Updated, 6:35 p.m.

Vermont has a rare opportunity to reverse its economic and demographic stagnation if it spends its federal pandemic windfall wisely in the coming year, Gov. Phil Scott said Tuesday.

In his annual budget address, Scott urged lawmakers to invest the state’s unprecedented budget surplus in initiatives such as workforce development, technical education and targeted tax relief intended to produce economic benefits long after the pandemic subsides.

“It is not an exaggeration to say that the opportunity before us is truly historic,” Scott said. “It’s once in a lifetime, and one I never expected to see happen. There is absolutely no doubt that the economic future of our state will be defined by what we do today.”

Scott said his $7.7 billion proposed budget represents a “transformative moment” in state history. He built on themes he outlined in his January 5 State of the State speech, including the need to strengthen an anemic state workforce. Since 2020, the state has lost 24,000 workers, many to retirement, he said, leading to reduced operating hours for some businesses.

“If we don’t work to solve this problem now, it will be there down the road in the future, and it will be much bigger and more complex,” Scott said.

He outlined several ways to tackle the problem. One is to boost the new and remote worker incentive program to attract young workers and new families to the state. The program, which reimburses people up to $7,500 in moving expenses, would be expanded to $8.5 million over three years.

“I know looking beyond our borders to recruit new Vermonters is not always a popular conversation, but it is a tool we can’t ignore,” he said.

He cited a couple who had lived in South Carolina, Matt and Jessica Bernhardt. They always wanted to move to Vermont and took advantage of the worker programs. They now live in Warren, and Matt works at a Montpelier architectural firm.

Also on tap are a variety tax relief measures for workers in the most needed fields, such as nursing and childcare. Scott outlined $50 million in tax breaks he said would lower the tax burden on workers.

Chief among them would be exempting military retirement income from state taxes. Seventy percent of military retirees are between ages 35 and 50, tax commissioner Craig Bolio said before Scott’s speech. Eliminating state income tax on their pensions would make the state a more affordable place for them to work, he said.

Under another proposal, a single preschool teacher making $18 dollars an hour would pay no Vermont income tax. Under another, young workers would enjoy write-offs on their student loan interest, he said.

Scott also proposed returning half of the $95 million surplus in the education fund to property owners to lower their tax burdens.

To ensure workers have more housing options, Scott outlined a number of proposals. These include $105 million for affordable, mixed-income housing, $25 million for the Vermont Housing Improvement Program for the renovation of run-down properties, and $15 million to build homes for middle income residents.

Key infrastructure upgrades are also coming down the pike, including $200 million in federal grant funds toward broadband, $51 million toward the installation of 100 new cell towers and $72 million more for water, sewer and stormwater infrastructure. He also proposed $216 million in greenhouse gas reduction and climate resiliency work.

To address the mental health challenges deepened by the pandemic, Scott is proposing $2 million to expand Rutland’s mobile mental health response program to four other cities, and $1 million more for suicide-prevention efforts. He’s also calling for $8 million more to strengthen prevention and recovery programs.

And while he acknowledged it’s not sexy, Scott said debt reduction is another key way to use the surplus that would benefit Vermont for years. He cited three types of debt — $22 million in transportation borrowing, $20 million in capital bonds, and $10 million in a property management fund — that he proposed paying off to save money on interest payments.

Democratic legislative leaders issued a statement expressing willingness to work with the governor on his ideas and pushed their own, including the need for $200 million to make good on a recent tentative pension deal.

“The agreement we’ve struck with our hardworking teachers and state employees will protect the public pension system and put it on a path of sustainability,” Democratic leaders wrote in a joint statement.

Scott concluded his remarks by urging lawmakers to view their work through a long-term lens.

“Let’s do our very best to make sure that every negotiation, every decision and every investment withstands the test of time and meets this extraordinary moment," he said, "because we will not get a second chance.”