by Ben Kinsley, for Campaign for Vermont

This week the Legislature grappled with the fundamental tension between ambition and fiscal reality. House Ways & Means moved deeper into the mechanics of its income tax overhaul. Meanwhile, the Senate quietly narrowed its flagship housing production bill after the Administration conceded it lacked the capacity to run a key pilot program, and a technical drafting flaw nearly undermined Vermont’s municipal financing toolkit. Also, the Senate now finds themselves at the center of the session-defining debate over education reform.

The week’s hearings make clear the Legislature is racing against the clock, trying to assemble complex policy packages (and making consequential tradeoffs in the process) before time runs out.

Off to the races.

The Tax-and-Health Care Nexus: The Ways & Means Committee

House Ways & Means devoted much of the week to advancing draft legislation that would restructure Vermont’s income tax brackets and create a new investment income surtax, but the most consequential development wasn’t about the tax code itself. It was about what the new revenue would pay for.

The Committee is evaluating tying the new tax revenue to a state-run health care premium assistance program designed to replace the enhanced federal premium tax credits (ARPA/IRA) that expired on January 1, 2026. Mike Fisher, Chief Health Care Advocate call this loss of assistance “a story of a disaster.” Open enrollment comparisons between 2025 and 2026 show approximately 5,160 disenrollments from the individual market, concentrated among households above 400% of the federal poverty level who lost all federal subsidies. Bronze plan enrollment roughly doubled, with 60% of new bronze enrollees migrating down from gold plans. As Fisher framed it, “We’re chasing all of the good risk out of the individual [market] and it will predictably lead to ballooning prices.”

The policy response on the table is a three-pronged health care package:

1. Vermont Premium Assistance Expansion — extending state subsidies for households above 400% FPL, capping premiums at roughly 10% of income for the second-lowest-cost silver plan. Earlier modeling pegged the cost at approximately $25.6 million to fully backfill lost federal subsidies for this population. — meaning even the full VIP surtax revenue wouldn’t close the gap.
2. Medicare Savings Program (MSP) Expansion — raising Qualified Medicare Beneficiary eligibility from 150% to 200% FPL would reach an estimated 4,000 newly eligible individuals at an incremental state cost of roughly $10 million. The policy case here is strong: Vermont’s prior MSP expansion (a ~$5 million state investment) produced an estimated $35–67 million in beneficiary and system savings in its first year alone. Fisher called it the best return on investment he has ever seen in public policy.
3. Small Employer Premium Tax Credit Expansion — broadening the existing Vermont Health Connect credit from employers with ≤25 FTE to those with ≤100 employees, removing the wage cap, and setting the credit at 12%.

The tax design question remains unresolved. Two competing draft structures are on the table:

• Draft 5.1 pairs the health care investments with a new Vermont Investment Proceeds (VIP) surtax at ~3.545% on capital gains, dividends, interest, rent, royalties, and passive income. This is estimated to generate approximately $48.6 million. It also raises the top marginal income tax rate (into the ~12% range) and expands the income range taxed at 7.6%.
• Draft 6.1 takes a different path entirely: it lowers the bottom marginal rate (3.35% → 2.95%) while raising the top bracket to 10%, providing broad-based tax relief but does not fund the health care proposals. This version raises legitimate concerns about revenue volatility — shifting more dependence onto high-income filers whose income fluctuates year to year.

Committee members expressed bipartisan enthusiasm for the MSP expansion but voiced real skepticism about the VIP tax; requesting more detailed economic impact analysis. The Committee pressed the Joint Fiscal Office on a critical nuance we flagged last week: many high-income tax returns reflect one-time liquidity events (like selling a business), not persistent high earnings. Taxing those events at rates designed for recurring wealth is a policy choice with real consequences for Vermont’s entrepreneurial economy.

Housing Production: The Bill Gets Narrower, Not Broader

The Senate Economic Development Committee spent half the week refining H.775, producing a comprehensive strike-all amendment that reconciles the Senate’s S.328 language with the House bill. The result is a bill that assembles a wide array of housing production tools, but it is notably less ambitious than what was on the table two weeks ago.

The most significant subtraction is that the Administration formally requested removal of the off-site construction accelerator pilot program and the associated 1% credit facility (~$12 million) that had been a centerpiece of earlier discussions. Why? They Administration lacks capacity to implement the pilot. While this may be pragmatic, it is still disappointing to see a pilot that promises to transform our housing development pipeline and reduce per-unit costs be put back on the shelf.

The week’s most technically important development was the resolution of a statutory drafting flaw that could have undermined Vermont’s municipal financing toolkit. The Vermont Bond Bank flagged that legacy TIF language carried into CHIP (Community Housing Improvement Program) law treats certain special assessments as “property taxes” for retention purposes. This would sweep away the revenue streams that are need to secure special-assessment revenue bonds and interfere with CPACE (Commercial Property Assessed Clean Energy) financing. The result is that a community could be forced to choose between using special assessments for infrastructure (water, sewer, streets) and using CHIP financing for housing, rather than layering both tools across multiple phases of a development project. 

CHIP policy changes in the strike-all deserve close watching:

• Expanding allowable costs so that tax increment financing can cover expenses incurred by the sponsor or developer (not just the municipality). This could include planning, design, legal, and project management costs. Multiple Senators raised concerns about unclear controls and potential for misuse.
• Changing the housing-unit occupancy requirement so sponsors must offer units as primary residences while project indebtedness remains, but downstream purchasers would not be restricted after sale. This creates a possible tension with the goal of ensuring publicly incentivized housing serves Vermonters rather than becoming second homes.

Education Reform: Competing Visions Collide in the Senate

The Senate Education Committee finds itself at the center of the session’s most consequential debate and this week made clear that there are not two, but at least four distinct visions for how Vermont’s education system should be restructured. The Committee now holds H.955 (the House’s voluntary consolidation package), heard the Agency of Education’s full-throated opposition to that approach, received testimony from educrats and policy advocates offering alternative frameworks, and must reconcile all of this with its own earlier governance model that took a different path entirely.

The House Vision (H.955): CESAs + Voluntary Mergers + Delayed Formula

The House passed a package built around Cooperative Educational Service Agencies (CESAs) as regional shared-service providers, facilitator-guided merger study committees to examine potential mergers (with any actual consolidation remaining voluntary and subject to local voter approval by November 2028), and a delayed foundation formula (pushed from 2028 to 2030). The bill also includes a school construction program, regional assessment districts, and a new second-home property tax classification.

Supporters of this argue it respects local voice while delivering near-term savings through regional cooperation and eventual consolidation. As House Education Chair Peter Conlon framed it, the bill “can save money, provide more opportunity in a cost-effective way, and respect local voice.”

The Agency of Education Vision: Larger Districts, Faster Timeline, Top-Down Forced Consolidations

Secretary Zoie Saunders delivered AOE’s clearest statement in opposition to the CESA model this week: “We do oppose the CESA model. It represents another layer of bureaucracy… it also creates redundancy in the activities that must be accomplished.”

AOE’s alternative rests on five interlocking pillars:

1. 1. Supervisory districts (not supervisory unions): consolidating governance into single entities (new and larger districts) rather than layering a new regional service structure on top of existing SUs.
   2. Equity-based budgeting with statutory school advisory committees to preserve local voice within larger districts.
   3. Clear attendance and choice policies aimed at maintaining current feeding patterns while enabling intradistrict and high-school choice.
   4. Phased mapping with a one-year refinement window: the Agency presented two district maps and argued the Legislature must choose a configuration to finalize foundation formula modeling.
   5. Unified CTE governance through a statewide education service agency to expand career and technical education access.

The Policy Advocate Vision: Shared Services First, Formula Second, Mergers as Needed

In testimony yesterday, I presented data challenging the assumption that district consolidation should be the primary lever for cost control. Regression analysis we have previously provided to the Committee found that district size alone explains only ~4% of the variation in per-pupil spending, while supervisory union size explains ~16%. This suggests that the administrative and service layer of our education system matters more than the governance unit below it. The data implies that regional shared-service models (like CESAs or expanded SUs) may capture most of the available efficiencies of scale without requiring the political disruption of forced mergers.

Campaign for Vermont’s recommended sequencing:

1. 1. Stand up shared-service structures first (with a required core set of services and staged expansion)
   2. Implement the foundation formula (which creates the correct financial incentives)
   3. Pursue mergers where the data shows they are necessary (rather than prescribing them in advance)

This framework aligns with testimony from the Vermont Rural School Alliance and retired superintendents who have led actual consolidations. As one retired superintendent told the Committee earlier in the session: “Our merger was easy… because we started establishing the picture of ‘we are one’ years ahead.” The consistent message from the field: the process is the product. Front-end investment in trust, communication, and community engagement is not a nice-to-have, it is the single biggest predictor of whether a merger succeeds or fails.

The Vermont Learning Collaborative (VLC) (the state’s first operational CESA) reinforced this message a few days ago with concrete results: 20–62% savings on special education evaluation services, approximately 60% savings on professional development, and faster turnaround times compared to private vendors. This is what shared-services at scale can provide…

The Senate’s Own Earlier Model: A Fourth Path

Adding complexity, the Senate Education Committee developed its own governance framework earlier in the session, one leaning into larger supervisory unions with clearer state direction in regards to district consolidation than the House’s voluntary approach, but stopped short of AOE’s fully mapped, top-down model.

Now, having received H.955 from the House, the Committee must decide whether to work within the House’s framework and amend it, or effectively scrap it in favor of something closer to either their own earlier model or AOE’s more prescriptive vision. And, they have to do that by early next week.

Key unresolved design choices the Senate is actively debating:

• ADM thresholds for study groupings: The House used 2,000 students; the Committee discussed alternatives of 1,000 and 1,500 (with 1,500 flagged as a national average for reference).
• Mandatory vs. voluntary CESA service use: H.955 only mandates CESA membership, not that districts actually leverage shared services. Several senators want “more teeth” in the requirement but are cautious about compelling participation where it may not be cost-effective.
• Regional facilities master planning: Multiple committee members urged explicit inclusion of regional facility planning in the CESA service portfolio (a logical addition given the school construction provisions).
• Legacy debt and school construction funding: The Committee removed the House’s uncapped legacy-debt provision (which could have cost tens of millions annually) because it lacked an identified revenue source.
• Foundation formula timing: The most consequential unresolved question. Every year the formula is delayed extends the current spending incentive structure. It is this structure that has produced per-pupil spending growth at roughly twice the national average for the last 30 years.

The Governor has promised to veto H.955, not because it doesn’t save money (which it may or may not do) but because it doesn’t force school district consolidation and the removal of local school boards. The House’s 79–62 vote falls short of a veto-proof majority, meaning the bill’s fate may depend on whether the Senate version can attract broader support, or whether the chambers reconcile their approaches into something that either survives a veto or wins over the Governor’s signature.

Something that really astounds me, though, is a viewpoint that was repeated by the Agency of Education this week. We have warned for nearly a year now that much of the cost savings potential from district consolidation would be subsumed by teacher contract buy-outs and level-ups. Apparently, the Agency believes that this is a feature and not a bug of district consolidation. The Secretary has indicated that she wants to increase teacher pay, even though we pay our teachers in line with national averages. Essentially, they want to reduce the number of administrators and turn around and give those savings to teachers. That’s great, I’m all for well-paid teachers, but then where are the savings for taxpayers going to come from? Evidence has shown that this level-up effect wiped out the savings from previous consolidation efforts (and might have even ended up costing taxpayers slightly more). 

Designing a new reform effort to deliberately generate the same effect is disingenuous to taxpayers who are being told that relief is on the way. That is what the Governor and the Secretary of Education seem to be proposing.

Looking Ahead

• House Ways & Means must choose between various funding and spending options in front of them. Watch for whether the Committee demands actuarial estimates for the premium assistance program before committing and whether or not the language they are working on gets attached to a bill that is still in play (possibly the state budget?).
• Senate Education continues working through H.955 (education reform/CESAs). Whether the Senate version can attract broader support remains the session’s defining education policy question.
• H.775 (housing production) moves toward a final Senate committee vote. The CHIP primary-residence enforcement question and developer cost expansion deserve close scrutiny. Coordination with Senate Finance on property definitions will also be critical.
• S.190 (reference-based pricing) continues its journey through the House. Combined with the premium assistance proposals emerging from Ways & Means and S.197’s primary care payment reform, this remains potentially the most consequential cost-of-living policy cluster of the session.
• H.949 (yield bill) is back to the House. The 3.8% vs. 6.7% property tax increase gap is the central negotiating point, and the sustainability of one-time General Fund transfers is the question neither chamber wants to answer honestly.
• S.325 (Act 250/land use reform) continues to be refined. The strike-all repealing the road rule and Tier 3 last week was a significant recalibration. There are a few remaining details to iron out but this bill is expected to move.

The legislature is in the final weeks of the session and policymakers are busy connecting the dots: linking tax policy to health care, housing finance to municipal law, and demographic reality to fiscal ambition. Policy positions will start shifting quickly as negotiators push towards compromises that move legislation towards the finish line.