RICHMOND – As lawmakers in the General Assembly prepare to adopt their versions of the state’s two-year budget Thursday, the contrast couldn’t be more clear-cut between Democrats, who still hold a narrow 21-19 edge in the Senate, and the House of Delegates, where the Republican majority is pushing for Gov. Glenn Youngkin’s agenda priorities, including significant tax breaks and a proposed loan-rebate program that would generate up to $2 billion to replace or modernize Virginia’s many outdated public school buildings.
The main money committees of both chambers on Sunday released their respective versions of the state budget for July 1, 2022, to June 30, 2024. After the full House and Senate vote on their individual budget bills, a team of House and Senate budget negotiators will reconcile differences in their spending plans in time for legislators to approve a final budget before the 60-day session adjourns March 12.
When outgoing Gov. Ralph Northam in December released his two-year budget for fiscal 2022-24 totalling $158 billion, he took advantage of a strong economic recovery and federal aid during the pandemic, which allowed the administration to set aside $1.7 billion to the commonwealth’s revenue reserves, including a $564 million voluntary deposit. This brought the state’s total reserves amount to more than $3.8 billion, or 16.8% of state revenues, and more than double the 8% that the administration set as a goal at the start of Northam’s tenure.
But Republicans – who reclaimed all three statewide offices and the majority in the House of Delegates in November – differ from Democrats on how to spend the money.
For Youngkin, the top priority remains tax relief – an issue that he heavily campaigned on. Last week, in a letter to the money committee chairs the governor touted a revised revenue forecast estimating that the state will collect $1.25 billion more in the current fiscal year – on top of the additional $3.3 billion added to the original forecast in December.
“The stunning amount of money being collected from taxpayers is the direct result of over taxation,” Youngkin wrote, adding that without “significant tax relief,” the commonwealth’s general fund collections will grow by over 40% percent between 2018 and 2024.
However, despite Youngkin’s optimistic forecast and push for more tax breaks, Democrats largely went along with Northam’s proposals in their two-year budget. A full side-by-side breakdown was published Wednesday by The Commonwealth Institute for Fiscal Analysis, a Richmond-based progressive think tank.
Here’s a summary of how the two budgets compare in the three key areas that we have been following throughout this session:
Tax relief
Tax proposals pitched by House Republicans would reduce the state’s general fund by almost $5 billion over the next two years in addition to hundreds of millions in transportation revenues.
Doubling the standard reduction from $4,500 to $9,000 for single filers and $9,000 to $18,000 for married couples – as Youngkin had proposed during his campaign – would come at a price tag of $2 billion, making it the most expensive proposal in the House GOP’s budget.
Additional measures include a repeal of the 2.5% grocery tax, including the state’s 1.5% component and the local 1%. The proposal would also require the state to provide “supplemental school payments” to localities to make up for lost school funding.
The budget proposed by Senate Democrats includes, most notably, a fully refundable Earned Income Tax Credit (EITC) that they hope will boost incomes for working families, which will cost $420 million over the next two years. Unlike House Republicans, Democrats want to eliminate only the state’s portion of the grocery tax (paid for with $372 million from the General Fund and $190 million in state transportation revenues), while retaining the local portion of the tax that localities often use to fund school construction.
Both chambers propose one-time tax rebates – $300 per individual and $600 per married couple – at a price tag of $1.25 billion in fiscal 2022 and 2023. However, House Republicans have already rejected an expansive proposal by Democrats that would make a portion of the earned income tax credit refundable to low-income families.
School construction
Republicans initially turned some heads when they announced Sunday that they wanted to make available $2 billion for school construction needs in Virginia – until they elaborated that they 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. This plan is established by House Bill 563, sponsored by Del. Israel O’Quinn, R-Washington County, the deputy majority leader.
“The entire Southwest Virginia Legislative Delegation has worked on this with me, and we are excited to see this progress,” O’Quinn said in a statement Sunday. “Our delegation has banded with our local school divisions as well as other legislators and school divisions from across the state to tackle this issue. This year, we are finally moving the needle in a meaningful way that will actually solve the problem.”
The School Construction Loan Rebate Program 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. Tier 1 provides rebates for 30% of total principal and interest costs for up to $1 billion in school construction projects, while tier 2 issues interest free loans for up to $1 billion in school construction projects based on the 2021 VPSA bond insurance rate.
Both tiers would provide for enough support to finance a total of “80 new elementary schools” in 2022-2024, Del. Barry Knight, R-Virginia Beach, chairman of the House Appropriations Committee, said during the presentation of the House of Delegates budget Sunday.
In Fiscal Year 2023, the funding would include $291.7 million from the General Fund and $250 million from Literary Funds, and in subsequent years it will be funded by gaming tax revenues therefore providing a sustainable funding line.
Senate Democrats, however, largely back Northam’s proposal, which would use $500 million from the General Fund to pay for school construction.
K-12 Education
House Republicans on Sunday hailed their $2 billion plan for public education as “the largest ever investment in our K-12 system,” proposing 4% pay raises for teachers and staff over two years with 1% bonuses each year. But Republicans also plan to cut over $200 million from the At-Risk Add On Program, which supports school districts with high concentrations of poverty, and their budget does not include support for additional principals and assistant principals, as recommended by the Virginia Board of Education.
In their budget, Senate Democrats kept the 5% raises proposed by Northam and added a one-time $1,000 bonus for teachers and other school workers, state employees and state-supported local employees. They also propose 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.
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