Updated at 7:44 p.m.
In his administration’s newly released budget proposal for the 2024 fiscal year, Republican Gov. Phil Scott said he’s bracing the state for lean times on the horizon — even though revenues are historically high.
“We’ve seen incredible revenue growth over the last two years because the economy has been supercharged by the sheer volume of federal funds,” Scott said in his annual budget address Friday. “But we know that’s only temporary.”
The overall price tag for Scott’s budget this year is $8.4 billion — “very slightly more” than last year’s budget, Finance Commissioner Adam Greshin told reporters in a Friday morning briefing. The budget’s total spending is roughly $20 million higher than last year’s, according to the administration.
That’s despite “stellar” revenues recorded this year, as reported by state economists earlier this week, spurred in large part by an “epic, unprecedented, off-the-charts” influx of federal cash to the state in the past three years. Not only was the state able to spend those dollars, but Greshin said on Friday that federal investments also acted as a stimulus, boosting state income, sales and property tax revenues.
But state economists on Tuesday also warned of rockier waters ahead, and Scott’s administration has seemingly heeded those calls for caution.
“We tried our best to live within our means, and to put in appropriations that are sustainable,” Greshin told reporters.
Namely, Scott said that he made a “firm commitment” to utilizing surplus funds for one-time spending, as opposed to creating new programs and therefore ongoing expenses.
“If we allow the base budget to grow with temporary and unsustainable revenue, we will create a cliff when these stimulus dollars go away — putting us on a path that eventually leads to deep and painful cuts,” Scott said.
One-time proposals total roughly $200 million, according to administration officials, and include such line items as $15 million to continue rehabilitating vacant rental units for low-income Vermonters, $12.5 million to clean up contaminated industrial sites, $3 million for the Lamoille County Rail Trail and $10 million for a “regional investment and growth fund” that would pay for facilities construction or improvements for businesses, mostly in rural areas. There is also a $2.3 million line item to establish the first mental health crisis center in the Northeast Kingdom, “which currently has no local option except the emergency department,” Scott said.
With demand dwarfing supply amid a historic housing crisis, advocates have called for $175 million in additional housing investments to sustain an aggressive pace of construction to continue putting new units online. The $80 million proposed by Scott on Friday includes welcome investments but ultimately “fails to address the scale of Vermont’s housing need,” Anne Sosin, the interim executive director of the Vermont Affordable Housing Coalition, wrote in a statement.
Chris Donnelly, the director of community relations at the Champlain Housing Trust, also noted that Scott’s budget continues the yearslong practice (embraced by a succession of legislatures and governors alike) of not giving the Vermont Housing and Conservation Board, which funds affordable housing projects, the full base appropriation it is entitled to under law. (The governor’s spending plan would, however, direct an additional $10 million in one-time funds to the entity.)
The governor’s budget is also notable for what it does not spend, at least for now, including $150 million set aside to draw down federal grants with state match requirements in the future. The majority of those grants would come from the trillion-dollar infrastructure package passed by Congress in 2021.
For every dollar Vermont invests, it would get at least four back, the administration estimates. “I think our treasurer would agree, that’s a pretty good return on investment,” Scott quipped.
Secretary of Administration Kristen Clouser told reporters on Friday that the state ought to put up the match money now, while its revenues are healthy, as opposed to years down the line “when things are leaner and tighter.” Choosing to wait would leave federal money on the table, she said.
The governor’s budget does propose $77 million in new ongoing spending initiatives, the bulk of which would go to a $48 million expansion of child care subsidies. The administration is proposing to make families who earn up to four times the federal poverty level eligible for subsidies — a move that would make about 4,600 children newly eligible for aid, and triple the state’s investment in child care. For a household with two parents and two children, the 2022 federal poverty level is $27,750, meaning families of four earning up to $111,000 would qualify for assistance under the governor’s proposal.
But while child care is a shared priority between Scott and Democrats in the Legislature, the subject is nevertheless expected to be a source of tension between the executive and legislative branches. Scott in his speech hinted at conflict to come, saying that he knew that his pitch would “get resistance from some, because they want a new tax to pay for it.”
A new state report released earlier this week estimated that it would cost between $179 to $279 million to substantially raise wages in the sector, which suffers from an acute labor shortage, and make the service affordable for the vast majority of working families.
Democratic lawmakers are at work on their own reform package, which would likely fund reforms with a payroll tax. Top Democrats said Friday that while Scott’s proposal was welcome, it wouldn’t be nearly enough to make the kind of changes that are necessary.
“What the governor’s proposal does is it extends horribly insufficient funding to more people,” Senate President Pro Tempore Phil Baruth, D-Chittenden Central, said in a media scrum after the speech. “It doesn’t provide the universe of funds we need to change the system from provider to subsidy.”
Similarly, Aly Richards, the CEO of Let’s Grow Kids, the advocacy group leading the charge on child care reform, wrote in a statement that “partial investments do not truly solve the child care crisis we are facing as a state.”
A few appeared satisfied with Scott’s proposal. Senate Minority Leader Randy Brock, R-Franklin, said, “The magnitude of the Governor’s proposed investment cannot be understated. But to truly maximize this additional funding, we must also look to other child care reforms to help reduce costs for Vermonters.”
Another ongoing expense Scott is willing to take on: $17 million in tax cuts, roughly $5.3 million of which will go toward expanding eligibility for the Earned Income Tax Credit, “a highly effective anti-poverty tool, to put more money in the pockets of hard-working, low-income families,” Scott said. He also proposed cutting taxes for social security recipients and military pension earners, both perennial proposals of the governor’s.
The rationale behind the tax cuts, administration officials said on Friday, is lowering the cost of living in order to attract and retain more Vermonters, thereby expanding the tax base. It’s a “long game,” Greshin said.
“The governor’s thought process is that if you make Vermont more affordable, you actually build your tax base, so that’s really what we’re trying to do,” Greshin said. “I don’t think I would just accept the idea that if you lower taxes, that your revenues go down. It takes a little while, but we’re trying to build a base of taxpayers.”
Scott’s perennial request to eliminate taxes on military pensions garnered mixed reactions from lawmakers on Friday. Rep. Laura Sibilia, I-Dover, told VTDigger she continues to stand by the proposal, saying, “I think it’s important and I think it’s a fight we should stop having.”
But Sen. Ann Cummings, D-Washington, who chairs the Senate’s Finance Committee, said she views the proposal as an equity issue and doesn’t see it passing her committee. There are others who put their lives on the line — for example, police and emergency medical technicians — and would continue to pay taxes on their pensions, she said, and “I can’t say one person’s pension is more worthy of not being taxed than the other.”
“Once you start saying one group is more worthy, it also increases the perception that taxes are bad. Taxes are a punishment. It’s a reward not to be taxed,” Cummings said. “I think that’s a bad message to send. Taxes are how we pay, according to our personal ability, for the services that we as a society need. And so I don’t think my committee will be ready to change that this year.”
At least one constituency had nothing but praise for Scott’s budget: the Vermont State Colleges. Once the most underfunded public higher education system in the country, the schools reached a crisis point at the outset of the pandemic and nearly shuttered several campuses. The colleges have since received dramatic increases in funding in recent years, a pattern continued in the governor’s latest proposal.
The system would receive $48 million in ongoing funding, according to Scott’s plan, and $29 million in one-time help, $10 million of which would fund a two-year pilot program at the Community College of Vermont to reduce tuition by half on certain in-demand degrees.
Sophie Zdatny, the system’s chancellor, called Scott’s budget proposal “exactly what we need to continue our successful system-wide transformation.”
Scott also proposed spending $13.2 million in state and federal dollars to increase dental Medicaid reimbursement rates, bumping the rate from the current 50% to 75%. With current reimbursement rates, Scott said dental providers have a difficult time making ends meet if they have a high volume of Medicaid patients. And in turn, there are fewer slots for those patients, rendering it “next to impossible for many Medicaid patients to get dental care,” he said.
One component of Scott’s speech that raised lawmakers’ eyebrows was his proposal to allocate $900,000 to the Climate Office within the Agency of Natural Resources “to do the real planning and analysis we need to reach emissions targets accurately and realistically.” House Speaker Jill Krowinski told reporters after the budget address that the state does have a climate plan, and has passed legislation to curb emissions. One major climate bill, the clean heat standard, was stuck down by a Scott veto last year.
“I was surprised to hear about a plan, that we need a plan, that we need to develop a plan,” Krowinski said. “We do have a plan. We passed the Global Warming Solutions Act. We have a Climate Council. The Climate Council has been doing incredible work to produce policy recommendations for us to act on, and that is what we’ve been doing.”
Also on climate change mitigation, Scott proposed spending $5 million on weatherizing homes and modernizing home heating systems in order to move Vermonters’ heat sources away from fossil fuels, plus another $1 million for more electric vehicle charging stations. Transportation and home heating are Vermont’s top two drivers of greenhouse gas emissions.
Overall, Baruth said, Democrats in the Legislature share many of Scott’s general goals, but they differ in approach, “usually because the governor feels that we can make a sort of limited effort and achieve big results. And we’ve seen … a number of areas where insufficient funding has led to ongoing failures.”
“I guess where our values differ are on big investments, where you have to think larger than maybe what you have in hand,” Baruth said.