Governor Scott has introduced his FY26 budget, which covers the period July ‘25 through June ‘26. The budget totals $9 billion budget, and the funds are shared by the General, Education, Federal, Transportation and Special Funds. State revenues have exceeded expectations over the past year, resulting in two revenue projection upgrades to be adopted by the Joint Fiscal Committee. The January 2025 revenue upgrades project that General Fund revenues will exceed January 2024 revenue estimates by $210 million for FY26. These revenue upgrades offer the administration the ability to absorb spending pressures such as VSEA-negotiated, cost-of-living adjustments, increased employer health insurance premiums, and additional pension costs while investing in new initiatives and supporting a small package of tax cuts.
The Governor’s recommended FY26 budget includes the following new initiatives, and the expansion of current programs listed below:
- $2 million base funding for the Manufactured Home Improvement and Repair Program (MHIR) to help with project costs for owner-occupied manufactured homes;
- $4 million base funding for the Vermont Housing Improvement Program (VHIP) which brings vacant rental units up to code and adds new units to existing buildings;
- $9.1 million to the Vermont Bond Bank for the newly created Vermont Infrastructure Sustainability Fund (VISF) which will support municipal infrastructure projects statewide;
- $30 million to the Vermont Housing Finance Agency (VHFA), half of which will go to Rental Revolving Loan Fund which incentivizes developers for the creation and preservation of rental units for middle income households, while the other half will be allocated to VHFA Middle Income Homeownership Development Program to support the construction and rehabilitation of affordable housing;
- $3.4 million base funds for the Housing Opportunity Program (HOP) to provide the services associated with emergency shelter beds.
- $30.5 million plus $8 million in existing base funding to continue the emergency housing (hotel/motel) program for unhoused individuals and families.
The Governor’s FY26 budget includes a proposed $13 million tax relief package that includes the following provisions:
- $3.9 million to expand the military retirement income exemption to exempt all levels of military pension income from state income tax.
- $4.5 million to expand the State’s fully refundable $1000 child tax credit to children aged 6. The current tax credit ends at 5 years old.
- $3 million to expand the state’s Earned Income Tax Credit (EITC) from 38% to 100% of the Federal EITC.
- $2.1 million to increase the social security income tax exemption threshold by $5,000 to $55,000 for single filers and $70,000 for joint filers. Vermont is one of the few states that tax social security income, which is a major detriment to attracting and keeping retirees.
The Governor’s FY26 budget proposes several one-time spending initiatives, including the following:
- $77 million one-time General Fund Transfer to the Education Fund, which combined with the Governor’s proposal to cancel universal free school meals, would allow average state-wide property taxes to remain level for FY26. It should be noted that individual property taxes could still increase or decrease depending on local school spending relative to the statewide average.
- $4 million to the Agency of Education to provide them one-time resources to assist school districts with the Governors proposed consolidation of local school boards into five large school districts.
- The final $5 million in bridge funding to tranche of bridge-funding to the Vermont State Colleges to support the consolidation and launch of VTSU.
- $2 million to expand emergency shelter bed capacity;
VSEA has identified the following issues pertinent to VSEA members in the Governor’s FY26 Recommended budget:
- $1.6 million In one-time funds to begin the process of replacing the Willis system for Executive Branch employees with a new classification system that will need to be negotiated with VSEA.
- The number of positions available to address the judicial backlog in the Judiciary and Office of State’s Attorney’s is not sufficient and some limited-service positions created in the FY25 budget need to be converted to classified positions.
- The Governor’s budget provides a 3% increase for the Vermont State Colleges base appropriation; however this did not fund the entire VSC budgetary request, including backfilling the legislatures $1.5 million reduction in cuts previously scheduled for FY26.
- The Governor’s deal funds the ADEC+ (Actuarially Defined Employer Contribution Plus) for state ermployee pensions, in addition to the FY26 “Plus” payment of $15 million to VSERS. This funding corresponds with the agreement by the 2021 Vermont Pension Task Force.
- Finally, the Governor’s FY26 budget fully funds the Pay Act for FY26. The Pay Act funds members’ collectively bargained cost-of-living adjustments, step increases and other contractual provisions for the next fiscal year,
This is a brief overview of the Governor’s FY25 Budget recommendation. The House Appropriations Committee is beginning to receive testimony on each Agency and Department’s individual budgets, while they work on crafting their own budget proposal. VSEA legislative staff will continue to provide VSEA members with legislative updates on issues impacting them as the legislative session progresses.