Vermont

State Fiscal Briefs

November 2020

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Vermont’s budget basics

According to the National Association of State Budget Officers (NASBO), Vermont’s total expenditures in fiscal year (FY) 2020 were $6.2 billion, including general funds, other state funds, bonds, and federal funds. NASBO reported that total expenditures across all states in FY 2020 were $2.3 trillion, ranging from $4.7 billion in Wyoming to $337.7 billion in California.

Each state allocates spending and taxes differently among different levels of governments, and local governments often administer programs with state funds, so combined state and local government data show a more complete picture of individual benefits and contributions when comparing states.

Per the US Census Bureau, Vermont’s combined state and local direct general expenditures were $7.4 billion in FY 2017 (the most recent year census data were available), or $11,774 per capita. (Census data exclude “business-like” activities such as utilities and transfers between state and local governments.) National per capita direct general expenditures were $9,446.

Vermont’s largest spending areas per capita were public welfare ($2,957) and elementary and secondary education ($2,644). The Census Bureau includes most Medicaid spending in public welfare but also allocates some of it to public hospitals. Per capita spending is useful for state comparisons but is an incomplete metric because it doesn’t provide any information about a state’s demographics, policy decisions, administrative procedures, or residents’ choices.

Vermont’s combined state and local general revenues were $7.1 billion in FY 2017, or $11,409 per capita. National per capita general revenues were $9,592. Vermont uses all major state and local taxes. After federal transfers, Vermont’s largest sources of per capita revenue were property taxes ($2,670) and charges ($1,458), such as state university tuition and highway tolls.

Vermont’s politics

Governor Phil Scott, a Republican, was elected in 2018 with 54 percent of the vote. The next gubernatorial election is in 2020 because Vermont governors serve two-year terms. (New Hampshire is the only other state where governors serve two-year instead of four-year terms.)

Vermont has a divided government. Democrats control both the House of Representatives (95 Democrats to 43 Republicans and 5 independents) and Senate (22 Democrats to 6 Republicans). Enough independents caucus with the Democrats to give them veto-proof majorities in both houses. The entire legislature is up for election in 2020 because both representatives and senators serve two-year terms.

Vermont’s budget institutions, rules, and constraints

Vermont uses an annual budget. The legislature is not required to pass a balanced budget, the governor is not required to sign one, and deficits may be carried over into the following year. However, the state has budget rules that require lawmakers to balance revenues and expenditures. Vermont does not have any tax and expenditure limits. The state does limit total authorized debt and debt service incurred by the state.

(Note: Some states have informal budget institutions that constrain overall spending growth or a specific expenditure’s growth.)

Vermont’s recent fiscal debates

  • Vermont made several changes to its individual income tax in response to the Tax Cuts and Jobs Act of 2017 (TCJA). When the TCJA passed, Vermont used federal taxable income as the starting point for its tax, which meant the TCJA’s changes to the federal standard deduction, personal exemption, and itemized deductions (among other rules) would flow through to its tax code. If Vermont had not passed changes, the federal reforms could have increased state income taxes for many Vermont families. In 2018, however, Vermont passed legislation that changed its income tax starting point to federal adjusted gross income, created a state-defined standard deduction and personal exemption, reduced some tax rates, and increased the state’s earned income tax credit. These tax changes both prevented possible state tax increases and provided many low-income families with state tax cuts. The legislation also eliminated all itemized deductions on the Vermont income tax return. Instead, all Vermont filers are eligible to claim a 5 percent tax credit on up to $20,000 in charitable contributions.
  • Recreational marijuana use is legal in Vermont, but the state does not tax sales of marijuana. In 2018, Vermont became the first state to legalize recreational marijuana with legislation (all other states used ballot initiatives), but the legislation did not create a tax and regulation system. In 2019, the Senate passed legislation that would have levied a 16 percent excise tax on marijuana sales, but the bill did not get out of the House Ways and Means committee. The state estimated that if the bill were enacted, Vermont would collect between $4 million and $16 million annually in marijuana tax revenue. Governor Scott signed the legalization bill in 2018 but has not endorsed a tax and regulation system.
  • In 2011, Governor’s Scott’s predecessor, Governor Peter Shumlin, signed legislation that created a single-payer health care system in Vermont. However, the state estimated the system would cost $2.5 billion annually, which is roughly how much the state was then collecting in total own-source revenue. Thus, the governor’s administration estimated that paying for the single-payer system would require Vermont to significantly increase its individual income tax and create a 11.5 percent payroll tax. These tax increases were deemed politically and economically untenable. Without a plan for raising the necessary revenue, Governor Shumlin announced in 2014 that Vermont would not go forward with the single-payer system.

Vermont’s current budget

Governor Phil Scott announced his proposed FY 2020 budget in January 2019. The governor’s budget and 2019 state of the state address emphasized his education plan, which included new funds for early education and workforce development programs as well as increased spending on higher education, preventing a scheduled tuition increase. The governor also emphasized that his plan was restrained and that the state should be wary of too much new spending because of its decreasing labor force.

The legislature passed its budget in May 2019. The enacted budget generally followed the governor’s recommendations: it included new funds for early education, higher education, and workforce development. Overall, Vermont’s general fund increased 3 percent, which the governor said was in line with the state’s economic and wage growth.

Governor Scott released his proposed FY 2021 budget and gave his 2020 state of the state address in January 2020.

For more on Vermont’s budget, see