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The central challenge is not that state revenues are collapsing. Instead, the state’s fixed costs are growing faster than its baseline revenue.
Vermont’s state government is preparing for what lawmakers are calling the “most difficult” budget process in recent memory. After several years of budgets bolstered by historic levels of federal pandemic aid, that money has run out.
Now, the state faces a “fiscal reckoning” as it confronts rising internal costs and the threat of “sweeping federal funding cuts”.
This situation is forcing a fundamental debate in Montpelier: Is Vermont’s primary problem an “affordability crisis” that requires spending restraint, or is it an “inadequate revenue” problem that requires new taxes to protect essential services?
This article explains the core conflict, the competing solutions, and what is at stake for Vermonters in the upcoming Fiscal Year 2027 (FY27) budget.
A Call for Public Input
As this process begins, the public is being invited to participate. On November 6, 2025, the Department of Finance & Management (DFM) announced a Public Budget Forum to receive comments on the development of the FY27 state budget.
This is being done in accordance with state law (32 V.S.A. § 306(d)), which requires public participation in developing goals and prioritizing spending and revenue.
According to the DFM, residents are invited to share their thoughts, comments, or suggestions. The public can participate via an online survey, a brief budget presentation, and a public comment page on the department’s website.
The Core Problem: A Structural Gap
The central challenge is not that state revenues are collapsing. Instead, the state’s fixed costs are growing faster than its baseline revenue.
The official July 2025 Consensus Revenue Forecast, which sets the financial “ground truth” for the budget, projects modest revenue growth for FY27, such as a 2.8% increase in personal income tax collections.
However, these gains are not enough to cover the state’s non-negotiable, built-in expenses. These “fixed costs” include:
- State employee salary and benefit agreements.
- A 5% increase in health benefit costs for state workers.
- Required payments for state pensions.
- New, “sweeping” cuts to federal funds that support programs like Medicaid and nutritional assistance.
This creates a “structural deficit”—a gap where baseline projected revenue is not enough to pay for the baseline, already-promised cost of government.
This is a stark reversal from the prior year. The FY26 budget, which passed in mid-2025, included a large 8.4% General Fund increase. That budget used the last of the federal aid and a temporary economic surge to make major “ongoing investments” in childcare, housing, and healthcare.
Now, just one year later, the state must figure out how to pay for those expanded services without the one-time money that created them.
The Governor’s Plan: A 3% “Hard Cap”
Governor Phil Scott’s administration has defined the problem as an “affordability crisis” and has stated its budget strategy is to “play defense” against new spending and taxes, a position echoed by the Vermont Chamber of Commerce.
To enforce this, the Department of Finance and Management (DFM) issued strict instructions to all state agencies for building their FY27 budget requests:
- A 3% General Fund Cap: Agencies cannot request a General Fund budget that is more than 3% higher than their FY26 appropriation.
- The “Hidden Cut”: This 3% cap is not a 3% raise for programs. Agencies must absorb all their fixed-cost increases—like the 5% rise in health benefit costs—within that 3% total. For an agency’s fixed costs to be covered, programmatic spending must be cut to keep the total budget under the 3% cap.
- The “No Backfill” Rule: Agencies were explicitly warned not to assume that any new federal funding cuts will be “backfilled” with state dollars.
This administrative process forces agencies to identify which programs they would cut to meet the 3% cap. It is designed to force the “wants vs. needs” reckoning the Governor has called for.
Two Competing Solutions Emerge
The Governor’s budget, when released, will be the opening move in a session defined by two opposing philosophies.
- The “Restraint” Position: This position, championed by Governor Scott and the Vermont Chamber of Commerce, argues that the state faces an “affordability crisis” and “escalating fiscal pressures.” The solution, in this view, is fiscal restraint, protecting businesses from “disproportionate tax burdens,” and limiting government spending to core “needs”.
- The “New Revenue” Position: This position, advanced by organizations like Vermont Businesses for Social Responsibility (VBSR) and the Public Assets Institute, argues that “budgetary constraints” are a policy choice. They maintain that “additional revenue will need to be raised” to protect the state’s values and essential services. This coalition advocates for “graduated revenue strategies” (like higher taxes on corporations or high-income earners) to avoid cuts to programs, such as by building a revenue system through an equity lens.
What’s at Stake: The “Scale Back”
House Appropriations leaders have warned that committees will be asked “to review existing programs to see if there are any that can be scaled back or may no longer be the priority they once were.”
The programs most directly in the line of fire are the ones expanded in the FY26 budget, including:
- Childcare: A 5% rate increase for childcare providers and financial assistance programs. Advocacy groups are already preparing to defend against cuts.
- Healthcare: Rate increases for critical providers like Federally Qualified Health Centers (FQHCs) and nursing homes. These are especially vulnerable to the combination of the 3% cap and federal Medicaid cuts.
- Housing: Programs funded in FY26 like the Manufactured Home Improvement and Repair Program (MHIR) and the Housing Opportunity Grant Program (HOP).
On top of this, school districts are facing a “double whammy” of their own expiring federal funds and inflationary pressures, all while implementing the state’s massive H.480 education finance reforms.
The Background Factors: Pensions and Debt
Two long-term issues will influence the entire debate:
- Pensions: Vermont’s pension system, a crisis just a few years ago, is now on a stable path to be fully funded by 2038. This good news depends on one thing: the state must “continue to fund ADECs+” (its full, actuarially-required pension payment). In a tight budget year, there will be immense political pressure to divert this massive payment to save social programs, a move the State Treasurer’s office warns against.
- Debt: This is a source of strength. Vermont has high-grade bond ratings (Aa1/AA+) and a low debt load. The state’s Capital Debt Affordability Advisory Committee has recommended the state can prudently take on $100 million in new debt for the biennium. Because the operational General Fund is so constrained by the 3% cap, this $100 million in borrowing capacity (via the Capital Bill) is the primary tool the Governor and Legislature can use to fund new priorities, especially for “one-time” investments in housing and climate infrastructure.
What Happens Next?
1. The Governor’s Budget (January 2026): Governor Scott will formally present his FY2027 Recommended Budget to the Legislature in mid-January 2026. This document will be the first official look at which programs his administration proposes to “scale back” to meet the 3% cap.
2. The Legislative Response: The House and Senate will spend the next four months building their own budget. They will hear testimony from state agencies, advocacy groups, healthcare providers, and local officials.
3. The Central Conflict: The 2026 legislative session will be defined by one question: Will the Legislature pass a budget that fits within the Governor’s “restraint” model, or will it pass a budget that raises “graduated revenue” to preserve services?
4. The Veto Showdown: Given the Governor’s consistent opposition to broad-based tax increases, any legislative effort to pass a significant new revenue package will almost certainly face a gubernatorial veto. This sets the stage for a high-stakes conflict that must be resolved before the new fiscal year begins on July 1, 2026.
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Categories: State Government
Vermont can’t do what is right for the People, nor can any other State, because all budgets are tethered to each other and anchored to the Federal Titanic. Why do States collaberate to instigate and initiate policies and lawsuits? Do they not combine resources to forge agreements amongst each other, regionally or across the entire nation – east to west, north to south? How many agreements go across the border, across the globe for foreign investment and selling off our “public” infrastructure? How have private large cap corporations gained so much influence and control over the State?
Oh what entangled webs they weaved, practicing to deceive and thieve. Now, they are trapped within that web by their own deeds done down and dirty. The public Trust was wheeled and dealed away right under our noses – for decades. The kicker is we paid and approved all the debauchery that is coming home to roost and roost damn hard it will – many all ready experiencing it, much to many chagrins. The problems could be solved by repeal, rescind, withdraw, reconfigure, and a sweeing reduction in force of the farcical, politcally corrupted, bloated buraucracy. Are there bodies, within the body, to be so daring, so couragous, so genuinely ethically bound and principled?
One would think that the 14% increase on property taxes would have given the state more than enough for it’s pet projects and such but I guess probably not. Don’t forget the additional fees imposed at the DMV and other places to gain revenue.
If there is one good thing here is that the Democratic majority will once again HAVE to play ball with the governor since they can’t easily override a veto. How often have we heard our Democratic legislators always use the term “tax paying citizens.” Taxes are all they can think of.
-Homelessness is a problem that we can’t afford to fund the way we are. We have a lot of new housing going up but how much of it is “affordable?” Add to this folks are migrating here from other states to tap into Vermont’s very generous welfare and SNAP benefits.
-Education is more than funded enough. I know, good luck taking on the teacher’s union but when a state like Mississippi that was dead last in the country has students that are now out performing Vermont students at a considerably less costs, this says much. Money doesn’t fix the problem. If Mississippi isn’t proof enough, the U.S. spends more than most countries in the world on education yet ranks close to the bottom in results. As I said, money itself doesn’t fix everything.
-Pet projects. We have enough solar and wind projects out there that Vermonters get nothing from. Those should be privately owned, NOT funded by tax dollars.
-Healthcare. Insurers will forever rule this. Fact is, the average median age in Vermont is what, in the low 50’s? We are an old state. Young folks don’t want to work so we older folks continue to be the workforce and sorry but as we get older, we need an extra trip to the doctor or two. Add to this the legalization of marijuana making some folks ineligible for some jobs, we have no choice.
I could go on.
What is proposed and discussed will not work, it will only kick the can a bit further down the road.
Bankruptcy, insolvency happens very slowly, then it happens suddenly, and it’s brutal.
We are drunk with taxpayer money and we keep buying drinks for everybody at the bar, we can’t pay our tab.
There is no serious attempt at change whatsoever, every state in country does health care and education for less, thereby also putting us as the most expensive on the planet, yet we still need 3% increases and we call this fiscal responsibility? It’s a joke.
Education, healthcare could be done for 50% less money and get better, much better outcomes, sounds outlandish huh? It’s not, countries and states are doing it today for even less.
The grift and savagery toward the common man in Vermont is epic. Our feudal overlords of eons past were far less ruthless.
Too bad the economy didn’t grow as fast as the State Government!
Cut the education budget, fire all the extraneous administration and staff, who will be forced to move out of state, opening up new inventory on the housing market, increasing supply, reducing housing costs.
You’re welcome.
It would seem to me that the question boils down to do we want Capitalism, a system which rewards one for effort to stand on one’s own two feet, and prosper, get by, or fail based on one’s personal effort, or Socialism, a system which purports to “even” the playing field, if you will, regardless of effort, because it’s “for the good of the collective”. If incentive for one to excel is eliminated, how long will it be before driven entrepreneurs, and other self motivated people realize that the lazy are leaching off of their effort, and they go elsewhere to realize the fruits of their worth ? Growing government seems to be inevitable, but how about capping it at whatever the previous years COLA increase was, not a projection, or controversial formula ? The legislature then knows exactly how much money they have to work with, you know, like each and every one of us has to do ? We should force our State Government to be as responsible with our money as we have to be. As I have stated here before, the way the government operates is like me going out, and buying a new truck, and then going to my boss, and telling him I bought a new truck, and now I need a raise to pay for it ! The budget should be the first item set, and they should live within it as we do !
Look at the stupidity at the ballot box, pure stupidity. They vote to end their worldly style of existing without common sense. Expect more form NYC.
AMEN!
Quote from Thomas Sowell:
“No society ever survived because it had a large and growing class of parasites living off of those who produce”.
Love Thomas Sowell!
We might think about where we are on the civilization cycle as described by historian Alexander Fraser Titler – (1747 – 1813) a Scottish advocate, judge, writer, and historian who was a Professor of Universal History and of Greek and Roman Antiquities at the University of Edinburgh:
A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves largesse from the public treasury. From that moment on, the majority always votes for the candidates promising the most benefits from the public treasury with the result that a democracy always collapses over loose fiscal policy, always followed by a dictatorship.
The average age of the world’s greatest civilizations has been 200 years. These nations have progressed through this sequence: From bondage to spiritual faith; From spiritual faith to great courage; From courage to liberty; From liberty to abundance; From abundance to selfishness; From selfishness to apathy; From apathy to dependence; From dependence back into bondage.”
Aye Laddie !
So the question becomes: Can we break this cycle? If the answer is no, we should look forward to the balkanization of the Republic and hope to find a safe place to preserve what we can. If the answer is yes, we should expect to put great effort into breaking the cycle using our resources to accomplish it.
BREAKING NEWS. The supreme court backs Trump halting SNAP payments. Now, what will Vermont do???????
BREAKING NEWS. The U. S. Supreme Court has backed Trump halting of SNAP payments. Now, what will Vermont do????? Comment from Richard Day. You may want to check and see if this is fake news.
Several good comments here. I don’t need to add more other than that this state needs a heavy dose of “Ozempic”. The government is obese.
Recent article, Mississippi was the lowest in the nation for scholastic abilities. Now Vermont is lower than them. Would like to have the people in VT government take similar tests. Bet they would be lower than Vermont school kids. f failure, give them the boot to sell pencils. Not much intelligence in Montpelier.
Want to control the budget a little better? You want public input? Here’s an idea, stop spending so much frigging money on crap nobody wants or needs!!
Oh Dan, that takes Common Sense… and that seems to have evaporated a long time ago.
Re: The Governor’s Plan: A 3% “Hard Cap”
‘Hard Cap’ my a-s. This is a prescribed 3% annual rate of increase guaranteed by taxpayers.
If, for example, the Agency of Education budget of $2.7 billion this year increases 3% per year, in ten years the AOE budget will be $3.63 billion each year. For 72,093 K-12 students, that’s an increase from $37,451 per student to $50,351 per student – and only then if enrollments don’t decline.
If, on the other hand, enrollments continue to decline at a rate of 1% per year, as they have been, with this so-called ‘3% hard cap’, in ten years Vermont will have only 65,200 K-12 students costing $55,647 per student each year and property taxes will increase 148% from where they are now to make up the difference.
And this is ‘the best’ we can hope for.
What is it about proportional math and bankruptcy that our politicians don’t understand? As Hemingway so aptly put it… ‘bankruptcy occurs gradually, then suddenly’.
“The task of weaning various people and groups from the national nipple will not be easy. The sound of whines, bawls, screams and invective will fill the air as the agony of withdrawal pangs finds voice.” ~ Linda Bowles
Re: “… property taxes will increase 148% from where they are now to make up the difference.”
… should say:
“… property taxes will increase 34.4% from where they are now to make up the difference.”
There’s so much acreage in Vermont. The entire state does not need to be a damned forest. Time to modernize the state and get some corporate business here, people employed, housing built. Not a welcoming state at all for development and prosperity. Just like in the USSR, nobody important comes from this place and nothing important happens here. It’s just a dumb bunch of trees and hills. Pretty, yes. What it needs so much money for being the 2nd most barren state in the union, I have no clue.
Prior to Bill Clinton and the free trade agreement, Vermont had several viable industries here ( pre 1992? ) The state was beautiful, and prosperous. The Barre granite industry was booming (pre imports) IBM, Bombardier, Green Mountain Coffee, and Ben & Jerrys (and more) employed us. The foliage, ski and snow mobile tourists, to name a few, kept hotels, restaurants and our resorts employed, and small businesses were booming.
I remember when families had a house, and a family camp, either on a lake, or for hunting. Those properties were kept in the family for generations.
We didn’t need to be “important”. We loved the simple life. Working hard, owning a home, having a good time with our friends and family. Yes, this state is unrecognizable to what it used to be. It was never “barren” to us.
We cringed when the flat landers infiltrated. But who is really to blame?
They came because they wanted what we had. All this acreage and forest. Sigh.😭😭
Springfield and Windsor were “Precision Valley” with many Machine tool industries, employees came 50 miles from Rutland to have jobs. There were many patents issued per capita in the US. I learned about the industry at Fellow Gear Shaper Co as a student in high school. The only HS course in the country, got a Journeyman’s rating upon graduation, four years ahead of any school. The local industry supported the school. VT was the best place to live. And we were called “Hicks from the sticks” by outsiders. A proud designation. People that found VT don’t like the term we gave them “Flatlanders”, some have hurt feelings but don’t know what the term means, like a horse with blinders. VT vehicles had “Take Vermont Back” signs. Phil Hoff and the screaming doctor and the interstates started the downward slide to the liberal cess pool. Now the greatest industry in Vermont are the gas pumps, filling tanks so the natives can leave. Noted that’s happening to all Blue cities and states, filling up conservative states. I only am in VT half of the year, so don’t mind it so much, but the writing is on the wall.
Jocelyn, and Tom, How true . I also have generational roots. I worked for over 20 years at Bombardier in Barre . My Uncle used to have a flooring store on Main St. in Montpelier where I learned a trade, and how to respect, and meet the expectations of our customers. These traditions, and values molded Vermonter’s charactor into the proud, independent people that used to portray us as stoic individuals able to face most any difficult situation, and come out with desired results, and make it look inevitable that we would perserver. Enter the liberal colleges, and their promoters, that tought that government is (should be) the answer to all problems. In the advent of government’s salvation, and promotion of a helpless citizenry, why do we need self suffient citizens anymore ? It still come back to the same answer, independence, and pride in being who, and what you are, and where you came from . God bless Vermonters !
Converting vermont to new york only creates more problems…. Everyone loves vermont because it is a small state that remains beautiful… Why destroy that