Can our State break free from Federal dependency?

by Dave Soulia, on FYIVT.com

The first step in fixing a problem is admitting that you have a problem. Vermont has a spending problem. The state spends more money relative to its economy than any other state in the nation, with state and local government expenditures totaling 29.4% of its Gross State Product (GSP)—far above the national average of 18.23% (US Government Spending). To make matters worse, Vermont relies heavily on federal funding to balance its books, with 25-30% of its $8.6 billion budget coming from federal transfers (USAFacts).

This level of spending, combined with a relatively small economy—just $45.4 billion in GDP (Federal Reserve Economic Data)—has made Vermont one of the most financially dependent states in the union. Tackling this issue requires acknowledging the state’s fiscal realities and crafting solutions that reduce spending, grow the economy, and relieve the tax burden on already overburdened residents.

The Difference Between GDP and GSP

To understand Vermont’s challenges, it’s important to distinguish between Gross Domestic Product (GDP) and Gross State Product (GSP). While GDP measures the total economic output of a nation, GSP focuses on the economic activity generated within a single state. Vermont’s GSP represents its slice of the national economy, and with such a small slice, every dollar spent by the state weighs more heavily on its overall output compared to larger states.

States with more robust economies, like Texas or Florida, can sustain lower government spending-to-GSP ratios—closer to 15-17%—because their larger and more diverse economic bases generate substantial revenue. Vermont, on the other hand, spends like a much larger state without the economy to match.

How Vermont Compares

Compared to other states, Vermont’s spending habits and federal dependency stand out. Alaska, the second-highest spender relative to GSP, clocks in at 25.96%, and many other small states hover in the low-to-mid 20s. States like New Hampshire, with a similar population size, spend far less as a percentage of GSP and rely less on federal support.

• Spending as a percentage of GSP:
  • Vermont: 29.4%
  • Alaska: 25.96%
  • U.S. average: 18.23%
• GDP (2024 estimates):
  • Vermont: $45.4 billion
  • Alaska: $67.8 billion

What separates Vermont from its peers is not only its spending but also its limited revenue-generating capacity. States like Alaska offset their high spending with revenues from natural resources like oil. Vermont, by contrast, relies heavily on taxes and federal aid, leaving it more vulnerable to economic and political shifts.

A Path Forward: Fiscal Solvency for Vermont

Admitting Vermont’s fiscal challenges is only the first step. The state must craft a strategy to reduce spending and grow its economy without further burdening taxpayers.

1. Streamline Government Spending

The state needs a full review of government operations to identify inefficiencies and eliminate waste. Modernizing outdated administrative systems, consolidating duplicative services, and focusing on programs that deliver measurable results can reduce costs without cutting essential services.

2. Ease Regulatory Burdens

Vermont’s regulatory environment often discourages business growth. Simplifying permitting processes and reducing bureaucratic hurdles can attract industries like manufacturing and technology. These sectors bring jobs and revenue while diversifying Vermont’s economic base.

3. Encouraging green manufacturing

Ventures, such as producing eco-friendly packaging or renewable energy components—aligns with Vermont’s environmental ethos and economic goals.

4. Promote Regenerative Agriculture

Vermont’s agriculture sector is uniquely positioned for growth. By adopting regenerative practices that enhance soil health and reduce costs, farmers can produce high-value products like organic dairy, vegetables, and maple syrup. These goods command premium prices in national and international markets.

5. Tap Into Carbon Credit Markets

Vermont’s abundant forests are an untapped resource for economic growth. By selling carbon offsets to corporations aiming to reduce emissions, Vermont can generate revenue while preserving its natural environment. Programs that incentivize private landowners to maintain forest cover also enhance biodiversity and support tourism.

6. Energy Efficiency and Cost Reduction

Programs to improve energy efficiency—like weatherization initiatives and appliance rebates—reduce utility bills for residents and businesses. Savings can circulate through the economy, boosting spending in other areas. These initiatives can often be funded through federal grants or partnerships, minimizing costs to the state.

Rebuilding Fiscal Independence

The first step toward solving Vermont’s fiscal problems is clear-eyed honesty about its current position. With spending outpacing economic output and heavy reliance on federal funding, Vermont risks becoming permanently dependent on outside support. By cutting waste, easing regulations, and fostering growth in sustainable industries, the state can chart a path toward self-sufficiency.

The question isn’t whether Vermont has a problem—it’s if the state is prepared to admit it?