RICHMOND — Gov. Ralph Northam (D) unveiled the final proposed budget of his term in office Thursday, a two-year plan that uses big surpluses to fund raises for teachers and state employees as well as tax cuts that he says are aimed at working families.
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It will be up to his successor, Gov.-elect Glenn Youngkin (R), to propose changes and navigate the budget through the General Assembly once he takes office on Jan. 15. Youngkin has praised elements of Northam’s plan but said that it doesn’t go far enough with tax cuts.
Youngkin and Lt. Gov.-elect Winsome Sears (R) attended the presentation of the budget to General Assembly money committees Thursday morning at Northam’s invitation. “Once the campaigns are over we all should work together to make Virginia succeed,” Northam said, wishing Youngkin a good term in office. “If you are [successful], Virginia will continue to be successful,” he said.
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Northam’s administration touts the proposed budget as a road map for success that leaves the incoming governor in excellent financial shape, with record amounts in the state’s reserve funds. In fact, the proposed spending plan would pump so much money into reserves — leaving them at nearly $3.9 billion, or almost 17 percent of state revenue — that the General Assembly would have to authorize the state to exceed legal limits on the amount of cash held in reserve.
“I am proud that even as we weathered the worst pandemic in our lifetime, we’ve rebuilt our reserves so that Virginia is prepared against future downturns,” Northam said.
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The two-year, $158 billion budget takes advantage of massive surpluses that have resulted as the state emerges from the coronavirus pandemic.
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With businesses rebounding faster than expected and the housing market booming, state revenue has far exceeded the pessimistic estimates of a year ago. Virginia reported a surplus of $2.6 billion for the fiscal year that ended in June, and anticipates an additional $13.4 billion in revenue over the rest of this year and the coming two fiscal years.
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That’s in addition to about $1 billion in federal coronavirus relief money that has been held in reserve, plus whatever funds come to the state from the infrastructure bill that passed Congress and the federal investment package now being debated.
Northam — who has rolled out elements of his plan over the past two weeks — proposed a total of about $2.1 billion in tax cuts. Those include one-time rebates of $250 per individual taxpayer or $500 for married couples filing jointly; eliminating the state’s 1.5 percent tax on groceries, but leaving the 1 percent local add-on tax unchanged; and allowing working families who meet certain criteria to get money back for the earned income tax credit.
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The grocery tax cut and the tax credit for working families would cost the state about $419 million per year in lost revenue, state finance secretary Joe Flores said in a briefing with reporters ahead of Northam’s presentation.
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Youngkin campaigned on eliminating the grocery tax and providing one-time rebates, but also called for a sharp increase in the state’s standard deduction, which would amount to a broad cut for all taxpayers.
Northam said he wanted to aim his proposed tax cuts at working families who have struggled to recover from the economic shutdown that accompanied the pandemic.
“Now, let’s be straight with each other. We know that Virginia is going to cut taxes in 2022,” he said. “I want to make sure that happens in the right way. And what I mean by that is that tax relief needs to be focused on those who need it the most — workers who have lower incomes, workers who have struggled in this pandemic. Workers who need it, not just who want it.”
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On the spending side, Northam proposed 5 percent pay raises for public school teachers in each of the budget’s two years, for a 10 percent total raise that would cost about $750 million. He also proposed the same increases for all state employees and state-sponsored local employees, at a cost of more than $1.5 billion. His proposal includes raises and pay adjustments for law enforcement and corrections officers.
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Other big expenditures include a deposit of more than $900 million in the state retirement fund, $500 million for school construction and $622 million for higher education.
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The plan also calls for spending $1 million to study the state’s dire need for more capacity in its behavioral health facilities, and then $100 million in the second year for increasing capacity.
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Because the state’s coffers are so full, Northam has proposed spending some $2.8 billion in cash on various capital improvement projects — such as construction and renovation — instead of borrowing money and having to pay interest.
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He has also called for increased funding for the state’s historically Black colleges and universities — both public and private — and on Wednesday announced that he wants to set aside $12 million to help the state’s indigenous tribes purchase historically significant land and another $10 million for Black, native and other minority groups to fund historic preservation.
Earlier Wednesday, Northam announced that he is seeking spending for projects related to water quality and the health of the Chesapeake Bay that total more than $1 billion.
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Northam seemed to caution Youngkin Thursday against cutting investments in the environment, particularly the state’s commitment to a regional Bay cleanup initiative. “We must meet those obligations,” he said. “The Bay touches so many states that cleaning it up is a group project, and we do not want Virginia to be the state that doesn’t carry its share.”
Spokeswoman Alena Yarmosky told reporters that Northam has held “high-level conversations” with Youngkin but has not discussed specific budget priorities with his successor. Northam’s spending plan, she said, “sets up Virginia … for continued success.”
In remarks to reporters afterward, Youngkin thanked Northam for inviting him to the event. but also said the tax cuts in the outgoing governor’s plan were insufficient.
“I fundamentally believe that the recognition of the need for tax cuts is understated in his budget,” he said. “The [surplus] money that exists in Richmond belongs to Virginians, not the government, and therefore, we need to do a much better job of giving it back to Virginians on a systematic basis.”