VSEA 2023 State Budget Analysis

Budget Overview  

Governor Scott has introduced his FY23 budget, covering July 2022 through June 2023. This budget is set at $7.7 billion budget; the largest in the history of Vermont, fueled by a booming economy and unprecedented federal funds. State revenues have rebounded well from the slowdown at the beginning of the recession, with General Fund revenues projected to reach $1.92 billion in FY23, nearly $300 million above General Fund revenues in FY20. The Governor’s FY23 budget centers on massive investments in various infrastructure, tax cuts and expanding various social programs to address mental health and substance abuse issues. Below we will discuss what we know about the budget thus far, prior to most agencies and departments outlining the specific details within their jurisdiction.   

Before we address the FY23 budget proposal, let’s point out some highlights from the FY22 budget adjustment. In normal years, budget adjustment is a mundane process in which the governor and legislators move a relatively small amount of funds around from areas in state government experiencing surpluses to areas experiencing shortages, all to ensure a balanced budget at the end of the fiscal year. However, these are not normal times. Employing state surplus revenues and federal American Rescue Plan Act (ARPA) funds, the governor proposed increased investments in areas originally identified in the FY22 budget, as well as pertinent investments in state government to overcome staffing shortages. The Governor’s FY22 budget adjustment proposed significant funds for worker-retention incentives and bonuses in areas of state government experiencing crisis staffing levels, namely the Department of Corrections, Department of Mental Health, and the Vermont Veterans’ Home. The House saw fit to expand these retention payments to employees of designated agencies, who often earn significantly less for work similar to their counterparts in state government. The House also dedicated an additional $50 million to the pension reserve (now totaling $200 million) and concurred with the governor’s proposed expanded investments in housing and paying down transportation bonds early, to the tune of $50 and $20 million, respectively.  

FY’23  

First, let’s address issues directly impacting VSEA members this fiscal year. The Governor’s FY23 budget fully funds the 2nd year of the 2020-2022 VSEA contract, securing the 3.00% COLA scheduled for July 2021, as well as funding step increases for the fiscal year. Additionally, the budget funds a series of other bargained items such as increases in shift differentials, expanding health insurance coverage to hearing aids, raising the minimum wage in state government to $15 an hour, and increases in childcare reimbursement funds. The governor’s budget proposal fully funds the actuarially defined employer contribution to the state employees’ and teachers’ pension fund to the tune of $394 million in total. The state’s contribution to employees’ pension plans will be 25.5% of employee total wages in FY23.   

The governor’s budget includes an array of tax cuts for retirees and working families. First, the governor proposes increasing Vermont’s earned income tax credit for low-income, working families from 36% of the federal credit to 45%. The governor also proposes to more than triple the state’s income tax credit for childcare expenses from 24% of the federal credit to 65%. The governor is again proposing to make all military pensions exempt from state income taxes, while expanding the state’s exemption to social security taxes from $45,000 for an individual to $75,000. The governor also proposes uncapping the limit on the amount of student loan interest that Vermonters can credit. Finally, the governor proposes a small refundable tax credit that would effectively exempt low-age childcare workers from state income tax, while extending that credit to nurses to reduce their tax liability. The legislature has not yet responded to these tax proposals, and although they have similar priorities, the details of how they’re achieved through tax expenditures will be debated and negotiated throughout the legislative session. Although not a permanent tax cut, the governor proposed a one-time property tax cut for the year using half of the state’s $90 million education fund reserve. Tax cuts are likely, but how they’re ultimately crafted and who benefits will be a significant source of discussion this legislative session.  

The Governor’s Fy23 budget proposal features some ongoing expansions of state appropriations, although most of the investments are one-time. Ongoing investments include:  

  • $10 million increase to the base appropriation for UVM;  
  • $5 million increase to the base appropriation for the Vermont State Colleges (although his budget neglects to provide $20-$25 million in one-time bridge funding for the VSC);  
  • $12 million to enhance childcare subsidies and reimbursements to providers;  
  • $1 million enhancement to the Department of Labor’s internship program;  
  • $6 million to pay people to move to Vermont;  
  • $8 million for a three-year marketing campaign to encourage people to move to Vermont;  
  • $8 million to expand substance abuse and treatment options;  
  • $11 million to build and operate regional dispatch centers; and 
  • $2 million to expand the mental health rapid response unit piloted in Rutland to four more Vermont cities.  
     
    The Governor took advantage of the windfall in state surplus revues and half-a-billion dollars in ARPA funds available to propose significant one-time investments in the following areas:   
  • $70 million of ARPA funds to build more mixed-income housing;  
  • $20 million in ARPA funds to remediate rundown or vacant housing units;  
  • $5 million in outdoor recreation grants;  
  • $6 million to clean up brownfields and disused manufacturing plants to encourage new investments;  
  •  $2 million to increase tax credits available for redeveloping Vermont’s downtowns and villages;  
  • $42 million to retire various general obligation and transportation bonds to save on future interest payments;  
  • $30 million to replace the decades old Unemployment Insurance mainframe;  
  • $15 million to upgrade technology in the Agency of Administration, Department of Public Safety, Agency of Transportation, and Agency of Natural Resources;  
  • $10 million to assist low-moderate income households afford small-scale residential renewable energy projects;  
  • $10 million in tuition assistance for Vermonters learning trades nurses and individuals seeking CDLs;  
     
    This is a preliminary review of the Governor’s FY23 budget proposal. VSEA will be following the budget process throughout the 2022 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 VSEA members.

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