MONTPELIER — The Vermont House and Senate this week agreed on a state budget proposal for the 2026 fiscal year, which starts in July. The chambers’ joint $9.01 billion spending plan — which includes provisions legislators say could limit the impacts of potential federal funding cuts — now heads to Gov. Phil Scott for his consideration.

Over several recent meetings, a joint panel of legislative leaders whittled down the bill’s proposed “base” spending — money to fund recurring expenses year-over-year — by about $21 million compared to the version of the bill that was passed by the Senate.

Scott, a Republican, had criticized the level of spending in that chamber’s proposal and urged legislators to cut it back. Ultimately, the House and Senate’s joint proposal is still slightly larger than the $8.99 billion spending plan Scott presented to them in January.

Still, the compromise version of the budget, H.493, won near-unanimous approval in floor votes in both chambers this week. The Senate voted by voice, so no members’ individual votes were on the record; in the House, just three members voted against the bill.

Amanda Wheeler, a spokesperson for Scott’s office, signaled support for the budget bill Thursday afternoon, though she said the governor still needed to review it in full.

“While not perfect, the Governor is appreciative of the work done by the budget conferees to find a compromise closer to the budget he put forward in January,” she wrote in an email, adding that lawmakers “moved the bill in a positive direction.”

Most of the conference committee’s “base” reduction came from its decision to lower, by $19 million, a transfer of money from the state’s general fund to a special fund that pays for child care subsidies and support for child care providers. Scott first proposed assigning that $19 million elsewhere, and the conference committee agreed, rejecting the proposal in the Senate-passed budget to continue drawing on the general fund.

Both the governor and the House, in its version of the budget bill, proposed reducing the general fund appropriation by $19 million after a payroll tax set up to support the subsidies brought in more money than expected, while at the same time, the program saw less uptake than expected.

The compromise budget also includes a lower proposed increase in the reimbursement rates the state pays to infant and toddler child care providers than the Senate-passed spending plan — 5%, versus 5.5%. Scott’s budget included no such rate increase, while the House’s previous budget proposal would have raised those rates by 4.5%.

The committee also put up additional money, as Scott requested in recent weeks, for a program run by the Vermont Housing Finance Agency that provides low-interest loans to developers of rental housing for people with moderate incomes. The panel did not, however, take up another of Scott’s asks to designate ongoing funding for grants to rehabilitate rental housing that has fallen into disrepair. Lawmakers kept money for the Vermont Housing Improvement Program as a “one-time” budget expense, instead.

Senators also conceded 10 new state government positions proposed in their budget, including jobs at the Vermont Labor Relations Board, among others. Members of Scott’s administration had called on legislators to reduce the number of new positions in their proposal.

‘A no-brainer’

The conference committee also added language to direct Scott’s administration to use tens of millions of dollars in anticipated state revenue surpluses to plug expected future cuts to federal funding the state receives, some of which could come as a result of the sweeping proposed federal spending legislation being debated in Congress.

Normally, Vermont’s budget-writers direct the administration to use surplus revenue for state programs and projects they chose not to fund in a given year’s budget.

But this year, it was “a no-brainer” to propose putting that money toward limiting the impact of federal funding reductions, which have already been impacting the state, said Rep. Robin Scheu, D-Middlebury, who chairs the House Appropriations Committee.

“We can see that the train wreck is, possibly, coming,” Scheu said in an interview after the House approved the compromise budget Thursday. “So we can reserve what we can — and then, if and when the time comes, prioritize who’s going to get what.”

The bill would direct $50 million in surplus revenue to shore up state agencies that are impacted by federal cuts. For relatively small cuts, Scott’s administration could direct that money without input from the Legislature, a decision Scheu said would help the state respond quickly, since lawmakers aren’t in session all year. But relatively larger cuts would require input from a joint legislative panel that’s empowered to meet in the off-session, the budget bill states.

It also would set aside up to $60 million for the Legislature “for addressing federal funding shortfalls,” including cuts to federal Medicaid reimbursements.

Legislators’ budget also allows state leaders to use up to 10% of the state’s “rainy day” fund — which has about $100 million in it today — to respond to “unforseen or emergency needs,” which could include future changes to federal funding.

The federal spending proposal being debated in Congress could make cuts to Medicaid, as well as nutritional benefits for families, in order to extend a set of sweeping tax cuts enacted in President Donald Trump’s first term. The legislation is still far from final.

Scheu acknowledged, though, that the state’s money could only go so far. About a third of Vermont’s annual budget — some $3 billion — comes from the federal government, and a large portion of that supports the state’s Medicaid program.

“We know that if they cut Medicaid as dramatically as they sometimes talk about, anything we have to offer is like raindrops in the ocean,” Scheu said, referring to the state’s surplus revenue. “So, we can’t solve those issues. But this will help.”

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