A screenshot of the House vote on the budget bill.

RICHMOND – Republicans on Thursday used their new majority in the House of Delegates to repudiate objections from Democrats to adopt a spending bill with a significant focus on tax relief, public safety and a loan-rebate program that would generate up to $2 billion for school construction efforts. Democrats, who still hold a narrow edge in the state Senate, passed their own budget aimed at making investments in public education, natural resources, public employee compensation and human services.

The House voted 74-25 in favor of a budget for the two-year cycle beginning July 1 that new House Appropriations Chairman Barry Knight, R-Virginia Beach, said focuses on “ensuring a structurally sound foundation for future growth, providing tax relief and maximizing our revenues. The Senate by a 31-9 vote passed a measure that, according to Finance Committee Chair Janet Howell, D-Fairfax, makes good on the promise that “when revenues return from the declines of the Great Recession, we would restore items that had been lost.”

While both spending bills share some similarities – including pay raises for teachers and state employees, one-time tax rebates as well as deposits to the state’s retirement system and reserves – lawmakers will have to bridge several significant discrepancies before the General Assembly adjourns on March 12. 

Most notable is a Republican tax relief proposal that would double the standard reduction from $4,500 to $9,000 for single filers and $9,000 to $18,000 for married couples. The amendment, which was an important pillar of Gov. Glenn Youngkin’s campaign, would come at a price tag of $2 billion, creating a gap in the budget that will have to be closed in the coming days as each chamber will take up the other’s spending bills before a final budget will be drawn up in the Budget Conference Committee.

The House debated its spending bill amendments for more than five hours Thursday. House Minority Leader Eileen Filler-Corn, D-Fairfax, said that while there are items in the budget that “we can celebrate on both sides of the aisle,” she also said that there are “some very troubling cuts” to the budget proposed in December by former Gov. Northam’s in his final $158 billion budget. 

Because of a strong economic recovery and federal aid during the pandemic, Northam’s administration was able to set aside $1.7 billion to the commonwealth’s revenue reserves, including a $564 million voluntary deposit. 

Revenue projections have also increased since December – a revised forecast from last week estimates that the commonwealth will collect $1.25 billion more in the current fiscal year, on top of the additional $3.3 billion added to the original forecast. “When added to the amounts already scheduled to be deposited into the reserves, by fiscal year 2024 we will have a historic balance of then $3.8 billion in our combined reserves,” Knight said Thursday.

A heavily contested issue remains funding for school construction. While Northam in his budget proposed $500 million for to modernize or replace Virginia’s crumbling school infrastructure – a measure that Senate Democrats support – Republicans want to use a combination of $500 million in state tax funds and money from the Literary Fund to establish a loan-rebate program that would provide up to $2 billion in bonds to help localities repair aging and crumbling schools.

The School Construction Loan Rebate Program, a proposal by Deputy Majority Leader Israel O’Quinn, R-Washington County, is designed to function as a competitive grant program based on local commitment, need, and building conditions. It would allow for the issuance of bonds for two tiers of public school buildings based on a locality’s ability to pay.

Knight said that the $500 million for school construction in Northam’s budget would be just a one-time payment. “What this proposal does, it adds $2 billion in loans and probably will continue on in perpetuity,” he said of the Republican plan, which allows for the issuance of bonds for two tiers of public school buildings based on a locality’s ability to pay.

“One tier is going to forgive all the interest, and give a grant for 30%. That means a locality comes up with 70%, the state pays 30%,” Knight said. The second tier issues interest free loans for up to $1 billion in school construction projects based on the 2021 VPSA bond insurance rate.  

“Yes, it’s going to be a loan program, but that’s a whole lot better than we’ve ever had before, we’re going to fund it with $541 million for the next two years, and after that, when the casinos come online, that funding will be dedicated to perpetuate this,” Knight said. “And remember, it’s never been a state function to build these schools, it’s always been a local function.”

But Del. Jeffrey Bourne, D-Richmond, said that O’Quinn’s loan-based approach would force school divisions to spend the money and use up debt capacity that many localities don’t have. Instead, Bourne said that localities should have access to grants, as proposed by Northam and Senate Democrats. 

“Let’s not gamble, let’s not roll the dice and play roulette on school construction needs. Let’s put our money where our mouths are, put the cash in,” Bourne said. “It breaks my heart that we hear over and over again how important it is, how much we want to invest and how much we want to do for school construction across this commonwealth.”

O’Quinn said that $2 billion is “a lot of money, in any context, that a lot of divisions aren’t going to be able to access” otherwise. “I think this is a good piece of legislation. Is it what I would have hoped for in a perfect world? Probably not. It’s still a very good bill and a very good budget amendment.”

The Senate debated its budget amendments in less than half the time than the House. Among the key proposals are two consecutive 5% pay raises for teachers (Republicans propose 4%) and a one-time $1,000 bonus for teachers and other school workers, state employees and state-supported local employees. Democrats also want to include $272 million to increase state funding for support staff – a critical step to offset budget cuts at Virginia’s public schools during the 2007-2009 recession.

“This is a balanced budget in many ways,” said Howell, the Senate Finance chair. “It is structurally balanced to maintain a future flexibility in liquidity, and it is balanced between striking the right amount of spending on restored or renewed services for the citizens of the commonwealth, and tax relief for those same individuals and businesses.”

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Markus Schmidt is a reporter for Cardinal News. Reach him at markus@cardinalnews.org or 804-822-1594.