Back in December, I ran into a former state legislator. At the time, Congress was still deadlocked on how to keep the government open, something this former state legislator didn’t think much of. He blamed the inability of members of Congress to compromise on anything. “A legislator who can’t make a deal isn’t much of a legislator,” he told me.
That observation has stuck with me because it does seem to sum up a lot of our problems in Washington: Congress often seems more of a debating society than a legislative body. That observation also applies to the General Assembly session we’re about to commence in Richmond.
From a distance, this session looks like a slow-moving train wreck about to happen: We have a legislature and a governor of different parties. Republicans in the General Assembly are busy introducing lots of bills that they know the majority Democrats will kill. Democrats are busy introducing lots of bills that they know Gov. Glenn Youngkin will veto. And then there’s the budget, where Youngkin has some ideas (reducing income taxes, raising the sales tax) that Democrats likely have zero interest in.
Last week, Cardinal News, in cooperation with the Roanoke Collaboration Project, invited three senior General Assembly leaders to Roanoke to talk about the upcoming session. (Technically, we invited four but House Democratic leaders had a meeting in Richmond that day and were unable to send a representative.) All three were optimistic that things may not be quite as dire as some pundits (looking in the mirror) may make it out to sound.
I’ll admit that there is an opportunity here for a grand bargain — or perhaps several grand bargains.
Let’s look at some.
A sports arena in Alexandria
State Sen. Louise Lucas, D-Portsmouth and the incoming chair of the budget-writing Senate Finance Committee, has been particularly vocal about Youngkin’s proposal to lure the NBA’s Washington Wizards and NHL’s Washington Capitals to Alexandria. Lucas, who often speaks colorfully, posted this on her Twitter/X account: “Anyone who thinks I am going to approve an arena in Northern Virginia using state tax dollars before we deliver on toll relief and for public schools in Hampton Roads must think I have dumbass written on my forehead.”
Some have interpreted this to mean that Lucas will block the arena project. That’s how The Hill headlined a story: “Virginia state senator says she will vote against Wizards, Capitals new arena.”
I don’t think that’s so. Lucas may well wind up voting against the arena project, but what I’m hearing here is Lucas angling for a deal. I haven’t heard her express a philosophical objection to the state getting involved in bringing two sports franchises across the Potomac; what I’ve heard is that she wants the state to do something about the tolls on the two tunnels that connect Portsmouth with Norfolk.
Lucas (or whoever is handling her social media) has repeatedly made the point that she is one of the chokepoints that Youngkin must pass through to get the arena project approved. Here’s one such post:
She’s also said the same thing in an interview with Portsmouth-based WAVY-TV: “No toll relief for Portsmouth tunnels, no arena in Northern Virginia — period. I said when I got reelected and I became chair of the Senate Finance and Appropriations Committee [that] it is time for Hampton Roads to get its fair share, and I want to start with those tolls, plain and simple.”
That would seem a pretty straightforward deal — Lucas gets her toll relief, Youngkin gets his arena — except things probably aren’t that simple. She’s not the only legislator in Richmond; there will be others who have opinions. Some already do. State Sen. Bill Stanley, R-Franklin County — different party, different part of the state — has already made it clear he isn’t keen on the deal. In an interview with Cardinal’s Lisa Rowan, he said he saw “no benefit south of the James River.” The promise of tax revenue from the deal “does little to solve problems down here,” he said.
But what if it could?
Lucas seems to have made it clear what the price of her support would be: toll relief in Portsmouth. What would other legislators want? Some may have a philosophical objection to any government involvement; others may have a more transactional perspective. I’ve pointed out before that there’s little emotional attachment in Southwest and Southside to these Washington teams (based on where the teams have radio networks, for one thing), so there’s no sentimental reason for them to support an arena for the Wizards and Capitals, or a stadium for the Washington Commanders, but maybe there could be a political deal. What if some of that tax revenue was dedicated to, say, economic development in Southwest and Southside? Or schools in economically distressed communities? I can imagine lots of options.
The cost of such a grand bargain might cause the whole financial modeling behind the arena project to come undone, but the point is, there are ways to cut a deal on this. Will it be? This is a session that could test the deal-making skills of both the governor and new generation of legislative leaders — we’ll have a new speaker of the House (Don Scott, D-Portsmouth), a new Senate majority leader (Scott Surovell, D-Fairfax County), a new Senate minority leader (Ryan McDougle, R-Hanover County), a new chair of Senate Finance (Lucas). Plus, every Republican on Senate Finance will be new.
There are other potential deals that could be cut — if the politics allow it. Mind you, I’m not saying any of these are good deals (that’s a matter of political taste), just that these are potential deals.
The governor’s sales tax proposal — raising the rate from 4.3% to 5.2% — would raise $720 million a year. Both Democrats and some Republicans have said they don’t like the sales tax increase, because it’s a regressive tax that falls harder on lower-income earners. Is there a way for the governor to get his proposed reduction in income tax rates by raising the offsetting revenue some other way?
Retail sales of cannabis
One way is obvious: The state could authorize a retail market for cannabis. In 2021, Virginia legalized personal possession of small amounts of what we used to call marijuana, but has yet to legalize a retail market to sell weed. Democrats would like to; so would some Republicans. They have different ideas on how to go about doing that — Democrats would like to give preference in licensing to those with previous marijuana convictions, Republicans think that rewards law-breaking. Let’s assume they can work that out. Youngkin hasn’t been interested in legalizing cannabis sales at all; is he persuadable? Could the potential of taxing cannabis make up what his proposed sales tax increase would raise?
The short answer is no, but it could raise some of that amount.
In 2022, the last year for which figures are available, California collected $712.4 million in taxes on cannabis, according to the Tax Foundation. Despite its overall size, California’s cannabis market is also regarded as small considering the state’s population, because California has so many regulations that black market pot dealers are able to undercut licensed retailers.
A better comparison for Virginia might be Washington state, which is just slightly smaller than Virginia. Washington collected $484 million in cannabis taxes. That state also has a more mature market; both Washington and Colorado legalized cannabis in 2012. Much bigger states that have done so more recently haven’t brought in nearly so much money yet. In 2022, Illinois collected $284.7 million, Massachusetts collected $248.4 million, Michigan $190.6 million.
The bottom line: Whichever number you prefer, tax revenue from a future cannabis market wouldn’t take the entire place of Youngkin’s proposed sales tax increase, but could become part of negotiations. Even without Youngkin’s tax proposal on the table, I’d expect the potential revenue from cannabis to be subject of much discussion: Where would that money go? Would it go into the general fund or be dedicated to some specific purpose? The former is probably the wisest budget decision, the latter is likely the more politically appealing option.
Electronic ‘skill’ games
Here’s something else that could be subject to a deal: so-called “skill games.” They were legal, now they’re banned, and there’s a push to make them legal again. The previous co-chair of Senate Finance, Janet Howell of Fairfax County, wasn’t a fan. The new chair, Lucas, is one of the sponsors of a bill to legalize them and regulate them. (This is a bipartisan bill: State Sen. Aaron Rouse, D-Virginia Beach, is the main Senate sponsor, with Lucas and state Sen.-elect Timmy French, R-Shenandoah County, as co-sponsors; Del. Cliff Hayes, D-Portsmouth, and Del. Terry Kilgore, R-Scott County, are the House sponsors.) Opponents say there’s no real “skill” involved in these machines and they simply push gambling statewide; advocates say these games help draw customers to small businesses. In 2021, the state reported that these games accounted for about $74 million in state tax revenues, plus another $10 million for localities. That amount certainly doesn’t balance out Youngkin’s proposed sales tax increase revenue but if anyone is trying to do the math to come up with an equal amount from other sources, here are some dollars that could be counted. (I wrote last year about what skill game revenues meant to some rural localities.)
Data centers
Another possible deal: Last year Virginia granted $135.9 million in tax breaks to data centers. That tax incentive has been enormously successful in making Virginia (particularly Northern Virginia) a national center for data industries — so much so that there’s now a lot of political resistance in parts of Northern Virginia to further data center development. Will we see a push to eliminate that tax incentive? Or at least modify it — perhaps ending it in Northern Virginia but keeping it for other localities as a way to encourage data centers to locate to parts of the state that are begging for them, such as Southwest Virginia? State Sen.-elect Danica Roem, D-Manassas, has already suggested that data centers should stop building in western Prince William County and go to Tazewell County instead; I would not be surprised to see attempts at some kind of deal there, which would make for some fascinating politics.
How much of this will come to pass? We’ll see. In theory, each of these seems possible. They just need some willing partners to make them happen.
