The 2026 legislative session has been defined by a sense of “relitigation,” with lawmakers spending much of their time attempting to course-correct or delay major policies passed in previous years, particularly regarding education and land use.
As the era of abundant pandemic-era federal funding ends, the state is grappling with a $9.3 billion budget and shrinking revenues, as federal cuts and an aging tax base create immense mounting pressure.
The Biggest Battles
- Education Transformation: This has been the primary consumer of “oxygen” in the State House. While last year’s Act 73 mandated a move toward consolidated districts, a task force failed to produce the required maps. The House has since advanced H.955, which pivots to a voluntary consolidation model supported by seven new Cooperative Educational Service Areas (CESAs), while punting on implementation of other major provisions from Act 73. Governor Scott has labeled this a “non-starter,” insisting on a finalized district map as a prerequisite for signing the state budget. The Governor and the Senate share the concern that the voluntary model lacks the teeth needed for true cost containment.
- The Property Tax Rates and Surplus: With education property taxes having risen over 40% in five years, the state faced a projected average increase of 12% for 2026. A major rift exists over how to use a $105 million one-time surplus: the Governor and Senate want a full buy-down this year to reach an average 3.8% increase, citing taxpayer fatigue and the need for cost containment, while the House proposes splitting the surplus over two years with a buy-down to about 7% this year.
- Cost Containment: The Senate has now sent (twice) legislation to the House to lower the state’s excess spending threshold, which imposes a monetary penalty on districts that overspend.
- Relitigating Act 250 and Land-Use Reform Changes of Act 181: Friction over the road rule that triggers jurisdiction for driveways over 800 feet and Tier 3 conservation area mapping led to intense pushback from the Rural Caucus. While initially considering delays in the Senate-passed S.325, the House Committee on the Environment this week passed a version that moves toward a full repeal of these controversial provisions while also extending interim exemptions that have already resulted in more housing and expanding Tier 1 areas.
- New Revenue vs. Fiscal Discipline: The left flank of the House is pushing for the among highest marginal income tax rate in the country (12.7% to 13.3%) and a new 4% surtax on investment income (VIP Tax) that the Vermont Chamber has exposed targets pass-through entities revenue, rather than owners incomes.
What to Expect Moving Forward
- “Fiscal Three-Body Problem”: Last week, we discussed how the House, Senate, and Governor are positioned on three major bills: the Budget, the Yield (property tax setting) bill, and the Education Transformation Bill.
- Who Will Budge on the Budget? This week, the Senate sent its version of the budget back to the House, and a conference committee was created to hammer out the differences between the House and Senate versions.
- $15 million for a multi-use sports facility at the University of Vermont is one of the key differences between the two budgets.
- Late Adjournment? With significant rifts remaining on education and the budget, the session is expected to drag into late May, likely running past the candidate filing deadline for the coming election.
- A Mass Exodus? This biennium has seen an unprecedented nine mid-session retirements. Furthermore, several high-profile chairs have announced they will not seek re-election, signaling a major leadership shift for the next session. Candidates are lining up to pounce on those vacancy announcements or challenge incumbents they feel are not meeting the moment.
- Privacy Legislation: Years of deadlock on Vermont’s privacy bill continue over issues such as the inclusion of a Private Right of Action (PRA) and a highly restrictive data minimization approach. While proponents seek maximum consumer protection, business associations advocate aligning with existing state models to ensure a predictable regulatory environment and avoid making Vermont a national outlier.
- The Senate was unanimously behind a version that was workable for Vermont employers and the House now continues to work to amend it.
Trends
- Not top-down control, maybe middled? Regionalization is becoming the undercurrent of all policy. From regional policing pilots in Windham County to regional assessment districts (RADs), lawmakers are seeking economies of scale that individual towns can no longer achieve. Vermonters are signaling that they might not be ready for state control; however, they might be willing to concede some of their local control and burden to regional control.
- Municipal Tax Pressure: Towns are rapidly adopting Local Option Taxes (LOT) because municipal property taxes are being “crowded out” by education costs. This Town Meeting Day, 14 additional towns voted to implement a Local Option Tax, bringing the state total to 38.
- This week, it manifested itself in a floor fight over an amendment to the miscellaneous tax bill, H.933, that would allow municipalities to keep 80% of the LOT revenue they generate, up from the 75% they currently keep.
- Transportation Fund Deterioration: The T-Fund faces a $33 million structural deficit, with 30% of state highways currently rated as “poor” or “very poor”. To match federal funds, the state is moving toward a Mileage-Based User Fee (MBUF) for electric vehicles.
Republished with permission from the May 1 Lake Champlain Chamber Advocacy Newsletter.