FY2026 State Budget - Overview & Analysis

Governor Scott gave is budget address on January 28th, proposing a $9B budget for FY2026 with heavy investments in housing and other areas while simultaneously cutting taxes for the most financially vulnerable Vermonters.

 

The Details:

  • Base Uses - Policy Changes (+34,602,471)
    • Agency of Commerce and Community Development (+6,800,000)
      • $2.2m to MHIR
      • $4.3m to VHIP
      • $350k to International Business Development Office  
    • Agency of Human Services (+974,651)
      • $618k for Vermont Department of Health Recovery Campus
      • $357k to Department of Mental Health for Alternatives to Emergency Beds  
      • $3.4m to the Office of Economic Opportunity for Housing Opportunity Program baseline pressures 
    • Department of Environmental Conservation
      • $300k for Confined Animal Feeding permitting transition
    • Department of Corrections
      • $650k for Pretrial Expansion (adding one more site)
    • Department of Public Safety (+655,000)
      • Shift $20.25M in Vermont State Police budget from the Transportation Fund to the General Fund
      • $500k for Radio Equipment
      • $150k for School Safety Center
      • $5k to Hazard Mitigation Grants  
    • Green Mountain Care Board
      • $300k for expansion including three new positions 
    • Vermont Department of Health (+1,320,000) 
      • Aftercare positions
      • Re-engagement beds
      • Withdrawal management (Substance Use CoC) 

  • One-time Uses - Policy Changes (+201,625,102)
    • One-time General Fund Appropriations (+99,905,102)
      • $220k for AOA-ideal VT Two Year Funding
      • 1.1m to the Truth and Reconciliation Commission
      • $3.3m for the Municipal Technical Assistance Program
      • $1.6m to the Department of Human Resources for Classification Modernization
      • $600k for Cybersecurity Grant Match
      • $900k for Mobile and Portable Radio Equipment
      • $4.4m to Blueprint and SASH Programs
      • $480k for PCB Testing
      • $500k for Pilot Recovery Campus Startup
      • $2m for Shelter Capacity Expansion
      • $30.5m for General Assistance Emergency Housing
      • $300k to Facility Conversion for Treatment Services
      • $4m to support AOE Capacity Building/Education Transformation
      • $1m to the Vermont State Colleges for Tuition Advantage Program
      • $5m to Vermont State Colleges for FY2026 Bridge Payment
      • $80k to Department for Fish and Wildlife for Mobile and Portable Radio Equipment
      • $50k for Municipal Wastewater Connections Database
      • $850k for Confined Animals Feeding Operation Permitting Transition
      • $300k for Limited Service Position Extension
      • $9.1m to the Vermont Bond Bank infrastructure Sustainability Fund
      • $15m to VHFA for Rental Revolving Loan Fund
      • $15m to VHFA for Middle Income Homeownership Development Program
      • $250k to the Vermont Professionals of Color Network
      • $2m for the Brownfields Revitalization Fund
      • $1.6m to the Land Access Opportunity Board
    • $77.2m transfer to Education Fund for property tax relief
    • $15m transfer to Computer Information Technology Fund for Agency of Digital Services billing model change
    • $9.5M transfer to Environmental Contingency Fund for PCB testing/remediation in schools

  • Transfers and Reserves (General Fund) - statutory requirements or deficit mitigation (+96,170,255)
    • ($5.9M) from Cannabis Regulation Fund
    • $81.2M to General Obligation Bonds Debt Service Fund
    • $14.9M to Capital Infrastructure Fund (based on 4% prior year appropriations less debt service)
    • $4.3M to Tax Computer System Modernization Fund
    • $185k to Fish & Wildlife Fund 
    • ($1.4m) in unreserved from Budget Stabilization Reserve
    • ($2.7m) in unreserved from Human Services Caseload Reserve
    • 5.7m to 27/53 Reserve (for payroll and Medicaid payments in leap years)

  • Total General Fund uses = 2,625,228,626

 

Tax Relief
The budget introduces a few different methods of providing tax breaks to financially stressed households. On top of a new property tax credit system the Administration is proposing, the budget would provide:

  • $3.9M for a full income tax exemption on military pension income.
  • $4.5M to expand the Child Tax Credit for income eligible families with children up to age 6. This fully refundable $1,000 credit is currently available for children up to age 5.
  • $3M to increase the Vermont percentage of the “childless” Earned Income Tax Credit from 38% to 100% of the federal amount. This
    initiative, fully refundable, would benefit lower income families without children.
  • $2.1M to increase the social security income tax exemption threshold by $5,000 to $55,000 for single filers and $70,000 for joint filers.

The full budget packet can be found here.

 

The Good:

  • $47.1M investment in housing across six different programs will help to drive further development in affordable housing.
  • Additional $35.4M in funding for shelters and emergency housing to get people off the streets.
  • $4M in additional resources to aid the Agency of Education in the process of transforming our education delivery system.
  • A new Recovery Campus for justice-involved persons.
  • $13.5M in property tax relief for financially-stressed households.

The Bad:

  • One-time $77M General Fund transfer to the Education Fund to buy down property taxes.
  • Not enough investment in infrastructure to mitigate impacts of climate change.

Analysis:

Governor Scott is sticking to his mantra of no new taxes and fees in the FY2026 budget. He is even providing some welcome income tax relief for some of Vermont's most vulnerable families. The Child Tax Credit and the Earned Income Tax Credit in particular are recognized as some of the most effective tools at getting dollars back into the pockets of working class families.

Most other states offer some sort of income tax exemption for social security income, raising the exemption level in Vermont will help retirees keep a bit more of this federal benefit. Additionally, the proposed exemption on military pensions would do something similar and bring the state in line with nearly every other state.

The Governor is proposing heavy investments into housing development that are much needed. Even more important is what programs those dollars are going to. According to the Department of Housing, the programs this budget invests in are some of the most effective ones on a dollar-for-dollar basis. These critical investments will help to address the production shortfall in housing but may not be enough (on their own) to full close the gap on our housing deficit. Further development reforms will likely be necessary, something the Governor pointed to in his budget address.

Our largest gripe with the budget proposal is use of $77M in one-time funding to buy down statewide property tax rates for FY2026. The Legislature used $69M in one-time funds last year to do the same thing for FY2025; we were critical of that idea then, and still are. One-time funds create a hole that you have to dig out of the following year. We are seeing that play out this year, where property taxes are picking up $115M in new spending plus the one-time funds from last year. We wrote a commentary about this in December.

There is also an accountability problem with these property tax buy-downs. When school budgets go up rapidly and the state bails them out with new or one-time revenues, it allows school boards to bypass tough decision-making and accountability. Put differently, it further insulates local school boards and voters from their spending decisions.

 

Current Status:

Bill language has not yet been introduced.

 

News coverage on FY2026 Budget

Watch the Governor's Budget Address

More bill summaries

Last updated: 2/1/2025

DISCLAIMER: Generative AI used to assist in the production of this report.

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