The General Assembly found a way to compromise with Gov. Glenn Youngkin on tax policy while paying for such priorities as raises for teachers and state employees in a $188 billion two-year budget that the legislature adopted on Monday.
The House of Delegates voted 94-6 to pass the spending plan for July 1, 2024, through June 30, 2026. In the Senate, the vote was 39-1.
The budget compromise avoids a showdown with Youngkin over modernizing Virginia’s tax code and returning the state to a multistate compact for reducing the greenhouse gases that scientists link to global warming and climate change. It also sidesteps — for now — an unresolved debate over whether to allow electronic “skill” games in convenience stores, truck stops and restaurants across Virginia.
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“This is a big day for Virginia,” said Youngkin, surrounded by lawmakers in both parties before he signed the budget bills in the Old House Chamber.
“I think it’s a big day for a lot of reasons, but one of the most important is to demonstrate to Virginians that their elected officials, who sometimes find themselves very far apart on policy, can come together and deliver.”
He said a strong state economy had made it possible to reach agreement on the budget because of the higher-than-expected tax collections that job growth and business investment had generated.
The special session was supposed to last three days, but the assembly needed just one day to adopt a revised budget for the current fiscal year and a new one for the two-year cycle that will begin on July 1. The House and Senate adopted both budget bills without allowing amendments to be considered.
But that does not mean the legislature is done for the year.
Skill games next?
The House and Senate both went into recess after acting on the budget, rather than adjourn. The maneuver allows the legislature to call itself back into session to deal with legislation related to revenue under the rules of the special session. That means the assembly has the option of addressing legislation to allow and regulate electronic skill games and, potentially, give all localities the option of raising the sales tax on themselves to pay for school construction.
“Those are two major issues for rural and urban Virginia,” said Sen. Bill Stanley, R-Franklin County. He has been an advocate for skill game operators and localities seeking ways to pay for construction and renovation of outdated school buildings.
After signing the budget, Youngkin met briefly with state Sen. Aaron Rouse, D-Virginia Beach, and Del. Terry Kilgore, R-Scott, on their push to legalize skill games. Many convenience store owners say the slot machine-like electronic games have been keeping them in business.
Youngkin wanted stiffer rules, particularly over where the games could be installed, than Rouse’s legislation included, but the Senate rejected the governor’s amendment. That means Youngkin could veto that measure, which Kilgore said he plans to do.
But at the meeting, Youngkin said he would work with Rouse and Kilgore and other skill games backers to see if there might be middle ground.
Rouse said he’s hopeful legislators and the governor will find a solution. “This is a small-business issue,” he said.
Raises, education funds
The budget compromise includes raises of 3% each year for teachers, state employees and state-supported local employees. It increases state funding of K-12 schools by more than $2 billion and provides more than $200 million to make higher education more affordable by curbing tuition increases. It boosts spending for Medicaid and rates paid to personal care attendants and expands services for Virginians with behavioral health disabilities.
The deal provides almost $145 million for the financially strapped Washington transit system, $100 million in toll relief for drivers in Hampton Roads and, contingent on additional revenue, $175 million for improvements to Interstate 81 in western Virginia.
“There’s a lot to love about this budget,” declared Senate Finance Chair Louise Lucas, D-Portsmouth. “I heard someone say, ‘Uh huh!’’
For Democrats, the deal pays for everything they included in the budget adopted by the assembly in March.
“All the issues we prioritized in March are still in this budget,” said House Speaker Don Scott Jr., Portsmouth. “This is essentially the same budget that the governor called ‘backwards’ and now he will be signing it into law.”
“We have historic funding for education, health care, coastal resiliency, and gun violence prevention,” Scott said. “We are being consistent with our values and putting our money where our mouth is.”
For Republicans, what’s most important is what the budget does not include.
“This isn’t a Republican budget, but at the end of the day we don’t have any tax increases and we don’t have RGGI, and that’s important,” said House Minority Leader Todd Gilbert, R-Shenandoah, referring to the Regional Greenhouse Gas Initiative.
“Democrats got their priorities and we got a compromise, the way you do with a divided government,” he said.
One senator voted against the two budget bills — Sen. John McGuire, R-Goochland, who is running against Rep. Bob Good, R-5th, in the Republican primary in the 5th Congressional District.
“I voted against this budget because Virginia is seeing record revenue, but we’re not giving the people record tax breaks,” McGuire said.
New Hanover judges
Referring to leaving out the tax changes and a proposed return to RGGI, Lucas said: “I know these actions are not popular with my colleagues.”
Lucas, who this year became the first African American to chair the powerful finance committee and blocked Youngkin’s proposal to create a state authority to finance a $2 billion sports and entertainment district in Alexandria, added, “Progress can take time and can take compromise.”
Senate Minority Leader Ryan McDougle, R-Hanover, praised the negotiations that produced the compromise. “Some of those conversations were tense ... but at the end of the day we came up with a product that continues to move Virginia forward.”
The assembly was able to back away from expanding the sales tax to digital services — and the additional $1 billion it would collect for the general fund budget alone — by adding $525 million in unanticipated revenue in the fiscal year that will end on June 30. Legislative budget staff now say Virginia could collect up to $1.2 billion in additional revenue this fiscal year, with about half coming from income taxes withheld from paychecks, the largest and most reliable source of funding for core state services.
“That is already in the bank,” said April Kees, staff director of the Senate Finance & Appropriations Committee.
In addition to passing the budget, the legislature elected eight judges, including three from Hanover County — David B. Caddell Jr. and Robert E. Reibach, for eight-year terms on the Circuit Court for the 15th Judicial District; and Lisa A. Sewell, for a six-year term on the Juvenile and Domestic Relations court for the 15th District.
Freeing up cash
The budget deal also contains a few tricks to save cash for legislative priorities now, while providing for contingency spending on such priorities as improvements to Interstate 81 if the surplus is large enough after the new fiscal year begins on July 1.
The assembly’s budget negotiators substituted about $515 million in debt for capital projects to free up cash. They included contingency funding of $400 million to pay for wastewater improvement projects with cash instead of debt if enough money becomes available.
It only partly fills a projected $110 million revenue shortfall at the Virginia Alcoholic Beverage Control Authority, which will become independent of the executive branch under the budget. The budget also uses savings from Youngkin’s veto of Democratic priorities such as creating a legal marketplace for marijuana and raising the minimum wage.
Assembly Democrats chose not to have a tax showdown with Youngkin this year after state revenues rose by 5% for the first nine months of the fiscal year. That allowed them to pay for their spending priorities without raising taxes, while the Joint Subcommittee on Tax Policy meets this year to consider ways to modernize the sales tax and make the income tax more progressive, basing tax rates on what people earn.
“We can’t let our sales tax base regress,” Lucas told the Senate.
With Youngkin remaining governor through 2025, Democrats will either have to strike a grand deal with the Republican governor on tax policy next year or wait until 2026, when a new governor will take office.
Rep. Abigail Spanberger, D-7th, is currently unopposed for the Democratic nomination after Richmond Mayor Levar Stoney dropped out of the race. Neither Lt. Gov. Winsome Earle-Sears nor Attorney General Jason Miyares has announced whether they will seek the Republican nomination for governor.
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