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RICHMOND — State budget negotiators, who met this week for the first time since talks collapsed in June, got an extra nudge on Friday to wrap up their work from Gov. Glenn Youngkin (R), who said $5 billion in excess state revenue and rising workforce participation left no excuse for continued delays on the spending plan.
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Youngkin announced at a construction firm in the state’s capital that 201,472 more Virginians are employed than when he entered the Executive Mansion in January 2022 with plans to ease pandemic restrictions that he said were hurting economic growth. That number puts him halfway to his goal of 400,000 new jobs over his four-year term.
He rolled out the workforce numbers just days after announcing that the state ended its fiscal year on June 30 with $5 billion in excess funds — topping the previous estimate of $3.6 billion in excess funds that had been factored into the most recent budget plans.
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“I ask our General Assembly to do what Virginians have demonstrated over the last 18 months — get back to work,” he said at the construction firm, Hourigan, where he entered and exited to the strains of “Takin’ Care Of Business.” “We have the financial resources … to do it all.”
The Republican-controlled House and Democratic-led Senate adopted a two-year budget in 2022 but failed to reach agreement earlier this year on amendments typically made at the midway point of the spending plan. That has not caused shutdowns because the original spending plan remains in place, but it has created uncertainties about funding and raises for school districts and state agencies. The stalemate also has left billions in excess state revenue in limbo — $3.6 billion when talks broke down, and now, $5 billion.
Without an updated state budget, Va. schools face hiring uncertainty
At the heart of the disagreement: The Republican House, like Youngkin, would prefer to use much of the excess revenue for tax breaks that they say will spur economic growth and make the state more attractive to businesses and individuals, while the Democratic Senate wants to plow much of it into long-underfunded services, such as K-12 education.
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Youngkin had proposed using $1 billion for new tax cuts for individuals and corporations, on top of the $4 billion in tax cuts the General Assembly approved last year.
A trio of budget negotiators — Barry D. Knight (R-Virginia Beach), chairman of the House Appropriations Committee, and Senate Finance and Appropriations Committee co-chairs Janet D. Howell (D-Fairfax) and George L. Barker (D-Fairfax) — threw up their hands in February, forcing the General Assembly to end its regular session without a budget deal.
When they resumed talks at the end of June, Knight said he had agreed to scrap Youngkin’s proposal for a corporate tax cut; increase the standard income tax deduction to $9,000 from $8,000 for individual filers, and double that amount for married couples filing jointly; and rather than lower just the top income tax bracket, as Youngkin proposed, slightly adjust all tax brackets to provide more benefit to low-income filers.
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In addition to a handful of more minor recurring tax cuts for businesses and military veterans, Knight said he had proposed one-time rebates of $100 for individual taxpayers and $200 for married couples filing jointly. The rebates and tax cuts would have totaled roughly $900 million in each of the next two years, Knight said, with a decrease in revenue continuing into the future.
Barker said in June that he worried the House plan for permanent tax cuts would put the state on uncertain financial footing and threaten its prized AAA bond rating, which makes it cheaper to borrow money. Just Barker and Knight met in June, while Howell was out of the country on vacation, and Barker made a proposal: no ongoing tax cuts, but a doubling of the one-time rebates. That would cost a similar amount — roughly $900 million — but only for one year.
Knight not only rejected the idea but accused Barker of backing out of the deal that they’d agreed to earlier but had kept quiet while Barker tried to fight off a challenge from his left in the June 20 Democratic primary. Barker, who lost the primary to Stella Pekarsky, disputed that account, saying he had never agreed to anything.
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They’d remained out of touch until Monday, when Knight called and asked for a meeting, Barker said.
“He said, ‘I’m willing to take another shot at this,’” Barker said.
When all three met in Richmond Thursday, Knight said Barker and Howell reminded him that they’d made the last offer, so it was his turn to offer a counterproposal, which he did.
“I feel like I came way, way close to them,” Knight said, declining to disclose specifics. “And they looked at it and had a tremendous poker face on.”
Knight said he took it as a good sign that Howell and Barker “did not say ‘no’” and told him they would run the offer by other Senate budget conferees and get back to him. He described the meeting as “very nice, very cordial.”
Barker confirmed that account. Howell did not immediately respond to a request for comment.
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“We have not resolved anything finally, but we’re looking at things and trying to figure out how to get something done,” Barker said. “It’ll probably be a couple weeks anyway before anything becomes tangible.”
Knight said the negotiators were not focused on the $5 billion excess revenue figure, saying they expect to continue working within the framework of $3.6 billion.
“We just want to keep a cushion out there,” he said. “The numbers just came out.”
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