Appropriations committee reviews governor's FY2026 budget language, flags transfers, reserves and cannabis fund changes

Good afternoon. This is the House Appropriations Committee. It is Thursday, 02/06/2025 at 1PM. The committee continued its review of the governor's recommended FY2026 budget language, focusing on statutory fund transfers, reserve changes, and one-year fixes for the cannabis regulation fund and other accounts.

The committee heard detailed explanations from Hardy Merrill, deputy commissioner at the Department of Finance and Management, and staff including Adam Greshen about a range of transfers the administration proposes in the FY2026 language. Merrill described routine items such as transfers from the Transportation Fund and the Education Fund, and told the committee "these are both annual transfers" when explaining transfers that move money from one fund to another.

Why it matters: the language under review would (a) shift several recurring transfers that underpin internal programs and debt service; (b) temporarily reallocate certain cannabis excise proceeds and create a new substance misuse special fund for prevention programs; and (c) unreserve sizable amounts from stabilization and caseload reserves and direct funds toward education transformation and pension commitments. Those moves affect how much is available to the general fund, to agency operations, and to statutory reserves the state uses for fiscal stress.

Major items discussed

Cannabis regulation fund and substance misuse special fund: Committee staff described a one-year maneuver for FY2026 that allows excise-tax receipts that this year flowed into the Cannabis Regulation Fund to be split 70/30 after a closeout: 70% to the General Fund and 30% to a newly established Substance Misuse Prevention Special Fund. The administration said the change is intended to leave the Cannabis Control Board with sufficient carry-forward to operate in FY2026 while directing the excise-tax proceeds to the general fund and a dedicated prevention fund in the short term; a permanent FY2027 solution for ongoing board funding remains to be proposed.

Reserves and education transformation: Budget language would unreserve money from the General Fund budget stabilization reserve due to the statutory cap and would also unreserve approximately $2.7 million from the human services caseload reserve. The administration included a "notwithstanding" provision for 32 V.S.A. ——(c) to reserve any FY2026 surplus for an education-transformation initiative rather than following the normal statutory split to pensions and rainy-day reserve. Officials said that the administration views that language as a statement of priority for multi-year education transformation, but noted any real expenditures would be reconsidered once updated forecasts and legislative decisions are made.

Pension payments and unfunded liabilities: Staff reiterated large ongoing payments into pension systems. The presentation included the administration's plan to apply substantial general-fund resources to reduce unfunded liabilities; committee staff described combined appropriations on the order of hundreds of millions of dollars directed to retirement-system liabilities in FY2026 budget language.

Transport, IIJA match and capital transfers: The proposed language reassigns cash-fund balances and includes two transfers from a cash fund "other" subaccount: $12.5 million to the Transportation Fund for an IIJA (Infrastructure Investment and Jobs Act) match and $1.0 million moved to a capital subaccount for the FY2026 capital bill. Committee members and staff explained the mechanics: unreserving the money precedes the transfer so that funds held as a reserve can be used for matching federal grants.

Department-specific transfers and enterprise funds: The draft implements a set of annual statutory transfers that commonly support the General Fund. Examples discussed include: an approximate $4.641 million transfer from an AHS central-office earned federal receipts account to the General Fund, a $2.0 million estimate from Attorney General-related fees to the General Fund, estimated transfers from the Insurance Regulatory and Supervision Fund (~$46 million) and the Securities Regulatory and Supervision Fund (~$22 million), and estimated enterprise-fund transfers such as $7.6 million from a sports-wagering enterprise fund and roughly $14.849 million from the Liquor Control Fund. Commissioners and staff emphasized the budget language clarifies these are estimates for budget development and that final fiscal-year-end sweeps will follow statute and actual fund balances.

Department of Financial Regulation / captive insurance: Committee staff disclosed a change in the treatment of the captive insurance regulatory and supervision fund. The presentation noted that some captive-program fees and registration revenues have failed to cover operating costs in recent years; language in the FY2026 package would make explicit transfers to and from the captive program that have previously occurred implicitly.

Municipal pilot payments and a buyout reimbursement program: The administration proposed removing a longstanding special payment to the City of Montpelier that had been made when pilot fund payments were prorated. Officials said increased local-option tax collections have reduced the need for that special payment. Separately, the recommended language creates a municipal buyout reimbursement mechanism paid from pilot special-fund assets; the program would reimburse municipalities for grand-list reductions tied to property buyouts, covering 100% of the first five years of grand-list loss and stepping down thereafter.

ERAP/ARPA swap to fully leverage federal funds: The budget language allows the administration to swap certain general-fund appropriations with remaining ERAP federal dollars so ERAP-eligible federal funds can be redeployed prior to federal deadlines. Staff described the change as a liquidity and compliance tool intended to ensure no eligible federal money goes unused.

Hospital Directed Payments / Section 1115 waiver: Human-services language requests authority to pursue a Hospital Directed Payment (HDP) program under the state's Section 1115 waiver with CMS. Staff said the HDP could enable higher targeted reimbursement rates for participating hospitals while adjusting disproportionate-share and related payments.

Other items discussed: standard annual position/administrative language (the administration is using a position pool and long-term vacancies rather than a discrete E100 creation section), modest increases in pension-system administration appropriations, and the repeal or housekeeping changes tied to OneCare Vermont's wind-down and the associated redistribution formulas recommended by the Green Mountain Care Board.

What the committee asked for and next steps: Committee members asked for more precise balances and reconciliations for several accounts that staff identified as estimated (for example, the earned federal receipts balance and various fund-sweep estimates). Staff agreed to provide spreadsheets or follow-up numbers. Multiple members pressed for clarity on how the cannabis-fund carry-forward will guarantee CCV operations into FY2026 and asked for a FY2027 funding approach. The committee scheduled further agency hearings (including the tax department) and reserved time to consider possible amendments before finalizing the FY2026 language.

Ending: No formal votes were taken during the session. Committee staff closed by saying they will provide follow-up documentation (detailed memos and spreadsheets) to explain the largest transfers and the statutory mechanics behind unreserving and transfers. The committee plans additional hearings in the coming days to review agency detail and to address any amendments before floor action.