By Markus Schmidt

(CN) – The General Assembly on Monday approved a budget compromise for fiscal years 2024-26, ending a stalemate between Gov. Glenn Youngkin and Democrats that began in early March, when the legislature adjourned its regular session.

The $188 billion spending plan, which includes no new tax increases, no additional tax relief and more than $2.5 billion in K-12 funding, passed in the House of Delegates 94-6 and in the Senate 39-1. The agreement averted an unprecedented government shutdown that loomed large ahead of July 1, when the new fiscal year begins.

Unchanged from previous iterations of the budget are $2.5 million for a proposed inland port in Washington County and $70 million in one-time general fund support to accelerate the Interstate 81 northbound lane widening project.

“This is a big day for Virginia, and 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,” Youngkin said moments before signing the budget at an impromptu ceremony in the Old House Chamber of the state Capitol in Richmond, just a few feet from where a statue of Gen. Robert E. Lee stood for decades until it was removed four years ago. 

The governor was flanked by Del. Luke Torian, D-Prince William County and the chair of the House Appropriations Committee, and state Sen. Louise Lucas, D-Portsmouth, the Senate Finance chair.

“Budgets are hard work,” Youngkin said. “We in fact listened to one another, we understood each other’s priorities and perspectives, and that came together in the budget. At the heart of this has been a spirit that underpinned now three budget negotiations and has allowed us to reach conclusions.”

Lucas, who had blocked many of Youngkin’s key proposals during this year’s General Assembly session — including a plan for the state to fund a new $2 billion sports arena in Alexandria — struck a surprisingly conciliatory tone.

After thanking Youngkin for his role in striking a budget deal, Lucas said that the new spending plan provides for a stronger Virginia and allows localities, agencies and institutions to finalize their budgets.

“We needed to accept some compromises, but the Senate will continue towards modernizing our tax code and fund education opportunities for every student in the commonwealth,” Lucas said.

Torian called the agreement “a budget that is good for all of the citizens” of Virginia. “What you see in this room, you see a bipartisan effort on this budget,” he said. “I’m delighted that we are able to have the governor sign the budget today, so that localities can now understand that they can work on their own and provide the services they need throughout the commonwealth.”

This week’s rosy ceremony marked the end of a budget standoff that began March 9, after the Democratic-controlled legislature by a 62-37 vote adopted the conference reports for a spending plan that included more than $2.5 billion in new funding for K-12 public education and a 3% salary increase for teachers and state employees.

When drafting their own budget bill, Democrats gutted a proposal by Youngkin that would have provided for an additional $1 billion in tax relief, including a 12% reduction of all income taxes. To offset the estimated annual revenue loss of $2.3 billion, Youngkin had pushed for a hike of the state’s sales tax rate from 4.3% to 5.2%, including a provision that would have closed the so-called tech tax loophole on digital goods that are currently classified as tax-exempt services.

Democrats rejected all but the tax to cover digital goods and services and business-to-business software transactions, meaning Virginia would have had to start taxing online music downloads from platforms such as Apple Music and other platforms.

But for Youngkin, a new tax without other tax cuts was a nonstarter. After the General Assembly adjourned in March, he embarked on a statewide tour of campaign-style events where he slammed the spending plan that Democrats had sent him as a “backward budget” and vowed to cut $2.6 billion in tax increases from the proposal. In return, Democratic leaders launched their own statewide campaign to rally support for their spending priorities.

In April, Youngkin rolled out a package of more than 240 amendments to the Democrats’ spending plan. Dubbed the “Common Ground Budget,” the governor’s plan eliminated all tax increases proposed by Democrats, as he had previously vowed to do. As a peace offering, he sought no new tax cuts.

Youngkin’s revised spending plan also included $1 billion in funding for higher education to support a cap on tuition increases and a 3% pay increase for teachers and state employees, as well as increased investments in health and human resources by $3.2 billion over the biennium — all spending priorities that Democrats had called for.

But the work on a true compromise budget didn’t begin until April 17, when Youngkin and key Democrats agreed to start over and draft a new budget proposal from scratch.

Del. Terry Austin, R-Botetourt County and a budget conferee who played a key role in the negotiations, said in an interview Monday that the two sides agreed to put their differences aside and work on a new spending plan during a meeting with administration officials just one day before the reconvened session last month.

“Then we met again the next morning right before [the reconvened session] and we put the process in place to go forward, and that process served us extremely well. We had everybody’s trust, everyone was committed to the mission, and we accomplished it based on the process that we had set in place,” Austin said.

All the conferees came together several times during every meeting, Austin added. “We worked with the Senate, and the House Appropriations and Senate Finance [committees] both looked at the revenues, came back and said, ‘Here’s what we can do and how we can do it,’ and we implemented that.”

Negotiators from both parties agreed to remove the digital sales tax from the new budget, closing the estimated $714 million gap in general fund revenue by converting $500 million in cash to bonds and using more than $100 million freed up by recent gubernatorial vetoes.

“We decided to take on $500 million in bonded debt. We had $389 million prior, so we’re in a good position there,” Austin said in the interview. “Now we have agreed that as revenues continue to grow, we will buy down that debt with excess revenue to keep the debt low. We’re far under our debt capacity.”

Austin added that the negotiations were “very much” a bipartisan process. “The governor conceded, he gave, we gave, we came up with a bipartisan budget. This went perfect.”

While all Democrats in the House and Senate voted for the compromise budget, some Republicans still had reservations. Among the six members of the House GOP who voted against the measure were Dels. Tom Garrett, R-Buckingham County; Tim Griffin, R-Bedford County; and Eric Zehr, R-Campbell County.

Zehr said in an interview on the House floor Monday that he could not support the budget because of his concern with “borrowing more money to pay for ongoing expenses” and because the spending plan expanded the size of government.

And the legislature also shouldn’t reward ”some of those higher education institutions where we have seen all this unrest on campuses right now because of the DEI programs they have going on,” Zehr said, referring to diversity, equity and inclusion practices and policies intended to support students who come from varying backgrounds.

When asked why he was unwilling to compromise, Zehr said that “I have to vote for what I think is right. I have to vote my conscience.”

In the Senate, Sen. John McGuire, R-Goochland County, was the lone member to vote against the budget.

“Virginia is seeing record revenue, but we’re not giving the people record tax breaks,” McGuire, who is challenging Rep. Bob Good, R-Campbell County, for the Republican nomination in Virginia’s 5th Congressional District, said in a text message.

“I wish the Democrats had worked with Governor Youngkin to pass his original budget idea, which would have cut taxes for Virginians. That’s a much better approach — right now, my constituents are being badly hurt by Bidenomics and they need the help.”

But Democrats, too, had to make major concessions, including giving up language that would have required Virginia’s renewed participation in the Regional Greenhouse Gas Initiative, or RGGI.

Virginia joined RGGI in 2021 but pulled out of the initiative at the end of last year after the state’s Air Pollution Control Board voted to repeal the legislation that was first signed into law by former Gov. Ralph Northam, a Democrat.

Del. Rip Sullivan, D-Fairfax County, in a passionate speech on the House floor Monday said that while he would vote for the budget, he regretted Democrats’ concession to Youngkin on RGGI.

“Withdrawing from RGGI has always been an awful idea. Because of the governor’s misguided intransigence, [the budget] is in one crucial respect, to borrow one phrase, backward,” Sullivan said, referring to Youngkin’s “backward budget” slogan from early in the budget standoff.

“It takes Virginia backward on one of the most important issues of our time. My vote will be tempered by great disappointment that an opportunity was squandered by our governor, but also my vote will be filled with resolve to get Virginia back into RGGI as soon as possible.”

The new budget proposal also does not include language that would legalize so-called skill games in Virginia and create a regulatory framework and tax structure for the electronic devices, which the state Senate sent back to Youngkin’s desk last month after rejecting his far-reaching slate of amendments to the legislation.

But by not formally adjourning its special session Monday and instead going into recess, the legislature left a door open for lawmakers to return to Richmond in the coming weeks to revisit skill games legislation — even if Youngkin decides to veto SB 212, sponsored by Sen. Aaron Rouse, D-Virginia Beach, by his May 17 deadline to act on the proposal.

Despite such concessions, lawmakers from both sides of the aisle hailed the budget deal as a compromise that satisfies most of their spending priorities.

“While we wanted to see a little bit more as far as including some additional funds from RGGI, which could have been invested in flood mitigation, we are pleased to come up with a bipartisan budget bill that is going to be funding a lot of our critical services,” said Del. Sam Rasoul, D-Roanoke, the only remaining House Democrat from west of the Blue Ridge.

Rasoul’s Republican colleague from the Roanoke Valley, Del. Joe McNamara, D-Roanoke County, said he was pleased with the new spending plan.

“I’m happy from the standpoint that Virginia can go forward. We have a very good budget, we adequately have made significant investments in education, public safety, mental health awareness, so all things considered I think we’re in a pretty good place,” McNamara said in an interview.

While he was disappointed that Republicans were not able to deliver any tax relief, McNamara said that the new spending plan isn’t the end of all things. “To a large degree we have not spent all that money going forward, so I am hopeful that we’ll have an opportunity to revisit this next year, and maybe we’ll be more successful in easing the overall burden to the taxpayers.”

Across the hall in the Senate, Sen. Mark Peake, R-Lynchburg, said that when there is a divided government, there are wins and losses for everybody.

“The wins, as far as we see it: There are no new tax increases, getting out of RGGI, raises for law enforcement, and some money designated to localities to go to police officers. The losses: no tax relief, we have greater revenue than anticipated and none of that is being returned to the citizens, and that’s disappointing,” Peake said.

Sen. Bill Stanley, R-Franklin County, called Monday’s agreement “a great compromise” for Virginia.

“I’m surprised that the Democrats actually agreed to it,” Stanley said. “It shows that maybe they were thinking that Virginia is more important than sometimes partisan positions, which is a good thing. We are going to get something done, we are going to put partisanship to the side and vote on what is right. This is the right budget to vote for.”



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