State of Vermont [phone] 802-828-3322 Susanne R.

Young, Secretary
Agency of Administration [fax] 802-828-3320
Office of the Secretary
Pavilion Office Building
109 State Street
Montpelier, VT 05609-0201
www.aoa.vermont.gov

May 31, 2017

Dear Speaker Johnson and President Pro Tempore Ashe:

I hope this letter finds you well. Thank you for asking Peter Sterling to contact us late Friday afternoon to
continue discussions about the appropriations and yield bills. Though the news is dominated by the issues where
there is not yet agreement between the Legislature and the Administration, the work of the House and Senate,
under your leadership, resulted in some significant successes and progress for Vermonters.

I write today with the goal of restarting our discussions and reaching a resolution on the budget and the yield
bills well before the Legislature is scheduled to return on June 21st. With this goal in mind, I offer the following
recommendations for moving the negotiations forward and establishing a framework for the negotiations
themselves. In addition, the Governors primary concerns about the budget as passed by the Legislature are also
provided.

***
Moving Negotiations Forward
It is encouraging that the Legislatures and Administrations views on this matter have evolved over the past
several weeks. It is clear that there is agreement on the opportunity to save millions of dollars from the
transition to the new Vermont Education Health Initiative (VEHI) plans. While the Administration first and
foremost prefers a negotiated statewide health benefit, its position regarding the level at which bargaining
should occur has become more flexible, and some of our previous proposals included options that could
preserve bargaining at the local level. The Administration has also agreed to return 100 percent of savings to
taxpayers, rather than reinvesting equal portions into early childhood education and higher education, shoring
up the Vermont State Teachers Retirement Health Insurance Program, and tax relief as was originally proposed.

It is worth noting that at adjournment we were very close to an agreement but the various proposals considered
have not been publicized. Prior to a meeting, it would be most appropriate for legislative leaders to brief at least
all members who will be attending future meetings on the details of these proposals and the status of
negotiations. This will allow for discussions to move forward more productively towards a compromise that
meets the Governors core principles on this issue. We are agreeable to sharing the different frameworks
discussed over the course of the previous negotiations more broadly with all legislators, and with the public, if
that will assist in this regard.

Nevertheless, from the Administrations view, the key areas upon which there is agreement include:

x Savings There is agreement that these savings are real and as school employees transfer to the new,
less expensive VEHI plans capturing those savings is a worthwhile policy.
 x Returning the Savings to Taxpayers There is an agreement to return 100% of the savings to
taxpayers, but we have not yet settled on the most effective recapture vehicle to achieve that goal.

Despite this progress we have not yet reached agreement that meets the Governors core principles of
maximizing the savings for taxpayers presented by the move to these plans; ensuring employees are not
required to pay more; and simplifying the negotiations of health care plans.

The Administration has been willing to consider negotiations remaining at the local level, but has been clear
that it will require a policy mechanism that mandates the parameters of the benefit plan, or provides a strong
and equitable financial incentive for both school boards and unions to reach settlements that are within the
constructs of the Gold CDHP VEHI model. That model includes an 80/20 premium split with at least the first
$400 out of pocket cost borne by the employee. The Governors proposal also provided for up to $49 million of
the savings from the plans to be used by employers to purchase either HSA or HRA plans for the employees to
assist with out of pocket and noncovered expenses.

As you recall, the Governor proposed a modification of the concept advanced by the Speaker and remains open
to alternative mechanisms for maximizing savings in local negotiations. It is important for us to acknowledge,
however, that reasonable parameters on the benefit levels and/or incentives for meeting savings targets are
essential to reaching agreement.

***
Establishing the Principles of a Productive Negotiation
To ensure that our discussions are conducted productively and in good faith, it will be essential to agree to a
framework in which they are conducted. Establishing a framework will be particularly important in light of the
number of legislative participants currently contemplated. Please consider the following proposals:

x Clearly Defined Negotiating Committees Each branch will designate its negotiating team that will not,
to the extent possible, change as the discussions proceed. The Legislatures negotiating committee
should be empowered and obligated to speak on behalf of the legislative leadership, not just one
chambers leadership.

x Define the Goals of the Negotiation We should agree on the goals of the negotiations. In the
Administrations view, the goal is to reach an agreement on the budget and yield bills prior to the veto
session currently scheduled for June 21st. Should the Legislature have different goals or alternative
language for defining them it is important and necessary that they be clearly defined and agreed upon
prior to meeting.

x Include the Deans of the House and Senate Recognizing that conversations were progressing for
much of the day on May 18th, and an agreement was within reach, we request that the Deans of the
House and Senate, Representative Emmons and Senator Mazza, continue to participate in all meetings to
provide continuity.

x In-Person Meetings Preferable Whenever possible, all meetings should be conducted in person.
Large conversations with multiple participants on the phone are not a productive way to negotiate these
critical issues.

x Bring Specific, Written Counter Proposals to the Table The Administration believes it is very
important that each side offer feedback and reactions on an ongoing basis to each proposal and counter