Gov. Phil Scott proposes 'transformative' $7.7 billion budget with tax relief, many investments
Updated 6 p.m.
With Vermont awash in federal stimulus and state surplus money, Gov. Phil Scott on Tuesday offered a “transformative” budget that both pays down long-term debts and makes a litany of new investments to bolster the state’s workforce.
Two weeks after laying out his priorities during the State of the State address, Scott detailed how he would pay for them. With Vermont sitting on hundreds of millions of one-time federal funds, and more than $320 million in surplus in the state general and education funds, there’s more than enough to go around, he said.
“In my 21 years in public life, there has never been a more transformative moment,” Scott said during a 40-minute address, which he delivered to lawmakers via a remote video feed from the auditorium of the Pavilion Building in Montpelier. “We have, within our grasp, the chance to combine good ideas, thoughtful legislation and unprecedented financial resources into a brighter, better future.”
The $7.7 billion spending plan includes no tax increases, and in fact offers $50 million in tax cuts and rebates. It also proposes investments in seemingly every hot button Statehouse priority, from child care to housing, climate change and infrastructure.
“In a normal year, we might have to choose between addressing deficits and debt or investing to grow the economy and revitalize our communities,” Scott said. “But that is just not the case this year. Because, even after taking care of the essentials, we still have resources to address our desperate need for more people in our communities, and more workers to fill the tens of thousands of jobs available in Vermont today.”
The $2.11 billion general fund budget outlined by Scott on Tuesday represents a $400 million increase over the spending plan approved by lawmakers just three years ago.
That jump in spending capacity is attributable to the spike in state revenues from the stimulus effects of massive federal spending bills over the past two years.
“In my 21 years in public life, there has never been a more transformative moment. We have, within our grasp, the chance to combine good ideas, thoughtful legislation and unprecedented financial resources into a brighter, better future.”Gov. Phil Scott
But the general fund budget alone doesn’t capture the scope of new spending in Scott’s fiscal year 2023 budget proposal, because it doesn’t include the more than $500 million in unspent money from the American Rescue Plan Act.
And Scott’s overall budget proposal represents a 22% increase over the last pre-COVID budget that lawmakers and the governor agreed to in the spring of 2019.
“It’s a complex budget this year with a historic amount of funding available,” Administration Secretary Kristin Clouser told reporters during a briefing Tuesday morning.
Vermont’s ability to grow its own economy, Clouser said, hinges on growing a labor force that’s shrunk by 24,000 workers since February of 2020.
Scott’s spending plan includes $140 million for workforce initiatives.
“It’s no secret that these demographic challenges … pre-dated COVID-19,” Clouser said. “But the pandemic has greatly exacerbated our workforce challenges.”
Scott’s workforce agenda is targeted most intensively at nursing, the trades and child care.
The budget includes millions in new spending on scholarship and loan-repayment programs for nurses, LPNs, LNAs and nurse educators, as well as people in the trades.
Scott wants to spend $2.7 million to staff six new “workforce expansion specialists” in Brattleboro, Barre, Bennington, Burlington, Rutland and St. Johnsbury.
“And this will assist the state workforce expansion efforts by connecting folks entering the workforce … to employers.” Clouser said.
Scott is asking lawmakers to approve $6 million next year on relocation incentives to entice out-of-state workers to move to Vermont. And he also wants the Legislature to commit another $8.4 million over the next three fiscal years to target individual out-of-state workers who might be interested in moving to Vermont.
The money, according to Clouser, would be used to offset the cost of relocation expenses. Scott said the proposal includes funding to promote Vermont to prospective new arrivals.
“It will put the horsepower of modern marketing behind it, so we can welcome more new Vermonters across the state to fill our most needed jobs,” Scott said.
Scott’s budget also contains a $10 million increase in base funding for the University of Vermont, and $5 million base-funding increase for the Vermont State Colleges System, “to help with tuition for college-bound Vermonters and help our universities attract future members of our workforce,” Clouser said.
Since Vermont’s ability to retain and attract workers depends largely on the availability of affordable housing, Clouser said Scott’s budget includes $140 million – mostly from the state’s share of the American Rescue Plan Act – “to help middle-income families who need affordable homes in Vermont, as well as low-income families and other harder-to-house populations.”
Clouser said the historic revenue picture provides Vermont with an opportunity to provide “progressive” tax relief to residents as well.
Scott’s plan proposes a total of $51.5 million in tax cuts, a figure that doesn’t include the one-time property-tax rebate of nearly $50 million from a surplus in this year’s education fund.
The tax relief package includes strategies to address workforce challenges in the nursing and child care fields, and Scott wants to give nursing professionals and child care workers a $1,000 refundable tax credit, which would, administration officials say, wipe out income tax liability entirely for most low-wage child care workers.
Scott is also calling for an increase in the earned income tax credit, which would tie Vermont for having the most generous state-level EITC in the nation.
“And really, this program is seen by many as one of the best anti-poverty programs we have in the country,” Tax Commissioner Craig Bolio said Tuesday.
Scott said Vermont can help retirees by bumping the state income tax exemption on Social Security income from $45,000 to $75,000.
“Most states actually don’t tax Social Security at all in their income tax systems, and then the ones that do often provide more generous partial exemptions than Vermont’s current law provides,” Bolio said. “So this would improve quality of life for seniors and allow more seniors to retire comfortably.”
“Most states actually don’t tax Social Security at all in their income tax systems, and then the ones that do often provide more generous partial exemptions than Vermont’s current law provides. So this would improve quality of life for seniors and allow more seniors to retire comfortably.”Tax Commissioner Craig Bolio
And Scott is also asking lawmakers to eliminate $2,500 maximum deduction for student loan payments.
“So for people who are paying significant amounts of student loan interest, they might hit that cap and are not able to take full advantage of that deduction,” Bolio said.
Scott also proposed, again, an exemption from state taxes on military retirement income. Lawmakers have previously rejected that proposal numerous times.
Vermont is projected to end the current fiscal year with a $95 million surplus in the education fund. And Bolio said Scott wants to use half of that money to send a one-time rebate to all Vermonters.
Administration officials didn’t have a per-capita breakdown of what residents would receive. But Bolio said a rebate is preferable to a reduction in next year’s property tax rates.
“And the benefit of doing that, opposed to buying down fiscal year 2023 property tax rates, is that that will help prevent a future year spike that a rate buydown creates for subsequent fiscal years,” he said.
Child care, opioids and climate change … and no pension reform funds
Vermont’s Child Care Financial Assistance Program is slated for a $12 million increase under the plan presented to lawmakers.
And Scott has earmarked an $8 million opioid package “to strengthen local prevention and recovery efforts, expand residential treatment options and increase employment services.”
Scott announced $216 million in funding for climate solutions – both to cut emissions and build resilience in communities around the state.
The governor called out investments in electric vehicle infrastructure and incentives. He said hazard mitigation, weatherization and grid upgrades to allow for storing more energy from renewables were on the table.
Scott’s budget notably did not include the additional $50-plus million in state funds that would be required to fund the pension reform plan approved by a panel of lawmakers and union representatives earlier this month.
But Finance Commission Adam Greshin said the governor shares lawmakers’ urgency to address the $4 billion unfunded liability in the retirement systems for teachers and state employees, and is eager “to get to yes.”
Statehouse Democrats respond
House Speaker Jill Krowinski said the governor’s speech included “priorities where we are in agreement on, which I am really happy about.”
Krowinski said she and Senate Pro Tem Becca Balint conducted a tour of Vermont last summer in which they heard from more than 1,400 Vermonters “about what we can do with this once-in-a-lifetime-opportunity.”
She says their answers dovetailed neatly with the governor’s budget priorities, including affordable housing, building the workforce, child care, mental health, climate change and clean water.
“I definitely heard areas of consensus where we can work together this session, and now it’s time for us to learn more details about his proposals,” Krowinski said Tuesday.
“I definitely heard areas of consensus where we can work together this session, and now it’s time for us to learn more details about his proposals."Vermont House Speaker Jill Krowinski
Krowinski, however, is already signaling skepticism over some of Scott’s specific plans, such as the $14.4 million he wants to spend over the next three fiscal years to lure out-of-state workers to Vermont.
“I have some concerns about that proposal,” she said. “What I have heard from people across all counties is that they want us to be investing in them, and so I need to hear some more information to be convinced that is the right decision to make right now.”
Krowinski said she also isn’t convinced that a one-time property tax rebate is the best use for the $95 million surplus projected for the education fund this year.
“If we are looking at any kind of tax credit, I think it needs to be laser focused on helping Vermont families, especially those with young kids right now who are struggling,” she said.
Balint said she’s excited to engage with the governor in a debate that centers on where to grow spending, instead of a which programs should be on the chopping block.
“We’re at this really unique moment, because we just got a budget address in which we didn’t talk about any cuts we needed to make,” Balint said. “I mean, that’s in itself a phenomenal thing to think about, is that we have an opportunity to invest millions and millions of dollars.”
Where those dollars ought to get invested, however, is a question for which lawmakers may have a different answer that Scott.
Balint said Scott’s $51.5 million income tax relief package, for instance, is scattershot, and doesn’t seem focused on any tangible policy outcomes.
She said the House and Senate are working on an alternative tax cut plan that would direct more relief to working families through an increase in the child care tax credit.
“One of the things that I’m really looking at is, how do we make a substantive, large investment to Vermont families, especially those with children,” she said. “If we’re going to do any tax credit program, we really want to make sure that we target it.”
VPR's Abagael Giles contributed reporting to this story.