Virginia lawmakers pass long-overdue budget bill with tax rebates, extra aid for schools

The politically divided Virginia General Assembly approved long-overdue budget legislation Wednesday, voting in an unusually fast-paced special session to both reduce taxes and boost spending on public education and mental health as part of the package.

Lawmakers spent just a few hours in the Capitol considering the compromise plan before overwhelmingly adopting it and sending it to Republican Gov. Glenn Youngkin. He can sign it as is, or seek amendments.

“I’m really pleased with the budget we have before us today. The negotiations have been very intense and very extended. But the outcome is both fair and balanced towards the priorities of both the House and the Senate,” said Democratic Sen. Janet Howell of Fairfax County, who co-chairs the Senate Finance and Appropriations Committee.

Howell was among a small group of negotiators holding closed-door budget talks since the Legislature's regular session ended without agreement on adjustments to the two-year state spending plan, which runs through mid-2024. The group announced the compromise two weeks ago but only rolled out the full bill last weekend.

The proposal includes about $1 billion in tax reductions, mostly through one-time tax rebates of $200 for individuals and $400 for joint filers. It also would increase the standard deduction, remove the age requirement for a military retiree tax benefit and reinstate a popular back-to-school sales tax holiday lawmakers forgot to renew. While the holiday typically takes place in August, it would instead be held this year in late October under the plan.

Tax policy changes were a key part of what turned into a six-month stalemate, as Youngkin and the GOP-controlled House of Delegates had argued for an additional $1 billion permanent cuts, including a reduction in the corporate tax rate. Democrats who control the state Senate argued that more reductions would be premature after negotiating $4 billion in tax relief last year. The rebates, which weren't initially included in either chamber's budget bill, were a compromise.

The legislation would boost K-12 education spending by about $650 million and fund behavioral health initiatives sought by Youngkin, including new crisis receiving centers and crisis stabilization units. It includes funding for an extra 2% raise for state workers starting in December, and money for the state's share of a 2% raise for state-supported local employees, including teachers. The combination of tax cuts and increased spending is possible because the state had accumulated a multibillion surplus.

Among other notable provisions are: $200 million in new resources for economic development-related site acquisitions; $62.5 million in additional funding for college financial aid; and $12.3 million for the Virginia Employment Commission to help address the unemployment appeals backlog and support call centers.

It would allocate $250,000 to establish a Department of Corrections ombudsman within the state's watchdog agency —- something long sought by reform advocates.

The bill directs the State Corporation Commission to continue a widely supported reinsurance program that reduced premiums this year. The commission recently warned that because lawmakers hadn't acted to effectively renew the program, it was headed for suspension in 2024.

The legislation does not address a proposed casino in Richmond, meaning the city can proceed with a planned voter referendum this fall.

Youngkin hasn't yet said if he will seek changes to the budget as passed, which would mean lawmakers would have to return to Richmond to consider his proposed amendments. But he issued a statement heralding the bill's passage.

“While the process took longer than needed, more than $1 billion in tax relief is on the way to Virginia veterans, working families and businesses. Additionally, this collaborative effort ensured the funding of our shared priorities: investing in students and teachers, supporting our law enforcement community and transforming the way behavioral health care is delivered in the Commonwealth,” Youngkin said.

Because Virginia operates on a two-year budget cycle, with the full plan adopted in even years and tweaked in odd years, this year's delay in approving the legislation has not impacted state government services or payroll. But it has led to consternation from school districts, local governments and other interests impacted by the state's taxation and spending policies.

Wednesday’s proceedings advanced with little substantive debate after lawmakers agreed to a procedural resolution that essentially said floor amendments would not be considered. Lawmakers also waived the typical requirement that legislation be heard several times before it's taken up for a final vote.

Every Assembly seat is up for election this fall, and members of both parties found things to tout in the plan.

“This budget agreement prioritizes Virginia families, especially our veterans and our children, over the tax cuts that the Republicans wanted to give to big corporations,” House Democratic Leader Don Scott said.

House Appropriations Chairman Barry Knight said it was a “bipartisan, bicameral compromise" and retiring Republican Sen. Steve Newman called it “as fiscally responsible a bill as I've ever seen,” given its focus on one-time versus recurring spending.