Advocacy Update – Week 20 – 2026

Ten Trends of the 2026 Legislative Session 

As we wrap up the 2026 legislative session and this legislative biennium, ten trends and themes stand out, each with massive future implications.

• What is astounding is the interconnectedness of our urgent demographic crisis that contributes to a broader structural fiscal gap, raises housing and healthcare costs, and necessitates transforming the state’s shrinking educational system.

1. The Great Resignation – Part Two 

This year, we’re seeing another massive wave of retirements, with astoundingly more than 35 legislators not seeking re-election to their current seat (the qualified candidates list is still being finalized) on top of the unprecedented nine mid-session retirements. 

• Loss of leadership: More astoundingly, both the Senate Pro Tem and the Speaker of the House will not be seeking re-election, which will kick off a behind-the-scenes campaign for these positions parallel to the campaigning Vermont voters see. 
• Pull up a chair: Additionally, the House has lost five chairs and the Senate one, which kick off leadership shuffles, especially for the top job in each body up for negotiation. 
• Why it matters: The capabilities and capacity of a citizen legislature in our modern world has long been a topic of debate.  

Rewind: The 2022 election cycle saw a “Great Resignation” from the legislature, with 51 members not returning the next biennium, which dramatically hollowed out the institutional knowledge and experience.

2. The “Alligator Mouth” Education Fiscal Crisis

Legislators grappled with a structural revenue gap in which education fund costs grow at roughly 6% annually, while the non-property tax revenues supporting the fund grow at only 3%.

• Tax Trajectory: Education property taxes have risen by more than 40% over the last five years, while the student population has plummeted from 110,000 to fewer than 80,000

3. Municipal Revenue and Sharing a “Front Yard” with the Education Fund

Municipal taxes and education taxes are drawn from the exact same asset base (property/local real estate). The explosion of school costs and resulting 40% increase in education property taxes effectively locks municipalities out of raising local revenue. 

• This explains perfectly why municipalities are rushing to enact Local Option Taxes (LOTs): Municipal property taxes are being “crowded out” by soaring education costs; towns are rapidly adopting Local Option Taxes (LOTs) to fund local operations amid rising property tax delinquency rates.
• On Town Meeting Day 2026, 14 additional towns voted to implement a 1% LOT, bringing the state total to 38. Stowe attempted to enact a 2% LOT. 
• There was also active debate regarding a second 1% LOT dedicated specifically to transportation funding, following a “50-40-10” revenue-sharing model between towns and the state.

4. Infrastructure Deterioration and the T-Fund Deficit

While revenue has grown in the education fund, the Transportation Fund faces a $33 million structural deficit due to lower gas consumption, which is pushing down revenues and putting $163 million in federal highway aid matches at risk. The Legislature and Administration met the moment with accounting tricks and cost savings through attrition; however, this is just a pothole patch on a bridge that needs to be rebuilt. 

• Deteriorating Roads: Approximately 30% of state highways are currently rated as “poor” or “very poor,” a figure projected to rise to 48% by 2035 if funding is not addressed.
• New Fees: To bridge this gap, the state is moving toward a Mileage-Based User Fee (MBUF) for electric vehicles and significant increases in DMV fees.

5. Additional Taxation vs. Economic Competitiveness

The left flank of the House is pushing for high-earner taxes, such as the Vermont Investment Proceeds (VIP) Tax (a 4% surtax on unearned income) and a new top income tax bracket of 13.3%. Critics warn that this would give Vermont the highest marginal tax rate in the country with the lowest starting point, risking the cannibalization of a narrow and mobile tax base.

• Aside from the typical “tax the rich” debate, there is a deeper underlying divide in the legislature: are Vermont’s problems revenue problems or spending problems? Is the state funding problems, or fixing problems?

6. The Fiscal Three-Body Problem 

The “Fiscal Three-Body Problem” was a term we came up with later in the session to refer to the impossible task of tracking or predicting the session’s final trajectory because three massive, independent bodies are structurally locked together: the state budget, the property tax yield bill, and the education transformation package. 

• The Governor vowed to veto any budget that does not include structural education transformation, resulting in a situation where progress on one body completely stalls or alters the other two. 
• Additionally, the Senate and Governor wanted to leverage the entire $105 million in tax revenue surplus to buy down the property tax rate to an average of about a 3.8% increase, while the House wanted to spread the surplus over two years for an average of about 7% this year.

7. Economic Drags: Healthcare and Housing

Throughout the entire session, the cost of housing and healthcare remained the prominent limiting factors in all discussions around progress. 

• Housing legislation: this session saw a retrial of Act 181, which had previously amended Act 250, while legislators also worked to build a rural housing toolbox. 
• Healthcare legislation: work continued this session to build off the monumental work of last session, with legislation focused on primary care, further implementing reference-based pricing, and controlling the cost of commercial insurance.

8. A Shift Toward Regionalization

The state’s traditional “town-by-town” governance model is under extreme pressure, yet there is a growing trend of rejecting “top-down” state control in favor of regional governance to achieve economies of scale.

• • Education: H.955 creates seven mandatory regional Cooperative Educational Service Areas (CESAs) to share business, administrative, and special education services.
  • Public Safety: A five-year pilot program in Windham County is establishing a Regional Law Enforcement Governance Council to share dispatch and policing resources.
  • Taxation: The establishment of Regional Assessment Districts (RADs) continues on pace towards the aim of treating all municipalities within a district as a single entity for grand list equalization.
  • Summer Study on Regional and County Governance: This summer and fall, legislators will meet with stakeholders to bring back findings and frameworks to advance this trend.

9. The Demographic “Aging Cliff”

Demographics are the primary driver of every policy debate in Montpelier.

• Population Decline: Vermont recently recorded its first population decline since 2019, losing 215 residents in 2024. This was driven by “natural change” (deaths outpacing births by 1,723) and negative net domestic migration.
• The 2030 Shift: By 2030, one in three Vermonters will be over the age of 65. This creates a shrinking tax base and a workforce shortage, as the share of “prime working age” adults (25–54) is lower in Vermont than the national average.

These trends aren’t reversing any time soon, so the next legislature will need to work to address them next biennium. 

10. The Great Correction and Relitigation

Lawmakers spent the majority of their time amending, repealing, or delaying landmark legislation passed in previous sessions. 

• Act 181 Changes to Act 250: Originally passed over a veto in 2024 to reform Act 250, significant portions, specifically the controversial “Road Rule” and “Tier 3” mapping, were unanimously repealed by the House this session after intense pushback from rural advocates.
• Act 73 (Education): Passed just last year, this monumental transformation bill is being reworked via H.955 to pivot from mandated school mergers to a facilitated, voluntary process.
• Clean Heat Standard: Passed in 2023, the policy was effectively abandoned by the Public Utility Commission this year, and the legislation was later repealed. 

The lessons learned from this exercise will likely take on a life of their own in the near future.