After a five-year period of unprecedented spending growth, Republican Gov. Phil Scott presented a budget plan Tuesday that he says will match the government's appetite for spending with Vermonters’ ability to pay.
The state budget has climbed from $6.3 billion in fiscal year 2020 to $8.6 billion this year — a 7.4% average annual increase and more than double the rate of inflation. Over the past four years — and usually over the governor’s objections — the Democratically controlled Legislature has enacted laws that increased state tax obligations by about $360 million in order to support that additional spending.
Scott prevailed on voters during the last election cycle to help him restore fiscal restraint in Montpelier. They rewarded his efforts by voting out a historic number of incumbent Democratic lawmakers. And with a semblance of partisan balance restored in the Legislature, Scott will now try to use what he claims is an his electoral mandate to pursue a system-wide overhaul of the education system that eluded him during his first four terms in office.
Video & Transcript: Gov. Phil Scott presents his state budget proposal
“The budget I present today follows through on my commitment to Vermonters to prioritize affordability and solutions to address demographics, like a 21st-century education system and housing people can afford, while revitalizing cities, towns and villages in all parts of the state,” Scott said Tuesday.
Administration officials last week unveiled the outlines of that sweeping education reform proposal. But even if enacted into law, the multi-year overhaul would not address the 5.9% property tax increase expected next year. To hold taxpayers harmless in the short-term, Scott is proposing to spend $77 million in one-time money this year to keep property tax rates flat. For the governor’s plan to work, administration officials stressed that school boards, which typically bring their budgets to voters in March, would need to keep spending to projected levels.
But there is one more — likely controversial — caveat to the governor’s property tax proposal. Seventy-seven million is not, by itself, enough to cover the growth in education spending forecast this year. To close the gap, Scott is also proposing to get rid of Vermont’s recently-enacted universal school meals law, which requires schools provide free lunch to all students, regardless of income.
Leading Democrats react
Senate President Pro Tempore Phil Baruth, D/P-Chittenden Central, said after Scott’s speech that while all options remained on the table, repealing universal school meals probably wouldn’t get much traction in the Senate.
“Typically speaking, Democrats do not support lowering property taxes by taking food away from kids,” he said. But the Senate leader added that, like Scott, he was committed to keeping school taxes flat this year — if school boards kept their budgets in check.
Scott’s budget also includes a $13.5 million tax cut package. As he has in all but two budgets he has ever presented to lawmakers, the governor is proposing to fully exempt military pension income.
And while Democrats will likely push back — they have historically resisted full tax exemptions on military pensions — they may be warmer to his next idea.
The governor is also proposing to expand Vermont’s child tax credit to income-eligible families with children up to age 6. (Currently, only families with children 5 and under qualify.) The $1,000 tax credit was a key Democratic priority two years ago. Scott also said he wants to boost the Earned Income Tax Credit and to modestly increase income thresholds for Vermont’s Social Security income tax exemption.
“The earned income tax credit and the child tax credit are really great policies and so it’s great that we’re finding common ground there,” House Speaker Jill Krowinski told reporters said in a media scrum after the governor’s address.
Strong state economy, but uncertainty at the national level
Scott’s fiscal year 2026 budget proposal totals about $9 billion — a more than 5% increase in overall state spending. Most of those appropriations cover baseline obligations for education, public pensions, transportation infrastructure and government-funded health insurance. But the governor said organic growth in state revenues next year will make room for $250 million in new spending initiatives without raising taxes or fees.
The state’s economy remains exceptionally strong. Vermont boasts the second-lowest unemployment rate in the nation, and analysts continue to forecast steady growth in state revenues. But President Donald Trump’s proposed tariffs, anti-immigration policies, and new freeze on federal grants represent big unknowns. And national politics aside, the cost of business is already going up.
Simply to fund ongoing obligations, administration officials said pressures in the pension system, health care, and human services required an additional $133 million this year.
“So even with a surplus, we can’t do everything we want. That’s why budgeting is typically about choosing between many good things. And we have to. Because at the end of the day, Vermonters were very clear: They expect us to separate our wants from our needs and live within their means,” Scott said.
Even with a surplus, we can’t do everything we want.Gov. Phil Scott
The governor’s plans for new spending all relate to his administration's top priorities — housing, education, public safety and “affordability.” Most of these initiatives — totaling about $200 million — will only receive one-time money, but the remainder represent new, ongoing commitments.
Scott’s budget, for example, establishes $6 million in ongoing “base funding” for state programs that subsidize the improvement and repair of mobile homes and blighted rental units. These pandemic-era programs were initially funded with one-time federal funds. He also wants to appropriate about $9 million to help municipalities fund infrastructure projects needed to support additional housing.
“More housing can help pay for schools without adding to your property tax. More housing for workers keeps employers in business and brings in more revenue,” Scott said. “It gives families financial security that can improve health and public safety. And it can brighten neighborhoods and revitalize downtowns.”
He’s also earmarked $15 million for the Vermont Housing Finance Agency to subsidize the construction of and rehabilitation of housing for middle-income Vermonters. And he’s calling on lawmakers to expand on the Act 250 exemptions contained in land-use reform legislation passed in 2024.
“We must take more steps to legalize housing, so communities and families can thrive in all parts of our state,” Scott said.
Disagreements on housing initiatives
Baruth said he was underwhelmed by the governor’s housing proposal, which he called “radically insufficient.”
“Fixing the problem isn’t just fixing Act 250 and building housing that will come online three years or five years down the road,” he said. “We have to have permanent shelters that the administration has been highly reluctant to put in place.”
Baruth said the mass unsheltering of vulnerable Vermonters late last year spotlighted shortcomings in the state’s emergency housing program that the Senate intends to remedy in 2025.
While Scott has proposed $38.5 million for the motel housing program next year, Baruth said that figure falls “tens of millions of dollars” short of what it’ll cost to provide lasting shelter solutions for people with disabilities who were “put out on the street.”
“That’s got to stop, and [the governor’s] budget is not currently set up to do that,” he said. “It’s my intention this time around to make sure that we are providing permanent shelter for people who are currently homeless.”
Leaning on feds for flood recovery
While the governor’s speech nodded to the ongoing cost of flood recovery, Scott said the state should continue to lean on federal — instead of state — funding for resiliency work. The governor highlighted, for example, the $68 million in long-term recovery grants that Congress is sending Vermont’s way. But Scott is proposing to spend smaller amounts of the state’s own money on flood recovery, including $1 million for municipalities that need help weathering losses to their grandlist from approving buy-outs, and $3 million to help smaller towns apply for grants.
Krowinski said that she wanted to see the governor show more leadership on flood recovery, and that relying so heavily on federal cash was “a precarious place to be.”
And while she said that Scott’s budget proposal presented real opportunities for collaboration in a divided government, she said she was disappointed that the governor had made little mention of the fastest-growing expense for most Vermonters.
“We know that health care is one of the main drivers for affordability that comes up with our education challenges, that comes up with workforce,” she said. ‘The governor came forward with a bold, transformational proposal on education, and I would love to see that on health care as well.
Scott Tuesday took aim at a landmark statute enacted in 2020 — the Global Warming Solutions Act — that established emissions-reductions mandates in 2025, 2030 and 2050. The law requires Vermont to reduce greenhouse gas emissions at rates that scientists say are needed to avoid the worst effects of climate change. And it allows individuals or organizations to sue the state if it fails to comply.
Scott says hitting those milestones will make energy more expensive put upward pressure on energy prices for Vermont in the short term. He said he’s directing the Agency of Natural Resources to develop a more realistic emissions-reduction plan. And he told lawmakers they need to repeal the provision that puts Vermont at risk of legal action if it doesn’t hit the 2030 milestone.
“If we want to protect Vermonters, we have to remove the provision that allows special interests to sue us,” he said.
Scott’s proposal drew sharp rebukes from the state’s environmental community, which compared the governor’s “retreat” from the Global Warming Solutions Act to President Donald Trump’s recent decision to withdraw the U.S. from the Paris Climate Accord.
“While Gov. Scott’s rhetoric is very different from Trump’s, both are calling to roll back climate commitments which will effectively lock Vermonters into high-cost, price-volatile fossil fuels, all while there are cleaner, less costly energy solutions at our fingertips,” said Johanna Miller, energy and climate program director at the Vermont Natural Resources Council.
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