 Welcome back everybody. This is House Ways and Means continuation of our January 11th meeting. And we are going to get a presentation from JFO staff first Chris Roup and then Graham Campbell on the pension agreement, which was actually approved by the task, the pension task force yesterday on a unanimous vote after what was a tremendous amount of work on the part of many people, one of them being Chris who is here with us to explain what sort of the contours of the two agreements. We're not going to spend a lot of time on the state employee agreement because it doesn't affect taxes, but it'd be good for us to understand what it is. And then we have Graham is going to talk to us a little bit about the Ed fund impacts of the agreement with the teachers so we have about 45 minutes if we get extended at all. I think we might have a little flexibility at the far end of that time so so I probably it'd be good if people can hold questions until Chris has gotten through the basic presentation but if there's something that wasn't clear you don't understand. Please let me know one way or another and we'll get it answered. Okay, Chris. Good morning chair for the record Chris for joint fiscal office. I'm not sure if your preferences for me to screen share for folks to follow along. We have it all on on the devices and anybody who gone into the documents this morning you need to refresh because new documents have been posted. Perfect. Well, I'll go ahead and take it away I only have a few slides here to summarize the recommendations that that is the chair mentioned were agreed to by the task force. Yesterday evening. So just as a quick refresher here on slide to you all when you passed act 75 in the spring. There were two governance changes to the state's pension systems but also created a 13 member task force to take a look at pension benefits and provide recommendations to the legislature on how the ADAC and the unfunded liability could be reduced for to somewhere between 25 and 100% of the really big year over year increases we saw last year. So the 13 member task force met 18 times from July until yesterday and agreed on some recommendations unanimously and that that group was comprised of five legislators, representatives from the labor groups, a member from the administration and the treasurer had a non voting member there and but before we get too far down this path I just want to take a minute to thank treasurer pierce as well as to her her staff and to everybody on that task force all the labor representatives and all the all the legislators, people worked really really hard on this and it's not an issue that I think people want to spend an entire day a week of their entire summer focusing on, but they did. I think we we ended up in a spot where the recommendations are things that I think everybody found mutually acceptable and really importantly puts us on a track to cut our long term liabilities by about $2 billion total. So the I'm not going to spend a lot of time on some of the early sides I want to make sure you have some of the background but slide to just gives you a sense of what those fiscal targets translate to into dollar figures. So when you see this term ADAC, just as a refresher that that refers to the actuarially determined employer contribution. It's the amount of money that the actuaries recommend the state pays into the pension system every year to fully fund the normal cost and make a payment toward the unfunded liability. So when you see that term ADAC, that's shorthand for the bill that the actuaries recommend that the state pays into the pension systems. And the unfunded liabilities of course are that gap between the amount of benefits that have been earned by the active and retired workforce, and the amount of assets we have on hand to pay for those benefits. So we need to close, we need to pay down that unfunded liability with interest by 2038. Well, the recommendations that that both systems put forth through the task force involve a combination of employee contribution increases, small changes relatively small changes to the benefit structure commitments of additional state funding to pay down the unfunded liabilities and prefunding OPEB OPEB refers to other post employment benefits it's shorthand for retiree healthcare. So much of the savings that are projected from the pension changes and the higher employee contributions is proposed to be redirected into shoring up the state's long term retirement liabilities and combined across all four buckets the two pensions and the two OPEB these recommendations are expected to reduce the state's long term liabilities unfunded liabilities by about $2 billion. So that is pretty significant in a in a state our size to be able to reduce our long term liabilities by $2 billion. Slide three, I'm going to start with just a quick walk through the v serves recommendations so it's really important here that's why I highlighted in red text that none of these recommendations pertain to currently retired or terminated vested members. The v serves recommendations involve some things. I'm going to interrupt you I know everybody here knows it but in case there's one person who doesn't be serves is the state employees system. Thank you. And if anything is is not clear feel free to to jump in I am not offended at all being interrupted. So the recommendations also included some changes to the cola structure the cost of living adjustments and a few other changes to the benefit benefit provision that I'll walk through in a few slides. The recommendation calls for the state to make a $75 million one time payment from the $150 million that you all reserved in the general fund in FY 21 pending recommendations from the task force and recommends that the state commit to what you'll hear me refer to as an ADAC plus payment beginning in FY 2024 growing to a maximum of $15 million in FY 26 and remaining at that level until the pension system reaches 90% funded. What this means is the state, the recommendation is that the state takes the recommended amount from the actuary, but adds a plus payment on the unfunded liability payment, not to exceed $15 million by FY 21 and that plus payment stays in place till the fund hits 90% funded so in a way this is a way of us sort of making an extra payment to to catch up on that unfunded liability a little bit sooner. Refunding the OPEB benefits is a key part of the recommendations. And there's also some recommended, some recommended language here to direct the treasurer and the V sirs board of trustees to work with the labor groups to develop some recommendations to give to the legislature by April 15 on changes to the benefits for correction staff and some ideas around longevity incentives that would that could encourage the workforce to voluntarily work beyond normal retirement eligibility without resulting in actuarial costs to the system. So, slide four, let's just walk real quick through the recommended employee contribution rates. So, recommended rates are are the rates are recommended to increase in a phased manner for all members groups see which is about 450 law enforcement people. They recommend a half a percent a year increase over a three year period phased in over a three year period to bring them from 8.53% to 10.03% by FY 25. It's the judges that's around 50 active members and group F which is everybody else who's active in the biggest group. They recommend doing phased in contributions on a percentile basis where folks who have a base salary in the bottom quartile see no change. So if your salary is in the the 25th to 50th percentile sees a one and a half percent over three years change people whose bases between the 50th and the 75th have a fourth year of increase and people whose base is above the 75th percentile would have a fifth year of increase. I see a hand raised. Representative mess. Yeah, I can. Sorry for the light on my face but anyway, Chris you said something about going forward, encouraging people to work longer without increasing the actuarial debt, you know whatever. If I, if I were a state employee and I worked longer. So that's a great question. So when you hit a certain period of service, you hit what we sort of refer to as the max benefit cap. So a clear example of that, which will show up again here is if you're a group C member if you're a state trooper, you have a max benefit cap of 50% of your average final compensation. So every max benefit. Well, it works. Is that correct. What once you once you hit the years of service at which you your you hit your max benefit and you no longer accrue service credit through or higher pensions just through additional years of service only through salary growth. There may be there's less of an incentive for people to keep working. So one of the, there's always an assumption that a certain percentage of people in group F are going to keep working beyond the point at which they're eligible to retire. The question folks are trying to understand is, can you encourage a greater percentage of people to keep working beyond the age at which we currently expect them to retire. And the more you do that it is more likely you may result, you may see some actuarial savings from fewer payments paid out due to short and retirement periods. Yeah. So, I'm going to suggest that if we can hold our questions until we're until we're done with the black with the present, it's a lot of information that we need to take in. I'm going on this slide and and there's some charts here showing what the assumed impact of the extra revenue coming through higher contributions would be the higher employee contribution money offsets the normal cost. So the, the, that would result in sort of indirect ADAC savings to the state, because the state pays whatever share of the normal cost is not fully funded by employee contributions. An extra dollar coming from employee contribution saves a dollar that the state would otherwise have to pay to fund that normal cost. Moving on to slide five. This is just a quick overview of the proposed COLA and benefit changes. So for groups CNF, the recommendation is that the current 1% minimum and 5% maximum of the net change in CPI from year to year that's used to calculate the COLA is adjusted to have a 0% minimum and 4% maximum. Currently the COLA is 4.6% due to the higher inflationary period we're in. The long term assumption is 2.4 4.6 is obviously a lot higher than that. So by changing these parameters, there's less of a range of how far your inflationary experience can deviate from your assumptions. So that reduces a little bit of risk from the system. There's also a provision in place right now that you have in order to get your first cost of living adjustment, you need to have been in retirement for at least, you need to have been receiving a retirement benefit for at least 12 months. The recommendation is to extend that to 24 months. What's really important here and highlighted in red is that the proposal would exempt active employees who are eligible for normal unreduced retirement as of July 1, because the, the intent here is to avoid creating an incentive for people who are already eligible to retire to retire sooner than they otherwise would. Group C, the, a couple, couple different changes here. This is the law enforcement group. They recommend increasing the mandatory retirement age from 55 to 57. Currently, Group C is eligible for unreduced early retirement at age 50, with at least 20 years of service. That means is almost everybody retires by age 50 and very, very few people work into their 50s. So this change would not require anybody to work any longer. But when you couple it with another proposal to increase the max benefit cap by 1.5% for every year, a member works beyond the ladder of age 50 or 20 years of service beginning next July. So this could in combination create an incentive for more Group C members to work a little bit longer voluntarily into their 50s and still see their pension benefit increase a little bit as a result of that year, that extra years of service, but at a lower rate, the standard 2.5% per year multiplier. So the actuaries assume have costed this out and they expect this will result in modest savings. And it's due to the fact that we don't really assume Group C members are going to keep working past age 50 as it is. So any extra, any extra longevity we get beyond that age would likely result in some actuarial savings. Finally, Group D, the judges, there's a very small cohort of people, there's around 50 active members, but I have to give Judge Greerson and Pat Gable a tremendous amount of credit that they worked with their stakeholders in the judiciary and came up with a proposal. They recommend making some changes to the average final compensation calculation. So instead of it being based on your final salary, your two, an average of your two final years of salary, beginning in FY23 reducing the max benefit from 100% of final year to 80% and making some changes as you see to the retirement age, the COLA for judges elected on or after July. These changes are not going to result in major savings because the group is so small, but it is important for equity reasons that they put forth recommendations that bring their group plan more in line with everyone else. I'm on slide six, and this just shows you the cost impact of all these proposed benefit changes. So our preliminary numbers, it looks like just from these, these changes to the benefit would result in about $8.8 million of 8x savings, beginning in FY23, and reduce the unfunded liabilities on that system by $58.4 million. Slide seven shows that a key part of this proposal also hinges on a recommendation that the state contribute more money on a one-time and ongoing basis. You heard me mentioned earlier, $75 million. That's 50% of the $150 million currently in reserve. It's recommended that go toward paying down the unfunded pension liability. That in and of itself will reduce the ADAC on a two-year lag. So if you pay $75 million in FY22, you would see the FY24 ADAC go down by about $7.3 million, and that savings would recur in the future. You obviously obviously get a quick benefit from paying down the unfunded liability, $75 million. The plus payment impact is not reflected here yet, because we haven't had actuarial analysis on that, but that would lead to additional savings in future years as well. Another key recommendation here involving both the VCERS and the teacher system is that the current year-end construct about general fund surpluses be revisited. So right now the construct is 50% of your unrestricted general fund surplus goes into the state OPEB fund, and $52 million went to the state OPEB fund last year from this. The recommendation is to take that 50% and instead split it 50-50, so 25% of the money goes to the state pension, and the other 25 goes to the teacher pension instead of the OPEB. Slide 8 just walks through the state OPEB proposal. I'm sorry, I just want to stop. So that 25% goes to the unfunded liability for the teacher's pension, it does not go to OPEB, so there isn't an impact on the ADD fund by doing that. Not from that. No, this is just the unrestricted general fund surplus, and it goes into the general fund liability. Okay. Correct. And this money would go toward paying down the unfunded liabilities, not to the normal costs. Thanks. All right. Slide 8 just walks you through some numbers real quick on the OPEB proposal. So we can build upon that $52 million that was sent over to the state OPEB trust from last year's general fund surplus, but also there's a need to enact a pre-funding schedule into statute. So the treasurer is recommended and the test forces concurred of doing a pre-funding schedule like an ADAC, like we do at the pensions where the actuaries recommend a number that the state should contribute every year to fund the normal cost and also pay down the unfunded liability by a certain period of time. The recommendation is also to continue applying the current pay go amount to OPEB and sort of lock in the dollars that we're currently allocating to that expense to try to get a head start on paying down those liabilities. And just those purple numbers on the chart give you a sense of why pre-funding has been sort of a barrier to this point is that pre-funding has huge long-term benefits to the taxpayers, huge long-term benefits to the state balance sheet, but it comes at a higher cost. So we needed to find the capacity in the budget to absorb the higher cost associated with pre-funding. So a lot of these changes on the pension side in essence free up the capacity to allow the state to pre-fund the OPEBs. Slide nine, this talks about that one last, that other recommendation that the task force members put forth, which was putting some language it would likely go into the BAA for timing reasons, but some language that directs the board of trustees and the treasurer to work together over the next few months and some recommendations to the legislature to create a new pension benefit. We call it Group G for direct Department of Correction staff. Correction staff have been wanting a benefit that looks less like the current Group F and a little more like the current Group C for law enforcement. But we did some actuarial analysis and in order to create a benefit that looks exactly like Group C, at no adverse impact to the state order the system would require a higher employee contribution rate in excess of 35%. So this language gives people an opportunity to go back to the drawing board and figure out, okay, maybe if we don't create a system that looks exactly like Group C, but it's something that looks a little better like the current Group F. And if the members are paying the cost of that, what would that look like? So it gives them some direction and some parameters to provide a recommendation to the legislature in time for you all to act on it if you feel it's appropriate. The second theme here is around this idea of longevity incentives that Representative Maslin asked a question about. There was, there's a lot of interest at the task force expressed in finding ways to encourage people to voluntarily work a little longer or to a later age than they otherwise might. But, you know, getting this right is really important because you want to, if you can, you can end up having a system that ends up costing you rather than saving you. So having an understanding of what the right incentive amount is, what you realistically think behavior is going to change as a result of and modeling all that out and getting it right requires some study and some real thoughts. So this gives folks an opportunity to do that work and present some recommendations to the legislature. I'm trying to say some rough cost estimates that I'm not going to spend a lot of time on now. And these numbers are very preliminary, because the language was just nailed down late last night. So we are at we, there's still some aspects of this that haven't been perfectly costed out by actuaries and we've had to do some assuming and some estimates based on what we do have. And I know that, you know, we can we can sit here and think things but it's also going to matter what happens with the systems in the course of FY 22 to know what the true numbers will be going forward. But overall, you're looking at the pension benefit recommendations here would reduce the live the unfunded liabilities by 58.4 million. The effect of that one time contribution alone would add another would reduce them by another 75 million and prefunding OPEV in and of itself drops your long term liabilities by $891 million. And that's due to the fact that you can use the 7% discount rate to discount your long term liabilities, instead of a 2.2% rate that we're forced to use under gas be rules because we're not prefunding, but you add all that up. And these recommendations would cut a little over a billion dollars of long term unfunded liabilities off the state's balance sheet. Slide 11 gets into what I think you're really interested in which is the teacher system you're not going to see a lot of thematic departures here and these recommendations from what you saw for the state but there's, it's a little bit simpler because there's fewer OPEV groups and some of the recommendations are a little more straightforward. So again, no changes proposed to currently retired or terminated vested members. They they're proposing a phased in higher employee contribution rates but it looks a little different and we'll get into that detail on the next slide. So the changes to the COLA are being proposed. They're proposing that the state make a $125 million one time payment. Similar commitment is recommended on the ADAC plus where you ramp up to a $15 million additional payment on the unfunded liability by FY26 and that remains till the system hits 90% funded. So I'm going to go ahead and pre funding OPEV on an ADAC schedule, like the treasurer has recommended, but in a system that mirrors what the what is currently in place for the teacher pension system where the normal cost is charged to the ed fund and the unfunded liability to the, the general fund. So we're moving to through the, the proposed employee contribution rates so what the teachers have proposed doing is stepping away from our current flat rates on everybody and moving toward a marginal rate structure that looks more like an income tax. So there you can see here that the different brackets and and effective rate and marginal rates rather that are proposed and the current rates are either 5 or 6% depending on date of hire. So what the way they're proposing the mechanics of this to work is every year about July 1. So your effective rate is calculated based on what your base salary is. So if my base salary is $40,000 my effective rate would be calculated based on the schedule that rate would then be charged to every dollar I earn that year. And then this calculation process is repeated every year. So this would add a level of progressivity into the rate structure but also some administrative manageability. And again with the state, just like with the state pension, every dollar you get through additional employee contributions offsets the normal cost that the state would otherwise have to pay. But here with the teacher pension system. Remember, most of that normal cost is paid out of the ed fund for the employer share. So you can look at these, these savings as essentially being savings to the ed fund on a small piece of the normal cost is also paid by the le as on their federally funded staff but the vast vast majority of the sort of impact of of the higher employee contribution revenue will show up in the form of savings to the ed fund, because it would be offsetting the normal costs that would otherwise be paid out of the ed fund. Slide 13 just shows you some numbers about and their proposal around the COLA so it's very similar to what the state employees have proposed where the current 1% minimum and 5% maximums on the net CPI change would be changed to 1% minimum and 4% maximum. Similarly, they recommend extending the period of time at which a member needs to be retired in order to get their first COLA from 12 months to 24. And they also propose exempting actives who are eligible for normal retirement as of July 1 from the changes listed above. Another thing, a very key distinction between the state system and the teachers is that most state employees have their COLA calculated at 100% of CPI. The teachers have a different system. Their COLA is calculated at 50% of CPI. So making changes to the COLA structure on the teachers yields less savings than it does on the state side for that very reason. The teachers have recommended that once the system reaches 80% funded, that a mechanism be put in place to increase the COLA formula by 7.5% every year. So it would go from 50% of CPI to 57.5% of CPI and so on. But as long as doing so does not cause the fund to slip below 80% funded. If doing it would project to cause the fund to fall below 80%, the formula would be frozen in the place at the time and the calculation would be revisited the following year. But this gives the, this provides a path to getting greater parity in the benefits between the teachers and the state employees. Once the system is in a healthier shape. But overall you add up these, the impact of what we know from these changes and you're looking at $4.8 million eight at cost savings expected. Now the $35 million reduction in the unfunded liability, and the normal cost would go down by about 1.6%. So that would be 1.6 million dollars so that would be again savings to the end fund. In 2014 just walks you through again, they're like the state employees they have proposed an increase in the employer payment. So, they have recommended the other 75 million from the 150 million currently in reserve to go toward the teacher and the additional 50 million of the pension plus an additional $50 million for a total of 125 million and the sort of additional 50 is, is in some recognition of the fact that the state employee or the state employee system is much better off than the teachers, the teachers have a much higher unfunded liability, and there's been some legacy practices by the employer in the past on the teacher system that did contribute to some of that unfunded liability. Whenever you make that one time payment, you see savings in the eight act on a two year lag. So, putting 125 million in an FY 22, you could expect to see about $12.2 million of savings beginning in the FY 24 eight act, and that would sort of recur in years and grow in dollar terms with the amortization payments. But another key theme here, plus payment up to the $15 million by FY 26 above the actually recommended payment that would just accelerate progress toward paying down the unfunded liability. And again, the more the more you pay down the unfunded liability and the sooner you do it, the greater the savings you'll have on future eight act payments, when all else is equal. It's kind of like paying off your credit card early or paying off your mortgage early, the more you pay now, the more you save in the future due to lower interest costs. Again, just like with the state employees, they both propose taking that current year and construct and instead of putting all 50% into the state OPEB, taking that 50% and just splitting it equally into the two different pension systems. And again, walks you through the numbers of the teacher OPEB proposal, as I mentioned they recommended creating a prefunding schedule into statute on an eight act basis, but use 13.3 million of the Ed fund, currently in reserve from the 14 million you put in reserve last budget cycle to begin prefunding so to in order to begin prefunding you need to start with a little slug of money to hedge against short term volatility in your claims experience or in the investment markets. So the $52 million that went to the state OPEB from last year's year and construct more than satisfies that need for the state OPEB, but we need to put a little slug of money in and the teachers to begin prefunding the 13.3 million that aligns with a number recommended by the treasurer last year to begin prefunding. Then, in addition to that in the future, the recommendation is that the normal cost be charged to the Ed fund similarly to how the pension costs are funded. And then, you know, we would, the recommendations that to continue applying the current pay go amount out of the general fund to the OPEB to pay down the unfunded liability, pay the benefits for better do for for today's retirees and try to make a little bit of progress on on catching up. Overall, you can see here that those blue numbers reflect the additional costs to the Ed fund just from this, but those costs are offset by some savings on the pension side which we'll get to on another slide and I know Graham is going to talk about as well. But the before I move on that $15.1 million number you see under FY 23. That's the normal cost now for FY 23. In the last few years valuations it was at 13.8. You probably remember hearing that number thrown around a lot during the budget discussions. Get 13.8 out of your head and start talking in terms of 15.1 right now because that's the new number. And these will increase in dollar terms as payroll increases that it's deliberately designed that way to track payroll growth. So what I mean is just the quick and dirty spreadsheet that rolls up some of these numbers and I know Graham can can explain these more elegant eloquently than I can as well but over on the right you can see how the total impact of all these changes. What that shakes out on the unfunded liability, the pension benefit changes you're looking at a $35 million reduction in the unfunded liability, the one time contribution in and of itself would wipe out another 125 million. The OPEB wipes out 836.8 million dollars of long term unfunded liability. And again this is because we can use that 7% discount rate, instead of a 2.2% rate. This shakes out to be just shy of a billion dollars of reductions in just the two teacher retirement buckets. Add that to the to the one in one billion and change we saw on a couple other slides and you're looking at a little over $2 billion of unfunded liability reductions. But pivoting back over to this slide. When this shows the the preliminary cost estimates of these changes by fund and you can see that some of the higher ed fund costs that you see at the top there with the retiree health care are offset by savings in the pension system from higher teacher pensions and the changes to the normal cost from those cola changes. So the net new combined impact to the ed fund is at the very, very bottom row and it's substantially lower than that then if then, you know, as a result of the fact that we're getting savings on the pension side. So it all ties together we're getting the recommendation, save some money on one side and offsets higher costs associated with refunding the OPEB and doing the plus payments on the pensions. So, you know, when it all shakes out. This is a way of trying to free up the budgetary capacity needed to pre fund our OPEBs, which has a huge huge huge beneficial impact to the state's balance sheet, and make some additional progress on paying down our existing pension subsidies. The final final slide on slide 17, just kind of shows you the summary of both the state and the teacher changes and the summary of all funds combined at the very bottom and we can answer questions or talk about that further but that's really the quick and dirty of all the recommendations at the very bottom level and and the preliminary numbers that that we've got so happy to answer any questions or turn it over to my colleague Graham and go to Chris. Thank you that's a tremendous amount of material that obviously reflects a tremendous amount of work. And so, and you went you got through, you got through the material really quickly I understand that the work was a little, a little more time intensive. Yeah, a little bit but but thank you I think what I'm going to do is I'm going to switch to Graham to sort of focus in a little bit more on the Ed fund and then if the committee has questions we may invite you back to go through those just so the committee knows my understanding is that there is going to be a single bill and that that bill will start in the Senate. So, it has a little while before it gets to the house but I want to be sure that this committee knows what's going on as early as possible which is why I scheduled this for today. So, with that, Graham. Thank you Madam chair for having me and Graham Campbell for the records and the joint fiscal office. Thank you Chris for sort of setting the table for this. I guess I'll just preface by saying that I am not a pension person overall. I am more of a numbers and tax person and so I'm going to try to explain this more and in the way I think about it and hopefully in the same way that the ways it means committee tends to think about the education fund. I have a document posted on the website for the committee that more or less spend a page and a half talking about what Chris just talked about what is being proposed within the teachers pension and within the teachers OPEB. I'm going to focus much more on the second half of the second page which is the overall impact on the education fund. I think, Graham, I think everyone knows this but OPEB is basically healthcare. When you hear OPEB think healthcare. Yes, so I guess it's a little background for my, for this aid I'll add helps me understand a little better that we have the one bucket we have the teachers pension, which is, you know, people pay into the pension system and then when they retire they receive a pension a benefit and then there's the other post employment benefits so namely teachers healthcare so the retirement, once teachers retire they have healthcare costs and this is the fund that helps pay for those things. Currently under the current law we do not have a fund set up for teachers OPEB. And so that's sort of the major change here and so in terms of the overall education fund impact I've sort of broken this out into two buckets so there's a bucket of changes within the proposal that are sort of what I would say our introductions are new liabilities going into the Ed fund. So this is entirely sort of new constructs going into the Ed fund. And then there's the other bucket which is, we already have the normal cost of teachers pensions in the Ed fund it's line 18 and education fund outlook if you have that handy. That's something that's already in the Ed fund and these changes affect that line. And so within that first bucket, the new stuff that's being introduced into the Ed fund is, is all OPEB related. And so the first is as Chris mentioned, in fiscal year 22 using 50 year $22 that the legislature set aside at the end of last session. It's taking $13.3 million and using that to set up the fund that essentially protects the pre fund that protects against liability in the system for those early start up years. So we have in the ed education fund outlook for fiscal year 22 there's $14 million sitting there reserved and that was put aside last session. So the proposal takes that money and uses it $13.3 million worth of it and uses it towards creating this system. So that money is kind of already set aside. So the ongoing impact to the Ed fund is limited because that money was set aside last session that and that's where this money for the pre funding would come from. The next thing that's new is essentially a new line item in the education fund that look and that is the normal cost of the teachers OPEB benefits. So as I said, we already have in the Ed fund the normal cost of teachers tension in the Ed funds about $40 million. This would be creating a new liability in the Ed fund a new line item on the education fund outlook, beginning in 50 or 23 at $15.1 million for fiscal year 23. And JFO is estimating essentially growing by 3% thereafter. So this is an ongoing cost that we put into the Ed fund that will need to be covered. So those are kind of new, new things that are going into the Ed funds that will that create liabilities. Those new liabilities are offset by reductions in costs for the for the thing that is already in the Ed fund and that is the normal cost of teachers pensions. And so we have lining in the Ed fund it's $40.8 million estimated for fiscal year 23. And the the two items that were reduced that number down from 40 million are the enhanced contributions from the teachers as proposed in the proposal. So in fiscal year 23 that number that's in the education fund outlook right now of 40.8 will be reduced by $6.2 million fiscal year 23. And then at the end of the phase out or the phase in of the bracket structure, it will reduce that line item by $10.3 million. The second thing is the the modifications to the COLA structure, which will also reduce the size of the normal cost of the teachers pensions by $1.6 million in fiscal year 23. So between the two of these you're seeing reduction of $7.8 million in fiscal year 23. So, to sum this sort of up you have new liabilities entering the Ed fund via OPEB and the normal cost of OPEB. But on the existing line items that we have in the education fund we're seeing reduction because of the agreement for higher contributions and COLA. And so, essentially what this shakes out to is my bold summary at the bottom there is that, you know, we have a one time liability increase of 13.3 million into fiscal year 22. Already set aside, as I said, from close the last session, and then $7.3 million in new liability to the year 23, decreasing to 3.7 million by fiscal year 26. And that's what this table on the final slide, or the final page, sort of sums up how this how this all shakes out. So, what I would close and say to the committee is that essentially for fiscal year 23, if this proposal were enacted into law, then the, then the committee or the legislature general would need to either find $7.3 million either through raising revenues on the consumption taxes in the education fund, on the property taxes in the education fund, or there is not going to be million dollars sitting on the bottom line that could be deployed. That's more or less, you know, the consideration for this committee is with a set with 7.3 million new liabilities, how to how to cover that. So with that, I'll finish up and answer any questions if there are any. Committee. Questions. He has a question. So the, the, I think what Graham alluded to that the net Ed fund impact, and I sort of look at that fiscal 22 figure is really being a fiscal 23 issue because if it's sitting on the bottom line it's available in 23. And those impacts will however we decide to deal with those impacts will affect the yield bill that we eventually put together because it affects the fiscal 23 tax rate so that's just a, but when you think about the enormity of the savings and the kind of the enormity of the problem these numbers seem really small. George, I agree that, you know, considering the enormity of the unfunded liability that, you know, 7.3 million and extra costs in the Ed fund for 23 is not overwhelming at all. But I guess I have a more fundamental question. And that is, you know, we've gone through before some changes and increases in our ADAC and been told that that was going to solve the problem. And I continue to get worse. And I guess I'm just wondering from Graham and Chris, how confident are you that these changes are going to be enough are going to be adequate to put us on the right track. Minor question. I can take a stab at that. So, let me start with the open. And that's a great question representative till health care costs can be notoriously unpredictable long term, and can also be heavily influenced by things like federal Medicare policy, the age at which people retire, our claims experience, all kinds of things. I will give the treasure or her team a tremendous amount of credit that they've taken a lot of steps recently to lower the cost trajectory on the teacher OPEV. They brought in a new Medicare advantage provider and that's likely to result in some cost savings in the future. And they get passed sort of some near term transition costs and they get that up and running. So, you know, with the, with the big caveat that there's so much uncertainty in the long term projections. I have reason to be optimistic that the cost curve is heading in the right direction, and just the very act of the pre funding. It's going to have such a huge beneficial impact to the balance sheet that, you know, that that's going to endure long term. You know, the, you raise a very good point about pension costs long term. Pension costs are always based on the assumptions you have in place at the time. And, you know, your assumptions if they're too optimistic or too pessimistic can have a huge impact on what your cost is going to be. And the world sometimes changes where, you know, back in the 80s and 90s when you were getting double digit investment returns consistently, because interest rates were so high, you would trip over yourself to like not made an 8% assumed rate of return. Now the, you know, the forward looking projections economically are so much different than they were then. So the assumed rate of return has had to come down to reflect those changing outlooks for the future. Being at 7% was a very significant result in a very significant cost increase from last year going from 7.5 to 7. We are in line with most other major pension systems out there though, in going to 7%. That's sort of where the median is among the major plan surveyed by NASRA nationwide. The plan, the reason why we saw our costs go up so much from year over year was due mostly to our changes in assumptions. And the fact that when you all passed Act 75 last year, you also created a requirement that we're not going to wait for five years to do experience studies anymore. So look back and see, all right, how well did we do relative to our assumptions and what do we need to change moving forward? That shortened the requirement to three years. So I think that that will help mitigate risk moving forward, but it always comes down to how good is your assumptions relative to your experience. And that's something that we just need to always pay attention to. I feel optimistic right now, not only the fact that we've got more small C conservative assumptions in place than we did a year or two ago, we had a really good investment year last year. We have not recognized the benefit of that year in the math yet because of the way we do our smoothing. So we had $180 million of deferred losses. Now we have a few hundred million dollars of deferred gains to be recognized in the math in future years. We're not going to have the same kind of performance this year that we did last year. And we cannot dig ourselves out of the hole through investment returns alone. But a year ago, I think we had a window our face. And now I think we've got a little bit of a window our back. Let me see what order Emily Scott and David. Thanks. Graham, I really appreciate you. That summary that goes out over a few years. And so we can see how the net impact on the Ed fund is going down after 26 and I'm sorry if you saw this, if you said this already, do you imagine it stays around 3.7 or does it keep on decreasing because we're continuing to pay off liability. I don't know. I think Chris might have a better answer on this. I think yes, yes. So what once at why 25 comes into play. The you see the line there the higher teacher contribution savings. The contributions the majority of the savings there are fully phased in so what you're seeing from 10.3 to 11.1 is more or less 3% growth. And so, I think that the biggest cost driver for the edge on which is the normal cost or teachers OPEP that is, you know, in our assumptions growing at 3% a year and so in the higher teacher contribution savings are growing at 3% a year in our assumptions and so more or less yes it should stay around 3.7 going forward. That's not to say that that's what it will be with certainty, one micro faster than the other it could be a little bit lower than 3.7 could be a little bit higher than 3.7 but that's based upon sort of the assumptions that we built into this model. Yeah, if I could have said to what Graham said, the reason why we use a 3% assumption on some of these is the way the the actuarial methods the state uses. I don't want to get into the weeds with this you'll want to hear from Beth Pierce if you're interested but we structure things in a way called level percent of pay where the total aggregate payroll is assumed to grow by 3% a year for the teachers three and a half for the state employees. That doesn't reflect individual salaries it's the aggregate payroll. So costs are generally structured to mirror the growth in the payroll. So that way you're sort of theoretically paying a consistent percentage over the course of a member's career for the normal cost. Thank you for the presentation Chris and Graham. I appreciate the work of this task force. I just want to make sure I'm reading I'm reading from the final report page 22 Chris. I mean, like the, the ADAC payment on, you know, between now and 2038 is still going to be increasing by a fairly healthy amount every year and that's before inflation and before any potential new experience study am I reading that correct. No, that's correct and that that chart also does not reflect any of the impact of any of the changes we're talking about right now. That reflects kind of status quo but that's due to the that's due to the system we have in place so we we the state, the General Assembly has has deliberately enacted an amortization strategy where the, the payments for the unfunded liability are structured to grow in 3% increments in future years, and the normal cost is structured to track your payroll growth. So as I just mentioned that's the payroll growth is assumed to be 3% for the teachers three and a half for the state. So in dollar terms, when all your assumptions are met, moving forward, and all else is equal and nothing changes, you would expect your costs to grow and about 3% increments until you are fully funded. Once you hit fully funding, then you basically just have to pay the normal cost going forward there's no more amortization payment. When you say you're talking about the a deck increasing by about 3% here. Yep. Okay, and that's that's my only point is that we're, I mean that's definitely better than where we're at in the status quo but we're not quite out of the woods yet. Now it's still going to be you know it's still going to be a a a an issue that you want to pay close attention to, but the, the, the increments of 3% growth is less of the concern like it. I think you all made a good decision a few years ago when you changed it from the former practice of 5%. The issue is how high is that base that those 3% increases are built off of. And that that's why we saw such high costs from the last year or so was that base jumped by 100 million dollars roughly in one year due to those changes in assumptions. So you'll still see the cost grow in dollar terms, but you know when costs are under control they shouldn't be, they shouldn't be outpacing the growth of your payroll. Okay, I remember saw it previously a lot there was you know the show every year what the projected edict payment was by year for both employees and for teachers. Is there something like that that you could send over to us just so we can take a peek at that. I'm not exactly sure what you're referring to but I'm sure it exists and I'm happy to send it to you. The data on the unfunded liability amortization payments is in the back of the annual valuations it's on page 29. And that just gives you a sense of what your your amortization payments on the state are going to grow to and what your funded ratio will be going forward. That's what I'm thinking about. Yeah. Okay, great. Thank you. Questions anyone else on the committee. And Chris, I'm correct that the actuaries still need to go over this agreement and give us final figures. Yeah, the actuaries have not cost it out every detail of the final agreement we this agreement the ink is barely dry on. So they've cost it out a lot of it. We've made some assumptions based on sort of, you know, reading between the lines of things that have already been costed out and then if we land kind of somewhere between, if we land at one and a half and we know the number for one and we know the number for two, you know, we'll make that assumption. Graham did an amazing job taking raw salary data for the teacher system and and creating projections on what that revenues likely to generate but there's going to be some things in here that you know we can ask the actuary and they're going to say we don't know. So, because you don't always know exactly when a payment is going to hit or what your experience losses are going to be between now and then. The key takeaway with any of this, it's that there's always a margin of uncertainty. So that's why it's so important to to make sure that your, your assumptions are realistic, and your experience tracks close to those assumptions, because if that doesn't happen you end up with a big unfunded liability that you weren't banking on. So there's always going to be some uncertainty around this but I think you can view a lot of the savings in terms of relative savings where, had you not done something something would have cost that much more. That's the way I've always looked at this. Yeah. Good. And, and I think we have, you know that that figure that we need to account for in the Ed fund, even if it varies somewhat, at least we have some idea of what the ballpark is and so we're not, we're not talking about, you know, we're talking about the 1313.3 is knowable that, that we know with the prefunding amount and the, the impact of the higher contributions and cola and so on may vary a little bit but we're still talking somewhere around seven to eight million. That's correct. And every year, all these systems do what they call the annual actuarial valuation. And that's how you get the number for what you're supposed to appropriate in the budget. So, every single year these numbers change when the actuaries look at the experience that's happened in the last year and whether adjustments need to be made so expect fluctuations might relatively minor fluctuations from year to year. That's all that's par for the course. Thank you both very much. Thank you committee for taking all this in. I see that Damien Leonard has joined us, I'm going to suggest that we take five minutes just so that we can walk around. Then we're going to, we're going to look at the unemployment insurance study committee report, and then we are done for the day so take five and come back. Welcome back this is houseways means continuation of our meeting of January 11. We're going to hear from a man Leonard on the report of the unemployment insurance study committee and representative corn hyzer was a member of that committee or the chair or both. And so I'm going to give her a minute or two to set up the presentation and then we'll hear from Damien. Hi everyone. So as folks might or might not remember when we passed Act 51 last year, which was a bill with a bunch of unemployment insurance changes in it. There were two different pieces to it that are relevant to what we're going to talk about today and I'm sorry if I'm usurping magical moments of your presentation Damien. So Act 51 was a change in benefits, sort of an additional or increased benefit for Vermonters that was set to go in place when the federal additional benefit went away. And I don't know if folks remember we spent a lot of time trying to figure out the logistics of that because there were all kinds of it problems that were interfering with our ability to actually deliver what we wanted to do. But at some point through the summer or at some point through the summer soon after we had recessed I've lost how time works at this point in the pandemic but at some point after we recessed this summer. We learned from the state's Department of Labor. We learned from the state's Department of Labor that the feds found our proposal to be sort of out of compliance with the way they like benefits to be delivered. And at that point it was too late for the legislature to come back and do something to tweak the law to make it work with federal guidelines. So that's one thing that sort of happened since last we talked about this. So what we talked about this is this task force met. We were set up to only have three meetings. There was four of us it was myself representative mark hot senators Sirotkin and Pearson, and I chaired the four of us for the three meetings it was not a. Anyway. So we had small number of meetings. We were originally focused in this legislation with the idea of looking at the sufficiency of the trust fund, and whether enough was going into the trust fund and whether the benefits leaving the trust fund fund or sufficient. So as a really abstract deep dive into some of the questions that we had come up in the spring, but that we hadn't had time to fully dive into as we were looking at benefits and the trust fund. And so, but, and sorry I'm like sort of making up what I'm saying as I go along here. We wound up spending a lot of our time trying to fix some of the challenges that had come up over the summer, rather than diving into the trust fund as deeply as we had originally intended. And so what Damien's going to share with you today I think is a mix of those two conversations. Some other stuff that we did with unemployment that is very interesting, as it pertains to Vermonter's experiences of receiving unemployment, but is not as relevant to our committee's work here, because it's not as directly affiliated with the trust fund. And so just wanted folks know those are sort of the two pieces of the work we did this summer that stand out the most strongly to me as issues that are of interest to ways and means because we are the custodians of the trust fund and what's going in it. So, the other thing that might be useful to spend a minute on is the study at the auditor's office, which is not the subject of this presentation but do you mind touching on that for a minute just so people are aware of it. Sure, a lot of. And so when we created that legislation we sort of put to, there's a bunch of stuff we still wanted to know in the spring. And we divided up the things we wanted to know into two buckets. Some of it became what this task force was going to do our study committee or whatever we were. And then a bunch of it went into this study that we actually asked the auditor's office to contract it was sort of originally with JFO and then I went with the auditor's office and what they looked at it was a contractor who works with unemployment issues all across the country, and they were focused very very broadly on issues of fraud, and basically the functioning of the unemployment insurance system. The way I thought of it is how the unemployment insurance system views fraud and how that sometimes enables for monitors to get their benefits in a meaningful way and how sometimes that prevents for monitors from getting their benefits in a meaningful way. It's a really deep dive and how we sort of understand how legislators, how constituents and beneficiaries of the system and how the folks who work for the Department of Labor all perceive those different issues and how our perceptions of all those issues impact legislation that might or might not be clear enough. And how it changes the way the department functions, all of those conversations that they had in that study which commerce is looking at this week. And all of the conversations that we have in the task force, pretty much hit brick walls very very quickly because of our it system not being able to do anything we wanted to do. And so there's a lot of promise for what the trust fund can do there's a lot of promise for what the UI system could do more broadly, and most of that is dependent on our it system being significantly more functional than it is. And there and there is a report that came out of the fraud discussion that's going to the Commerce Committee. I didn't arrange for our committee to hear it, but the reports available. And if people are interested in sitting through the commerce discussion, we can try to coordinate that. So sorry that was a little bit of a digression but I want to leave that hanging there. So Damian, we're finally with you. Thank you. Sure. Thank you for having me. It's nice to see everyone again. I'm sorry that we can't be in person. So, as representative corn hyzer said, we had a three meetings where the task force was real or the study committee was really tasked with covering four different sort of broad subject areas that each one of which could have been the subject matter of a study committee for three meetings. But with respect to this committee probably the most pertinent was the look at the solvency of the trust fund and the amount necessary to ensure that it remains solvent in a future recession when benefits are paid out in order to be able to both pay benefits and ensure that we have a recovery without having the situation we had following the 2008 recession where our trust fund zeroed out and we ended up having to borrow money from the federal government. The problem with borrowing money from the federal government is not only do we have to pay them back interest. But if you can't pay it back quickly enough, your employers in the state take a tax hit they lose part of their federal tax credit. And so all of this goes towards paying back the benefits so the idea with the trust fund is to make sure that you have a healthy balance in the trust fund, but not one that's so healthy that you're paying money, you know, out of the economy that potentially could go towards other things so it's that that sort of balancing act was what the study committee was charged with looking at. In addition to that they looked at the adequacy of UI benefits and the issue that we ran into with the federal determination that one of the UI benefit compromises which was an additional benefit of $25 a week for each claimant was out of compliance with federal requirements as we had passed it in the legislature. And then the, the other stuff we looked at were issues around when it might be appropriate for the commissioner to wave over payments of benefits so if the department has paid out benefits to an individual. That's not the individual's fault. It was a bookkeeping error at the department or a processing error. Or if potentially requiring repayment would be contrary to equity and good conscience for example the individual is in bankruptcy and the department is seeking repayment of, you know, a small amount of benefits or perhaps preventing them from getting benefits when they're And then the other is is periods of disqualification so when someone commits what's identified as unemployment insurance fraud they're disqualified from receiving benefits for a period of one to 26 weeks. And the, the study committee looked at when it might be appropriate to allow waiver of that. And then the final piece was looking at reimbursable employers, which are nonprofit organizations with four or more employees who elect. Instead of paying regular UI taxes, they elect to reimburse the trust fund for the benefits that are paid out. The benefit of that is in the short run, you don't have a tax bill each quarter. However, if you do have a layoff or layoffs in the future. You get very substantial quarterly bill in order to pay that back. And what we ran into during the downturn around the pandemic was a number of nonprofits who got shockingly high bills that they had to then pay back which they hadn't budgeted for because they weren't planning on a pandemic that would force them to lay off staff or furlough staff for long periods of time. So I'm going to focus on the trust fund today unless anyone in the committee wants to, or unless the chair would like me to address anything else. Yeah, I will focus on that but the report goes into everything else. In some detail and then if you have additional questions you can always reach out to me or to Joyce Manchester, who staffed the committee on behalf of JFO. So, to ground you with the trust fund before the pandemic hit. We had the healthiest trust fund in the country. So the federal government measures the health of trust funds with something that's called the average high cost multiple. What they look at is, if you take your net trust fund balance for the state, and you divide it by total wages in better covered for unemployment. So you're looking at how does your current balance compare to the number, the amount of wages that are in the unemployment system. So compare that to the average high cost rate which is basically looking at the benefits paid out in the three highest cost years in the last 20 years versus the wages that were in unemployment then. So you're basically comparing what's our current state to what's the average of the three worst recession years we've had in the last 20. So compared to the pandemic, our average high cost multiple was 2.53. So we had two and a half times as much as we were projected to need in order to pay out for an average recession, which put us above every other state in the country. The second year of the pandemic, however, our average high cost multiple had dropped to the point where we were at 0.86. So that gives you a sense of how large the recession was due to the pandemic it was almost double the average recession year from the last 20 or the average of the three highest recession years from the last 20. And so we fell from number one in the country towards more in the middle of the pack among other states. So one of the things we looked at was, was there an issue with our tax structure that might have caused that. Was there a reason why other states stayed healthier. And then how were we recovering. And so with the first subject with the tax structure, it was actually a perfect storm for the state. We had just some of you might remember dropped the lowest tax schedule, because our trust fund had reached that healthy rate, and the tax schedule adjust once a year on July 1. So they determine the adjustment in March, which was around the time the pandemic was starting. And if you remember back to that first year we all thought hey we're going to pull out of this in the summer. This won't be a long term thing. So that July we dropped down to the lowest rate for taxes. The maximum weekly benefit increased, because we'd seen an increase in the average weekly wage in the state the year before. And because we dropped to the lowest tax rate, the following January 1. The taxable wage base the wages that are actually subject to tax dropped by $2,000 normally that's subject to an inflationary increase, but part of the bargain in from 2008 was that whenever we hit these health sort of checkpoints on our trust fund. We had to reduce the wage base by 2000 to reduce the tax burden on employers. So we hit this perfect storm of dropping our tax schedule and our wage base at the same time as we were paying out unprecedented benefits. So that's probably the main reason why we saw such a drop. Another piece of this looking at why did some states actually see their trust funds become healthier. What we figured out was that they'd actually use their cares act money to subsidize their trust fund so they pumped the federal cares act dollars into their unemployment trust fund to shore it up so that they didn't have a tax hike later on. So for a couple of states we saw that that's how they had chosen to use their funds instead of the ways that we had used ours so that was the main main driver around that so based off of that we started looking at well how do we compare to other states in terms of our tax structure. And the the answer is, in short, we're very similar in terms of how we we structure our taxes there are two sort of ways of structuring taxes. One is to have multiple tax schedules which is Vermont's approach. And so you have a lower rate tax schedule for when the economy is healthy, and a very high tax schedule, or I mean for when the trust fund is healthy and a high tax schedule for when the trust fund is not healthy. And then tax schedules in the middle as the trust fund is is maybe trending back towards health or trending towards being unhealthy. So Vermont has five tax schedules. We've had these tax schedules since 1984 without any changes made to them. And the in fact the only change to our funding mechanisms since the early 80s is that finally following the 2008 recession, we added an inflator to our taxable wage base which I think had been $8000 since 1988. So, as you can imagine, benefits were increasing during that time. The, there was inflation during that time so the value of that $8000 was eroding. And so what we saw in the early 2000s was that each year are our trust fund would get incrementally lower. As we went through the cycle, and it was just not bringing in enough to cover the outgoing benefits. So, since then the only change we've made has been to increase our taxable wage base which currently sits at $14100. It's tied to an inflator. So this coming. Actually, I guess it has gone up and I, I don't know what the current one was but it was 14100. When we wrote the report it's probably about 14600 maybe a little bit more right now, because the average wage increase was high last year, because of some of the dynamics with the pandemic. So, and that that's all very similar to many states. The other model for states is to have a single tax rate, and then to have what they call a solvency surcharge, which is essentially when your, when your trust fund hits a trigger point, there's an increase on your, on the tax rate. Some examples of this were that I cite in the report. One of them is, I believe it's Kansas, or Missouri, excuse me, where when they hit certain triggering amounts 450 million 400 million 350 million. 10% 20% and 30% increase on the tax rate. So you get whatever your assigned tax rate is, and then increase it by 30%. Kansas takes a little bit different approach where when you're when the trust fund is unhealthy. You have a percentage increase and when the trust fund is above a certain average high cost multiple they actually have a percentage decrease. So it functions the exact same as a series of tax schedules. But they're just applying a percentage rather than laying out the tax schedules and statue like we do. The final approach is Washington State is one of the states where what they basically say is if the commissioner determines that we don't have enough in the trust fund to pay out seven months of benefits, then we add a 0.2% increase to everyone's tax rate across the board. So, and that that's kind of the, what I like to think of as the panic scenario, where you realize that you can't pay out what you have to for the year. And so you do a last minute increase and then you go to the legislature and ask for help. The other main driver that a lot of states have though is this taxable wage base. And in Vermont where we're pretty middle of the road just like we are on many of these other things where we've followed sort of the standard approach in terms of how we experience rate employers to determine their tax rates. Our tax schedules are very similar to other states. And then with taxable wage base. We're one of 19 states that has a taxable wage base between 10 and $20,000. The, there are 14 states that have a lower tax taxable wage base and then there's 18 states with a taxable wage base above 20,000 so we're we're kind of middle of the pack there as well. The highest taxable wage base is $56,500 in Washington State, and every state's taxable wage base is at least 7000 because that's what you need to ensure that your employers get the full federal tax credit. So, the bottom line here is as to how we're we're designed we're very similar to other states. What that really leaves in terms of levers within our statute here is, am I able to share my screen Sorsha. Particularly we look at it. Okay, I says but if you if you don't have it posted you can do that. I was just going to bring you to the statute. So what I can just explain it so in in section 1326 of the statute. The way we figure out which tax schedule we're on as they look at these, these multiples. We don't quite do the average high cost multiple that the feds do what we do is we say, what's the current health of the trust fund so ratio of trust fund to wages versus the worst year in the last 10 ratio of benefits paid out to wages in that year. And if the ratio is two and a half and above, we're at the lowest tax rate. And if it's below one we're at the highest tax rate. So compare that to the federal sort of model where a healthy trust fund is modeled at as being 1.0 or above anything below 1.0 in our model triggers the highest tax rate. So that's where we do differ from other states and that's probably what pushed us up to such a high balance relative to our average recession costs prior to the pandemic is that we're designed. And this is something that we've had in the statute for a while but we're designed to try to drive ourselves to more than double what what the worst case scenario from the last 10 years is in order to ensure that our trust funds are all involved in. So, and that that really is probably the main lever that we could potentially pull at this point. And part of the reason for this is because of the mainframe which representative corn eyes are touched on the department is operating with a nearly 50 year old mainframe that uses a programming language from the mid 1960s. That was developed by people who are trying to address the needs of Wall Street at that point. But it was it was basically developed and it's become a programming language that is used in legacy mainframe computers. And it is not a modern programming language. So we have an issue in the state where there's no documentation of the changes that have been made over the last 45 plus years. There is no one currently employed by the state who worked on the mainframe back when it was being developed or when it was being maintained in the 80s which is the last period where we saw significant changes within the UI system. And then the contractors that we hire to maintain and update the system have no documentation that would allow them to understand. Hey, there's a lever over here that I need to pull to ensure the system doesn't crash. And there's also no testing environment for them to program a change and then try it out before it goes live. So what happens is that even for something as simple as the annual change to the maximum weekly benefit amount which is something we do every year and have done every year for decades now. The department spends time after that making corrections and troubleshooting the errors that crop up because there are unexpected problems in the system. And so what comes out of that is that doing things like tweaking our tax schedules or changing potentially those ratios that I was just talking about that trigger each tax schedule could potentially have unforeseen and significant consequences for the mainframe computer system which has left us with the taxable wage base change that we've been making for the last 10 years where that annually it just changes the amount of wages that the computer applies that tax rate to for employers there but it doesn't actually we haven't actually changed these tax schedules or the ratios since the 80s. So and I see representative. It looks like Emily has her hand up one to go ahead Emily. Thanks. I just sort of wanted to put a less articulate point on it. So essentially throughout three meetings we kept on asking about different policy levers that were and different levers and statute that were available to us to create a system for the trust fund to work the way we wanted it to work. And every single time came up against the need for it modernization before we could really do anything that was significant or impactful. And so and then we spent some time saying well maybe that's not true about the it and then sort of discovering that it very much was true about the it. So the final the end of the report is basically just a laundry list of what we want it modernization to look like so that we can then have a meaningful conversation about what the trust fund can do in the future and so for those of us who are still available to have this conversation and still in office to have this conversation in a few years. Once modernization happens I think there's a lot of really significant good work we can do with the trust fund at that point. And I think that is the theme that we've overwhelmingly heard with everything related to unemployment insurance in the last couple of years is that the IT system is holding back almost every policy change that the legislature has considered making or it's putting restrictions on it. And even as I mentioned, the sort of routine changes that the department needs to make every year are causing significant issues for them with benefits being paid incorrectly. And the department having to go go in and make changes retroactively. But the the mechanism for changing the system right now is the same mechanism that's used to correct someone's social security number or something in the system if it gets input incorrectly when they're first getting signed up for unemployment benefits it's so it is the system has 250,000 lines of code. And there are a number of those lines where they literally just do not know if it still serves a function. Or if it's just been a suppressed line of code that was left in place in case someone wanted to reactivate it later. So, are there. Yeah. I'm sorry, were you not finished. Go ahead. I just forgot earlier to mention that the most recent report on our trust fund health has us back over the average high cost multiple of one. So at the end of third quarter we were at 1.06. Sorry to have cut you off. Committee members to does anyone have a question. I don't see any I give people a second. Damien, thank you very much for your, your help. You're welcome. I'm sorry to end your, your day on such a positive note. That's all right. We're happy because our day has ended so that's actually a good thing. So thank you. So committee, did you have something else you wanted Damien. I saw a representative nasland. How does hand up was up. Yeah, he's just waving goodbye. Okay. Well, no, I was going to say you, you ended on a sober note, but you did so very cheerfully. Thank you. Committee, we will get back together again tomorrow at nine o'clock sources that right. Yes. I'm sorry, I should have the agenda in front of me. I don't. One of the things that we're going to do tomorrow, we'll do a little bit of work on, on the technical parts of the. Administrations recommendations in the tax bill and we're going to hear testimony about age for 61. Do I, did I guess the right number on that? I think I did. That's correct. Yeah. Yeah. So I'm going to move on to the next slide, which is a bill that would exempt income of refugees and asylum seekers from the definition of household income. And I can't remember what else we're doing tomorrow, but we have the cannabis fees at nine a.m. And the cannabis fees at nine a.m. Yep. Okay. Very good. And I will try to build in enough breaks that we can stay human all day. So thank you, everybody, and we'll see you tomorrow.