Overview Of Governor Scott’s FY22 Budget Proposal

This post originally appeared in VSEA’s Week In Action Newsletter on January 29, 2021.

VSEA Strategic Analyst Adam Norton has prepared a comprehensive report about the budget address:

Governor Scott introduced his FY22 budget on Tuesday [January 26], and it covers the period July 2021 to June 2022. Many had predicted this budget would be significantly less austere because of Vermont’s pandemic-induced recession, but not so. Despite the damage the pandemic has done to Vermont’s economy, particularly in the tourism and hospitality sectors, state revenues have recovered from pandemic-related losses. In fact, FY22 General Fund revenues are anticipated to be roughly $50 million higher than the pre-pandemic forecasts for FY21. The surplus is being largely attributed to Vermont receiving a massive and disproportionate amount of federal money and to how well our state has weathered the pandemic, compared to most of the country. Higher than anticipated revenues collected in the current FY21 fiscal year have provided the governor with a large amount of one-time funds, and, to date, he has directed  $210 million to various economic initiatives, some of which are outlined near the end of this report. 

Some of what the governor announced on Tuesday [January 26] is welcome news to state employees. His FY22 budget fully funds the year two of the 2020-2022 VSEA contract, securing the 2.25% COLA scheduled for July 2021 and funding year-two step increases. The budget also funds the governor’s paid family leave proposal, which will be provided to state employees at no cost. This family leave provision will allow state employees to take up to six weeks of leave upon the birth or adoption of a child, while receiving a 60% wage replacement during those six weeks while leave accrual is idle. If the paid family leave provision s accepted by the legislature, Vermont businesses will be able to buy into the program. If the paid family leave provision is not accepted by the legislature, state employees will receive an additional 0.25% COLA in July in lieu of that benefit. To fund our contract, the governor’s budget relies on two premium holidays in July 2021; a funding mechanism he says was prompted by a massive surplus in the state’s health insurance fund. This, he says, will allow agencies and departments to use their share of the savings to partially fund the contract for the year. State Employees will also benefit from the insurance premium holidays, as their premium shares will not be collected for these two pay periods. I would point out that these premium holidays are the result of complaints from the federal government, which funds the state’s share of insurance premiums on behalf of partially or fully federally funded state positions. The federal government had threatened to sanction the state by clawing back federal funds if the state’s health insurance reserve continued to grow. 

Another piece of good and, frankly, unexpected, news is that the governor’s budget provides full funding for the pension fund’s fiscal year ADEC (Actuarially Defined Employer Contribution), formerly known as the ARC (Annually Required Contribution). This was welcome news as well because; as a result of recent downgrades in the pension fund’s discount rate (the expected rate of return on investments, from 7.5% to 7.0%–coupled with increases in demographic assumptions based on pension recipients living longer) the ADEC for FY22 had grown to $103 million in FY21. Roughly $36 million of the ADEC increase is attributable to the state employees’ retirement system, and the remainder is attributable to the teachers’ pension system, which was woefully underfunded during the 1990s and early 2000s, resulting in their system being in worse shape in terms of funding needed. This year’s retirement contributions for teachers and state employees will total $381 million, which is roughly 19% of Vermont’s General Fund. It remains to be seen whether legislators are the governor are willing to accommodate these increased costs in the long-term, although, based on remarks by the during the governor’s budget address, it seems unlikely. State employees are in for a fight if they hope to maintain their current pension benefits.

One concerning takeaway from the governor’s FY22 budget proposal is his inadequate bridge-funding proposal for the Vermont State Colleges. In fairness, the governor did propose a $20 million bridge for the Vermont state colleges in FY22, but this is less than half of the amount requested by the VSC and recommended by the Select Committee on the Future of Higher Education in Vermont (SCFHE); a committee formed last year with a charge to restructure and save the Vermont State Colleges. This bridge request included $35 million in General Fund bridge funding and $7.5 million in capital funding in the state’s capital bill, totaling $42.5 million. Do the math, and the governor’s proposal equates to less than 60% of the General Fund bridge, with zero capital bill funding. Unfortunately, all of the governor’s proposed increases for the VSC are one-time funds, meaning they will not add to the woefully inadequate base funding for the VSC. Remember, Vermont ranks nearly dead last in the nation for per-pupil state spending on higher education. Most troubling, the governor’s budget speech implies that this one-time funding spells the end of VSC bridge funding, but the SCFHE said its restructuring effort would likely require four years of funding assistance. The SCFHE restructuring proposed will combine the residential colleges into one accredited university with multiple campuses, thus saving millions on administrative expenses. Financial aid services, marketing, and duplicative programs were to also recommend to be merged in this four-year timeframe, but those cost-savings measures cannot be accomplished in one year. VSEA and our allies in the AFT are in for a fight to secure the future and success of the Vermont State Colleges.

As I mentioned earlier in this report, the Governor took advantage of a $211 million windfall in one-time money available to him by proposing economic and modernization initiatives both large and small. These initiatives include:

  • $5 million of recreational improvements for trails, bike paths and other recreational infrastructure;
  • $3 million in Working Lands grants to value-added agricultural producers of agricultural products;
  • $20 million to expand broadband internet access in Vermont;
  • $25 million to clean up brownfields and disused manufacturing plants to encourage new investments;
  • $25 million to weatherize old homes to reduce the consumption of fossil fuels and save money on home heating bills;
  • $53 million to modernize state governments woefully outdated technology;
  • $1 million on tourism marketing;
  • $1.75 million to increase tax credits available to redevelop Vermont’s downtowns and villages; and
  • $10 million to assist low-moderate income households afford small-scale residential renewable energy projects.

This has been a preliminary review of the Governor’s FY22 budget proposal. VSEA will be following the budget process throughout the 2021 legislative session. We will continue to learn more as individual agency/departmental budgets come under the scrutiny of the relevant committees of jurisdiction. Please continue to look for legislative updates and read Week in Action to stay up to date on budgetary and legislative issues affecting state employees. 


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