Vermont’s Demographic Reality
Vermont is facing a demographic crisis defined by a rapidly aging population and stagnant population growth. As older residents leave the workforce, the state’s labor pool is shrinking, while demand for health care and social services continues to rise. This imbalance places growing pressure on employers, public finances, and essential service delivery across the state.
At the same time, Vermont’s permitting and land-use system continues to constrain housing production, worsening affordability and limiting the state’s ability to attract and retain working-age residents. Housing scarcity is now a central driver of workforce shortages, particularly in construction, energy, health care, and skilled trades.
Climate Mandates vs. Economic Reality
Vermont law requires greenhouse gas emissions to be reduced by 40 percent by 2030 compared to 1990 levels under the Global Warming Solutions Act. This mandate is in conflict with Vermont’s demographic and economic needs.
The Climate Council adopted emissions-reduction “Pathways” developed by the Stockholm Environment Institute that assume zero population growth. This assumption is fundamentally at odds with Vermont’s stated goals of economic vitality, affordability, and workforce stability. Vermont’s shrinking population growth may reduce emissions on paper, but in practice, it leads to labor shortages, higher costs, and the decline of rural communities.
Growth Is Not Optional
According to the Vermont Futures Project's analysis, the state must grow its population by approximately 155,000 residents by 2035—roughly 12,900 per year—to sustain its workforce and economy. Meeting that growth will require tens of thousands of new homes, far exceeding current housing production rates.
The Governor’s proposed $9.4 billion budget reflects concern that revenue is largely flat and barely keeping pace with inflation. Spending pressures in education, healthcare, and transportation are rising far faster. Transportation revenues are projected to grow by less than 2%, even as construction costs have increased by roughly 60% over the past five years. Compounding the challenge, is the potential loss of federal funds, as well as Medicaid-related reductions that could push more healthcare costs onto the state budget.
These fiscal constraints are inseparable from Vermont’s underlying demographic trends. By 2030, roughly one in three Vermonters will be over the age of 65, a shift that affects nearly every major policy debate in Montpelier. Fewer students mean declining enrollments and difficult education funding decisions. An aging population also brings higher healthcare costs. At the same time, workforce growth remains sluggish, limiting the state’s ability to expand its tax base without increasing the burden on existing taxpayers.
Housing sits at the center of these challenges. Vermont has the second-oldest housing stock in the nation, the product of decades of constrained development and rising construction costs. Limited housing supply makes it harder to attract workers, expand the tax base, and stabilize long-term tax revenues.
There are tools on the table that could help bend the curve. The Community and Housing Infrastructure Program (CHIP) allows communities to access up to $200 million in tax increment financing per year over the next decade to support housing-related infrastructure. Lawmakers should also permanently remove the sunset on the Vermont Employment Growth Incentive (VEGI), one of the state’s few statewide business incentives, which is currently set to expire at the end of the year.
Transportation Fund Under Strain
Vermont’s Transportation Fund remains structurally imbalanced after years of diverted revenues and stagnant fuel tax growth. Vermonters purchase roughly $2.4 billion in vehicles each year, generating about $144 million from the 6% Vehicle Purchase and Use Tax. Most goes to the Transportation Fund to repair our roads and bridges, but a third (about $50 million) is diverted to the Education Fund. Lawmakers are debating whether to redirect it back to its original purpose, a move supporters argue would improve long-term funding stability of the transportation fund.
A Move to MBUF
Searching for more money for the transportation fund, Vermont lawmakers are laying the groundwork for a mileage-based user fee — also known as MBUF. The initial proposal would apply only to electric vehicles, replacing the flat EV fee with a per-mile charge using odometer readings rather than GPS tracking. While officials say broader expansion is not imminent, decisions made in the next few months could shape whether MBUF becomes Vermont’s long-term transportation funding model.
Second-Home Fuel Tax Could Complicate Deliveries
The Vermont Senate is considering legislation that would require heating fuel dealers to verify whether a delivery address is a customer’s primary residence. Under S.274, fuel delivered to second homes would be subject to the 6% sales tax, requiring dealers to consult a state tax database before delivery or face liability for the 18 to 20 cents-per-gallon tax on heating fuel. Dealers warn the proposal shifts tax enforcement responsibilities onto fuel suppliers, increasing compliance costs and slowing service—particularly during peak winter demand.
New Registry Proposal
Legislation known as H.740 would create a new fuel-sales registry, requiring suppliers to report gasoline, diesel, heating oil, kerosene, and propane sales by county. The proposal would spend roughly $800,000 on a data-collection system that mirrors the abandoned Clean Heat Standard registry.
Shrinking the “Max Tax”
In Vermont, the “max tax” is the statutory cap on the 6% Vehicle Purchase and Use Tax for certain vehicles. Purchasers pay 6% of the taxable cost, with no cap, if their car or truck weighs less than 10,099 pounds. Anything over is taxed at 6% of the taxable cost or $2,486, whichever is less. That is the current max tax. As of January 1, 2026, the cap is determined using a truck’s empty, as-delivered weight, rather than its registered or loaded weight. While intended to align tax administration with statute, this change may increase tax exposure for commercial fleets, dealers, and contractors purchasing heavier vehicles. Lawmakers are also considering removing trailers and fifth wheels from eligibility for the cap, subjecting them to the full 6% purchase-and-use tax rather than the $2,486 maximum.
Vehicle Inspections
Legislation proposing biennial vehicle inspections has returned to the Vermont State House, reviving a long-running debate over safety, cost, and regulatory burden. Supporters argue that modern vehicles and improved diagnostics make annual inspections unnecessary, while opponents warn that fewer inspections could increase safety risks and reduce oversight of older vehicles. The proposal follows New Hampshire’s elimination of passenger vehicle inspections as of February 1, 2026.
Tax, Health Care & Education Funding Reforms
The 2026 legislative session will be consumed with another round of sobering fiscal updates. Vermont is staring down an estimated 12% increase in education property taxes next year unless lawmakers once again intervene by finding a way to add money to the Education fund, or if school boards across the state find significant cost savings in Town Meeting day budget votes. Rising personnel costs, inflation, and aging school facilities drive the state’s education system financial strain and property tax increases. Over the past two decades, K–12 enrollment has declined by 16%, yet education spending has increased by nearly $1 billion. Since property taxes are the primary funding source for public education, that has had a dramatic impact on taxes paid by homeowners and businesses.
Vermont’s health care affordability crisis is also coming into sharper focus. New analyses show Vermonters now spend nearly 20% of their income on health care, compared with a national average of 8%. Business leaders highlighted stark differences between Vermont and neighboring states. For small employers in Vermont, a silver-level plan for a five-person company costs more than $8,500 per month. The same plan costs roughly $5,000 in New Hampshire. These widening cost gaps are putting pressure on both families and employers and have become a top concern heading into the legislative session.
Planning for Action
The Vermont Climate Council has updated its Climate Action Plan, and lawmakers are expected to hold a series of hearings to review it in January. The original plan contained more than 250 recommendations; the revised version narrows that list to 52 priority actions. Most focus on encouraging more Vermonters to drive electric vehicles and install electric heating systems.
Even with a slimmer list, the challenges remain enormous. The plan assumes Vermont can raise new revenue without increasing energy costs, develop a workforce it does not currently have, build a significantly expanded charging and electrical infrastructure, and implement dozens of major initiatives in just four years. Under current law, anyone may sue the state if the plan is not followed and emission-reduction mandates are not met, forcing regulatory action. Lawmakers are unlikely to change that law—but they will have to fund it. And that accounting comes with a price tag: $300,000 for staff, $300,000 for new software, and $200,000 to verify the data—before any emissions are actually reduced.
Meanwhile, the Public Utility Commission (PUC) released its Act 142 energy cost stabilization report, concluding that Vermont does not need any new statewide energy programs. Transportation accounts for 45% of household energy costs, followed by heating at 35% and electricity at 20%. Existing programs—LIHEAP, Crisis Fuel, Weatherization, efficiency initiatives, and EV incentives—are effective but underfunded. The PUC recommends increasing the two-cent-per-gallon fuel tax on heating fuels to expand weatherization and adding General Fund dollars to strengthen fuel assistance. For transportation, the report urges renewed funding for incentives for new and used electric and plug-in hybrid vehicles.
Transportation Revenue Flat, Costs Up
Vermont’s Transportation Fund faces a growing structural deficit fueled by rising expenses and stagnant revenues from vehicle sales and fuel taxes. T-Fund revenue is projected to grow just 1.3% annually through 2030—well below inflation. Beginning in FY 2027, Vermont is expected to face a $30–$35 million shortfall in required state matching funds, putting $160–$220 million in federal transportation dollars at risk. Gasoline and diesel receipts have held steady in recent years but are unlikely to grow as vehicles become more efficient.
While the 6% Purchase & Use Tax is tied to the price of vehicles, it has also flattened due to declining auto sales. Currently, one-third of the Purchase and Use tax on vehicles is diverted to the Education Fund; legislation has been proposed that would return those dollars to their original purpose—repairing Vermont’s roads and bridges.
Pumping Up
The Vermont Public Service Department has hired Ridgeline Analytics to study how heat pumps are actually being used in Vermont homes and small businesses. The project updates the state’s 2017 evaluation of cold-climate heat pumps, which focused largely on mini-split systems. This new analysis will also examine newer multi-head and central heat pump installations. As part of the study, researchers will track real-world heat pump usage over a full year by Vermont residents and small businesses.
Efficiency Vermont has released a "Residential Heat Pump Action Plan" to accelerate the adoption of electric heat pumps in the residential sector. EVT is predicting a 15–30% reduction in sales, based on the ending of federal tax credits. The plan focuses on space heating and identifies market barriers such as upfront costs, contractor capacity, consumer awareness, and performance concerns in cold climates. It proposes expanded incentives, education, workforce training, technological improvements, and regulatory support to address these challenges. While the plan positions heat pumps as a central tool in Vermont’s emissions-reduction strategy, questions remain about their ability to fully and reliably reduce oil and propane consumption, particularly in older homes and during peak winter demand.
California Cars and Vermont’s Emissions Mandates
This may be the year Vermont’s web of vehicle emissions regulations finally gets sorted out. In 2012, the state adopted the Advanced Clean Cars (ACC I) regulation, which applied to vehicle model years 2015 through 2025. First adopted in California and more stringent than federal standards, ACC I encouraged automakers to reduce tailpipe emissions and sell vehicles that burn less gasoline, while also increasing sales of electric and plug-in hybrid vehicles.
ACC I was later replaced in California and Vermont by Advanced Clean Cars II (ACC II), which requires automakers to sell increasing numbers of battery-electric vehicles beginning in 2026 and ultimately bans the sale of new internal combustion engine vehicles by 2035. However, Governor Phil Scott issued an executive order directing state agencies not to enforce Vermont’s ACC II sales mandates through December 31, 2026.
And then last summer Congress approved — and President Trump signed — a Congressional Review Act resolution overturning the EPA waivers that allowed California and other states, including Vermont, to adopt EV mandates. Vermont’s Attorney General has since joined a multi-state lawsuit seeking to preserve that authority.
As a result, it remains unclear whether Vermont reverts to federal standards or the prior ACC I framework. That decision will directly affect which vehicles can be sold and registered in Vermont. For example, the 2026 Ford Escape, Lincoln Corsair, Dodge Durango R/T (392), and Durango Hellcat meet federal standards but do not have ACC I certification.
At a recent meeting of the Vermont Climate Council, the Agency of Natural Resources signaled its intent to pursue rulemaking to continue enforcing the prior ACC I standard rather than defaulting to the less stringent federal rules. When that occurs — and how it interacts with ongoing litigation — remains unresolved.
How Heavy Equipment Drives the State’s Rural Economy
From tractors and skidders to loaders and excavators, heavy equipment powers Vermont’s rural economy. These machines support the state’s $5 billion dairy industry, the $1.5 billion forest products sector, and the construction projects that keep rural infrastructure functioning. Skilled Vermonters—and the local equipment dealers who train and support them—ensure this machinery operates safely and reliably.
Over the past year, lawmakers visited dealerships and shop floors across Vermont to better understand modern equipment and the potential impacts of proposed “Fair Repair” legislation. What they observed firsthand was clear: today’s agricultural, forestry, and construction machines are highly sophisticated systems integrating software, encrypted diagnostics, emissions controls, and precision technologies. Maintaining them requires extensive training, certification, and secure, manufacturer-supported tools.
The visits highlighted the substantial investments dealers make in technician training, diagnostic infrastructure, and safety standards—investments that support reliable service, good-paying jobs, and workforce development in rural communities. Dealers raised concerns that the Fair Repair Act, which would mandate access to proprietary parts, tools, and software, could have unintended consequences. These include increased safety and cybersecurity risks, emissions compliance challenges, warranty complications, and liability provisions that shift risk onto equipment owners. Dealers emphasized their support for timely repairs and customer choice, while urging lawmakers to pursue solutions grounded in the realities of modern machinery and Vermont’s rural economy.