The State Capitol. Photo by Markus Schmidt.

RICHMOND – Four weeks before deadline and after almost three months after adjourning its regular session, the Virginia General Assembly on Wednesday adopted the conference reports for the state’s biennial budget for fiscal year 2022-24 that is set to take effect on July 1. The spending bill includes a total of $4 billion in tax relief, a 10% pay increase for state employees and teachers, a partial repeal of the state’s grocery tax, plus record investments in public education, and $1.25 billion to leverage more than $3 billion for school construction and modernization projects.

For more on the state budget, including specifics such as funding for the Central Virginia Training Center in Amherst County, life sciences labs in Roanoke, and flood relief in Hurley, see our previous coverage.

“It’s been a long haul, but I believe the result is a fiscally sound, bipartisan budget we can all be proud of,” said Del. Barry Knight, R-Virginia Beach, the chairman of the House Appropriations Committee – one of the two lawmakers leading the negotiations. The other, Sen. Janet Howell, D-Fairfax, who chairs the Finance Committee of the Senate, said that the amendments brokered by the 14 members of the budget conference represent “a true compromise.” She added that conferees were able to build a budget “that ecompasses state spending priorities and additional tax policy relief while also upholding our traditionally strong fiscal management.”

The budget is now headed to Gov. Glenn Youngkin’s desk, who has seven days to amend, veto or sign it once it is formally presented to him, which is expected to happen sometime next week. 

“The governor is pleased that the General Assembly has moved forward on the budget and adopted a great framework which delivers on his key priorities to give Virginians tax relief, pass the largest education budget, and invest more in law enforcement and behavioral health,” said Youngkin spokeswoman Macaulay Porter, adding that the governor and his team will “continue to review the language in the budget and discuss potential amendments.”

For the negotiators, it’s been no walk in the park after the General Assembly in March adjourned its regular session without a budget. By the time lawmakers went back to their home districts, both parties were still haggling over a $3 billion gap separating their individual spending plans. Most disagreements were related to different versions of tax relief proposals – an important staple of Youngkin’s campaign platform.

But conferees were able to work out a compromise that they quietly released over the weekend, allowing lawmakers at least 48 hours to review their reports. One of the key issues they agreed on was a partial repeal of the state’s 2.5% grocery tax. Republicans had pushed to repeal the entire tax, but Democrats committed to slashing only the state’s 1.5% portion of the grocery tax while retaining the 1% portion that benefits local governments to fund schools. 

The budget also includes a refundable tax credit for low-income working families, a larger deduction for military retirement income and an increase of the standard deduction from $4,500 to $8,000 for individual taxpayers and from $9,000 to $16,000 for families. Lawmakers also compromised on tax rebates – individuals will get $250 and families $500, which is slightly below the $300 and $600 that Youngkin proposed. “All told, the tax relief packages will provide $1,008 for the average family of four. In this era of inflation that relief will be welcome at all,” Knight said on the House floor Wednesday. 

Because the commonwealth is ending the fiscal year 2021 with the largest budget surplus in history, the state’s total reserves will increase to nearly $3.8 billion by the end of the biennium, Howell said. “In addition there are VRS (Virginia Retirement System) deposits of $1 billion, and in capital outlay there is $2.2 billion in cash rather than new debt,” Howell added. 

The flush coffers allowed lawmakers to finally take on a challenge that has been decades in the making – Virginia’s crumbling school infrastructure. In December then-Gov. Ralph Northam proposed to contribute $500 million from the state’s flush coffers toward repairing or replacing outdated public school buildings. “School construction is something that is totally unprecedented in Virginia,” Knight said.

During the regular legislative session earlier this year, lawmakers weighed House Bill 563 by Del. Israel O’Quinn, R-Washington County, that would create a competitive matching grant fund and program providing up to $2 billion in bonds to help localities repair aging and crumbling schools. The program would award matching grants on a competitive basis to local school boards that demonstrate poor school building conditions, commitment, and need, in order to fund the construction of new public school buildings in these local school divisions. 

O’Quinn’s bill was amended to require unobligated state gaming proceeds be directed to the construction fund for the purpose of awarding grants to local school boards – a recommendation made in a Senate Bill 473 sponsored by Sen. Jennifer McClellan, D-Richmond, which the Senate conformed with O’Quinn’s House measure.

Knight said that lawmakers took “a long hard look” at how to help localities meet their responsibility to replace crumbling school buildings – using O’Quinn’s and McClellan’s proposals as a template. The loan rebate program they brokered will spur $3.5 billion in school construction activity where it is needed the most.

 “This includes $450 million for the House proposal to buy down project costs between 10 and 30% based on local fiscal stress,” Knight said. Also included are $400 million in cash grants in which each jurisdiction will receive at least $1 million to address planning and design needs as well as smaller capital improvements. “And finally, for the state’s share of teacher retirement, we can issue $200 million each year in literary fund loans,” he said.

Bristol City Schools Superintendent Keith Perrigan, who also serves as president of Virginia’s Coalition of Small and Rural Schools and as a member of the newly formed Commission on School Construction and Modernization, said Virginia is set to make its “first significant investment in school infrastructure” since the Great Recession of 2008. 

“Every school will be provided a significant grant, and high poverty school divisions will have access to an achievable financing solution for years to come,” he said. “I am grateful for the constant advocacy of Delegate O’Quinn, and the bipartisan support, for this important funding stream. High poverty schools, especially small and rural divisions, now have hope and opportunity to improve school facilities.”

Perrigan also praised the legislature’s decision to increase teacher salaries by 10% over two years, calling it “an unprecedented investment in our teachers and staff.” The pay raise will go a long way into making Virginia’s pay scales more competitive with neighboring states, Perrigan said. “Hopefully, the governor will provide localities with the flexibility to split the raise over the two years in a way that makes sense for individual localities. As written, school divisions would not receive credit for giving more than a 5% raise in the first year of the biennium. This is a simple amendment that will benefit staff greatly without increasing the commitment from the State,” he said.

These pay raises will benefit all state employees, and they will go into effect on Aug. 1, 2022, and July 1, 2023, respectively. In addition to the teachers’ raises, all state employees will receive the same pay increase and a one-time bonus of $1,000 in December of this year.  

Because of the state’s record revenues and growth, Virginia is well positioned to address some long sought investments in core government services, Knight said. In total, projected revenues for the 2022-2024 budget are just over $165 billion.  

“This extraordinary revenue situation has enabled us to address long-lingering, one-time investment needs, pre-pay upcoming commitments, fund capital projects with cash and not bonds, and remove the accounting gimmicks we used to balance our budget during the Great Recession,” Knight said.

House Majority Leader Terry Kilgore, R-Scott County, said that Virginians can feel good about the budget compromise. “With much-needed tax relief, record investments in K-12 education, funding for higher education and workforce development, well-deserved pay raises for public employees, and investments in the military and veteran community, it truly reflects our values as a people and as a commonwealth,” Kilgore said in a statement. 

Although some lawmakers criticized the lack of transparency during the negotiations, conferees hailed the bipartisan nature of the agreement. “I can honestly say, there was not a harsh word between us,” Knight said about his work with Howell, his Democratic counterpart. “I’ve been a budget conferee for several years now, and while it may have taken some time, I have to say that this has been the most cordial conversation that I’ve been involved with.”

Del. Sam Rasoul, D-Roanoke, the lone House Democrat from Southwest Virginia, said that while the budget “clearly has some room for improvement in the future,” he urged Youngkin to sign it immediately. 

“I hope that without delay there will be a signature on the budget and that way we can move forward, and I hope that we will not have to go through more politics, more amendments, even a potential veto,” Rasoul said. “Let’s just sign the budget and move on.”

More on the state budget:

Roanoke labs project awaits final approval.

Plaintiff in skill games case blasts budget re-write of state code dealing with skill games; says it’s an attempt to circumvent court rulings.

Commentary: At least 10 transformative things in the state budget.

Markus Schmidt

Markus Schmidt is a reporter for Cardinal News. Reach him at markus@cardinalnews.org.