Good morning, everybody. Welcome to the House Committee on Government Operations Military Affairs. It's Wednesday, April 19th. And we are starting this morning with testimony on S42, which is the divestment bill. And I want to welcome our Treasurer Michael Patak here. So thanks for joining us this morning. Thank you, Mr. Chair. It's a pleasure to be here with you and with the committee as well. I believe you had a walk-through already of the bill and also a walk-through from the Senate. So I think I was just going to plan to talk a little bit about my perspective in terms of where we landed on the Senate side. And on the Senate side, I agreed and supported the bill. And I still agree and support the concept. And there were some additions that the VPAC, the Vermont Pension Investment Committee, would have liked to have included that were not included. Just as you know, legislative process can work quickly sometimes. And they are things that I believe the Senate would be in agreement with. You know, I can't confirm that, but and I think there are things that other stakeholders would be favorable or favorably inclined toward as well, but you should talk to them to confirm that. So, you know, the bill originally started out, and we proposed an amendment that largely would have exempted indexed funds and private investments, so private equity and private credit. That was something we were, that was a compromise we were working on for, you know, quite a bit of time over in the Senate side, if I can remember. That ended up being mended to the current version of the bill. That has a few additional exemptions and a few different language changes, but we really approached this issue from a standpoint of, you know, do no harm to the pension system and to the investment returns and to the costs of the system. You really want to make sure that the pensions are strong and healthy. We've done a lot of work to shore them up in the last few years is I think everyone in the committee is aware, aware of, you know, the future in terms of investment returns and what the prospects for pension systems look like over the next decade. It's not totally sunny and clear. There's some concern on the horizon. So obviously, you know, from the Treasurer's standpoint one to come to this issue with a do no harm perspective. So the bill, you know, I think provided provided a flexible framework around this issue of divestment. There are a few pieces I'll mention that could provide more flexibility or more security for be picked. But it also includes a study that I think is really important. The study would look at the fossil fuel holdings within the Vermont pension system. Currently, we certainly have estimates as to how much fossil fuel related positions are within the pension funds, but there's no certainty around that and I think that would be a very useful thing to know and to measure, because obviously, if you're not measuring something you're not really understanding if it's getting bigger getting smaller improving not improving. So there is a study in here that that would relate to measuring those fossil fuel investments which I think is a critical piece of the bill and something that is really important. So the other piece of it, I mentioned the exemptions. The Senate included, you know, like three or four different sort of fiduciary duty related exemptions. So the plan would apply to direct holdings to index funds. They would require divestment under this plan to be created by VPIC by certain dates. But then there are also exemptions to moving forward with the plan fiduciary duty exemption that sort of broad. There's a de minimis exemption. So even if you're executing on the plan, you can hold a small amount of securities in the fossil fuel industry. The Senate added an exemption that if it was going to impact the ADEC that the plan would stop moving forward. So if there was increased costs to the system that the state of Vermont would have to pay or employees might have to pay that that would be a reason to not move forward with the plan. And then there was an exemption around private equity, private credit, private investments, basically, and the two pieces of language that, you know, we're a little bit different than an agreement that we had reached on the Senate side related to that de minimis exemption and to the private investment piece as well. So we'd be happy to provide language that I think would be acceptable to everybody, but just generally what parties seem to agree to on the de minimis the sort of 2% that you can maintain in your pension funds was that that would be ongoing that they wouldn't have to be a fiduciary duty like decision to determine whether you could maintain 2% in the fund or not. There was sort of an ongoing ability to have some de minimis amount. I think that was in recognition of a desire to continue to do engagement on the pitch part. It was an acknowledgement that it's hard to for a VPIC like pension or VPIC like investments, I should say to unwind every single piece of fossil fuel that holdings potentially because many of them are an index funds and private credit that we don't have the ability to just go out and sell. There are other people that are sort of putting those together and controlling them we're participating in them. And then also just a recognition that that would provide more flexibility under the plan. So there's that piece and then there's a private investment where, if I remember correctly, private investment wanted to be included in this in the study and the ability to measure how much fossil fuel is in the system, but it would not necessarily be subject to the plan until there was a study conducted and I think that that was sort of what I think that's sort of there was some language and again will provide us to provide us a little bit more clarity on that point. Right now I believe there's a fiduciary duty decision that needs to be made to not move forward with this plan as it relates to private investments and VPIC had asked for some more affirmative language and I believe the language would be more consistent with what we had discussed and agreed to on the but just again didn't make it in. And then there's another piece that has come up subsequent to the language in the Senate side which really relates to immunity, no private right of action, sort of legal protections for VPIC and VPIC members of the commissioners of VPIC. And you know I think I view it as something that would be wise to do, just as a belt and suspenders approach that it would provide assurances and support for individual members of the VPIC committee that they're not holding themselves out to liability, even if it's not legitimate liability there's a couple of ways for people to make allegations and to sue and providing immunity, no private right of action, that kind of legal protection and immunity, while still making sure that they're executing on their fiduciary duty obligations, I think would provide some some well deserved and smart protection but I think those are really the points that serve on VPIC, at least give them peace of mind and assurances that, you know, they're not going to run afoul of, you know, some someone that disagrees with the decision here. So those were the main provisions that I would certainly recommend that the committee consider in more depth on this topic and think about including in the language of the bill on on this side of the house, or the side of the state house I should say. And as I mentioned, I also want to mention actually that, you know, just on the Senate side and, you know, again as mentioned now, things have moved quickly and I don't know if every stakeholder had an opportunity to express their viewpoint. Just a suggestion, you know, there's three different systems that are impacted here, the teachers, the state employees and the municipal. So the teachers and the state employees do get, you know, direct state support in different amounts. The municipal system really is from municipal dollars, but beamers did not get an opportunity to at least testify in person I believe on the Senate side and we were just at a beamers meeting for their for their system yesterday and I mentioned that to them that I would make that point here just to make sure they are able to have their voices heard on this. Thank you. Hey. On the divestment thing I've always sort of made the comparison of you're either sitting in the stands eating peanuts or you're out on the field play. We're not shaking the earth with our engagement of corporations and trying to move them to another place, but at least we're voices there that other funds and individuals have rallied around or rally with. And there has been some modification positions. So that's been a positive thing. So I'm just going to hit points as they flash through my head. So engagement. I think we should stay on the field, which means I don't think we should just automatically exit certain strategies because they're not popular. I think there's just no possible way of not seeing a serious increase in our funding necessary to maintain the plan as it stands. And I suspect that will roll out to the ADEC fairly significantly. So the question comes off of where's the money come from. I assume you're sitting here with your treasures hat on. So where's the money going to come from. And lastly, viewers wouldn't be impacted, I suppose, because we don't want a separate investment portfolio just for that everybody's in the same deal. And both the indexing and the private equity private private and. Stocks on all the other things. Are are combined basically so they would take a hit. Also, I would assume. I think that's okay. Well, thank you very much on the engagement piece. Again, I think you want to hear from from VP, but you know the language that would change. That I mentioned the 2% de minimis to applying basically as a permanent de minimis amount. I think that would address some of the concerns around engagement because you would be able to continue to hold a small amount for a whole host of reasons, but one of the reasons would end up being that you then have holdings that you could do engagement with. So, again, I'd hear more from VP on that but that part, I think would satisfy at least my concern on that front. Where is the money going to come from piece. You know, like I mentioned that I came come to this from do no harm which is another way of saying from the treasurer's had I guess and you know there are the exemptions that are in the bill I don't see them as creating a situation where it would be a cost to the system I think it's a slow and thoughtful approach. Even that one exemption I mentioned that was added on the Senate side that would expressly say don't continue with the plan if it's going to raise costs or the amount of the a deck, whether that's on the expense side or on the investment law side. So that view as another belt and suspenders to, you know, general fiduciary duty exemption that exists. And then the exemption from private equity. Well, we were we're kind of teetering on the go below 7%. Now, if that happens. Yeah, I mean, the assumed rate of return, separate from this conversation is, you know, one of the main, you know, points that you want to watch one of the main areas of concern I would say nothing, and nothing to do with, you know, Vermont or Vermont's pension just what you expect to see from the markets over the next 10 years. I know the most recent big meeting it was some optimistic information in that regard as to expectations they had 7% over the next decade. So that was an improvement that the likelihood of hitting that number has gone up in the recent few months, or maybe last year, but, but that's still something that generally, you know, you want to keep a close eye on and, you know, the framework that exists here with these additional inclusions I just I would be hard for us to see that these would drive these specific reasons would drive the investment rate of return, you know, anywhere different than what is going to happen naturally by the state or markets. Oh, you also mentioned Demersen. I think that's right. I mean, the funds are all pulled together so we talked about that a little bit at our office yesterday that I think to, you know, like for example in the New York City they have different pension systems and move forward with a divestment plan but the divestment plan only included their municipal city employees their teachers for the city but did not include the firefighters or the police of pensions. So they didn't have a divestment approach to all their pension systems, but I, you know, New York those are separate entities and here it would be costly and complex to, you know, try to pull out the different funds and you would lose probably some money to invest in certain funds because you don't have this the same size and scope so that would be a challenge to try to do that I think. Mr. Director, one of the things that you mentioned was that in one of the versions that didn't make it into the Senate has passed that the exemption that applies to private equity investments was also applied to index funds and one of the things I've been having trouble wrapping my head around is how we would the whole idea with an index fund and maybe you can explain that to the uninitiated who didn't go through what we went through the last couple years in Govoss previous incarnation but how would we I'm trying to think of how would we have a divestment strategy that would really work. I mean not harder and there's some that just don't that are specifically sort of fossil fuel free already that other people have as a standard. I mean, how do we divest from index funds without sort of getting ourselves into into some trouble that's. There's two I mean there are two and there are two, you know I think everyone sort of agreed that the direct holdings were relatively limited and that was a much more straightforward, you know, type of situation where you could go and sell them and it you know it didn't cause a lot of, you know, cost and you know you could replace them with something else and maybe didn't lose too much from a diversity standpoint but the index funds and the private investments were to have significant focus the index funds I think it comes down more to the expense like how much is it going to cost. I think on the private investment side it's more about are you going to lose the ability to gain returns. So on the index fund the reason I say it's more about expenses because there are index funds that are green that are fossil free that are, you know, there you can go the other way to and get I think they're like a sin index fund out there too, but you know, there are there that, you know, structure their funds that way but they tend to be more actively managed so requires more, you know, expertise and more active review of which funds are in the index fund to ensure, you know that for some reason, a company that was not considered a fossil fuel now is or whatever it might be or merge with another company. So it's more actively managed and as a result the expense ratio is higher than maybe like a standard S&P 500 index fund where you're just saying, you know somebody else is determining what's in the S&P 500 and we're matching our index fund relative to that series of businesses. So that has changed that has that ratio it still does exist I mean there is a difference in cost, but it has been getting smaller over time. As you know, managers can do this more efficiently and more effectively the SEC this month is supposed to be releasing rules around public companies releasing their basically carbon footprint their climate impact. And I hope the SEC does that I think it's a smart transparent policy move for investors, but if they do do that, it would be a lot easier for index funds and managers to be able to put together lower expense portfolios because they would have a standard that every trade company had to disclose to and you could easily determine, you know who's above or who's below when you're setting up that you're a fund. So, so they there that there's so there's an expense piece of it there, much more so than losing of the return on investment, but the expense has gone smaller over time and I think there is a prospect that it would continue to become more even with the traditional index fund I don't know what that time period would be but you know the SEC makes that kind of real change it would certainly put wind in the sales. And then there is be go back to the de minimis amount. So, you know, depending on what that number is, you could still have an index fund that had a limited number of holdings that could fall under that exemption. So you wouldn't have to get out of that position, simply for the fact it had a limited number of holdings. So that's another, you know, that's another, you know, consideration there. I'm really stealing a question from a group of girls and I didn't even ask. And he asked it for and that's, is there an actual definition for possible. There is not in the bill, the bill, which is one of that I didn't get into this but I think one of the other things I thought the Senate bill did well is that it provided a lot of flexibility and responsibility to be quick to come up with some of the definitions. Like fossil fuel company and then to come up with the plan around the concept of divestment so there isn't a definition in the bill and the thought was to have the pick be thoughtful and study it and and propose a definition. If I could just follow up to like, I know the conversation you're talking about is that the NCCs and it's looking for the carbon footprint of companies. The SEC, yeah. Any concern there about us eventually even going further with that and looking at companies that, you know, have a high carbon footprint. Right. You know, I'll put it and say that we don't want to, we don't want to come down by me. I just, I just have a concern that, you know, it could open the doors for a lot more. Yes, I think your, your, your concerns basically would there be a company that would have a, you know, maybe it's like Amazon that is not a fossil fuel company but they have tremendous transportation network and maybe they're contributing to, you know, much more CO2 than anticipated. So, you know, that that would be for the legislature to deal with in the future, but I think from an SEC standpoint is important for investors to know that kind of information, particularly if it's a company that on its face you might not think of as having a significant environmental or carbon impact. So, I guess my answer is, I think it's important that investors generally know that information, whether it goes further, it would have to be something the legislature think would have to act on or be picked would have to decide, or any fund manager would have to decide the risk here in terms of, you know, the financial risk I mean, in terms of how this company operates is too significant for us to continue to have holdings in it because we think this transition that is occurring and will continue to occur to a more sustainable green energy structure, you know, that this company cannot survive that transition or won't be able to survive in the same form. So, so unless there's a legislative direction, or unless there's sort of a risk management determination, you know, I think either those things would have to happen for some but for pension fund to act on that information. I don't know if I can follow up, but, you know, again, just following this frame, is there a specific or are there specific guidelines for companies to determine their carbon footprint or can each company have their own consultants? Yeah, no, it's a great question. And that's why the SCC is doing what they're doing is because, you know, they haven't put out their final rules so we don't really know what's in it yet. But the conversation related to there's sort of like three tiers if I remember correctly. This is really testing my memory from a year or two ago and we wrote a comment letter but it was basically which level of impact are they going to measure towards? So is it sort of these initial impacts? Is it sort of these indirect impacts? And that was a big conversation. So, like for example, if you're FedEx or you're a company that doesn't have your own planes or transportation that would do include the cost of transportation, the carbon impact or where do you cut the line? So the SCC hasn't landed on that yet, but that's an active debate. But one of the things that they did include in a proposal which I thought was really useful was a requirement that the CFO and the CEO sign this disclosure as part of their annual statement, which really elevates the degree to which they have to apply due diligence and analysis to these kind of disclosures because, you know, if that's false, I mean, that's sort of an SCC violation, that's potential criminal violation. So it really elevates the bar and they're trying to get at this greenwashing that can occur where a company says, look how wonderful we're being on their website, but it's really marketing materials that's designed by their marketing department and not the kind of disclosure that would go through the rigorous, you know, due diligence of experts and lawyers and financial advisors to go into annual statement. So it's actually what they're trying to do is create a uniform system that would cut against what some people are seeing now as greenwashing by certain businesses.  Well, you would certainly see that, right? Because you would, I hope you would see that in the rule. Again, we have to wait for the rule. But, you know, so for example, if a company said we're net zero because they were doing that, and that's all they were saying on their website. Now, based on the standard, you'd have to see what their carbon output was and then you would see separately, you know what they're doing in terms of carbons, you know, in terms of buying credits and whatnot. And I think it provides, the reason I like it is because it provides more transparency around this issue for investors relative to the public companies. And it's something that other parts of the country are doing as well. Other parts of the world. Yeah. Sure. Not to a level that I don't think we really quite hit today as we're framing apart and continue conversations about this bill, which is, you know, you came in initially saying you're supportive. I mean, this direction, there's lines that you'd like to see that hasn't made it into the bill, which I think we should be working on. I'm very interested to hear what other folks from the pick up to say on some of those items that you brought up. But I just want to ask you generally, does your support stem from the fact that there is inherent risk, both from the regulatory things that are going to be happening over the next few years nationally and internationally around climate policy and and de-organization and the way our energy systems are changing that that is that presents a risk to the systems that isn't always really baked into experience studies, actuarial rates of return, the way that we currently measure the forecasting for our things like our country funds. I mean, is that really what we're trying to get at here is that there's a kind of a missing component of risk. Yeah, I think you can approach this issue from that risk perspective, which is sort of where I've always sat on, you know, coming from DFR, you know, we did a study looking at our insurance marketplace and saying, you know, what's happening with our weather what's happening with climate in Vermont, and how is that going to change underwriting practices for insurance companies going forward so if they have more severe weather spring more hail more wind, and they're having a lot more claims in that regard. They should be adjusting for that risk factor. Same thing with their own investments if they're in a life insurance company with 30 years out of potential liability, and they have significant investments, you know that have the potential be stranded at the time because of how, you know, how the energy is moving out of the sort of transition to green energy is going then they should be mindful of that and managing their portfolios to that. So I think they're so that's the viewpoint that, you know, coming from a regulator, we address this issue with which is the risk factor and that's why I think the study is so important, because we don't have a real strong measurement of that risk right now we don't know what the number is we don't know if it's 5% 2% 1% and that's a good baseline to start from to know what your exposure is and then understanding how much risk there really is to manage. That's again why I think it's thoughtful approach is necessary thoughtful slow approach is necessary because this transition is happening. It's happening over the next decade or two, we have to be mindful of it and respond to it. And you could also approach this issue from, you know, more of an advocacy standpoint and a value statement against certain companies but you know that becomes really challenging as to where you draw the line on companies but when their companies that significantly you know have a real possibility of not earning the same kind of profit that they've earned over the last two decades or three decades, that's something that you should have on your radar and be mindful of. And I think I agree with that the study should be our first step and maybe then everything will fall into place after that. It seems to me like we're dealing with a political discussion that could have financial ramifications. If we divest from any fossil fuel company, somebody else is going to come in by shares or whatever the impact on the company itself will probably be negligible. Once again that would be a symbol that we're proactive in engagement in some way, but would be in the stands. And the financial end of this is eventually it's going to fall down to the plan and its members to somehow make up the deficit. And that's effectively saying taxpayers, which that's another whole discussion I guess, which is a lot to say because I actually support the idea of cleaning up the atmosphere. That's that water sentence. Go ahead. You and I just like the same face, but here's my question. How do we know that there's going to be a deficit? Well, I mean, I, I don't, I think it's unlikely just because of the different exemptions that are included in and even just the concept in its of itself. I mean, I think from a risk standpoint, the type of returns a company is getting today in the fossil fuel sector in the, you know, is going to be different than a decade from now in a considerable way. So that is how so you have to create a plan to manage that risk. And the pick has done, you know, I should, you know, this committee hasn't had the opportunity that we talked about on the sand side of the work that the pick has done in this regard. You know, having a decarbonization policy and having ESG policy and, you know, being actively engaged with these companies. So it's not to suggest that it's not happening now. I'm just generally talking about, you know, how I think you have to approach it with this sort of prospect on risk. And then separate from that, you know, there are these exemptions, you know, the obviously there's the core one is the fiduciary duty exemption. So if you think you're not going to get the same kind of monumental returns for some reason by following through on this plan, and that's a reason to pause the plan, you know, this de minimis exemption in terms of being able to hold on to a small amount, making sure that the private credit is sort of private equity and credit is sort of off to the sky where the biggest opportunity for returns are. And then also this a deck exemption to like if it's going to drive up costs to stop the plan, pause the plan as well. So, you know, I think there are, I think structurally, it's the right kind of risk to be managing. And then exemption wise, I think there are quite a number of opportunities to pause if it looks like there would be this kind of deficit. Yeah, I'm, I guess the reason maybe my face a little bit, I can try to think about the way that represent who were described the risk, because my reader that's 42 is that it is designed to say we're moving in the direction of we have these exceptions that we know would have an impact. And they're sort of, you know, there's going to be a big impact on a deck that do no harm, maybe needs to be strengthened here but the idea is that it's baked into the bill right the idea that we don't have to move forward with that plan if it's going to cost the taxpayer in terms of an increased aid act. And I also just want to say that the idea behind this bill if you support any deficit is that you fundamentally understand that we haven't done a good job over the decades of baking in the real environmental costs of our economy, we've just done a terrible job. And, you know, I just, you know, we knew about greenhouse gas emissions when I was a little kid, and here I am, you know, approaching 40, and at this committee, and we're, you know, talking about like the idea that we would continue to invest in people who are extracting things that are warning the planet is just out. That's the place I sort of say we're moving into the risk to the funds is also in saying invested in things that we know are going to get increasingly regulated as the world warms and governments decide to. So I just have trouble characterization of this concept generally being that it's going to be a negative financially for, especially when we're looking at these, you know, 510 plus your investments doing a study understanding the impacts and trying to take the slothful approach so I just don't I don't want to leave anybody with the investment we're trying to put the pension funds or retired teachers or retired employees on hook. I think that's mad this is very, I think a very good perspective to have, I mean, you know, the trans it's not managing that transition to do too quickly, you could, you know, and there's also some specifics with Vermont to right like these vehicles that we're investing in that we don't have control over how they are designed or how they look necessarily. So we have to take that into account in terms of being thoughtful with the transition. And then to your point like it's governments responding to global warming crisis, it's individuals changing their own behavior it's organizations changing their own behavior, you know, motor, you know, certain states saying they're not going to sell combustible engines after a certain point auto manufacturers and not going to make them after a certain point, but you just, you know, over the next 10 years, give or take five years there's significant changes that are on the agenda. In terms of, you know, how we currently operate in our economy and we just have to be mindful of those. Any other questions for trigger P chat. Thank you very much. Yeah, for sure. We'll be happy to provide the language we mentioned and if there are any follow up questions please let us know. Thank you very much. Thanks for joining us this morning. I'm sure you'll have a lot to respond to from your trespass testimony to some of the questions we have. I'll just give you the floor and then we can ask you some questions too. Thank you for having me. I know some of you were on the table, but my name is Tom Walker. I'm chair of the pick. I've been a member of the pick since 2014. I was appointed by Governor Douglas at that point for the femur slot reappointed by Governor Shumlin. I became chair in 2016 when I left my role at City Council here at Montpelier. I'm very committed to pensions. You know, this isn't about, you know, this isn't about whether or not we want to own fossil fuel stocks. This is really about the pick the pick's autonomy issues in regards to costs and issues in regards to what impacts you do today could have on future beneficiaries of the trust here in Vermont. It's currently about six less than $6 billion. Our VP members take this responsibility seriously fiduciary responsibility is our primary concern. And we do actively work with climate action. Katie Green, I would strongly recommend you bring her in here for testimony. She tested the Senate. She's a tireless advocate for environmental issues and it's built into our DNA at the pick in regards to how we view investment managers, how we hire investment managers, how we fire investment managers. We currently have about 45 investment managers that manage this, the pool funds to understand the complexity that you're looking at that entails about 75,000 positions. So if you compare that to your individual portfolio, we have about 75,000 positions that's broken into the three different trusts so about 25,000 positions per trust as further broken down about 10,500 individual issues. So I just want this committee to understand the magnitude of what the legislature is asking the pick to do. We need to come up with a plan to divest. And that's another issue, you know, divest is a tool we view it as a tool we view it more as a tool of last resort, not necessarily as first resort. And because of that, we feel that our advocacy work as well as Katie's work, working with climate action groups with BlackRock are our progress that we've made since 2017 with our Divestment Committee that was co-chaired by myself and former We've met all the goals of that Divestment Task Force back in 2017, including seeding a $200 million low carbon index fund with BlackRock, which we're looking to get other vendors. We have money invested in lower carbon index funds and we're working towards that initiative. The key issue with us with Senate 42 are really five things and I've included that in my testimony. You can see our memo with recommended actions, recommended changes that we would be comfortable with. We were supportive of the Treasurer's suggestion that index funds be excluded, mainly because over the past five years we've had two pillars for our investment philosophy. One has been lowering costs through indexing. And the second has been working with private equity to build up work with top tier managers in the private equity space to be able to meet our rate of return assumption, which is currently at 7%. We're at the table there with a couple issues. We do get into top tier managers. Top tier managers will not change their contracts for a state like Vermont, they just won't. We do not have 200 employees like California or New York. So we cannot do certain things that other states do. We rely on top tier managers to really perform for us and to provide us the extra rate of return that would get us to the 7%. Katie Green, and I'm strongly able, once again, I ask you to bring her in here. She's part of the Climate 100 group with Blackrock. That's a representation of about 66 trillion dollars in assets here in the United States. And that's working towards not divestment, but net zero. And working towards net zero initiatives, forcing companies to actually create net zero pledges and actually investing in the net zero initiative versus divestment. Once we divest, we lose that ability to you work Katie, we lose that ability to be part of that network. It's been said that the divest the de minimis exclusion will allow us to continue. Well, that's to be debated the current language. As I read it or as I came out of the Senate didn't extend de minimis past 2030 and didn't extend it to 2040. One of our key recommendations is to make sure that's clear that the de minimis standard in the bill extends indefinitely because we really don't have the ability to pick and choose individual stocks. And it's not a matter of can we sell the stock we potentially could the question is how do we mandate our managers or how do we buy index funds that aren't overly, really expensive. And so, with that, I don't really want to read my presentation because I think you can read it. You can ask me any questions on it. There's really five things that I think I want to review with. But I think VP has concerns with and how we get to any type of revisions or amendments were open to that change. We do support the idea of exempting index funds and exempting private equity as this first year step until we complete the study. That's how Middlebury does it. They've exempted completely index funds as well as private equity as a first step and they have different stages that they look at. I think that would give VP a lot more confidence that we'd be able to meet your goals and objectives. The first thing I really want to say is well. What is the role that we should play here in Vermont in terms of climate action and we feel divestment will actually lower per month impact on climate action from what we're doing today. If we divest we will no longer be able to have Katie Green represent us with that $66 billion or 66 trillion dollars worth of assets. She's done tremendous work and I hate to see us lose that initiative. The second piece and you'll see this in my testimony is we have a fiduciary attorney that we hire and this bill. He has indicated to us and there's a letter from him dated last week that this bill will open the pick and the state up to liability on both ends. You know people who want to divest people who don't want to divest. This bill he feels is tailor made for a lawsuit. And he gave an example of a lawsuit that happened in California where commissioners in California were brought through the ringer for five years and ended up in bankruptcies of lawsuits and significant. It's a significant disincentive to get volunteers to come work for VP. We already have a difficult time getting staff because of our compensation study which we submitted earlier this year that shows that we pay our staff 10 percentile of their peer group in terms of managing money. We're working on that issue too. But to also get volunteer staff to demand these boards is a tremendous concern. This I think would be the tipping point. We would lose good members on VP if you do not have a language in this bill that would protect from us from a fiduciary point of view. Basically says if you know if we decide it's not in our fiduciary interest we don't have to follow through or we do follow through whatever you know whatever language you see fit. He suggested some language that I supplied here. I think that would be an essential that these would need to see. The third issue I do want to bring up this cost inevitably this is going to cost more. You know since 2016 we've gone on a strategy to lower costs through indexing. We're paying two basis points. Now a hundred basis points is one percent. So for every one basis point increasing costs internally it costs us about five hundred sixty thousand dollars. So let that let that sink in. Since 2016 we've lowered our overall cost of the pension trust from sixty roughly sixty five basis points down to about forty three basis points. That doesn't seem a lot. But when you when you talk about lowering the cost of running this fund back in twenty sixteen and cost about twenty five million to basically all in run this trust. We're paying less than that now all in. Then we were back in 2016 and we have twice as many assets. You really have to look at that way. And we also have incorporated a professional staff with the C with a CIO that we brought in to help us manage these investment pools at a top notch level. And you'll see last year for example it was a terrible year. We were down like seven eight percent. We were in the top fifty of a thousand pension funds in the pension investment magazine. You know in the year before we were up about twenty six percent which was in the top tier. So we've been managing these ups and downs through our indexing strategy and our private equity as well as advocating for climate action in our portfolio. Costs are going to go up both internally as well as potentially externally. And what I mean by that and externally is potential unintended consequences if we're forced to lower our assumed rate of return. Why would we do that. Well the biggest issue is private equity. Private equity provides most of our return above that seven percent rate of return. If we have to exclude those asset classes on the next just simple math would mean we will not be able to meet the seven percent rate. And then we'd have to address that issue in act seventy five a couple years two years ago we were given authority to set the assumed rate of return. We don't plan on reviewing it until next year. But this would be a serious consideration that you have to take at the bill as written according to our CIO Eric Henry. He's indicated that we will have to start winding down some of our commitments as soon as twenty twenty five. If we start winding down or unwinding our commitments to private equity as early as next year even though it's a seven year ten year fifteen year time horizon we just won't be able to meet those rate of return assumptions. And so we'll have to seriously consider whether or not we can maintain the seven percent rate of return. If we lower it to six and a half percent that's about fifty million dollars in extra costs. It's about seven hundred fifty million dollars in extra costs between now and twenty thirty eight which is the end of the amortization period. I'm not trying to scare anyone with that doesn't just reality. You know that that's the reality of where we're at. If we are excluded from certain asset classes will have increased costs internally it's going to ultimately lower our rate of return on the plan. It also it exposes us to more volatility. I know there's a question earlier in regards to what's next. And I think that's the clear point. If we have to exclude energy stocks what's next trucking transportation. Is it is it plastics. You know what comes next and how much further do you have to increase in terms of the expected variability in the portfolio in terms of risk and we measure both return and risk. So both sides of those equation could be potentially impacted. Our estimates are in a divested model would be increased variability by about half of one percent. It doesn't sound like a lot but over twenty years it could be quite significant. So I you know fiduciate as a fiduciary we're charged with maximizing return and minimizing risk. So I think you have to look at both ends of the equation. And I think in both ends this bill is subjecting itself to concern. And that's why we really advocate for the not necessarily a pause but actually looking at this study first and then potentially include mandates. The last piece or another piece you know how will be pick reconcile you know the legislative intent that's written. If the language of the study next year comes back that it's going to cost more it's going to increase risk. How are you going to respond to that the legislation legislative intent is very clear that divestment is the only answer. Our concern is we think it's a tool we think it is something we should use. We are using it. We have fired managers over it but we don't think it's the ultimate tool. We think working towards net zero is the tool working through engagement is the tool working through BlackRock is the tool. We don't think divestment is the only answer. And that's why we think if you did a comprehensive study we'd be able to get that answer for you. The last piece I'll say and it's more about act 75. I was instrumental in helping write act 75. I think this undermines the authority of act 75 or the intent of act 75 to some extent. We were vested with investment decisions as well as investment processes for the state pension funds. We think we've done a really good job at both in advocating for change as well as lowering costs as well as looking towards the future of how we'll be able to meet the return needs between now and 2038. I think when we start chipping away at that authority I think it undermines the ability to be picked to do its job. And I think that's the serious concern that VP has. With that I'll open up to any questions. I know we submitted a lot in there. I think I thrown a lot out at you. There's I strongly recommend you bring in Eric Henry, who is our chief investment officer who runs it on a day to day basis. We have three staff people here in the state for the month work for us under VP. We're over on Baldwin Street. I think we've done a tremendous amount of work since the 2017 divestment study that we did. We've met all of the goals and objectives that were outlined in that and we're moving forward now in terms of that. So I'm happy to answer questions or to address any concerns. And we've listed certain suggestions that list or we would add to the bill as well as our fiduciary letter, which lists potential liability. Thank you for your time and really appreciate any questions. Chair Ivanka really appreciate the detailed information and the really thoughtful suggestions about how he might be able to improve on the word that the Senate bill has. I think the most obvious pieces around index funds are interesting to me. One of the things that I wanted to ask you about specifically was if I read the Senate's bill correctly, they have essentially carved out the private equity to protect that from. And so I'm trying to understand the comments you made about the happy to do the wind down immediately. Well, the Senate tried to address that. They haven't, they haven't, you know, they've listed it as legislation intent. It's the legislative intent to include it as part of the de minimis standard. So if you look at it, if you look at the language, it was still included that we have to manage and maintain it included in our plan. So it is included in there the original version that the Senate had basically strictly excluded it and our objective really was more to keep it out until we actually know the true impact. We don't really know the true impact of what we have in our portfolio for private equity. Maine did a study about a year ago. They have about 7% overall of their portfolio is about 7%. They probably have more because they were doing private equity pre 2016, which had a lot more of it in pre 2016 private equity. I don't anticipate that we'd have that much, but to try to pin down a requirement on a de minimis standard with that as part of the definition, I think is is difficult to manage. I think you have to more clearly exclude private equity in the language of the bill. It's a little vague. The original versions weren't as vague, I guess is probably my answer. Why we would have to unwind potentially positions is because I don't think we would be able to get into the quality for the top tier managers at this point because of them, because of the nature of private equity. Private equity is really a blind trust. You're going into you're hiring a manager. You're not hiring up. You're hiring a manager and manager style. You're not really hiring up. You can't really put restrictions on that. And so private equity last 15 years or more in terms of our whole, you know, we may commit now. They may not draw the capital three years from now. They may not make money or give money back 10 years from now. They may wind down the private equity 15 to 20 years from now or they may be rolled over into a new new entity. We don't have the luxury for a couple reasons. We don't have the legal power, but we don't have the luxury to basically dictate some top tier managers. Well, because of our 10 million or 20 million dollar commitment, will you change the terms of your contract? They would rather say no, take it or leave it or be they won't offer it to us for a variety of reasons. One reason that our chief investment officer said we probably would be excluded was because they wouldn't want the potential liability and this gets that legal liability fiduciary language in terms of the bill. Private equity managers, even though it's not specifically listed, would be very hesitant to get into the middle of a legal statute issue if they could get ever dragged into the investment of these funds. If we were forced to actually liquidate funds, which we would do everything in our power not to, but if we had to liquidate funds, they could be upwards of 20, 30, 40% discounts to value and that would be completely unacceptable. You can understand my concern on it. You may not agree that you may think there's protections in there that allow us to have that flexibility. Our belief at BPIC is that the protections aren't strong enough and it's still peppered through the bill in regards to what you will consider, you will add it as the definition you will include it in the de minimis standard after the 20, 30 day. In addition, the 20, 30 day. It's a little vague in regards to whether or not the de minimis standard extends past that and so I think clarity of the language in regards to the de minimis statute, as well as private equity, I think just needs to be strengthened. We didn't have the time at the Senate to express our concerns. The language came out that Tuesday. We had our VPIC meeting that Thursday. We had serious concerns. They passed to that Friday. We really didn't have a chance at the Senate side to really delve into some of this qualifying language that I put into the memo that I have here. And so hopefully that answers it. I mean, the memo is clear. I read the memo and I understand the concerns and I'm weighing what you bring up really seriously and whether I personally want to support digging in and working on the language or waiting to, you know, or just doing the study. There's a bunch of different paths to take. I'll tell the committee right now on you that I support the value of trying to get our public money out. But I also was part of investing the independence scheme to VPIC to manage the pension fund money and I believe in what we did. You also have to understand how the transition is going to play out. So we'll think forward the next five, 10 years, what companies are going to be able to afford infrastructure changes that are going to make that change happen in a reality. And unfortunately, it may be some of these companies that you don't want to talk about today, but may come up with some technology because they have the billions of dollars that are needed. And because we're supporting them in these initiatives for change through our climate action, we can support the companies that are doing that we can get out of the companies that don't we can add. And this work with BlackRock to create the Low Carbon Index Fund, I think is a tremendous first step. You know, we haven't really gotten other states to sign on to it. It hasn't performed as well as our other index fund, but it has been a step into that direction. How do we get the big players have the trillions of dollars of assets to work with these bigger companies. Katie's there is some slides in there in regards to summer for advocacy work. When we started in 2016, I think about 7% of these companies in the climate action 100 had commitments to net zero initiatives by 2030. I think there's about 91% of the companies now are up to net zero pledges in the companies that they invest in. And so that's what we're looking at. That's how we will invest our index funds that will. That's how we were advocate for change. If you look at the banking setting up a list that will never touch. It's about trying to manage those lists through our partnerships with BlackRock with our investment managers. So, so we both went, you know, we make money on the investment side as well as well as do good through our investments and can feel comfortable with the investments that we own. Other sets are doing the opposite approach that they'll get sued if they if they don't invest in fossil fuel stacks. That Texas is a perfect example. They're adding similar language to their bill for the same exact reason, but on the opposite side, they feel they're going to get sued for the other reason. California is thinking they're going to get sued because of, you know, or Vermont's position. I think it's a, there's some happy medium in there, but we're and VP is willing to work with the legislature to do this report. There's some concerns about funding it in future years or is this going to be a report that the legislature requires every year as written in the statute. We don't have the staff to do it every year, particularly if we're looking at 10,000 positions and we're trying to companies change and our managers change and so there's a lot of moving parts that I think this committee really needs to understand how we can change money, how we can affect change best and I think Katie Green is the best example, but the state of Vermont offers. In terms you're talking about pledges that the companies are making, can you share a little bit about how they're evaluating the results in their process. Yeah, Katie would be a great way to I had it in my in their slides they put together. If you look at the, they're measuring it through their net zero global goals and they're measuring it by reaching at zero by 2050 emissions need to be reduced annually by about 1.4 gigatons of carbon dioxide at 2000 so they base it on this. And it's based on the state of Vermont goal which is 2020 past the Global Warming Solutions Act by reduce GHG emissions 26% below 2005 levels by 2025 40% below 1990 level by 2030 and 80% levels below 2050 levels. That's the state of Vermont goal and that's what we use as a benchmark in terms of our climate. So I don't know if that answers it more specific Katie can get into that and she can help you with the specific goals of what they're doing. Yeah, that was going to be my next question with the rigor of those net zero pledges and what accountability really is and who are the independent people, you know, in in my business there's been enormous conversation about rewatching and sort of, you know, how do we. Well, I think I think how you do it is you become part of a group that represents 68 trillion dollars and assets, and you maintain your membership in that group. If we divest, we're no longer part of that group. I have in the back of my head that. Basically, news recently that one of the largest. Well, that shell pillars of hole into the crust. Branched off into significant solar research and production. If this were in. In place, we would not be in that market. So we would probably end up. We went into it later. So the point is that. Corporations change all the time so they can survive and. Coming in on the back end of a. A great discovery or process change is not the way that. We should function. Well, what Katie has told me is that companies now are linking. These global initiatives to compensation. So they're trying to tie in compensation goals for executives to these global goals. And that's really I think where this group is really starting to see impact. When it's tied to the compensation of the executives you tend to see more more action in that in that realm. I know they've had. And usually poll, like if it makes progress, they'll pull the boat. And I know they had some real success with pass in terms of some of the fracking release of methane in the Bakken region. I know she brought an example of that in the Seneca box. Testimony. She can go into the specific details of how we've seen success, how we're seeing more success and how the power being part of a group of that nature is really impressive. You know, black rock is the industry standard and you're actually seeing states say you can't you can't work with black rock because of that. I'm interested, but we are working with black rock. We're supportive of their initiatives in terms of ESG as well as our global decarbonization. We don't call it divestment. We call it decarbonization for this very reason. We think the goal is more decarbonizing the portfolio, not necessarily just digesting because companies change situations change investment opportunities change that can actually move us a little bit forward faster. Any questions for chair Walker at this point. You've given us an enormous amount to read it. I apologize. I wrote through your memo, but not everything that you sent. So I'll be doing some of my homework on this. Before we move into further water. Thank you. Can you talk about any possible negative impacts financial impacts since 2017 when you started not the divestment but started making those changes. Did any, did any of those sort of worries at that time about changing the strategy did any of those come to fruition. We didn't, you know, the strategy changes we took place in 2016 2017 were more indexing strategies and adding private equity. The results of the 2017 study for divestment was said that it divestment was going to be more expensive. But it advocated for change and advocated for the initiatives that we've implemented. It really wasn't that we didn't.  Well, our low carbon index fund has not performed as well in really overall indexing strategy, mainly because energy stocks have performed last year. So there have been some negative implications, not material and we're willing to take them to figure out if it's worth it for the portfolio long term to add more money to it. We seeded it with 200 million and we're evaluating over a longer, longer time frame to see if that's an impact. We did look at the portfolio. What would have happened to the portfolio over the past three year average and five year average if it were divested in the way that the original bill was worth it. And it would have been a loss of about 87 million annually over three years and a loss of about 53 million in performance over five years. That was looking at our actual index that we have versus what we would have had to go in in terms of a divested strategy. So we, you're not supposed to look at past past performance isn't an indication of future return, but we did look at a three and five year number. And we wouldn't do it as drastically as that, but that's kind of what that's causes some of our concern. Our initial read on our portfolio with some of the recommended products that are available right now would have caused a significant drop in our return over the past three and five year periods. That's speculative and so I don't want to bank on that. Our goal if you pick is never to do that and obviously to maximize a return and minimize the risk. But if we're forced to do certain things are forced to exclude certain asset categories. That's where the numbers can change. We did also do a study in regards to what would it cost if we had the index. And it was an extra $700,000 a year to index. And this was looking at a specific subset of fossil fuel stocks. So it didn't get to that definition yet. But it was about $700,000 more and expenses. It would have cost us to use the other index fund and that was verified through the main main did a study of the same nature and they they found the same level of increased cost on indexing. It's about for us it was worked out to be about 6906,000 extra indexing costs would go forward. We had to do the different indexing strategy. So between now and 2038 by the Amarization period, that's $17 million or so. Now index fees will come down and we can evaluate that every year. But that's why I said earlier that I believe there's invariably going to be extra costs either in increased staff here at EPIC increased management fees through consultants or increased indexing fees, all three of which would point off. We don't know the extent of that. That would be our purpose of the study. How, how can we quantify this and how can we quantify some of our ESG work better for the legislature so you can have better more informed decisions before you set mandates. List out to 2030 or 2040. You know, that would be our preference. Why would the three year loss be greater than the five year long. The three year loss would be greater mainly because possible stocks did better last year. Okay, so if you had to divest of those positions in 2022, you would have done a lot worse. And so that's why the three year number is smoothed out a little bit different thing. So the five year would have been. Yeah, you had different years where taking out the index exposure to the energy sector wouldn't have been as it would maybe develop a better one year, but it's smoothed it out a little bit more over the five year period. Thank you. It's been a bit of volatility. Ukraine's most, most industries will last three, three and five year periods. I remember we have three people doing this and so we're trying to manage the money, hire managers and also now for this on top of it, it makes it much more complicated, but you know, we're willing to work the legislature and how you see fit. Thank you. Clear. I will definitely in touch. Yep. And I'd be happy to have anyone has any individual questions. Feel free to reach out. You know, and touch. Thank you very much. Thanks a lot. So we are going to take a break and be back to 1045 to take some more testimony from the department on the sheriff's bill. Working with state workers on some language there that I think is going to need some. Tomorrow or Friday. The agenda might be switching around a little bit over the next couple of days. Absolutely. The secretary of state's office to come and respond to some of the things we've heard around any choice building and have some ideas that I can focus our work. And it's awesome. We've heard. So we'll be chairing from them on Friday. Okay, keep in touch with me if you a couple of folks have reached out with agenda thoughts for the next couple of weeks, but the clock is ticking down. So in terms of the initial thing burning, you want to make sure that we try to take some testimony on and prepare for next year or get out the door. We've got a bunch of different vehicles moving and I know that there's there are people that are looking at our agenda carefully and conversation with many stakeholders in an outside of the room to try to make sure we get done as much good work as we can. Maybe leave a few things to chew on when we get back in next year. So please, please be in touch if there's any strong feelings on the response. So we'll adjourn go live for now. And I want everybody back here to 45. All right, everybody. Welcome back to the House committee on government operations military affairs. We are in our second part this morning, returning to conversations about S 17 and act relating sheriff's reforms and have a couple of our team from the department of state's attorneys and sheriff's and so if you would both like to introduce yourselves and thank you for being here today. Good morning committee members. Nice to see you all. My name is Annie Newman. I'm the director of labor relations and operations for the month department of states attorneys and sheriffs. And I'm going to vote an attorney currently working with the department of state's attorneys and sheriffs with that obviously S 17 has gone through a lot of iterations both in the Senate side. Now we're looking at amendment version 1.2 here on the House side, which we just so you know that I circulated some language that is not something we're presenting. So it's just there are some ideas for consideration, but the committee doesn't have that. Not putting that on the table yet. Okay. Thank you for the patient. Nevertheless, we're happy with the direction generally that S 17 is going in. And there are really four principles that have gotten internal discussions in the department. It's looking at how can there be greater accountability within the sheriff's organizations? How can there be transparency in terms of contracting and finance? How can we ensure professionalism within sheriff's departments? And also how can we do some things to modernize the statutes that govern and regulate us? So turning to a different language that is out there. We'll start with our section to focus on focused on duties and what happens when you have a transition with the sheriff's department. This is one of those areas where accountability is key. Making making sure that the property and resources are continued to be held by the sheriff's department that cannot be squandered away liquidated into bonuses or things like that. The role of the assistant judges or the side judges as they're called is important as a check. They have control over the treasury for county government. And here we are supportive of a plan and entails the side judges continuing to have a active role in maintaining the plan for disposition of any property when you have a Wayne duck share. And also making sure that that plan when completed is then turned over to the auditor of accounts or its reconciliation with the finances of the department in the long term and likewise that the assistant judges maintain a record of that as well. We believe that that ensures a greater degree of transparency and also will have sheriffs during that lame duck period maintain a modicum of accountability and also ensure that they continue to act in the public's best interest in the best interest of the long term success of that department. A pause there if there are any questions on. So one question that has come up. So we're talking about the period when a sheriff has said I'm not running for reelection or and so there's this. The S17 contemplates that there be additional potential for audit in that time and also the sort of need for two signatures of sign off. And one of the conversations that we've had is about the filing of a plan for, you know, there are assets that are being sold where you mentioned a few of those examples. What we have is is the side judge the best the assistant judge the best positioned sort of independent official that's at that level, or should we consider that that sign off could come potentially from like the sheriff's executive committee or some other entity that isn't directly involved but might have more insight into what's an appropriate expenditure or a sale or something that might be happening versus I just I don't know how much in some communities the side judges would really have insight and be able to sign off on some of those decisions. So that was a question that that's come up. Well I think that's a key issue which is do the assistant judges actually know that they have, you know that power. And I think what confuses the issue is that Sheriff's really have three distinct funds. They have a state funding stream, a counter funding stream and then their own contracts so that really makes regulating the entirety of Sheriff's Department difficult. So the Department of State Secretaries and Sheriff's right now is limited really to supervision over state transport deputies and you know very limited level of support to Sheriff's departments. One of the reasons this bill has come about is because concerned that the third prong of funding that being the contract funding is really just left to one statutory section and then discretion of the individual Sheriff's departments about how they regulate, manage and pursue those contracts and then use those funds. So the argument for the assistant judges to there may be education requirements then to be familiar with what they need to be looking for concern with, but ultimately they are also elected leaders who are selected by the populace of that particular county and control at least some county funds and county money that is distributed so they already have a pretty sure relationship to the county. They are elected popularly by the citizens that county. It seems that they are best situated to understand and assess what's going on with law enforcement in that county and also what the mood of the public is about how operations are going there so in a situation where there is no one single player and state government or county government to do that they seem to be maybe the best best fit for lack of a clear choice. I think one of the things that would be helpful though is the side judges would probably need some training in terms of what are the bills have to be paid an outgoing sheriff. Still, we wouldn't want to be in a situation where things were being sold off and to the extent that payroll can't be made and you know benefits stop because they didn't pay premiums on health insurance so there would either need to be some really clear directions to side judges or these are the things you need to make sure are happening or it could even be the side judges in consultation with the sheriff's executive committee. I think about a time back down in WINDOW where the other sheriffs came to the financial assistance financial aid of the winning county sheriff. So they had obviously invested interest in making sure and part of the reason they did that is they were making sure that the department was able to do things like make payroll. So I guess I throw those two points in. One, I don't necessarily know that all the side judges recognize what their role is right now today as we saw in Orange County where they said we didn't know that we should be watching what was being sold off. Number two, they would definitely need some review and training and maybe short guidelines as to what they need to be looking for and then maybe they should consult with the sheriff's executive committee if it's not clear. Some of the sheriffs going out are just basically handing over the checkbook and there won't be any issues but if there are issues the side judges may or may not know and they might need to guide. I like the language that you use around in consultation with because if it's the side judges in their elected role and they're down at the county level that are signing off. But they've got a clear legislative guidance that they should consult with the sheriffs who are in that county but are the experienced people that the sheriffs have elected to the executive committee. That might be a way to sort of square the circle and be interested in hearing the sheriff's position on that. I'm thinking that that might be the best way to pull in the right voices if there is any. That is sure some subject matter expertise then about what would be normal to wind out during the end of a sheriff's tenure versus what would be something out of the ordinary. With that we move on to discussion of audits under section 290B. There are few areas that we thought there could be some further enhancement or clarification. One is in subpart nine which concerns procedures about notifying the auditor of accounts and department about participation in non public organizations and there's been at least one. I think fairly well known example of a share participating in an external organization is really supplementing the efforts are trying to collect its own source of revenue to bolster sheriff's department operations. Right now that's the language that we've seen in draft form talks about where the employee or employee of the sheriff's department or the sheriff's chamber herself is a director in an organization. We think that should be broader to include participation knowing that there can be sometimes a compulsive or coercive effect even if just a sheriff is sitting as part of some. A sense will nonprofit or other organization trying to funnel money to that department so that's fairly minor change but we think that a broader view is appropriate for that limited scope of cases and additionally in the in subpart. I actually like to have an addition to subpart E of 24 BSA 290B and parent that E sorry. We thought that it would be appropriate to expressly provide that an appropriation shall be made to the department of state strengths and sheriffs in support of the department of audits. It's a technical thing but it's I think important to make sure that there's not an unfunded mandate to do this given that there may be more audit activity than historically there. So even if just signaling by this committee or preparations as maybe we think it's important to ensure that that's sustainable in the long term and that this isn't a priority right now while there's a lot of attention on the sheriff's department. We currently have a line out of in our budget to support audits which are the first that have been in the sheriff's every other year. So we actually have an audit line in our budget. We estimated that if the sheriffs have expressed concern about being subjected to cost that they don't they don't have. So we thought about what would it cost to put money enough money in the budget to cover those so that if the order of accounts said I don't like what I'm hearing over in this county I want to take a look. We might might be able just to support that with additional money to the to the audit line in our budget. I think I estimated with our financial person Barbara and about $120,000 additional. Representative Maruki has question. This is something that has come up as we've been talking about the whole concept of audits. Those different levels of audit. Are we talking about a full audit. Just an audit report. So what happens is that every other year there's a full audit. Next year it's basically a mini audit. I want to say. I don't know how how how auditor Hoffa calls it, but it's a. And Anderson might be able to answer what they call it, but we call it sort of a very minimal minimal audits scripture books and we'll take that. It's the current line of. So, $140,000, I think it would be increased in that. Remember. It was. I have to start. I'm going to say. I think we have about. 60 or 80,000, but I would I'll check and get back to you. I'll send it in. And that was the extent of our comments or recommendations with respect to section 3 at this time. Section 4 concerning conflicts of interest or the appearance of conflicts of interest is an area also right for discussion. The. House and Senate got these within the past few years have. Promulgated and put into effect state code of ethics and the apparatus for that. One of the things that was concerning from the Senate past version of S 17 was creation of almost a parallel organization or some parallel standards that would only really apply to share. So central burden on the department of state strengths and share to then regulate how that worked. This was an area where we felt that there's already an existing system that covers many other state officers and boys. And that adaptation of the state code of ethics for application to share was more appropriate than creating a standalone. Basis we also believe to get a little bit ahead that. The adherence to that policy provides clarity and consistency and also might lead to some reconsideration of changes made to the use of the 5%. On given adoption potential adoption or requirement statute for that for use of model policies along with then more robust auditing and that of course the applicability and consequences of. In subject to the state code of ethics. Our proposal really focuses on integrating the state code of ethics and applying it to share us and then limiting the department's role to being. A recipient and more or less have responsibility to that and then forward those on to the state ethics commission if appropriate. Some of those complaints of course could logically be sent back to a shares department if it's a complaint. Let's say about a deputy sheriff where a sheriff may be able to internally deal with that through this one. But the circumstances where it's the share of him or herself that may then require forwarding on for a formal investigation. But we believe that that's a robust and strong organization that could handle that type of work. And again, it makes sense that as constitutional officers sheriffs be subject to the same standards as the secretary of state or the attorney general or the lieutenant governor and so on. Is it is it possible that it might be more of a question for deputy director Simon purpose rights director Simons or chairs rel but. If we went with the my concern and this came up in testimony last week about just going to the state code of ethics is that that enforcement and accountability piece. We have really seen in its current construct the ethics commission be able to do much more than make some recommendations oftentimes is a really useful again just making. And having just the exposure is enough to create some accountability for certain practices that I think the public would have concern about but in the case of some of the behaviors we've seen from a couple sheriffs over the years. I wonder if. Just going to the state code of ethics. If there was a serious enough violation that that in and of itself could trigger for all first decertification with the criminal justice council I guess that's what I'm thinking is do you think that if we if we go to a construct where said that this conflict of interest policy that's in the Senate has passed we're really looking at just bringing the sheriff under the state code of ethics. If there are really serious ethical complaints you know with those just go back to the department. Because if it's the sheriff himself it's one thing if it's a deputy as you distract right but if it's the sheriff it's the leader the constitutionally elected officer there. What's you know what's the sort of next layer of accountability if it's a really serious complaint. Right. So I think two things are important of course that it's both the decertification proceedings or decertification proceedings to the criminal justice council and also the state ethics proceedings don't preclude pursuit of criminal prosecution by an appropriate entity or investigation by an outside organization. And you know it's pretty clear and all the share those kind of things that are it's typically been the policy police that come in to investigate and then either combination of local or complex state attorney taking on that role. What I will note is that in going back to section one category be misconduct through the training council purview already includes misuse of official position for personal or economic gain. So that covers a broad range of the type of financial irregularities or ethical concerns that could trigger a proceeding from the training council. And then the proposed additions of sub part H and I include gross negligence or local misconduct in the performance of duties. I think that my interpretation would be that could include financial irregularities or other mismanagement of the department. Likewise abuse the powers grant through law enforcement certification under section twenty three fifty eight of this title could also apply to some circumstances where there's unethical behavior or misuse of official position for some sort of private or personal gain. Okay. So one of the things that we ran into. I've been talking to legislative council to try to find a way through this. The one of the things I keep coming back to is that what I would really like to have a see in the future is the ability when there's a serious criminal charge for there to be a pause suspension in the Sheriff's authority and have somebody stepping in pending the outcome. And I asked, you know, legislative council and put Mr. Devlin several rounds of trying to work with, you know, our team here to figure out a way that doesn't violate the Constitution for us to have that layer of accountability. And I'm wondering if, you know, if we have an intimate where we have a sheriff who, for instance, is charged with embezzlement. This is something that we've, you know, the kind of case that we've had in the past is not just like. There isn't, shorter than being in prison under current statute, there isn't really a way to suspend their ability to move money around or continue to affect, you know, the benefits or the duties of their deputies. So, I mean, my, I feel like I keep running up against, I mean, just a little wax where we're talking about things like side judges signing off on stuff and what we're really faced with with some of these cases is a much bigger challenge. Yeah. So a few things I think certainly we're aware of the constitutional concerns about the limits of the legislature to regulate a constitutional officer such as a sheriff. But that being said, of course, the longstanding principle is no person can or should be above the law. And I'll give some examples. So I was the general director of the prosecutor and former sheriff, Peter Newton's case, and we had substantial concerns from law enforcement and prosecutorial side about the ability to use that office to potentially interfere with the rights of the victim in that case to persuade or, you know, with other witnesses, for example, and that really comes from the power that's vested in a sheriff as a principal law enforcement officer in a county. We also concerns about possession and use and access to firearms. In that case, we saw it and obtained from the court conditions of the week, which did several things one precluded handling of firearms by Sheriff Newton, and I'll just clarify course all this is public record and in the court document, substantiate this a lot. This closing anything to be out of term. We also had argument about to what extent could the court inhibit or limit the law enforcement duties of the sheriff. And where we reached was language that precluded the exercise of direct law enforcement duties that would be going out on patrol that would be carrying the service weapon as part of duties. It left really the administrative functions of the sheriff intact. So things like approving payroll or dealing with hiring or, you know, other things that don't require a law enforcement certification. So if you kind of look at those two things that there are things that a sheriff does that are principally law enforcement activities that require certification from the Vermont Criminal Justice Council versus those things that, you know, any person could do without having such certification. So that was the order of the court that precluded him from carrying a firearm and from exercising law enforcement duties during that time period. If that time period was conditions of release. So there there been an arraignment but not yet a conviction. Correct. So he was arraigned the problem caused and found for multiple fences. And then the case went on and as of yet not resolved in his pending trial. And the flip of that would be if you had somebody who had been charged with embezzlement, you wouldn't want them doing administrative duties, you wouldn't want them handling a checkbook, approving time sheets, doing anything with relationship to money.  So there's a criminal charge pending, but administratively, judge, we don't think that this person should have any ability to oversee administrative responsibilities either even in terms of hiring, because the person's proven himself at that point or potentially that there's inappropriate decision making going on in terms of the function of the office. Interestingly, we talked about conditions of release. So I know this is not the condition where everyone hears about them all the time. But 13 BSA 7554 weighs out two different criteria or two different sections that the court considers when bashing conditions. One deals with risk of flight. The second part is about ensuring public safety. And that's really where a lot more of the debate takes place. Right now there's a provision. It's subpart A to E. And this is limited as any just mentioned to embezzlement. Right now our statutes allow for court to impose a condition that allows for the suspension of an officer's duties in whole or in part. If the defendant is a state county or municipal officer charged with violation, violating section 2537 of title 13 and the court finds it necessary to protect the public. So that statute is a particular embezzlement of public funds. One of our proposals is to broaden that I'm given the precedent set here to clarify that the court when dealing with any law enforcement officer who has committed eight or has been found, probably caused been found to have committed a crime, not excluding not limiting it to just embezzlement. And the court finds that doing so that is a suspension of their duties is that it's in the interest of justice. So there are a lot of we obviously there's a huge discussion about law enforcement accountability and misconduct and public public trust is not necessarily always the same as public safety. So there are maybe policy questions or considerations that the legislature could consider about granting the court authority with appropriate findings to suspend those law enforcement portion of duties which from our perspective is distinct from removing someone from office and it's not tantamount to impeachment. Okay. So, boy, I just want to make it really clear that the department position is that, you know, if a court finds probable cause that they should be able to suspend the duties of a sheriff temporarily until the issue is resolved or I guess or until the sheriff would be impeached or exonerated. I think if considerations were not on the table that would be completely logical and looking at the other things a court can do. So if let's say a sheriff is accused of committing a crime, aggravated assault with a deadly weapon on somebody, they they shoot a neighbor. If that person were not a sheriff, we'd be looking at the standard, you know, panoply of things. Should that person be held without bail because of the danger that they, you know, pose to the public? Are they at flight risk? You know, should there be bail involved because of their potential to leave the state and then other conditions? You know, if you have a firearm related incident, probably 99% of times courts are going to issue an order saying this person should not have a firearm pending the adjudication of the case. There can be other things too that are restrictive or could preclude somebody from exercising their duties. A 24-hour curfew, for example. Courts can issue a curfew and not allow people to leave for any exceptions, although frequently there's legal, medical or work exceptions that get worked in. But the court has very broad power in setting one's proper costs for a charge that's been found to tailor conditions that satisfy public safety. And, you know, applying that back to law enforcement defendants or a sheriff, they do have heightened authority and responsibility because of the power to arrest, the power to, you know, carry weapons, the power to enter, you know, homes under extreme circumstances where we as regular, you know, citizens could not. So balancing, you know, the public safety analysis can be somewhat different when you're dealing with a law enforcement defendant versus someone else. And just to add, I think that Senator White, when she testified, noted that, you know, accountability is one of the things people are really hungry for when looking at, you know, the reform of the sheriff's profession.  And again, none of us are constitutional scholars or will defer to those who are, but the legislature has had on the books for years now, effectively finding a circumstance where the sheriff can be suspended when he or she is incapacitated or can't discharge duties. When they're in jail. You know, are there other circumstances where someone can't discharge their duties because of court order condition or infirmity or what do you do if a sheriff is arrested and held out of state and is physically not present or able to discharge their duties. There's any number of circumstances that seem illuminated by that existing statutory authority. When, if this committee considers further any questions of suspension. They're from a logical standpoint, there should be something between doing nothing and then they, you know, the ultimate option of impeachment. Noting the force to that impeachment can sometimes run into hurdles of a prosecutor, let's say not wanting to extend immunity, which would preclude that person from being able to present a defense to the House or a trial for the Senate. Suspension is a different concept than a removal from office, especially if that remains a compensated position where there's some, you know, limited duties that are remain under such suspension. The temporary nature of it, making things contingent upon whether the House does or does not initiate impeachment proceedings and maybe putting a clock on that time period. So there's some period to react to respond. But I think it's untenable is to have sworn law enforcement officers who are not really accountable to anyone other than voters. Discharging duties while they're facing serious charges and that's not a conceptual issue. It's one that we're dealing with even to this day in the state. So we've heard pretty loud and clear from legislative council that the suspension, the even a temporary one gets us into pretty murky territory constitution and I share the assertion you just made is something that I've said in some version, probably several years ago, I've heard here that it's pretty, pretty extreme that even when there's been a crime committed, there's not, there's not any interim recourse that matters completely settled whether it's, you know, criminal that we don't have a whole lot of power and even the decertification and that process leaves all of the administrative duties of the sheriff in tact. The question I have, another question that I have and this do you want to review it might be another one for the criminal justice council is the existence of a pending criminal trial. So if there hasn't probably caused there's been an arraignment of a sheriff, even the that that in some ways would preclude the criminal justice council from doing their own investigation and as I understand it today, I mean, there's a hesitation for them to do anything parallel. So then you end up with a situation where because somebody has been charged with a crime, but hasn't yet been convicted that we're actually delaying the decertification. I think that hesitation is the key word there.  You know, I think the main goal is to not take a prosecution likewise not take that process so if a sheriff comes in provides a defense making sure that the information there does not leak back and take the prosecution or impact the defendant sheriff's rights and criminal court. So it's a complexity and that's I think drives hesitation but it's not an absolute bar on proceeding in our ways.  So there is already that's a US Supreme Court ruling. One other friction point with the constitutionality analysis is that the constitution is fairly sparks and defining what shares do and what their roles are. Whereas the duties of the sheriff are really a construct of statutory law. So already this bit at 17 is looking to amend section 290. So one alternate path that committee could explore is, you know, having contingencies based upon what a sheriff's duties are based upon either level of law enforcement certification or other other qualifying circumstances. Again, I further the constitutional wise where it's made disagree but I want to empower the committee with any idea to try to expand that and again it doesn't make sense. It doesn't make sense to legislate to define terms of scope of duties yet not have the ability to then restrict work identify circumstances where there could be a limitation on duties. We'll have more questions for legislative council on this I'm sure but I appreciate the department's position on it because it's it's one that I since we started these conversations months ago I've been wrestling with and this committee's been wrestling. Did you have further testimony of other sections. Yes, and I can be brief given the time to moving on to section 5 fairly complicated one in terms of dealing with. We have a lot the big question here of really what are we doing with share some contracts and what degree of accountability is necessary. I think that chair Anderson already testified before the committee about what, you know, I think everyone's probably exhausted if you're what 5% is and what it can be used for. But the question remains is, are if if other departments consider this if there are other safeguards, such as those that are contemplated or have been discussed about the adoption of model policies about expanding the staffing oversight of the department states attorneys and sheriffs about being subject to the state ethics code, for example, and then having model policies, particularly with compensation and benefits. Is there as pressing of a need to actually, you know, reform reform that and looking at this way it's changing how that can be used may substantially mitigated or addressed by including those safeguards that deal with transparency and accountability and have real consequence or ability of other outside entities to react and detect malfeasance if it's occurring. So that's a big policy question for the community to consider. Certainly our understandings that the shares are generally the view that that is the preferred option versus changing the ability to use the 5% of what they administrative overhead from the contracts as they are able to do now. Some other things as well of course is that when considering who can be involved in the development of model policies right now the criminal justice training council does not generally have policies or deal with the regulation of finances in law enforcement departments because they're generally looking. And this would be on the conflict of interest policy as well, but they're generally looking at municipal or state entities where the executive, but whether it's achieve or the criminal in the case of state police don't have direct control over the budget and rather are having that program from a legislative body and are not in the business of going out and generating their own funds. So we're not sure that the council is currently situated to really be the correct place to generate those policies. The other point as well is, you know, the term model policy is out there and the question is a lot of Sheriff Anderson probably speak just better, but obviously operations in Essex County are fundamentally different than they are in Wyndham County and one size fits all may not always be best. And there's some concern within the Sheriff's departments and membership that making a model policy compulsory can have some significant drawbacks, but having guardrails which they can I guess base their own policies on may be appropriate. That comes of course at the expense of then having potential for a little less consistency from what the legislature may desire. We don't have a direct proposal on that, but we do want to note that making sure that there's clarity in terms of what is a model policy versus those that should be compulsory are going to be required would be helpful for the department and the sheriff's in terms of navigating reform. The really final point I will make is there's been some discussion about modifying or cleaning up some of the language around who is a state employee with the sheriff's department presently it's the state transport deputies. There's also the contemplation in the bill SMT has passed to include mandates concerning court security also looking at the requirement to assist victims of domestic violence or individuals who receive an RFA have their property. Managed to two points on that the unfunded mandate comportion of the assistance to intimate plaintiffs in the RFA is is problematic and we'd be looking for some language to clarify in appropriation to either the department or some other entity that the sheriff's could seek reimbursement for for those services that are rendered. And in terms of transport deputies section 290 B and 296 both deal with this and this is a broader conversation about what proceedings should the state transport deputies be used for and one thing we would like to see come out as clarity that the state transport deputy should only be utilized in cases where the state of Vermont is a party to the proceeding. So that covers our criminal that covers criminal court proceedings, youthful offender proceedings, chins proceedings where a juvenile isn't you know in some sort of custody needs transport and then also mental health proceedings that are initiated by the state of Vermont through the commissioner of mental health. Beyond that there are other circumstances where people may be transferred to court that's historically or traditionally by the Department of Corrections and due to some of their staffing and policy concerns are less frequently available to do that means some courts have tried to look and pigeonhole or compel the state transport deputy program for issues with the state of Vermont is not a party so that could be civil proceedings or other things and our department concerns that as the courts are working through backlog and courts in the open the level and volume of transports for core functions such as criminal work is really gone back up and return to you know close to or closer to pre pandemic levels. So, allowing or clarifying that if the judiciary wishes to have someone who's incarcerated at a civil or not hearing what the state's not a proceeding that they could contract with the sheriff's and they could provide transport outside the scope of the state transport contract or contract with the Department of Corrections. That's getting into the technical side of things but we think that's important to make sure that scarce resource and transport is used in the most prudent way to support the court cases. Is that particular issue address at all and that's something that's passed. I don't recall if it was if it came out of the Senate bill as it came across but we've been talking about this is sort of just recently has been dumped attempted to be dumped on the department and our transport deputies are dealing as Rory said with moving people for their criminal proceedings or their chins proceed whatever that is and an example that Rory gave which I think is really instructive is you know if somebody in a facility. Somebody's incarcerated and they were in a car accident you know 2 years ago and they're suing all state insurance company why and they have to get to court they've decided why would a state transport deputy. Have to manage getting that person to court for that proceeding has nothing to do with the state of Vermont is not it's not a party to that these are state employees being paid by taxpayer funds. What we don't have the capacity we truly do not have the capacity to manage this when this first came out. I you know it's the conversation that are you're going to start doing this now and I contacted DOC and I said we have no capacity to do this we have nothing in our budget to do this we didn't anticipate any of this work. This is always been on DOC. And we just it's it's just not really a state it's not the state of Vermont is not a party to this. These are state employees doing work for the state of Vermont and not for private private lawsuits. And just for context I don't believe this is in the original Senate passed version of 17 but it was important consideration when we started talking about the oversight administration of the sheriff's and what what resource in terms of the department are needed. What things could change and then also how do you account for and audit those expenses and that was a concern of non traditional transports. Coming into that funding stream of what that means you know in the future. The final point to make is really looking at the proposal for an oversight task force and report. Ultimately because of some of the things that are on the table to be considered the need or the scope of any report or call back could change. Particularly if there is a mandate for the adoption of model policies already in statute if there is a possibility of the state code of ethics. Some of the questions being presented are going to be resolved by the legislature and not really needing further analysis. Ultimately in consultation with the sheriffs are departments of the belief that if there is a report our preference would be that it be the department states turning chairs being tasked to provide reports of the legislature at at some point in time and that the legislature identified parties or entities with whom the department is required to consult and certainly the list of you know agencies like DHR, the sheriff's association, the state auditor, the criminal justice council, all things and of course the county assistant judges who we've been talking about today all make sense for further changes but the consensus was that that was something that could be undertaken internally specifically because many of the remaining questions would result from really be geared towards the adoption of policies and resourcing for the department not the overall statutory authority that are applicable to sheriffs. I think there's two points one and they have mentioned this to me once before, but the auditors state auditors manual in terms of fiscal oversight and how to have how the sheriffs conduct all of their fiscal work is really it's done and then it's been in play for years it's an excellent excellent policy model and most of the sheriffs are following that the bookkeepers and their administrative staff are trained in it by the state auditor's office does does it's zoom calls over the course of the past few years it's really I could feel like that there are areas that particularly there was a question about 5% where we talked about making sure it's really clear what it should or should not be used for that's fine and I think the auditor would agree with that but in terms of sort of day to day fiscal operations it's a great policy I think that the criminal justice training council has a lot of work that they're doing and have done around training law enforcement officers I feel like you know that would be a big section of what this proposed committee would be doing and again I feel like that's kind of reinventing the wheel we have really excellent guidance from the criminal justice training council that training law enforcement officers and I think that those areas here whether whether it's ethical considerations or it's around 5% I feel like those are the kinds of things that the department could be doing and and I come back to the term in consultation with all these other groups but spending you know having this this large committee to talk about a bunch of things that are in other already being reviewed by the auditor or the criminal justice training council or by courts or by this legislature is is probably not necessary. It sounded like from what the Senate's conversation was about this was that they're in just reading the plaintext of the section about the oversight task force that they created. There's a real desire to look at sort of what a sheriff's do what do we really want a sheriff's to do how should they be organized what should the oversight be in a much broader context than just the development of model policy and some of these administrative functions and so I struggle sometimes with are we trying to figure out the future of how we want to deliver public safety well here and is that colliding with some of the other reform efforts that we're making and the sort of evolution of the Vermont criminal justice council we passed two bills already out of this committee about the Vermont criminal justice council in support of their work in sort of evolving the training accountability efforts for our enforcement so I don't want to duplicate those right here that I'm clear but I guess what I would ask is would you recommend if we do anything like this if we're tasking the department or the department of consultation with some of these individuals. Do you feel that there is a need for us to look at the structure of the office of sheriff and how it's administered throughout the state because every time we have a conversation about this bill I think about things like what the sheriff's doing in one county in the neighboring county are completely different and we've almost incentivized that with the structure they have. I mean should we, is it the department's recommendation that we only focus really narrowly on considering policy for administrative functions and things like compensation benefits I mean or should we be looking at is this the right way to deliver these public safety functions in the long run. So I can get a threshold that's then a conversation that really goes beyond the sheriff's department which includes public safety in our municipal departments or you know other a lot of other stakeholders are not contemplated here and understanding that. So I'll give my experience in Washington County. Washington County is you know one of the many sides of the county is in the state and we are fortunate to have a number of municipal departments. So they really take over most of the day to day policing and the sheriff's department fills in some traffic contracts that transport people to and from court and some just general law enforcement system. So not saying whether it's good thing or bad thing. There isn't a huge role for the Washington County Sheriff's Department because the areas where we have dense population are covered by municipal departments and then state police cover other areas. It is a completely different story and other counties where your sheriff's department is effectively the only law enforcement entity there. So our most rural counties Grand Isle Essex are almost completely rely upon the sheriff's department and then other communities and Wyndham County where Sheriff Anderson is located. Some of those communities in loop creating their own municipal departments have elected to contract with the sheriff for law enforcement services. So one thing I think I think I can say safe when that department is flexibility within the statutes can have its drawbacks. But that flexibility is what enables the provision of this essential public safety services in you know in a manner that serves constituencies and ultimately you know we can hope that voters make informed decisions. But certainly a lot of the sheriff's races around the state this year were in fact contested and that's a healthy sign that there are different competing visions of how to deliver the services being presented to voters. And ultimately there is the check where every 40 years everyone has the choice to select the leadership that they so desire. I think from any review that the department would do in consultation with other groups would would raise and raise some ideas. We know now that it talks with general law enforcement duties with processing civil service civil process service civil process. We know that they have some specific duties in in the statute transportation of prisoners and juveniles. So we know that there are some things if there were if in those conversations the department of other groups where things are highlighted. I think we would put that out for people to consider that. But again as Rory says that it's very different in Chittenden County than it is in Grand Isle County with that is you know Sheriff Allen is the law enforcement that area. And if somebody is kicking your door in at two in the morning you're calling the sheriff's department because state police are 45 minutes away. So I think we have to look at I think it's a two year question Mr. Chair. I think that all good ideas can come through the process. And I think we would be really working towards making sure that we are we don't have blinders on that we're looking at and hearing from other people. As to what what they what they want to see. But some of it may already be there. You know a lot of the stuff that was pointed out this morning. But you know where he said it's already in 290 or it's in here it's there. I think it's a matter of just making sure that we really do know what's already existing where the gaps are. So it's just my thought about this. I don't feel that the study committee is is necessary in the cup in the way it's set up here. Do you have any testimony of other parts of the bill before I ask you a couple of questions about the 5%. I was going to address. I keep looking at my hand. I was reached out at one point. Before today to my former finance commissioner over the Department of Labor and I was I think I had testified to the committee about state of Vermont when they are and they accept contracts or grants. You know what do they do with the entities that they have what do they charge and I think it's a really so if you look at the 5% and I want to say what I'm about to say doesn't doesn't in any way suggest that you shouldn't look at what they should what a share should be able to do 5% or how much they should be able to So given that but some people said why can they do that. So if you if you a sheriff does a contract for services and they commit let's say to a local hospital making this up to provide some security and they commit to staff people to do that. So in that contract that they're writing there they're charging for that employees time they can charge for if it's full time they can charge for the benefits salary benefits uses a car if the car goes over a portion of the person's liability insurance or things like that. So the sheriff can write a contract that is recouping the cost but ultimately that contract and the performance of that contract is hopefully there's some performance measures written into the contract for the share. Ultimately the sheriff is responsible for ensuring that the contract is all the all the guarantees are met that it's staffed. The sheriff owns that you know the overall negotiations with their general liability company with the worker comp and all of that the sheriff has a lot of stuff that goes into giving a body over to do some work. Similarly in the state of Vermont. I was thinking about this. I know that when when I was serving over at laser conditioner that my salary was charged to most of the federal grants that were that were brought in a portion of myself not all of it and of the general councils and of the director of that program even though not none of us will say the three of us none of us did the work for that contract but ultimately we were considered to be responsible for the performance and the staffing and all of the things are required. So interestingly when I was reached out I asked about what what do we my question was remind me remind me how much we were charging into serve that stuff and I mentioned that this was in relationship to the 5% of the sheriff and this is what came back to me from our finance director there. Most indirect rates are typically much higher than 5%. In fact, the federal government's de minimis indirect rate is 10% and he quoted the language for me. Vidal's current indirect budgeting rate is 18% of salaries are most recently submitted proposal is asking for a budgeting rate of 23% of salaries. As an aside, when I worked at UVM and this is this is the person that's writing to me it was common to have UVM have an indirect rate of 52% of the total award. So the quote here then talks about the de minimis rate of 10%. Now what is that what does that provide you know why can it why can the state agency charge the federal government de minimis rate of 10% or more. Basically because what the theory is is that the people who are in charge of that contract and ultimately responsible. Part of their salary is that they should be spending some time. On that on that program and watching that program. That's what I did at labor. I mean I all of the grants that we were taking in this month. Part of the labor is 92% of what most of our money is coming from a bunch of different federal grants, but ultimately is my responsibility every week to be watching how the performance of those grants was done. Did we have people doing what they said they were going to do. We were being paid by the federal government to do some work. So in essence the 5% of you know ultimately how does 5% come into these contracts. It's similarly the same thing. So in essence that sheriff's time is this is a portion of that sheriff's time now again I want to say very clearly that I completely support committees review of our consideration of saying what can be done with that 5%. Clearly you want that money to be used prefer you know most preferably for the benefit of the citizens and the department. In this where for example the one thing I have some concerns about where it talks about it cannot be used for retirement contributions or employment benefits. The one thing that I think was lost on the situation with the Caledonia sheriff and I want to I want to basically stick up for for what Sheriff Shatney did in some regard is that some of the money that he was award and he was never able he never felt that he was able to and I think it's probably true. Because he was a smaller department. He was never able to fiscally fund retirement and health insurance for his employees. Some of the other larger departments do they they pay into beamers or they have they have a separate health insurance. He never did that. So part of those that those bonuses he gave were was in essence I can't give you health insurance and retirement but I'm giving you some money that you can pay your health insurance premium and you can put some money into a 401k if you so choose. It had me not done that. You know those employees would have you know they'd have to be taking that out of their own salary with no employee and no employer support. And so at least to the extent that I know that that was part of what what Sheriff Shatney did once or twice a year was to help them with some. And again I don't want to talk you know not necessarily the larger bonuses of salary because I think that has to be contained. I really do. But that piece of it I think was actually appropriate to say I can't pay your I can't give you health insurance. I can't give you retirement because I can't afford it as a department but I'm going to give you some money and if you choose to do that. So this language basically would preclude as written preclude some of that. So put some definitely put some some as we keep calling the guardrails I call bumpers around how they can spend that money no question that has to be done. No question but but not necessarily don't throw the baby out with the bathwater because there's some good intent in some of what was being done. So any it's kind of like even in the auditor's response or recommendations in the light of that revelation of those you know on the surface the eye popping $400,000 of bonuses. This is what with this that the sheriff wasn't doing anything that was illegal or against, you know, policy because there isn't really the heart of the heart of our girls there isn't a lot of policy that says, this is the appropriate way to do this this is how you document it in a way that I think would give the sense that there was, you know, some rationale, other than just this is what this particular share of things at this moment is the right thing to do. And I'm wondering if you kind of agree with the auditor's perspective that it's on us to sort of move into a space where there's a more consistent policy adoption. Yes, absolutely. And I think that's one area where the Sheriff's Association and Department would work very quickly to get a policy in place so that the sheriff's know what they should or should not be doing around this money. And the other thing I, you know, I, that has come up as the issue of compensation for the sheriff him or herself. And the question is, you've heard, I think, Sheriff Anderson, perhaps Sheriff Mark who both testify, like their salary level versus their counterparts in the state police. And I did some research and tried to look at what would it look like if they were being paid at the same level as a senior, you know, a lieutenant or a major what our captain, what would it look like with similar years of service. You know, you can build a pay grid that so there's there's salary statutorily set, just like the state's attorneys. So, if the question is, in addition to their, their statutory salary, what would they be allowed to take. If you see one of those things where you say, Okay, this is the grid, you have 22 years of law enforcement experience. And in that we're going to compare you to pick pick one, a captain, you know, so you can take off the grid you can take. If you if you earn that money you can supplement yourself with X. And you might even want to say up to a cap of X. But there's, there are ways to develop compensation plans for the sheriff's that that will not have people being upset or concerned about about the sheriff's overly enriching themselves. Questions for warrior any for me. Wrap up this conversation for today. Still is very murky to me it's like. At one point earlier, said that the sheriff draws part of the 5% as an administrative fee for monitoring the contracts that. It's kind of equates the salary. Or does it kind of equate to, if it's the sheriff's contract. And it's outside the state. Business. Then is the sheriff running a business where he's compensated. And if that is compensation. And why isn't any of our business. So that's not been that's not been delineated. That is that is exactly dead on point because you that this construct of a sheriff's department is not found anywhere else in state government. Basically have a statutorily established departments that are these public private entities.  You know, the private money through the contracts, yet there's, you know, but review them as state we look at them as public officials, which they are in state people are right. I think representative Hooper is correct. I'll point out that, for example, the state transport program of which the state transport deputies are a part of our department. That five percent that the sheriff takes in is buying the helping to buy the cars. The state of Vermont does not provide the cars, uniforms, the guns, or sending or send people to the academy to do those jobs. That five percent is helping to pay for that. So it's really it is exactly as you're saying. Is the sheriff responsible for if it's not used for the business. The sheriff responsible paying income tax. If there's any money you take as compensation as an employee, you have to pay income tax on. So, you know, if that happens. Sort of is a tipping point if you're paying income tax. But I don't know. Are you getting it? The money that is billed through a contract to cover overhead expenses doesn't go directly to the sheriff as an individual comes into the sheriff's office. And then under the current construct, they have the ability to use those funds to compensate staff to pay for a car and buy insurance and and also compensate themselves. But they only would get charged income tax when they sort of pay themselves those funds. It's not as if they're not like the sheriff's office is in a corporation that pays. Well, it's the sheriff built a contract and includes overhead and compensation in the contract, knowing that there's five percent that is over and above all the contract provisions that. Those to the sheriff then that sort of. I mean, it's this very market. You can argue, I think. Weird stuff based on what we've heard so far. I guess I guess maybe what I would ask is. Right now. Short of the audits. Is there anything that sort of exposes what any of the funds that come into a sheriff's office really get used for? I mean, the auditors audits should be able to show you that. And the question that representative Hooper just asked it may be better addressed to sheriff Anderson and Mark Koo in terms of talking about that. I don't want to go get out of this because it's sort of I look at it as I look at it as this analogy state government what we've done over the years. Nobody's. But I think that's another question addressed to them. Can I address one of those? So the other thing is that I know in this, you're looking at establishing court security through the sheriffs. I said before, I'm concerned that if it's left specifically just to redeem staff. You're not going to have the, you're not going to have the consistency and the coverage that you really need. I think incorporating those positions as state employees gives you the consistency the court is saying the court testified that they can't open. They can't operate if they don't feel that they can operate without security. I think that's true. Doing that is doing that as per deems is going to be really difficult to ensure consistency. We do not have turn turnover in our positions our state transport deputies until they retire. They are with us they are we've got a really long tenured group of employees they're very skilled. And they don't they don't need those positions I think establishing use as more secure positions with benefits and would be would be a better idea wherever they land. Whether they go to the judiciary or wherever I still think that that looking at them as per deems is not necessarily going to achieve what the court wants. And the other thing is a conversation should be had with the had with the sheriffs and not me as to whether or not I know the court has said that they need to be level three certified. I'm not sure the sheriffs fully agree with that statement. I think getting people getting people finding level three certified people right now is really difficult. You're hearing it from every agency, every law enforcement agency. I think that have a conversation continue conversation with the sheriffs. Is that is that really necessary or not. Well, you've given us a lot to think about. We will probably end up having you back as we consider taking up amendments over the next few days. I really appreciate both of you being here with us. We're going to break now for lunch and committee will be back after the floor. We have testimony scheduled at three. And I'd like to have a little bit of time for committee discussion about some of the things that the urban customers are on the bill. That all kind of feed into what we can ask Mr. Bevin to do it. A draft of updated language to see so we'll adjourn and go off live for now. Thank you all very much.