Virginia’s legislature during a special session Wednesday adopted a slate of amendments to the state’s biennial budget, including more than $1 billion in additional tax relief for Virginians as well as more funding for public education and mental health initiatives.
The biggest share of the tax reductions will come from one-time tax rebates ($200 for individuals, and $400 for joint filers), which will be mailed out later this year. Another allocation of almost $50 million funds an increase of the standard deduction, which the legislature raised to $8,500 for single filers and $17,000 for joint filers.
The budget also removes the age limit for an exemption of military retirement income and increases the deduction for business interest expenses from 30% to 50%.
Although Gov. Glenn Youngkin did not get the additional corporate tax cuts that he had asked for when he rolled out his budget proposal in December, the legislature had already approved a total of $4 billion in tax relief early into his term in office last year, in addition to a partial repeal of the state’s grocery tax, plus record investments in public education and teacher salaries, and $1.25 billion to leverage more than $3 billion for school construction and modernization projects.
After a five-month budget stalemate following the regular 2023 legislative session that didn’t get resolved until negotiators reached a deal late in August, lawmakers on Wednesday also backed an additional 2% pay raise for teachers and state employees, and a total increase of more than $650 million in new spending on K-12 education.
The amended budget bill, which was made available for review last weekend, also reinstates the popular sales tax holiday for school supplies that expired this year after lawmakers forgot to renew it. The holiday will be held on the third weekend of October this year.
Del. Terry Kilgore, R-Scott County, said in a statement that the budget package not only includes tax relief that should “alleviate rising costs for families, veterans, and small businesses,” but also makes significant investments to restore excellence in public education.
“I am especially pleased with the significant economic and workforce investments in Southwest Virginia. Overall, an additional $200 million for business-ready site development will help Virginia become a more attractive destination for businesses to operate, grow, and create jobs for Virginians,” Kilgore said.
Senate Democrats said in a joint statement that they took a stand against Youngkin’s “ill-advised, nearly $1 billion tax giveaway plan, which would have disproportionately benefited the rich and corporations while jeopardizing vital public services, including our public schools.”
Instead, Democrats said that they “fought tirelessly” to preserve funding for crucial services such as public education, health care, mental health services and affordable housing. “We believe that a budget is a reflection of our values and priorities, and this budget gives our children the resources they need to succeed,” the statement said.
A number of capital improvement projects in Southwest Virginia and Southside will benefit from a series of one-time initiatives in the budget, including $10 million for the engineering and design work for what would become Virginia’s second inland port in the Mount Rogers Planning District and $18 million in flood relief funds for Buchanan and Tazewell counties, after a historic flood tore through the area in July 2022.
“We hope that this funding will provide hope during a time when all hope was lost for those flood victims, and this will give them the opportunity to rebuild their lives,” Del. Will Morefield, R-Tazewell County, who had made the funding request, said Wednesday. “I can’t thank my colleagues in the House and the Senate enough for their help and support during a time of crisis.”
However, several significant projects that had been included in the initial conference reports ended up on the chopping block, including a proposed $150 million allocation to complete the widening of Interstate 81 between exits 143 and 150 in the Roanoke Valley.
“There wasn’t the revenue to support it,” Del. Terry Austin, R-Botetourt County, a member of the House Appropriations and Transportation committees, said in a text message. “It was disappointing that we couldn’t keep it.”
Another project that is off the table — at least for now — is the proposed transformation of the state-owned Catawba Hospital in Roanoke County into a state-of-the-art campus offering substance use disorder treatment and addiction recovery.
In January, a House subcommittee unanimously passed House Bill 2192, sponsored by Del. Sam Rasoul, D-Roanoke, that cleared the way to moving forward with the $147 million project, as long as the proposal finds support in both houses of the legislature.
But a few days later, the House Appropriations Committee rejected Rasoul’s budget request to fund the entire project, instead opting to fund the planning cost and renovation of an existing building with $14.7 million.
For the Senate budget conferees, even that was too much. They scrapped the entire allocation and instead earmarked $500,000 for the Department of Behavioral Health and Developmental Services to evaluate public-private partnership arrangements for the Catawba Hospital Transformation Plan or “other potential alternatives for the provision of behavioral health or substance use disorder services, including private sector options.”
Sen. Creigh Deeds, D-Charlottesville, who took part in the negotiations, said that Rasoul’s plan was “a great idea, it ought to happen,” but that he was against Virginia moving forward with more capital improvement projects without a plan for who will provide services once the transformation is complete.
“My concern is that it’s a cart before a horse,” Deeds said. “The state of Virginia does a not really good job of taking care of people’s mental illnesses right now; we chronically underfunded our system. We worked really hard to try and build up the system the best we can, but we’ve never taken care of people with substance abuse issues.”
Early on there were conversations about a partnership between Roanoke-based Carilion Clinic and LewisGale Medical Center in Salem to operate Catawba, Deeds said. “But both of those groups have their own plans, they want to take care of substance abuse issues at their facilities. Both of those groups backed away, and there wasn’t anybody else to step forward.”
However, spokespersons for both providers on Wednesday said that they were unaware of conversations about such a partnership.
“LewisGale Medical Center and its sister facilities in southwest Virginia, as well as across the commonwealth, remain committed to meeting the mental wellness needs of the communities they serve,” said Shayne Dwyer of HCA Healthcare, owner of LewisGale Medical Center. “However, there was never a plan in any form for LewisGale Medical Center to take over Catawba Hospital from the state, and we are unsure where that information came from.”
Hannah Curtis, a spokeswoman for Roanoke’s Carilion Clinic, added that the hospital has been “engaged and continues to be engaged in discussions concerning Catawba’s plans, providing feedback in our capacity as a community partner.”
Determining Catawba’s future will require thoughtful collaboration in the coming months and years, Curtis said, “and we look forward to seeing the findings from the General Assembly’s future evaluation.”
Rasoul said that he was “deeply disappointed” with the senators’ decision to gut the Catawba transformation project.
“While we have a further study to see if we can conduct further public-private partnerships, there is certainly more that we could do to address the urgency of substance abuse disorder,” Rasoul said. “Families are hurting, there was already a big study, and I hope moving forward we can achieve some progress in the coming session.”
Other lawmakers said that the budget compromise came too late in the game.
“These significant budget amendments should have been passed back in late February on the day that my baby was turning 1,” said Sen. David Suetterlein, R-Roanoke County. “Today, more than seven months later, my baby is a whole lot bigger and Virginia would have been better off had this been acted on back then so that money would have been returned to the taxpayers, investments in mental health would have been able to take effect, and the investments in public education would have been able to have been used more wisely in advance of the school year, rather than during it.”
Suetterlein also said that a more collaborative approach would have served Virginians better.
“It’s important we get the over-tax payments returned to taxpayers quickly, and a better way of doing this going forward would be by enhancing the standard reduction so that we don’t continue with this systemic over-taxation of Virginians,” he said.
Understanding that revenue growth may be subsiding in the coming years, conferees focused on funding one-time initiatives in the amended budget instead of building up ongoing programs to the extent possible, according to a presentation by the House Appropriations Committee on Wednesday.
The committee estimated that $1.1 billion of resources went to ongoing programs, while $3.5 billion is directed to nonrecurring activities, including the one-time tax rebate checks that the state will be sending out later this year.
Other major one-time funding will be directed to the department of natural resources ($644 million), commerce and trade ($200 million for various site acquisition and development projects); a one-time flexible funding pot of $420 million for K-12 education; and more than $200 million in capital outlay to address cost overruns and other renovation needs.
Youngkin said in a statement Wednesday that despite the long-lasting impasse, he appreciated the work of the General Assembly and of the budget conferees to send a budget to his desk.
“While the process took longer than needed, more than $1 billion in tax relief is on the way to Virginia veterans, working families and businesses,” Youngkin said.
“Additionally, this collaborative effort ensured the funding of our shared priorities: investing in students and teachers, supporting our law enforcement community and transforming the way behavioral health care is delivered in the commonwealth. There’s more work to be done, but I applaud the General Assembly for their work today.”