Appropriations committee warned FY28 outlook is uncertain as provider tax phases down

Fiscal staff told the Appropriations committee that a scheduled reduction in the provider tax and a projected decline in Vermont’s Federal Medical Assistance Percentage (FMAP) will squeeze the state’s FY28 budget and complicate decisions about which programs to fund.

"In FY '28, one thing that we do know is changing is we're gonna lose, the provider tax," Fiscal staff said, explaining that the tax on health‑care providers is passed back into Medicaid and that federal rules will ratchet down the allowable rate. Staff estimated the change could reduce revenue by about $17,000,000 next year.

Staff and members also noted updated FMAP projections that appear to trend downward, which would require higher state matching for Medicaid spending. "Looks like Vermont's FMAP will be trending downwards," Fiscal staff said, adding that the projection will be updated in October and that early estimates bring significant uncertainty.

The committee used a new spreadsheet showing governor and house recommendations, bills that have passed, and additional member requests as a working tool for tradeoffs. Chair emphasized the need to decide which items to treat as base funding and which are one‑time investments as the group finalizes priorities.

Committee members repeatedly cautioned that reductions in provider tax revenue will have secondary Medicaid impacts. Fiscal staff warned members to expect the broad fiscal picture to be "uncertainty and negative" heading into FY28 and recommended using the spreadsheet to prioritize near‑term decisions.

Next steps: staff will refine the spreadsheet with JFO, print landscape handouts for the next meeting, and aim to finish committee prioritization by early next week.