Virginia budget deal includes $4 billion in tax cuts and 10% increases for state workers | Government and politics

A budget deal proposed by General Assembly negotiators reached this week would cut taxes by $4 billion over three years, raise the salaries of state employees and teachers by 10% over two years and contribute up to $470 million in government funds to widen a 29-mile stretch of Interstate 64 between Richmond and Williamsburg.

The tax cuts include one-time rebates of $250 for individual taxpayers and $500 for families this year, a 78% increase in the standard deduction on state income taxes, a larger deduction for military retirement income and a refundable tax credit for low-income earners. working families.

But that doesn’t include repealing the 1% local option sales tax on groceries — only the 1.5% state portion of the tax. It also does not include a three-month suspension of the state gasoline tax that Governor Glenn Youngkin had sought as part of a larger $5.5 billion tax relief package in during his first year in office.

The compromise deal between House of Delegates and Senate negotiators came nearly three months after the legislature ended its 60-day session on March 12 without a revised budget for this year or a new two-year budget that will come in. effective July 1.

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“We wanted to send the message here that we took our time to do it right and we believe we did it right,” House Appropriations Chairman Barry Knight, R-Virginia Beach, said during a briefing. a joint budget briefing with the Senate Finance Chair. Janet Howell, D-Fairfax, Thursday afternoon.

It’s the fifth budget deal lawmakers have reached since Howell became committee chief more than two years ago, before the COVID-19 pandemic upended Virginia’s economy and then a series of programs. Massive federal emergency aid helped blow the bust up with record amounts. state revenue.

“We had really major differences and we’re going through uncertain times,” she said. “The threat of inflation is looming and a possible recession is looming, so we are very careful in how we spend money.”

Details of the proposed deal will be made public by Sunday evening, before the assembly meets in extraordinary session on Wednesday. The two budgets — one for the fiscal year ending June 30 and another for the two fiscal years beginning July 1 — will then go to Governor Glenn Youngkin. He will have seven days to propose amendments or veto provisions.

Knight, who led negotiations for the Republican-controlled House, said Youngkin “knows most of this” but said his first priority been brief the other five House members of the budget conference committee and House leaders — Speaker Todd Gilbert, R-Shenandoah, and Majority Leader Terry Kilgore, R-Wise.

“There is a pecking order here,” he said. “There is the legislative power and then there is the executive power.”

Youngkin’s spokeswoman Macaulay Porter said, “The Governor has been briefed and looks forward to seeing the final language, but I will decline to comment further.”

The freshman governor will see some things he likes about the deal, starting with increasing the standard deduction from $4,500 to $8,000 for individual taxpayers and from $9,000 to $16,000 for families. The change will reduce state tax revenue by about $1.6 billion over two years, about $500 million less than what Youngkin had requested.

“It was a major concession for us,” Howell said.

In return, Senate Democrats achieved a long-denied goal of making up to 15% of the earned income tax credit refundable for low-income families who don’t pay enough tax to offset the full credit. .

“It was a game we didn’t like,” Knight said.

The House and Senate will form a joint subcommittee to study state tax policy later this year, including the planned reduction of higher standard deduction levels in 2026 if Congress does not extend the tax cuts federal laws passed in late 2017 under then-President Donald Trump.

The House won its case by increasing the exemption on military retirement income to $40,000 over four years, instead of the maximum of $20,000 proposed by the Senate.

But the final deal also keeps one-time tax refunds at the same level as the then-government. Ralph Northam proposed in his farewell budget – $250 for individuals and $500 for families, rather than the $300/$600 proposed by Youngkin and approved by the House.

It also doesn’t include a gas tax holiday the governor had proposed for three months – from May to July, staggered over the next two months, with a 2% cap on future annual tax increases. inflation. The proposal would have cost the state about $437 million in transportation revenue, not including inflation cap reductions.

The agreement also does not include the complete repeal of the sales tax on groceries, which both sides have favored, but Youngkin has made it a priority. Both houses voted to eliminate the state’s share of the tax, using state revenue to offset losses to local school systems, but the Senate balked at repealing the 1% local option that will directly to local governments to pay for their public services.

On the spending side, the deal includes about $1.8 billion over two years for across-the-board increases, one-time bonuses, and targeted pay relief for state employees, teachers, and community-supported local employees. State, including sheriff’s deputies.

The agreement preserves a 5% raise each year for these employees, as well as a $1,000 bonus that the Senate had proposed in its budget. The House had proposed a 4% increase and a 1% bonus each year.

The compensation package also includes targeted pay increases for state and local law enforcement, direct care staff at state behavioral health facilities and correctional officers. Knight said local sheriff’s deputies and corrections officers would see a 22% increase between targeted relief and general increases.

The proposed deal would also save state and local governments $1.85 billion over 20 years in retirement costs for public employees by depositing $750 million this year into Virginia’s retirement system and $250 million additional dollars in the next budget to pay off unfunded debt. Contributions would increase the capitalization of state employee and teacher pension plans by 1%.

The extra money for teachers’ retirement would also relieve pressure on the Literary Fund, which is part of a three-way compromise to provide $1.25 billion in loans and grants to local school divisions to replace or repair school buildings. obsolete audiences. The compromise includes the creation of a new school modernization fund and a loan repayment program that the Chamber had proposed.

“It’s pretty significant,” Knight said. “We’ve never done anything like this before.”

One of the big surprises is a proposed commitment of up to $470 million in public funds — $320 million this year and $150 million based on future revenue — to close the “gap” on I-64 in widening the highway to three lanes each way between Bottoms Bridge in New Kent County to Lightfoot in James City County.

The Senate had proposed $190 million and the House had included $50 million for the project, which is a top transportation priority for the Youngkin administration.

Knight said the $750 million project will also require up to $125 million from the Central Virginia Transportation Authority, which has been split to allocate regional funds, as well as regional funds from Hampton Roads and federal grants. of the Infrastructure Investment and Jobs Act.

“We hope we can get enough money from all sources to fully fund it,” he said.

The agreement would break new ground in state support for affordable housing. It would add $40 million to the Virginia Housing Trust Fund, for a total of $150 million over the next two years, and add $240 million to a new Virginia Housing Opportunity Tax Credit program in the over the next 10 years.

Howell said the investments represent “some kind of breakthrough” on state support for affordable housing in the face of rapidly rising house prices and rents.

“It’s a crisis,” she said.

Another point of pride for negotiators was an additional $1.4 billion for health and human resources. This includes nearly $700 million to increase Medicaid reimbursement rates for dental providers, developmental services, personal care and nursing facilities.

It also includes money for 600 additional Medicaid waiver slots for people with developmental disabilities and $217 million in state and federal funds to expand community mental health services, such as permanent supportive housing. , and increase the salaries of direct care staff in state psychiatric hospitals. .

Knight and Howell also described other proposed investments:

– $1.6 billion in deposits in state reserves, pushing them above $3.8 billion by mid-2024;

— Up to $159 million over two years to the Virginia Business Ready Sites program to make the state more competitive for economic development projects, such as the $5.5 billion electric vehicle plant Hyundai just built ‘announce would be built near Savannah, Georgia, instead of a proposed site in Danville;

– $568 million for water quality improvements, including $100 million to help Richmond complete the long-term project to eliminate polluted overflows into the James River during heavy rains;

– $3.3 billion for capital projects, two-thirds of which is paid for in cash instead of tax-financed debt; and

– $340 million in financial and other aid to colleges and universities, including $43.3 million for historically black public and private institutions, and $202 million in state aid to encourage colleges and universities moderate annual tuition increases, a long-standing priority of the Chamber.

“I personally would like to see it at 3% or less,” Knight said. “We are worried about the debt these children are coming out with.”

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