately. You're going to realize the impact of that as it grows over time and hopefully it grows at at least the assumed rate of return over time. Thank you. Representative McCarthy, you have a question. Yeah. So I guess before I get to my question, I'll just say I think that we have thoroughly dispensed with the $150 million being something that we are going to direct. I think one of our key things that there is consensus on is that we are not going to decide in this committee which buckets the $150 million are going into. But my next, my real question is that I want to make it clear for me who's not a member of the pick and hasn't been a pension expert and for folks at home that even though the unfunded liability is an estimate of what our future payments are going to be versus what the estimate of the future value of the fund assets are, can you just remind us, Chris, that in the current structure that we have, the payment on that, the ADEC, it's very different than a normal healthy pension system where I think not too, too many years ago, the employer contribution and the employee contribution were roughly similar. And as we've tried to deal with this growing unfunded liability, it's gone totally haywire unpredictably. And so isn't one of the key things that we're trying to get at here reducing in the coming years the lack of predictability of that ADEC? I think that's a very fair question and that I think gets to why it's important to look at the liability side of the equation also because that liability side of the equation when that increases suddenly like it has in the last year, and your assets did not increase suddenly, that means that gap between them, which is the unfunded liability grew suddenly. So you do want to take steps to make sure that the liability is more predictable from year-to-year because, and I think Representative Hooper was getting to this, that the total liability, you don't need to pay that out all at once because everybody's not going to retire and live and die all at the same time. But that gap between your total liability and the assets you have, that unfunded liability makes a huge difference to the state's fiscal position because that debt ultimately needs to be paid back or closed somehow, either through actuarial gain or through the ADEC payment. So when that hole gets deeper, that's like, it's kind of like your credit card balance just went up. And you know, your payments are going to have to go up accordingly. Did that answer your question Representative McCarthy? Yes, thank you very much, Chris. Okay, Representative Leclerc. Thank you, Mr. Vice Chair. Just for clarification sake here, Chris, you know, when we're talking about this unfunded liability, sometimes I think we get a little confused that it could be to some large entity, some large faceless entity, but that unfunded liability that we're talking about is actually to the plan beneficiaries, to the people who have been paying into this and who are going to benefit from it. That's absolutely correct. So I really do think it's a matter of perspective, whether it's a real or perceived debt. I think it's absolutely real. And if I could just add to that that, you know, the unfunded liability impacts how much the state has to pay every year. And it impacts our balance sheet, it impacts, I'm not sure how much real an obligation could be than that. You know, in terms of directly translating into what you have to pay in every year in order to make sure that you're making progress toward addressing that unfunded liability by a defined date. You know, we are working in very defined and proscripted parameters toward paying that down. And can I ask one more question, Mr. Vice Chair? Can you once and for all say what our debt is as of today or whenever? I've heard numbers from, depends on what you're including, but the total cumulative amount I've heard anywhere from 5.8 to north of 5.8, excuse me, 5.5 to north of 5.8 billion. Do you have an idea? I mean, can you get me within 100 million? I can get you to give me just one second. I actually have this in an email. So if you're looking at the pensions alone, the pensions are just shy of $3 billion in unfunded liability across the two systems. If you include OPEB liability into that, that will bring you to a much higher number and I'm pulling it up right now. Now there has been conversations that pensions and OPEB are very, very different as far as the, I don't know, I guess our obligation and our commitment. I'm not sure I quite share that, but could you maybe address that a little bit? Sure. So I have the numbers and this is as of the end of FY20. They recalculate this annually and rightfully so. It's almost impossible to sort of tell you on any given day what this would be, but total pension, unfunded liability, $2.973 billion across the two systems, total OPEB liability, another $2.684 billion across those systems. So the total across all four buckets, $5.657 billion and that is as of the end of FY20. With respect to OPEB and pensions, I think a really big distinction with that is OPEB, since we don't pre-fund OPEB right now, the OPEB liability calculation is done in a very different way than the pension calculation is. If you were on the path to pre-funding OPEB, you would be able to peg the assumed rate of return to the 7% rate that the pensions use because you have a pool of assets that you can invest in the market. When you're on a pay-as-you-go basis like we are, there really isn't a pool of assets to invest. I mean, it's a nominal amount in the grand scheme of things. So the GASB rules require you in that situation to use a much, much lower assumed rate of return that is tied to the municipal bond rate of like a double-a-rated jurisdiction. That rate is sort of an artificial construct that is heavily, heavily influenced by interest rates and federal monetary policy. That rate is at like 2.2% right now. Because that rate is so low, our unfunded OPEB liability is calculated at a very high rate. If federal monetary policy were to change and interest rates were to go up, or if the state were to commit in statute to pre-funding, we would be able to use a higher assumed rate of return than that 2.2%. And that in turn would significantly lower the OPEB liability. So that number is higher than it otherwise would be because we're not pre-funded. That's the most significant difference. Makes sense. Thank you, Chris. Representative Hooper. Thank you, Mr. Vice Chair. And thank you for the stab at making something very complicated, very less complicated, somewhat less complicated. Chris, do you, three questions I think. Do you know if we're projecting an increase or decrease in liabilities? OPEB is a debt. So we're including OPEB because it's related to retiree contribution. Is that any different than the general debt that we would be carrying if we build a bridge in terms of that nexus? And third is we're talking about a time period here for the, particularly since we're not pre-funding OPEB, it's basically an annualized debt. It doesn't seem to me like classifying that as an unfunded liability, quote unquote, in the same way that the pension liability is, it seems to be interplay of two terms that might not be related in the 60 or so years that we might be talking about it. Yeah, that's a great question. The debts do work slightly differently. OPEB is different than building a bridge because when you build a bridge, you've got a legal commitment to pay a certain amount of money back at a certain period of time to your bondholders. OPEB, we're paying on a pay-as-you-go basis. OPEB benefits do have a different degree of legal protection than pension benefits for future changes and things of that nature. And the actual cost of OPEB can vary a lot from year to year based on things like claims experience, what's going on in the healthcare market, federal healthcare policy, and the timing and amount of various reimbursements. So that amount can fluctuate from year to year in a different, from different factors than a pension benefit is calculated by. Pension benefit is calculated by who's in the system? What did they earn? What are their years of service? It's a much more straightforward calculation. And what are we projected to earn and how are we projected to live? How long? With OPEB, the GASB rules have forced the accounting to reflect the numbers that I just provided. And they have to be reflected on your balance sheet in that context. So it is a slightly different construct than pensions or your general obligation debt. There aren't the legal constraints around your future obligations in perpetuity to making these payments. But the fact of the matter is that many, if not most states historically have not refunded OPEB, but a lot more of them are looking at this, not only because it makes long-term financial sense to live off of investment earnings rather than payments out of your budget, but the GASB rules have forced the accounting to look a little differently on people's balance sheets than it did in the past and has to be separately accounted for. And the fact that interest rates have just been so low recently has really increased the size of these liabilities and has dragged some states down into the negative on their balance sheets, including Vermont. Thank you. And I think some of the GASB rule changes are the results of the fact that states haven't been focused on reducing their OPEB liability and are encouraging people to understand what that liability is. So that states will be better at focusing on that. Madam Chair, you have a question. Thank you so much. It's rare I get the opportunity to practice raising my hand in committee. Thank you, Mr. Vice Chair, for leading this discussion. And I guess I am appreciating this opportunity to review the inter-workings of OPEB and pensions and what debt is with Chris this morning. But I need to be really clear that it is our duty as the Committee of Jurisdiction in this conversation to put all four buckets on the table for the task force at this point and to solve all of them. So while I appreciate an opportunity to sort of pick up the four buckets and look at them and tap on the sides and understand what they all are, I just need to be really clear that we are moving towards figuring out how to positively impact our state's fiscal health and rating by getting all four buckets on the table and by moving towards pre-funding OPEB. And so the conversation that we're having at this moment is really designed to help us think about some of the considerations that we might want to express as directives to the task force. There is no longer a question about whether we are moving towards pre-funding OPEB. It is a liability on our books and we need to take care of it. And so we want to have this conversation with Chris and I appreciate the focus of the slides that you brought for us to help us drive towards some comfort around what directive we're going to give to the task force. Do you want to keep calling on people, Mr. Vice-Chair? Sure. If that's your pleasure, Madam Chair. Representative Hooper. Thank you, Madam Chair. I appreciate that it's confusing that we're dealing with one and we're not dealing with the other, but I understand the mandate. And I don't think anybody here is saying pre-funding OPEB is not a good idea. My question is how much the interplay between that and the unfunded liability, putting them in competition, we've been pre-funding OPEB in a mediocre basis for a while. So I don't want to leave anybody with the impression that I'm not advocating pre-funding OPEB is a good idea. I think it is. But to my mind at least, and I've said before, it's a different rank in the hierarchy to some degree. Thank you. Well, I mean, I think is that Chair has made clear is that the task force needs to look at all for the buckets. And the thing we are trying to discuss this morning is what type of targets we may want to suggest for them to focus on with respect to addressing these four separate buckets. And so I think at this point it would be good. I mean, we just started talking about fiscal targets if Chris can go on with his presentation. So I just have a few other points on this slide just for your consideration. As you start thinking through fiscal targets, this is kind of stating the obvious. But making sure that the targets are realistic and achievable I think is important. There's no realistic path forward to making all the existing liabilities magically go away. But I do think it may help to try to sort of focus on what is the piece of it that you're trying to address mathematically and that you can address mathematically. And the treasure I think put forth some helpful parameters in her report in January where she did not focus on as much on what has happened over the last 13 years due to lots of forces that were out of anybody's control in this room, but really focused on what can we do to try to deal with the significant growth in liabilities we've seen from last year to next year. And that may be a useful parameter to think about defining sort of what a fiscal target could look like. But there's lots of other ways you can look at it too. It's just, I don't think you're going to be able to put up a near term solution that makes $2.9 billion worth of unfunded liability magically go away because a lot of that liability is attributed to people who are already retired or are nearing retirement. And just mathematically, you could shut the system down to everybody tomorrow and you still wouldn't be able to make that liability go away. So focusing on a piece of it and on trying to bring those asset and liability lines a little closer together over time might be a helpful way to thinking about it. And also, we've heard this a lot in the last few weeks. What is that balance between the employees and the employers shouldering the burden of any solution? I don't have an opinion on that one way or the other. I think it's an important consideration when defining these targets. And I think when you think about it, it is worth being mindful of the impact of that $150 million over time. That impact could grow to be much, much more than $150 million. And if proposals to alter benefits are being assessed by looking at their long-term impact on the liability, we should also be looking at the long-term impact from the $150 million in that context as well. And in a similar vein is what's that appropriate share of the cost share for retirement benefits in the future? If you could wipe the slate clean and create something brand new for people who haven't been hired yet, what should that look like? And what is the appropriate balance between employees and employers paying for the normal cost of people's benefits? Moving on to the final slide, as you also think through defining that problem and what your targets should be, I think it's just as helpful to think through what are the acceptable elements of an outcome? What are the things that are worth keeping on the table? And what are the things that are non-starters or deal breakers? And how do you put some structure and some guard rails around the conversation? So just a few things that came to mind that I think is worth considering is how do we balance the concerns of the workforce and the need to provide retirement security with the state's ability to pay for that retirement security? Another thing is think about, especially in the context of looking at revenue sources and the impacts of the budget, how are the taxpayers impacted? Who's shouldering these costs now? And in a status close situation, what is the impact to those taxpayers going to be between now and 2038? How much more of the budget could be crowded out and what does that translate to into not only does dollars and cents, but shifting priorities and service delivery? If you're thinking about any proposed revenue sources, think about who's paying for it and how sustainable are they? How big is that tax base and would that be a revenue source that you can count on reliably from year to year? Or is it going to be volatile and go up and down the way the market's going up and down? Because that may not provide the same level of help in the long run than you may think. And then it's also just it's important to think in the same vein, what impacts will any outcome have on the bond ratings and the future borrowing costs? I have lots of opinions about the whole system of bond ratings, just like many people do. But the fact of the matter is what the rating agencies think drives your borrowing costs. And Vermont is very, very fortunate that we have a pretty strong bond rating. Bond ratings are one of those things that it takes a really, really long time and years and years of hard work and discipline to build and maintain a good rating. And it can go away really easily. And it's really, really hard to build it back up. And if you lose your bond rating or your bond rating slips, that translates into very real costs in the future whenever you have to go to market to borrow. Where I came from, our credit rating isn't great. And we were actually shut out of the bond market entirely 30 years ago due to a fiscal crisis. And it has taken 30 years of fiscal discipline. And our credit rating is the second or third rung from the bottom. And it's just one of those things that if you're as fortunate as Vermont is to have a strong credit rating after years of strong fiscal management, you cannot take it lightly about any impacts that could jeopardize that. Going into the future, I think it's also important, when you look at what a new plan could be or what any acceptable elements of a solution would be, what is that cost share between employees and employers for the normal cost? Which I mentioned that earlier. And what is the appropriate level of risk sharing if your experience deviates from your assumptions or if your assumptions change? And then the last thing is to sort of put a pin in is what is the range of benefit structures that you're willing to consider for the future? The defined benefit model is still sort of the most commonly found model in state governments. It's not the only model out there. And I'm not trying to suggest that anything's in either or. I think this really is a fair topic of conversation for the group to evaluate what if any types of benefit structures are worth considering in the future? Does it make sense to have more than one type of structure in the future? Or does it make sense just to sort of maintain what we have now and make changes around the edges? So this is a question that could really, really get big really, really quickly and putting some parameters at the outset on what you are and are not willing to accept in sort of the final product, I think, could be really helpful. So there's going to be lots of questions that I hadn't thought about in this slide deck. I put this together really quick just to try to stimulate some thought and hopefully stimulate some further questions that can be addressed. But my overall takeaway here was I wanted to make sure you all had some words on paper to respond and react to and to start thinking about because I do think that the more clarity that the committee and the legislature can provide to this group at the outset, the more focused the work will be, the more productive the work will be and the more actionable and useful the end product. That's all I have. Thank you very much, Chris, for your testimony. And I think you're right. I mean, there's an urgency to this work. And I think it's our obligation to make sure that there's a focus and that we can get this task force focused on solutions rather than arguing about what the target should be. I see Madam Chair has a question. Thank you so much. And before we get to the committee discussion about the focus of the task force, I want to back you up for a minute, Chris, because we're aware that folks are tuning into this discussion from around the state and are grappling with trying to understand what's the big deal? What is the problem? And so I want to ask you to unpack a little bit more about what a bond rating is. If I'm a property taxpayer in West Anytown, Vermont, and maybe we have an aging school building that's going to need to be replaced or maybe we've outgrown our fire station and need to make some investments in municipal property, what is the risk of to me as a taxpayer if the legislature ignores this problem and allows our bond rating to deteriorate? That's a great question. So the bond ratings are set by, there's three major agencies, S&P, Fitch, and Moody's. And they issue, they'll evaluate every government's fundamental financials. They'll look at factors like what's your economy look like? What are your future projections? What are your demographics look like? How well do you manage your money? How big are your fixed costs? What are your reserves like? What are the sort of characteristics of your tax base? And just all these questions kind of get down to the crux of how risky are you to lend money to? And what is your ability as a government to adapt your financial situation to deal with unforeseen circumstances? And are you a state that has an upward trajectory where things are going great? We're growing and we know our tax base is, we have a good sense that our tax base is going to keep getting bigger. Or are you a state where your tax base is struggling and it's not projected to grow as much? Those are all different considerations because every single government out there of any real size borrows money. And they, you know, borrowing money is not an inherently bad thing. It's not an inherently risky thing. It's just like you would borrow a mortgage to buy your house. Typically, you know, governments will borrow money to make large longer term capital investments that have a long useful life. So school construction would be a good example. Sometimes infrastructure. Some governments also have to do shorter term borrowing just to manage their cash flow because the timing of your bills going out doesn't necessarily match the timing of your money coming in. So you often have to borrow money just to, you know, even out your cash flow. Vermont doesn't have to do that as much as a lot of other places because of good financial stewardship that the state has pretty strong cash reserves in a lot of its accounts. But there are a lot of places that have to do this on a pretty regular basis. If your bond rating goes down, Wall Street is basically saying that we have a little bit or I should say that the rating agencies are basically saying that we are not quite as confident or we don't feel quite as good about this place's ability, you know, to pay back its obligations without other detrimental impacts. So if your bond rating goes down, your borrowing costs tend to go up. So jurisdictions that have lower credit ratings tend to have a more difficult time selling their bonds on the market and tend to have to pay a premium. That can translate to millions of dollars in additional interest payments. So, you know, the difference between, you know, borrowing a couple hundred million dollars at a really, really low rate and at a slightly higher rate can amount to real money over time. And that means that the money that, you know, you have to pay higher debt service payments every year out of the budget for the same amount of money. And, you know, that also impacts the sort of state-related agencies out there that borrow money, you know, under sort of the guarantee of the state as well. So not just sort of general obligation debt, but it's one of those things that has really long term, it can have really long term repercussions. And, you know, people may say, what's the big deal if you have to pay an extra half a percent on interest. But, you know, you're paying a bond over 20 or 30 years and it's hundreds of millions of dollars, that adds up to real money. So it is really important to try to make sure that you have a strong credit rating. And it's also something that, you know, the business community looks at. You know, if I'm a really large corporation and I'm trying to think about where to build my next plant, I'm going to look at things like that. I want to go to a state where, you know, the long term financial outlook is strong. I would probably think twice about going to a state that has a lot of long term uncertainty in its finances because that could end up down the road. My tax liability is changing way more than what I thought. So, you know, these are all really, really important considerations for the state's economy and for the state's sort of ability just to meet its obligations in the future. Representative Higley. Thank you, Mr. Vice Chair. Thank you, Chris. You had mentioned, and I know you didn't support any particular option, but you had talked about, or we could maintain what we have and make changes around the edges. So I guess explain to me a little bit about that. Is that what we're going through now? So what I meant by that is, you know, you could take the fundamental structure of the plans we have now and, you know, make changes, for example, to the employee contribution rate or to, you know, maybe the service credit multiplier or things of that nature and just make changes to sort of one or more of the menu of different factors that are in the current plan. You know, that's what I meant by that comment as opposed to a more broader paradigm shift of, you know, a DBDC hybrid or, you know, a DC option or things of that nature. You know, you could maintain a DB structure that looks like some of the existing plans, but maybe make some changes to them to either bring down the employer share of the normal cost or, you know, reduce the long-term liabilities associated with those benefits. Okay, thank you. Any other questions for Chris or any thoughts? Representative Leclerc. Thank you, Mr. Vice Chair. Chris, you just inspired a thought in me. Let's say that this commission was taking a look at one of the suggestions that you had made. And at all you had gone through and in one of your earlier presentations had gone through and identified the savings annually and then over the course, I think of the ADEC payments, what that would represent. How long and how close could you get to calculating what a change would represent? How long would it take you? I don't know. Let's just say hypothetically, if you if there's no cost of living increase included. How long would it take you to calculate that and how close do you think you could get? So that's a great question. Actuaries really have to do this based between the treasurer's report from January 15th and what was included in some of the initial proposal that was put forth to this committee a few weeks ago. We have preliminary estimates on a few factors and a few scenarios. You would need the actuaries though to really take a look at a full menu of changes and what those impacts would be. And not just in isolation but in conjunction with other options as well because certain factors will tend to play off of one another and change the number. So the sum of the parts don't always equal the whole. Sometimes the sum of the parts equal more or less than the whole. But it depends on how complex the model is for the actuaries. If you're making a change to an input to a model they already have and it's like let's make this number 25 instead of 24. That's a number that they can provide relatively easily. And you can make some ballpark estimates on some changes like employee contribution rates based on the percentage of the active payroll. But whenever you start looking at more complicated analysis that hasn't been done before and if it's costed out with other options that is something you'd want the actuaries to look at. Especially if you're looking at it in the context of carving out certain elements of the active workforce. Holding people not applying changes to people within five years of normal retirement for example. But it's a matter of days not a matter of months. Okay. Thank you. So Chris a question for you. Does it make sense to try to frame the goals or I should say the targets for the task force in the context of trying to roll back the liability in ADAC increases from FY 21 to FY 22? I think that would be a reasonable starting point to sort of bracket this conversation. And the Treasurer's report took that approach in January. And just for some scale I think it's worth taking a look at that report and also looking at the initial recommendations that were put forth by this committee to really see what impact those scenarios translated to in dollars. It's difficult to fully roll back those year to year increases. I think that is a reasonable but aspirational target. That I think it's achievable much more so than setting it at let's roll back all of our existing liabilities by 50% or something like that. But I think that's a number that's just it's going to be difficult if not impossible to reach. And that would be like a billion dollar target if we were looking at something like that. So any other thoughts about that about setting targets? I just want to make sure everybody gets heard. Representative Hooper. As long as it doesn't constrain the activity of the commission or whatever we're calling it, I don't think it's a bad idea. But they should certainly have latitude to go where they need to go. So that's the only thing I would have to say about it. Thank you. Representative Anthony. Yeah, thank you, Mr. Vice Chair. I really appreciate Chris's sort of trying to rein us in and also provide information obviously at the same time. I think it really is important to get the task force to sort of accept a range, if you will, of achievement. And I'm not sure what that would be. And obviously we should have a session and maybe put out some email before that. But I think looking at what would you ideally like in terms of the ADAC over, let's say, on average over the next five years? What should it be? And how much should it grow by max so that it doesn't intrude on the general fund discretionary funds? I mean, that's a good one because it still leaves you lots of ways to achieve that. I guess I would go a little further and say, if you're going to change benefits, let's put some guardrails on who you are going to tamper with and who you aren't so that that task force doesn't have to repeat the same conversation we already had. And I think came to a tentative conclusion, even though we haven't sat down and taken a straw poll on it. I really think that would be helpful because if they start at ground zero, they're never going to finish by Labor Day or even October. It's just too much ground to plow if they start literally with a blank slate. So I think Representative Hooper's right. Let's figure out what we can agree on. You guys love to use the word guardrails. That's fine. But sort of here's your here's your your choice set. And by the way, when you get done with that choice set, here's the outcome statistically that has to happen. And say go to it. Thank you. Any other thoughts? Okay, Representative Higley. Thank you. So I'm looking over the task force assistance. And I'm assuming that the actuarial assistance is through the treasurer's office. Is that correct? I mean, I think we probably use the same actuary as the treasurer uses to get to those estimates. But they probably be under the direction of the task force with the assistance of the joint fiscal office. Okay, so that would be under fiscal assistance from JFO. Okay, just want to make sure. Because, you know, in, you know, in our original proposal, you know, the actuaries did take a look at what we put together to come up with estimates on the ADAC and liability savings. So I mean, that's a process that's already been conducted. And so I think this only difference here is that the task force with the assistance of the joint fiscal office would could direct the actuary to come up with savings. Thank you. Representative Leclerc. Mr. Chair, I'm just looking to verify that you're looking to keep us on task as far as just what we'd like the commission to sort of focus on, as opposed to discussing more about governance. We're just talking about task force right now. Yes, it's cut. No, as I said it, when we began the discussion, we're focusing really on that single sentence with respect to coming up with a pension stabilization target for the task force. And I think, you know, as Chris has said and a number of other members have said, that I think if we were able to come up with that target, we will make the task force work more efficient and, you know, allow them to finish their work in the time that we've set out for them. Okay. Does that make sense? Yes. Yes. Good. Any other thoughts? Oh, Representative Higley. Yeah, that just brought to mind when you talk about that stabilization amount. Isn't that a moving target though? I mean, if you would you mention a billion dollars? I mean, is that what we're really looking for is a very quick stabilization amount? Well, I think I'll let Chris answer that. Go ahead, Chris. If we took a look at defining it in the context of the year to year changes from FY21 to FY22, that's roughly a 604 million dollar growth in liability across the two systems and about a $96 million growth. So, yeah, these numbers are inherently a snapshot in time because everything changes from year to year just as the world changes. But if it's defined as how do we scale back the year to year increases, that's what those amounts would translate to into dollars. But again, Chris, that all depends on our rate of return. It all depends on all of those other factors that come into play, right? Early retirement. So, how can we, I mean, so you're possibly looking at the potential for a ceiling, so to speak, but it might not be reached, right? I think that's probably true. And there's also no guarantee that you come up with something that saves your ADEC $96 million and then you're actually going to save that consistently every year because what happens in the retirement systems and in the markets will change your number from year to year. But right now, if you look just within that window from FY21 to 22, liabilities were projected to increase by that $604 million between now and 2038 and the ADEC payment jumped from year to year by $96 million across the two systems. So, there is inherent risk that between now and the end of the amortization period, those numbers will change. But at least in terms of framing out what you would like a solution to try to achieve in terms of dollars, it may make sense to view it in terms of those dollar terms with the understanding that things are always subject to change a little bit. Okay, thanks, Chris. I think that's a fair point that Chris raises. I mean, there are always going to be assumptions that we have little to no control over. But we have learned a lot through the testimony we've taken over the past several weeks of things that we do have control over and trying to not, you know, follow the mistakes of the past, you know, with overly optimistic assumed rates of return and things like that. And I think that we're trying to focus to eliminate issues that we do have control over. Representative Leclerc. Thank you, Mr. Chair. So, I guess if you're looking at a higher level, as the member from the city headed alluded to, some guardrails. Obviously for me, it's a, there's a couple of things that have to happen here. One is what can be done in the short term to prevent this debt from growing. And then obviously, the longer term would be what do we have to do to retire that debt and how long are we looking to take to do that? And I guess I'll just throw one out there as far as I don't know if we're into talking about the percent of funding that we're looking for. I recognize we had kicked around 85%. I'd like to have the conversation around what it would like, what it would look like to get to 100%. And, you know, is that an appropriate number to work with? I recognize that I guess it's not totally common in the industry, but I'd like to know why. But I think those are three ideas that I would have at least to start off. Chris. Yeah, if I may just take a quick stab at that, you know, all of your actuarial math is based on you reaching 100% funded by your amortization date. You know, that's what everything's calculated by. I think it is, I think it is very legitimate though that most plans don't stay at 100% very long because things happen. I mean, we see deviations from year to year in experience. So, you know, you always see things move a little bit from year to year. And that influences what your future year's ADAC payment will be. So if you're 101% funded, you're not going to have an unfunded liability to amortize next year. So like your ADAC won't be low. If you dip down to 98%, all of a sudden you have some unfunded liability. So your ADAC will go up a little. Also, you know, and I'm not passing any judgment on anybody sitting in this room, but human nature being what it is. A lot of times when pension plans are 100% or more funded, legislators don't always make decisions that keep them at 100% or more funded in the long term. You know, I will use the example of my birth state that our pension plans were fully funded in the late 90s. And then it was very tempting for people to stop making required payments and to start enhancing benefits to levels that were not affordable in the future. I would never suggest that anybody in Vermont would ever do such a thing here, but it happened in my birth state. And it's a concern. I think really what is an important consideration is 100% is always the target. That's always the goal that the math is based on. That's where you want to be. But you know, if you're not 100% funded, it doesn't necessarily mean your plan is unhealthy or insolvent. I think as long as you can manage the payments to bridge the gap between where you are and 100%, you're in that sweet spot. It's when you get to the point where your funded ratio keeps going down and the hole keeps getting deeper and your payments keep going up more and more to a point where it's not affordable that you start going into crisis mode. All right. I have a follow up question there, Mr. Vice Chair. Is that okay? Go ahead. Yes, absolutely. Well, a couple of things. I would have to say that your examples, as far as the funding part and the increase in benefits part, I believe are contributing factors to where we are today for one. Two, but isn't one of the questions that we're really looking to have answered here is how quickly do you make a course correction and what do you do to make that course correction? Again, from my perspective, one of the reasons that we're where we are is course corrections that should have happened years ago, maybe minor tweaks didn't happen at all. And for me, that's one of the questions that I would like to have addressed is what can we do and how soon do we do it? That's it, Mr. Vice Chair. Thank you. Thank you. Any other comments? Okay. So I think that the next steps with the agreement of Madam Chair is to have Becky Wasserman and Chris Roup sit down and start working on some potential targets for us to look at so that we can move forward on this part of the bill. And so I think, well, obviously that's not going to happen today. I mean, we'll have language to look at, but I think that that's something we can look at. Mr. Vice Chair, could you give a general sense of what your vision of the targets would be so that we're all sort of on the same page? I'm not saying we're not, but sure. So what I originally, the question I asked Chris is would it be a good starting point to frame the goals and the contacts of rolling back or unfunded liability in ADAC from FY21 to FY22 is to take a look at that as more manageable than putting out, we want to reduce unfunded liability by $1 billion. Over what timeframe? What do you mean? What you said? Well, you said you want to roll back the ADAC payment so that it's more like the prior year, correct? Right. So we don't have increasing ADAC payments. Correct. But then you said about reduce our outstanding liability by a billion dollars? No, no, no. That's what I was proposing that we not do. I'm sorry. Okay. I'm not disappointed with that. I just want to know how you're going to do that. Representative Lefe, you have a question and then Representative McCarthy. Thank you. I just wanted to again, express as other members have my appreciation of Chris giving this overview, I was able to understand, you know, completely the words he was speaking. So I am very grateful and I also agree with Representative Higley's remarks. Thank you. Okay. Are you done with Representative Lefe? You sort of cut out at the end there. Yes. I am done. Sorry. My connection is not good. It's why my camera is off. I'm sorry. No, no problem. Just wanted to make sure you're finished. Representative McCarthy. I'm good for now. Thanks, Mr. Vice Chair. Okay. Thank you. So I think we're finished for this morning. And Madam Chair, are we back this afternoon or not? Yeah, I think we should come back this afternoon for a few minutes after the floor. Okay. Representative McCarthy, you have a question. Oops. Excuse me. Representative Anthony. Apologizing. Yeah. Thank you very much, Mr. Vice Chair. I just want to say publicly that I intend to email some suggestions as to what kinds of guardrails and what kind of parameters. And I will happily share that or just send it to the chair and vice chair to go into the mix. But I think it would be useful to throw some things on the table and I intend to use email to do that. Thanks. Thank you. All right. I think we're done.