5 things to know about Virginia’s newly revealed budget deal

Spring has arrived at the Virginia Capitol. (Graham Moomaw/Virginia Mercury)

It took a little while, but Virginia’s Democratic-led General Assembly and Republican Gov. Glenn Youngkin have come up with a budget deal both sides can apparently live with.

Legislative documents outlining the agreement were released Saturday morning to allow the budget to be voted on today when lawmakers return to Richmond for a special session focused on finishing the budget. The special session is happening because Youngkin and Democratic leaders spent months publicly sparring over budget priorities and didn’t come to an agreement last month under the state’s usual timeline to pass a budget.

Without a new spending plan in place, the state was facing the possibility of a government shutdown on July 1, when the current budget expires and the next two-year spending plan begins.

The specifics of the bipartisan budget deal will be explained in more detail as lawmakers take up the bill, but here are five key takeaways.

The digital sales tax increase is out

Youngkin has repeatedly said he won’t sign a budget that raises taxes, and now he won’t have to.

A contested proposal to expand the state’s sales tax to cover digital purchases like streaming subscriptions, music downloads and software was struck from the pending budget after Democratic negotiators concluded they could achieve what they wanted to do without the extra money.

A presentation prepared for the House of Delegates Appropriations Committee notes that the digital sales tax was only on the table because Youngkin had proposed it to offset other tax cuts he wanted, but “was not driven by a systematic look at Virginia’s tax structure.’

For now, lawmakers are foregoing the roughly $1 billion in new revenue the digital sales tax was projected to generate over two years. Policymakers have indicated that the decision was made possible by stronger-than-expected tax revenues already coming in, but the idea could come back around in future years.

The new budget deal envisions a wider look at Virginia’s tax policy by a joint legislative subcommittee that will study the digital sales tax and other issues for potential action in the 2025 General Assembly session.

Democratic spending priorities are still in

Democrats have stressed that the spending in the budget deal closely resembles what they passed earlier this year, meaning they didn’t have to abandon big-ticket items by dropping the digital sales tax proposal.

The House budget presentation says the deal “retains all spending items from the conference report,” including funding increases for K-12 schools and higher education. Democrats had proposed major increases in what’s known as at-risk add-on funding, extra money the state gives to school divisions with high numbers of economically disadvantaged students.

Democrats clearly didn’t get everything they wanted out of the 2024 session, as Youngkin vetoed more than 150 bills. Several of them were high-profile Democratic priorities like legalizing retail sales of marijuana for recreational use and raising the state’s minimum wage to $15 per hour by 2026.

However, some of those vetoes freed up money in the budget tied to bills that won’t become law. Because raising the minimum wage would have come with extra costs to the state, Youngkin’s veto of that bill saved $80 million that could be used to balance the overall budget.

Teachers are still getting raises

The new budget deal includes state funding to pay for 3% raises for teachers and school support personnel in both years of the budget.

Youngkin had proposed more modest pay increases for teachers in his original budget proposal last year, but came around to supporting 3% increases in both years in the revised budget plan he offered in April.

Democrats have prioritized raising teacher pay to the national average or better, and Youngkin’s administration has stressed that educator pay has already gone up during his administration.

The budget won’t be linked to RGGI

Early in his term, the governor angered many Democratic lawmakers by issuing an executive order aiming to end Virginia’s participation in the Regional Greenhouse Gas Initiative, a multi-state program meant to reduce planet-warming carbon emissions.

Democrats questioned whether Youngkin had the authority to remove the state from a program the legislature voted to enter, and they insisted on their stance by including language in their budget proposal in March, meant to force the state to rejoin RGGI despite Youngkin’s objections.

The program requires electricity producers to purchase allowances for the carbon they emit, and some money raised from those purchases is returned to Virginia and used for flood resiliency and energy efficiency efforts. Youngkin has criticized RGGI as a backdoor tax on Virginians because it allows companies to recoup the costs through customers’ energy bills.

Litigation over Youngkin’s move is currently pending in the Floyd County Circuit Court, and the issue now appears more likely to be settled there, or through Virginia’s 2025 election.

No budget do-over for skill games

Convenience store, truck stop and restaurant owners across the state have been closely watching whether the state will repeal its ban on slot machine lookalikes known as skill games.

If that’s going to happen, it’s not happening through the budget. Instead, the budget scraps nearly $94 million in skill game revenue anticipated for fiscal year 2025, an indication the machines are unlikely to be reactivated by July 1 as the business owners wanted. 

That money was expected because the General Assembly passed a bill earlier this year to tax and regulate skill games. However, Youngkin gave the bill a sweeping rewrite that upset the skill game industry by including tougher regulations and strict rules prohibiting the machines within a certain distance of casinos and gambling facilities tied to horse racing, places of worship, schools and day care centers.

The state Senate flatly rejected all of Youngkin’s suggestions last month, but at the time both the governor and lawmakers were talking about continued negotiations and finding a way forward.

With no action on skill games in the budget, Youngkin can either sign or veto the original bill he tried to overhaul. If the legislation is vetoed, skill game proponents could only continue their fight via new legislation that could be taken up later this year or in the 2025 session.

The new budget retains several provisions anticipating regulatory costs for legalized skill games, a sign there’s still a chance for the machines to be legalized later.

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