The elections are over, and the time for political posturing relative to Virginia’s financial health has passed. Last week, money committees from the Virginia House of Delegates and Senate received presentations on the health of Virginia finances and the challenges that we will be facing in the coming years. The underlying theme was the negative impact of HR1, passed in July by Congress and referred to by some as the One Big Beautiful Bill. We also heard of the inevitable changes that artificial intelligence (AI) and our aging population could portend for Virginia. Finally, there were suggestions that Virginia’s budget is structurally imbalanced moving forward. Let’s examine each of these themes.
First, HR1 has been a focal point for Virginia Democrats since its passage. The Virginia House even created the Emergency Committee on the Impacts of Federal Workforce and Funding Reductions. Really. Have we ever before created an “emergency” committee based on Federal modifications of priorities? Perhaps the real emergency would have been if there had not been HR1, and its provisions extending a more than doubling of individual standard deductions, coupled with a continuation of pass-through entity tax credits. Translation of the previous sentence: HR1 meant significantly lower tax burdens for nearly all taxpayers.
The principal complaints regarding HR1 often center around changes to Medicaid eligibility and, perhaps more importantly, the changes to health insurance premium assistance tax credits. Detractors will pontificate that these actions will result in rural hospital closures and spiking commercial and private insurance rates. But remember, these modifications are to programs that didn’t even exist just a few years ago. We did not have widespread hospital closures (in Virginia), although we had and will continue to have challenges surrounding the cost of our healthcare delivery system.
That being said, the decrease in insurance affordability should be a priority concern for Virginia legislators. While I expect the Federal government to reinstate some, if not all, premium tax credits, Virginia should be prepared to fill the gap. I believe there is and will be bipartisan support for either direct support for premium tax credits, an increase in the Commonwealth Reinsurance Program or both. Our budget can absorb this impact.
The second significant theme centered around AI and the dual impact of productivity enhancement, coupled with the troubling negative impact on employment. Certainly, AI is here to stay, and we must capitalize on the AI opportunities afforded while adopting policies to minimize the negative impacts. From a positive perspective, Virginia leads the nation in data center presence, and that presence is going to grow. Over time, data centers will improve upon the copious consumption of water and electricity now causing concern.
In the meantime, Virginia needs to implement policies to allow for more competitive entry ways into our electric grid while delaying (not necessarily eliminating) the mandates of the Virginia Clean Economy Act. From an employment perspective, Virginia’s August unemployment of 3.6%, while higher than the recent past, is still nearly a full percentage point below the Federal unemployment rate. Our initial unemployment claims are roughly tracking our twenty-year average. Nonetheless, we should adopt policies that increase the likelihood of jobs being available for our citizens.
Virginians under age 25 have the highest unemployment rate. Would mandatory increases in the minimum wage increase the supply of entry-level jobs? I don’t think so. Would the elimination of Virginia’s Right to Work encourage business expansions or relocations to Virginia? I don’t think so. Would the continuation of obsolete tax policies that penalize multistate Virginia companies encourage Virginia-based growth? Of course not. We have opportunities to continue and improve on Virginia’s business climate, or we can succumb to special interests and talking points. Which will it be?
Finally, the Virginia budget is as healthy as it has ever been. Despite nearly $9 billion in tax relief over the past four years, our revenues have grown 28%. We have made record investments in our people, in economic development sites and provided a 38% increase in general fund K-12 education funding. We have created 277,000 private and public sector jobs and maintained an AAA rating from multiple Wall Street firms. Our Rainy Day and Revenue Reserve funds (our piggy banks) have grown to $4.8 billion from under $1.0 billion just six years ago. Virginia revenue collections are $500 million ahead of forecast for the first four months of our fiscal year, and we can expect an upward forecast revision of $1 billion or more next month. In short, Virginia is in good shape.
The upcoming General Assembly session will present us with challenges, as have all previous General Assembly sessions. The question to be answered is whether we will continue to adopt policies to unleash opportunity for Virginians or will we adopt policies that slow our economy. During the campaign season, there was copious media coverage of candidates’ plans to lower everyday living costs for Virginians. I hope part of that equation is to leave more of our citizens’ money in their own pockets, including the permanent expansion of the Virginia standard deduction. Tax increases, for whatever purpose, do not make Virginia more affordable. And should not be entertained. I pledge to operate in a bipartisan manner to develop the best possible policy for our citizens. I hope all of my colleagues will do as well.
Joe McNamara is a Republican member of the House of Delegates who represents Salem and parts of Roanoke and Roanoke County. He is a member of the House Finance Committee.