 This is the continuation of the afternoon house appropriations. Midi meeting. And we have with us today. Treasure appears. Welcome. Always nice to see you. And we have about a half. I think that we can cover. Your budgetary changes that you have within your budget. And there were some also, there are a few other other issues that we wanted to discuss. Around the state finances and borrowing and. Create to do when and also maybe you might have time to talk about. Or changes that you're thinking of with the structure of our pension and retirement system. So we have a quorum here. And so. Treasure appears. Thank you for coming. And I'm going to. First turn it over to you with your budget and Diane, you have the treasurer's budget. I always, it's Diana Mata. Who has a treasurer's budget. I have the teacher's retirement. I used to have the treasurer's, but Mata has it. And I have. I don't think there were any changes to your budget was there. You should be okay. I unmuted you. You're good to go. Thank you very much. We had a very conservative budget. As you know, we, as I pointed out, we've actually reduced our budget general fund, excuse me, administrative expense since 2009. We, we have had some increase in pension. Excuse me, retirement system administration. As you know, we, we add to retirees each year. We have a pretty lean staff about. 13 or 14 staff in, in the retirement division. They did 495 or 496 retirements in the month of July. And those were made up of teachers as well as municipal and state. There wasn't increase in, in the teacher retirements this year. I do not. Did you say 458? 496 retirements in the month of July. So we counseled, we, we, we confirmed their, their intent to retire. We, we've got them on the payroll. We did the calculations on what their retirement are. And they got it on. And that's a given the, the, the way we're doing business now with remote processing, though I will admit that they did have to come in for various pieces of paper on this. That's an incredible effort on a part of the retirement. Division. So we do not have a very large staff there. I am going to admit that I did not come prepared to talk about the budget today. And my apologies. I thought it was on two issues, which is borrowing and pensions. But our budget is fairly lean. We did comply with the administration's effort to reduce that budget. And we're able to do so. We. Again, there are no real different same staff, same size. You know, we had some, some increases in, in, in, in investment expenses, which is. I'm going to take that back. I have to verify that because some of our investment expenses are through directly. Through the managers, as opposed to an appropriation where they net, net a fees. But we've, what we've done in the pension system has, over the years, we're, we're, we're averaging about a $6 million decrease in, in pension expenses across all three systems. And again, some of that may be net of fees and not in your budget. Health care is a part of the, of the, of the, of the budget. But I believe that's a, a demand budget. And our, again, our administrative expenses were no real surprises. We had a few here and there. We are spending some money updating and backing up our systems, which we try to make improvements each year. We have a very good backup system. Of course, we have a very good backup system. We try to make improvements each year. We have a very good backup system across the board. And in terms of our technology, we did, we are looking this year for a new, a new check printer. It's always good to be able to print your checks and, you know, we, we have a backup, but during the, the unemployment when we issued the 8,000 checks, we had to go pick up our backup printer and bring it over to, to our office. And so, so we do have that in our budget. I'm going to defer on having any other questions as a straightforward budget. I apologize. I can have Michael Clausen, our debt treasure join this conversation. If you think that's necessary. I don't leave it at that. I think that I will have made a follow up with you, just of any changes in your budget. And you were right. One of the concerns that I brought to you was from the session, but before I get to that question, I see that made a, not made a Linda has a question. So let's go to Linda's question first, please. Yeah. At the beginning, when you started talking about retirements and you wrote, you wrote the number for 96. That's what I missed. Okay. 496 additional retirements in the month of July. What, what retirements state government or what, what government, what are the teachers and municipal. Okay. Okay. Majority are our teachers. And I can have one of my staff who's listening, send that information. If you like, I want to go pick up my phone. But again, I did not come. I just wanted to make sure that I was prepared to talk about the budget. My apologies. But that was a pretty. A major effort this year. And it is every year, but having to do it remotely is. Even more difficult, but our staff stepped up and. Managed to get it done in the challenge. Thank you. Thank you, Linda. I apologize, Beth. I wanted to talk specifically about where we are with our pension obligations and also I wanted to talk. We were given a question last, when we left in June on the floor. About borrowing. I would like to you to talk to the committee about. You know, I, you know, our financial, you've seen the, the, the official revenue forecast. That was by the board, you know, where we're headed in fiscal year 22. However, do we really know because we've been told by. Our state economists that things are still very uncertain in the path forward. It's clear. But for this committee, when we're looking at, you know, adding revenue or. Making reductions or borrowing to. Keep programs in place. If we could get an idea of where we are in fiscal year 21 and, and what type of scenario you would recommend borrowing under. Okay. Well, to be very candid, I would not recommend external barring. As you know, then during the. The transition session that you had the in May and June, and extending for a very period of time. I want to thank you all folks for doing this. And you're probably all sick of zoom at this point in time. But what can I say? We did have you authorize a, an internal bar in an inner fund borrowing so that you could borrow from, from different funds, including. Segregated funds to, to meet your cash flow needs. We did not believe we would need that. But we did that as a backstop. And I think that was a good move. And I appreciate the work. The committee did on that. They, I'm hearing that you can't see my face. Is that correct? Just barely. Okay. So let me, let me see. Is that better? No. There we go. Okay. I'm really good with technology. So we did not use that. That was a cash flow barring. And that's very different. If we had to use it. That's very different than. What I would call an appropriation of deficit. Borrowing. Which if you're looking to fill a gap in your budget, I would refer to that as a, as a deficit barring. And it's also an external barring as opposed to borrowing from ourselves, which we repay. And. An external barring is something else. And I would not recommend it. In terms of, of deficit. I think I would remind you of a couple of points. Borrowing is not a revenue source. It's a way of financing in what you're doing is you're leveraging a future stream of revenue. To, to bring it forward and to pay. For, for. Generally capital needs in the future. Borrowing doesn't add. New revenues in most cases. There are some cases where, you know, if you exceed the cost of inflation. For again, capital projects that would make some sense. But you can't borrow your way out of a deficit. Without sacrificing revenue in the future. Borrowing also costs money in the form of interest. And we've done various studies for different types of borrowing. Housing, different. Energy efficiency. Now those are one of the things that I would recommend. But, you know, we're talking about 28, 30% interest. Payments against the, the bond. And that's not the rates are low, but you're doing this over a 20 year period. We have done cash flow borrowings in the past. As I said, we did not need it now. The last time we did it was in 2004. We call that a revenue anticipation note. And we did that too. We did that too. We did that too. We did that too. We did that too. We did that too. We did that too. And we did that too. We did that too. We did that too. We did that. We did that too. So we've got a revenue anticipation note. And we did that to anticipate some cash flow needs. As you know, X68 payments go out in September and December. You typically get most of your revenue in the spring with April 15th and so on. So in a lot of with our climate, a lot of that infrastructure comes in the first part of the year. done we haven't done one since and I think that's very important. This is you know this is an area where we get good grades from the rating agencies and we really shouldn't make we should make every effort not to reverse course. Would you explain what happened in 2004 that caused the short-term or at that point your reserves were not as significantly funded as you know you've been working and I commend the legislature for putting money into reserves because that has really helped us in the in the covid crisis it certainly helped in the 2008 recession as well where we did not need to borrow but back in 2004 we needed to borrow to meet our cash flow needs not an not a revenue issue not an appropriation issue but again you you typically do a lot of your infrastructure work over the summer and the fall and at the same time you're putting out the x68 payments to to communities as well as in september and in december so we borrowed money in december someplace I do not remember if it was 46 or 48 million and we repaid that back in in february and again that was a short-term revenue anticipation note again you know you've accumulated reserves so we've negated the need to do that we put aside some money in 2008 if that was necessary you know but we did not have to use it and again this is something that we've stressed to the rating agencies that we have not had to borrow to meet our cash flow needs even if you're looking at deficit bonding which is what I would describe this if you're looking to fill a revenue that is something that again I would not recommend we did some of that I'm going to go look at my notes here we did some of that back in the 90s early in the 90s we that was not something that we would want to repeat that was necessary at that time again our reserves weren't as significant as they are now and for me that's something that you really want to avoid doing again it's what it's doing is taking money from future revenue sources and bringing it forward and you will have a gap down the year down in the future years with that and it will cost you significant dollars and we'll have an I believe I can't say you know for sure what the rating agencies would say you know in our in our COVID situation but it it is not advisable and I just saw my notes we issued about 65 million in deficit bonds in the early 90s and again we've accumulated reserves so that is not necessary and it's simply put you can't borrow your way out of a debt it's it's a deficit you just can't do that it's it's not good practice and you don't do that at home you restructure your revenue revenues you restructure your expenditures but borrowing your way out of a deficit is not an advisable solution I just want to do do committee members have any questions on the borrowing piece Mary yeah thank you so I hadn't realized that we had done what you're calling deficit borrowing for and we bonded for that money and it was 65 million what was the payback period and what was the total cost of the borrowing okay I don't have information it predated me I'm using that off of some annual reports I did see from the the treasure at the time I'd have to go back and get those that information for you I would be interested in that I I I know that some of our colleagues have expressed an interest in doing this and I'd like to just understand what our past history is and did you say 65 or did I flip the report that I saw from the treasure at the time it was 65 million yeah I thought you said 46 46 or 48 was the grand that we did in 2004 which was a short term cash borrowing so in the 90s it was 65 it was 65 and that was a deficit borrowing through external markets thank you and if you wouldn't mind the time frame and also the interest rate as well as the total cost of that borrowing okay well I would point out the interest rates change over time but we would definitely get that yeah I mean because part of what folks are saying now is gosh interest rates are so low that surely this is a reasonable time and I just work comparables sure well I would point out that even if it's a a short very good rates in the treasury markets right now there have been wider spreads in the bond market in the bond market has been very volatile since the COVID crisis and some of that's abated and frankly the feds the Federal Reserve had to come in and prop up the market so in April and the market was frozen number of AAA states pulled their bonds back because there were really no buyers at that point in time as I said the feds stepped in and rates were very high I remember one entity now this was a transit bond so it's a little different then bonded in in January I believe and then they did another bond in April and May again I'm doing this from memory and they paid four times as much for the bond for the interest rate and you know there's there is you know volatility has been abated but there's no no guarantee that that will continue and if we have additional COVID issues and and related impacts or in terms of time or it gets worse I can see some some again some volatility in the market it also becomes volatile when I'm just going to say it when DC politicians put out different types of of comments that that may play in the in in the media but they're not helpful to the bond market there was one instance where it was suggested that there would be no help from municipalities or states and they were on their own and the market shifted very much the next day so again it's when you look at it an investor that's going to buy your bonds wants to know that he or she is going to be repaid and when there is more risk and clearly during COVID we've seen risk in terms of liquidity in many states and we did not have that problem as I said we did not need to do an interfund borrowing in our cash position because of the reserves because of the good management that the the general assembly has done and I would like to think the treasury as well we have not had to we have plenty of I wouldn't say plenty we have sufficient cash to meet our needs and we continue to meet with the administration it was at first a weekly now it's a bi-weekly basis to assess what their expenses are and what that are going out the door and where our revenues are and we believe that we're we have sufficient cash to meet our needs at this point in time but again the market's been a little bit up and down it's been a little crazy I was informed today by a I meet every every every other week now with treasuries and comptrollers across the state across the country excuse me to to review this and the treasure of Georgia today informed me that the tax exempt bonds were were cheaper than the tax exempt bonds and that makes very little sense to me I'm going to investigate that I just heard that today but again the markets are volatile people have pulled back their bonds they've had differing issues this is not a very good time in the in the public finance bond issuance community um yes did I hear a question no okay uh the state also we do have three other questions Beth that if we could cover those I have one for were you done Mary I don't want to cut you off I have representative land for helm and Yakovone thank you so we're going to we're going to probably have to answer these questions Beth and we need your help to make sure that we understand um but maybe you can help to clue us in on when would you think it might be a good time to buy what would this circumstances be that would say this would be a good time to borrow well I think borrowing happens only in a couple in certain conditions and and you consider borrowing when um you have basically three conditions that the cost of excel accelerated inflation so inflation and preventive maintenance and um is something where if if you do it now you're paying less interest on your overall your um then the cost of inflation if you do um back when we're doing some bridges and um some of that work fixing it now meant in two things number one you know pay for it now or pay more later um and including the cost of inflation including maintenance issues around it so that's one area and that's what I think that the capital the tip the tip the tip but the institutions committee concentrates on and you know the more we put ongoing costs in there that do not have the same inflation factor that I think that that's a problem um the second issue is that um that you have quantifiable economic benefits and I need to to emphasize it needs to be quantifiable improvement we always talk about this will this will help with the economy this but we don't have any data to support it and I think that that um is is an issue is is we have these conversations the third reason is something that is a little more theoretical it's called intergenerational equity so that if you're building a school for instance you might want to um to to have um future generations pay it pay for it um and spread it over time for the taxpayer there's an interest cost again in doing that um I'm not a big fan of that particular philosophy but I've seen other communities um um do that I've also seen communities that put everything in pay go they don't they don't do that um because it's cheaper to do it and you're not and you're not impacting future revenue sources and the other is to unlock additional funds such as federal matching funds uh the uh shampoos I believe uh we paid um two percent New York paid 10 percent and the feds paid 80 percent and that was uh a pretty good deal to do that and you have a future identifiable revenue source and it needs to be available it needs to be predictable it needs to be reliable and sufficient under different economic scenarios and I would suggest that in the covid um situation we are in we're not meeting that criteria and if you notice the other criteria um very much about bricks and mortar and not filling a budget hole um with a borrowing I don't know if that answers your question maybe more so the other thing yes to a different topic can we move to representative helman yakovonium we have about five minutes left so I apologize uh bob I will be quick um so I think the the way you get to people is say take a look at what your home cost you now you might have bought it for 199 000 but then you financed it over 20 years or 30 whatever it was take a real look at what it cost you to help hit home with a lot of people don't even get I don't think they even study that but I think one of our biggest problems is they don't study that but we also have two-year terms not that four or six-year terms would make it any better but a lot of people can erase it from themselves in with a two-year term very easily and this phone will shut up in a minute okay mine plays the blues and I know we didn't have any blues there so okay uh representative yakovoni I think you're immune sir there we go um we listened to the economist uh august 12th I think it was and and the members on the committee can correct me if I misunderstood them but they said if you're in a difficult time um you will hurt the economy if you make deep budget cuts they also said you will hurt the economy if you have to raise taxes significantly now as an aside they talked a little bit about maybe surcharges but they didn't get into that as a possibility perhaps on those with very high incomes so given that not now I may be misinterpreting now but our situation right now while it's serious is not as dire as I thought it was going to be back in 18 but um if we were in a really serious situation and they're saying don't eviscerate services it ends up being a cost shift to the municipalities um people need government during hard times and you don't want to tax them because they don't have the money not a lot of other choices left so why wouldn't during a situation like that if you believe eventually the economy will change and you come out of a a downturn and you'll have identified revenue sources but it's just a period of time that you need help you're still saying borrowing is wrong I would I don't disagree but I need a little help persuading people on that okay so I think there are a couple of things in that question and I interrupted you sir is there anything else to that that you would like to add given our okay sure so number one the state has limited borrowing capacity and there was a cost to debt debt service if we were to do that there's a very real risk that it would have an impact on the bond rating factors and I should point out that this is the assessment of our financial advisor in and the treasurer's office we haven't had a direct contact with the rating agencies but borrowing you know would would increase our our risk of exceeding the a capacity level that's considered reasonable for a highly rated state and if you could you would crowd out future available revenues and there's a real risk that the state's long-term borrowing costs would rise under those those circumstances which would further crowd out funds and cost the taxpayer more money I think from my perspective the compelling reason not to borrow is about affordability for future generations interest payments on borrowing cost you real money and that money will be on will will have an impact on needed revenues in the future in in addition to that I think that we should take a look you know I've been urging the committee to take a look and the legislature excuse me to take a look at pay go options a lot of states have reduced their borrowing now again states are having different solutions to to COVID but they've reduced their borrowings over time and looked at pay go methods in the tib program the transportation infrastructure but we have bonds but we also have the excess revenue can be used to pay for transportation projects without bonding that is a less expensive way of doing it you get more bang for your buck and it's the least expensive way for the taxpayer I guess what I would point out that we've got a situation that we need to deal with but I do not believe that bonding to again to erase a deficit borrowing your way out of a deficit is not an advisable situation you wouldn't do it at home and I would suggest that you know if you are in big debt you know the the credit rating the credit assistance groups whoever they may be aren't going to tell you to have more credit they're going to talk to you about how do you change your expenditures how do you change your revenue patterns and what you can do for that they're not going to suggest to you that if you're way in debt that you should you should add more debt to the to the to the picture again if that question we have time for one last question go ahead Dave did you have a follow-up no thank you I'm good okay um so at any point other than for short-term borrowing where we use it for cash flow and it's internal do you see a situation I mean you said instead of instead of borrowing you would you know how do you how do you reduce or change expenditures and how do you do something differently with your revenue picture so okay that's what you would look at prior to borrowing I would the the CDAT the capital debt affordability advisor committee pre-covid was talking about some methodologies to present to you and creating a paygo system I had a similar system in a town that I worked for in Connecticut and I will not take credit for that was my my previous my boss that came up with that idea and but it worked and we created something called a capital non-recurring expenditure fund so we did short-term and in mid-term borrowing for different capital needs to that that mechanism and we saved a boatload of money and we're able to manage our our capital planning with assistance from that I and again when I've talked about borrowing it's mostly been bricks and mortar some of the engineering costs that might be associated with that borrowing to to to close a revenue gap again is not something that that that I would advise there are times as I said when you're when you're looking at preventive maintenance when you're looking at the cost of inflation of of asphalt or the cost of steel in the in earlier periods of time I think that that's that that would be a time when you would take a look at it but we also have limited borrowing capacity and we need to to manage that you know the rating agencies have and I'm just going to quote if you give me just a few more minutes and this is from from one of our rating agencies fish and from their last rating of us and they did do a an interim process of reviewing during the COVID crisis and our bond rating did not change and I think that's a good thing one AAA state that I'm aware of did a lot of one-time gap things and and they what they said is that there's a one in three chance that they're going to lower their their bond rating so our geo rating reflects conservative financial management including prompt action to address projected budget gaps as as they emerge and maintenance of sound reserves both of which the position the state well to absorb budgetary implications of the corona virus pandemic the moderate long-term liability burden measured as a percentage of personal income is above the median for us states but should remain relatively stable given from a close oversight and management of debt issuance and policy changes to improve the pension sustainability over time that was on the quote directly from fish that in our most recent review of our bonds in the publication of that and willing to send that that quote from fish and and and perhaps a maybe Ashlyn a few of just so that I have a document from the treasurer's office on borrowing you don't need to I don't need a two-page document just a you know I've written most of it here I wrote it from you that would be great I wrote a two-page we're trying to shorten it up Mary did you have a question or no you okay Madam Chair if you'd like to talk to us more about the budget again I would ask Michael Kloss and our deputy to come in and again I I have additional data that I have not checked I was shooting a little from the hip and I'd rather correct that or verify that at a future time and I know you want to talk about pensions as well and I love talking about pensions we do need to do some work in pension and OPEB liabilities I think we have a some proposals in all four buckets with respect to both OPEBs and both pension plans and would love to have a conversation with you folks about that so what I would like to do Beth is to schedule a pension conversation that's separate from the budget or separate from our borrowing conversation as far as your budget I'm going to Mata is just going to follow up with Michael you or Ashlyn wherever you want us to follow up you mentioned that you also had to comply with the 3% savings and you were able to do that without impacting your operations I'm hoping Mata will bring that back to the committee if you feel that you were able to absorb that 3% reduction and Teresa if we could schedule at a later time closer not next week but maybe the like or like around the first or second perhaps to hear more about where we are with the pensions and perhaps if Beth has any suggestions for any restructuring at that point thank you but I think I have another meeting that I need to get into and so I am going to thank the treasurer for coming and we look forward to the memo that you could send us a document from our office on borrowing what I needed to tell the committee a couple of things so Beth if you want to sign off you're more than welcome to I'm just going to do a couple housekeeping things now and thank you for coming in it's always a pleasure thank you very much for your time and again I'd be happy to follow up on pensions and Mr. Yacovoni or any member of the committee if you'd like to have some time with us just give me a call Mike