On January 25, 2023

Money doesn’t grow on trees…or does it?

By Rep. Jim Harrison

The semi-annual revenue update from state economists was presented and adopted last Tuesday, Jan. 17. Both the administration’s and legislature’s outside experts agreed that the unprecedented influx of federal dollars to the state and individuals (a total of $10 billion over the past few years), has definitely helped state coffers. The updated General Fund forecast for next year, while down 7.2% from the current year, is still higher than expected and better than pre-pandemic.

The additional revenue has allowed the state to make investments that it would been hard pressed to do in normal times, even if many are one-time expenditures in areas like broadband buildout, housing, IT upgrades and more.

However, the decline in ongoing revenue from the current year, may be a sign of things to come. And just like individual consumers, inflation pressures have increased the cost of many government services. Higher revenue also comes with higher expenses. And the forecasts assume there will a slowdown in the economy, but maybe not a full-blown recession, which may or may not be accurate.

The updated forecast was followed by the release of a study by the RAND group on a major new childcare initiative that would increase wages and benefits of childcare providers and increase subsidies to limit costs to families to no more than 10% of their income. The additional cost to the state would range between $179 million to $279 million. The study indicated several tax increases could support the needed funding, such as a 2-point increase in the sales tax, adding a tax on services or a new payroll tax on wages.

More details will be available after a legislative proposal is introduced in the coming weeks.

On Friday afternoon, Governor Scott addressed a Joint Assembly of legislators with his annual budget address. The total budget proposal for the next fiscal year beginning July 1, was a record $8.4 billion. The governor was quick to point out that it included a number of one-time investments, that wouldn’t require ongoing appropriations.

Scott’s focus throughout his budget was to invest strategically with the current bump in state revenues and not in favor of “flashy new initiatives to grab headlines.”

A few highlights of the budget proposal include: 

$56 million ($120 million total in annual ongoing support) to expand access to childcare, using existing revenue growth. The governor said his childcare plan will increase equity, expand access to after school programs, and expand childcare subsidies to 400% of the Federal Poverty Level ($111,000 for family of four.)

Invests an additional $45 million in housing development and rehabilitation, and another $26 million in emergency housing. 

Reduces taxes by exempting military pensions from Vermont income taxes; exempting more retirees from Vermont incomes taxes on their social security benefits; increasing the earned income credit to lower income working Vermonters and removing the provider tax on home health care providers.

Sets aside over $150 million to meet future, anticipated state share of new federal funding streams, like the infrastructure bill approved by Congress last year.

Fully funds all state retirement and debt service obligations and maintains statutory reserve requirements.

$9.2 million to fund a two-year pilot that helps primary care doctors better address substance abuse and mental health.

$5 million for a Clean Heat Homes program.

$9 million in bridge funding for Vermont State University

$10 million for a two-year pilot program to cut Community College of Vermont tuition by 50%. 

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