Approved Virginia budget includes no new taxes

Bonds

The extended saga of budget approval in Virginia is over with some help from compromise and a stronger than expected tax collection season.  

“This budget resolution was empowered by the strength of our labor market, with more Virginians working than ever before and investments by businesses large and small, that have fueled record revenues for the Commonwealth,” Republican Gov. Glenn Youngkin said in a statement.  

The two-year, $188 billion budget was officially approved last Monday and required a special session in the General Assembly to pull it over the finish line. The House of Delegates approved the measure 94-6 with the Senate clocking in at 39-1. All the “no’s” came from Republicans. The deadline for making the deal and avoiding a shutdown was June 30. 

Governor Glenn Youngkin, Va., works with legislators to pass the state budget.

Bloomberg News

Squabbles over sales tax increases and income tax cuts were solved by a combination of converting $500 million in cash to bonds, political compromise, and higher than expected income tax revenues. 

According to presentations made in the House of Delegates, the year-end revenues may end up being $1.2 billion higher than projections. Playing it safe, lawmakers opted to put $545 million of the revenues towards filling the shortfall. If revenue projections are correct and sustained, any future tax hikes could be pushed as far out as 2030.

The moves will close a $714 million gap in funding that was going to be filled by a digital sales tax on music and software downloads.  Adding the tax was expected to generate over $1 billion. 

The Governor had proposed offsetting the sales tax increase with a cut on personal income taxes, but that proposal fell by the wayside. An increase in the state’s minimum wage also didn’t make the cut. 

The budget includes a 3% pay raise for teachers and state employees and $2.5 billion in education funding. The state is also devoting $2.5 million to explore the possibility of developing an inland port facility in landlocked southwestern Virginia and widening interstate 81. 

The healthy tax collection was flagged by S&P Global Ratings in their report earlier this month. 

“Virginia’s total fiscal 2024 year-to-date general fund revenue collections through March 2024 are 6.2% ahead of levels in the same period last year,”the agency noted. “Year to date, the individual income tax is up 6.6%, and $1.1 billion above forecast, due to higher withholdings and lower-than-expected refunds.”  

Democrats are still not happy with Youngkin’s realized plan of keeping the commonwealth out of the Regional Greenhouse Gas Initiative. RGGI is a “cap and invest,” plan that puts a yearly declining cap on CO2 emissions from power plants and auctions off credits to regulate the emissions. 

Eleven states including Pennsylvania, which is third in the U.S. in total coal production, have signed onto the plan. 

The relationship between the Governor and the legislature took a turn for the worse last December when Youngkin announced plans to form a $2 billion public-private partnership that would move two major league sports teams out of Washington D.C. and into a brand new, publicly financed facility in Northern Virginia. The deal included nearly $1.5 billion in revenue bonds.   

By March, the deal was dead as local opposition rose up and the state Senate refused to give the project a budget hearing. 

His chief nemesis in the deal was Sen. L. Louise Lucas, Senate Finance and Appropriations Committee Chair, who threw her support behind the now approved budget. 

“The budgets passed today provide for a stronger Virginia and allows localities, agencies, and institutions to finalize their budgets,” Lucas said. “We had to accept some compromises, but the Senate will continue towards modernizing our tax code and fund educational opportunities for every student.”

Budget disagreement flared in March and in early April, Youngkin proposed a rewrite with the GA agreeing. Youngkin then countered with over 200 amendments. The rewrite avoided a veto and a total do-over, but eventually led to the special session.  

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