Less than 48 hours after the General Assembly’s budget negotiators and Gov. Glenn Youngkin struck a deal on a spending plan for the next biennium, the legislature’s money committees on Saturday morning released the details of the proposal that lawmakers will weigh when they return to Richmond for a special session on Monday.
In its core, the $188 billion budget for fiscal years 2024-26 is identical with the conference report that the Democratic-controlled legislature approved by a bipartisan 62-37 vote in early March. It includes expanded funding for public education and health care, as well as $70 million in one-time general fund support to accelerate the Interstate 81 northbound lane widening project and $2.5 million for the proposed inland port in Washington County.
“I think primarily what we are pleased with is that we were able to meet our spending priorities on transportation, education, salary increase for state employees and teachers, K-12 education and higher ed,” Del. Luke Torian, D-Prince William County and the chair of the House Appropriations Committee, said in a phone interview.
Torian added that both sides had some “meaningful conversations” over the past month that led to an agreement that would be a win for Virginia.
In exchange for a total of $2.5 billion in new funding for K-12 public education and a 3% salary increase for teachers and state employees, Democrats agreed to scrap their plans for new tax increases, including an expansion of the sales tax to cover all digital goods and services and business-to-business software transactions.
In return, the budget does not provide for the $1 billion in additional tax relief that Youngkin had pushed for when he rolled out his original proposal in December. At the time, the governor’s plan included a 12% reduction of all income taxes, with a top rate of 5.1%.
To offset the estimated annual revenue loss of $2.3 billion, Youngkin had proposed increasing the state’s sales tax rate from 4.3% to 5.2%, including the provision that would have closed the so-called tech tax loophole on digital goods that are currently classified as tax-exempt services.
Under the new budget, the state would make up for the estimated $714 million gap in general fund revenue caused by the elimination of the digital sales tax provision over the biennial by converting $500 million in cash to bonds and using more than $100 million freed up by recent gubernatorial vetoes. In addition, there would also be no new funding for Medicaid during the upcoming budget cycle, as just under $100 million that had previously been allocated is no longer needed.
In a concession to Youngkin, Democrats agreed to remove an increase in taxes on electricity from the Regional Greenhouse Gas Initiative (RGGI) and language in the budget that would have required Virginia’s renewed participation in the initiative.
Virginia joined RGGI in 2021, but Virginia pulled out of the initiative at the end of last year after the state’s Air Pollution Control Board voted to repeal the legislation that was first signed into law by former Gov. Ralph Northam.
The new budget proposal also does not include language that would legalize so-called skill games in Virginia and create a regulatory framework and tax structure for the electronic devices, which the state Senate sent back to Youngkin’s desk last month after rejecting his far-reaching slate of amendments to legislation.
SB 212, sponsored by Sen. Aaron Rouse, D-Virginia Beach, had passed in the Senate by a bipartisan 32-8 vote and in the House by 51-45. Without folding the legislation into the budget, it is now left up to Youngkin to take action on the measure in its current form by either signing or vetoing it.
If approved by the legislature, the new budget would avert what would be an unprecedented government shutdown on July 1, when the new spending plan is set to go into effect.
Del. Terry Austin, R-Botetourt County and a budget conferee who was part of the negotiations, said that working as a conferee to broker the new agreement over the past weeks was a challenging exercise.
“But I think we found a path forward that is agreeable and acceptable to both parties, and the fact that we accommodated the needs of the original conference report without having to involve any new taxation for the people of the commonwealth is a testament to our efforts,” Austin said in a phone interview.
The deal ended a monthslong stalemate between the administration and Democrats that began in early March, when the governor rejected the conference report that the House of Delegates sent him on the day the General Assembly adjourned its regular session.
Days later, Youngkin embarked on a statewide tour of campaign-style events where he vowed to cut $2.6 billion in tax increases from what he had dubbed a “backward budget” and urged his supporters to push back against the proposal. The move prompted Democratic leaders to launch their own statewide campaign to rally support for their spending priorities.
On April 8, just hours before his constitutionally mandated deadline to take action on the budget bill, Youngkin rolled out a package of more than 240 amendments to the spending plan. Dubbed the “Common Ground Budget,” the governor’s plan eliminated all tax increases proposed by Democrats and sought to invest a record $21.2 billion in K-12 education.
It also provided $1 billion in funding for higher education to support a cap on tuition increases and a 3% pay increase for teachers and state employees, as well as increased investments in health and human resources by $3.2 billion over the biennium. As a conciliatory offering to Democrats, Youngkin did not renew his push for additional tax relief.
Consequently, many political observers expected a dramatic showdown between the governor and Democrats on April 17, when lawmakers returned to Richmond for the General Assembly’s reconvened session. But early that morning, Youngkin and key Democrats put their irreconcilable differences over the budget aside and agreed to start over with a clean slate.
Using a procedural maneuver, the House of Delegates by a unanimous vote essentially killed the original spending plan, and Youngkin announced that he would call for a special session on May 13 to review a new budget. The move allowed the administration and Democrats 30 days to craft a new proposal that both sides could agree on.
“I think that this is a very positive step forward to reach a budget that serves the commonwealth of Virginia and reflects the collective priorities of everyone, including the General Assembly,” Youngkin told reporters at the time.