Fitch Ratings affirmed the State of Vermont's AA+ general obligation bond rating, an achievement due in part to the state's pension reform legislation passed last year, Vermont State Treasurer Mike Pieciak announced in a news release on Feb. 6.
"It is no small thing for New England's smallest state to have the best bond ratings," Mr. Pieciak said in the release. "It is a testament to Vermont's reasonable, collaborative, political environment, and to the hard work of many public servants."
In its rating action on Jan. 27, Fitch cited legislation that Vermont lawmakers passed last May to shore up the state's pension funds for teachers and state employees, saying it "could limit Vermont's pension liability growth over the longer term."
The legislation called for teachers and state employees to boost their contributions gradually over a three- to five-year period and to accept more modest cost-of-living adjustments. The state, in turn, agreed to make a one-time $200 million payment to the $2.5 billion Vermont State Teachers' Retirement System and the $2.75 billion Vermont State Employees' Retirement System to pay down unfunded liabilities in fiscal year 2022, plus ongoing additional payments beginning in 2024 that ramp up to $15 million and remain at that level until the pension systems are 90% funded.
At the end of 2021, the Vermont State Teachers' Retirement System and the Vermont State Employees' Retirement System had funding ratios of 52.9% and 67.6%, respectively.
Fitch said in its analysis that the AA+ bond rating reflects Vermont's "long track record of disciplined financial management and cautious revenue forecasting, which have positioned Vermont well to absorb the budgetary challenges associated with above-trend inflation and a U.S. economic downturn anticipated for 2023."