Vermont’s latest state revenue update doesn’t include the downgrade that elected officials feared, but Republican Gov. Phil Scott and Democratic lawmakers are still bracing for their tightest budget year since the beginning of the pandemic.
Economists for the Legislature and the Scott administration delivered a revenue forecast Friday that’s largely unchanged from their last analysis in July.
“This is probably one of the least eventful forecast updates, in terms of percent change relative to the prior forecast, that we’ve ever done,” said Jeff Carr, the governor’s economist.
Scott said he was “pleasantly surprised” by the report, which forecasts a 2.5% increase in general fund revenues in the next fiscal year.
“When we have the turbulent times that we’re experiencing, to have steady-as-we-go is good news,” Scott said. “We’ll see what happens over the next six months, but … I was expecting much worse.”
Steady revenues, however, won’t stave off difficult decisions as lawmakers begin to craft a budget for the fiscal year that begins July 1.
Lawmakers and the governor will experience a sobering comedown from the fastest period of revenue growth in Vermont’s history. Since fiscal year 2020, the state budget has jumped by about $3 billion — nearly 50%. Those increases were the result of massive economic stimulus packages approved by Congress in 2020 and 2021.
General fund revenues next year, however, will barely keep pace with the rate of inflation, and costs in many sectors of state government are rising much faster than that. Transportation revenues, for instance, are forecast to increase by 1.7% next year. The cost of road and bridge projects, meanwhile, has climbed by about 60% over the past five years.
Education fund revenues are slated to come in at about 2.7% higher — less than half of what Vermont would need to cover the approximately 6% increase forecast for school budgets next fiscal year.
Scott will deliver his budget proposal to lawmakers on Tuesday.
“It’s still a very tight budget, because while steady-as-she-goes means revenues are steady, that doesn’t mean the costs are,” Scott said.
A loss of federal revenues will further complicate the fiscal environment in Montpelier. Since the beginning of the second Trump administration, Vermont has seen $12.8 million in reductions to food, mental health, renewable energy and water quality programs.
Middlebury Rep. Robin Scheu, the Democratic chair of the House Appropriations Committee, said that figure will be dwarfed by coming changes to Medicaid passed by Congress as part of the One, Big Beautiful Bill.
Vermont will begin to see those changes take effect during the next fiscal year, when certain Medicaid recipients will have to begin renewing twice annually instead of once a year. Scheu said that requirement will see many Vermonters fall off the public rolls, which will cost the state federal Medicaid revenue and lead to an increase in health care costs borne by the state.
“Part of the challenge and stress not just for legislators but for all the people who need and use these services is the uncertainty and the instability,” Scheu said. “It’s a very chaotic environment to be living in.”
"We and (the governor) are going to be looking at the key programs, and what can we maintain and what needs to be changed and what may need to be cut or reduced. That’s the only way you balance the budget."Middlebury Rep. Robin Scheu
Scott told Democratic lawmakers during his State of the State address last week that he won’t abide by any spending plan that relies on tax hikes. Scheu said working within the confines of existing revenues could land existing programs and services on the chopping block.
“We will have a balanced budget,” Scheu said. “But it means we and (the governor) are going to be looking at the key programs and what can we maintain and what needs to be changed and what may need to be cut or reduced. That’s the only way you balance the budget. The numbers don’t work any other way.”
