Virginia’s budget-making process, which should have been done back in March, is at a standstill, largely because of one person.
Senate Finance chair Louise Lucas, D-Portsmouth, has frequently and forcefully insisted that Virginia’s tax incentives for data centers give up too much revenue. The incentives are scheduled to expire in 2035. Lucas wants them gone next year.
Or maybe the budget is at a standstill because of two people. House Appropriations chair Luke Torian, D-Prince William County, has insisted that Virginia shouldn’t go back on its word, lest Virginia send a signal to other business sectors that it can’t be trusted.
That’s one way to view the budget stalemate. Here’s how Lucas sees it: All this is the fault of the governor and the House of Delegates. In a social media post Wednesday, Lucas said: “The Governor and the House are the ones that are gambling with our future by allowing the data centers to expand without concern for power, water, or paying their fair share of taxes.”
In a series of follow-up posts, Lucas zeroed in on Gov. Abigail Spanberger: “The Governor should be honest and tell the public what she won’t do — she won’t tax billion dollar corporations to provide long term revenue to help pay for K12 and public safety and to backfill the federal cuts from Trump.” And then: “That’s the budget hold up!! Once again, the Governor is wrong on the policy and knows Virginians will cook her if there is a government shutdown.”
With Lucas at loggerheads with both the governor and her House counterparts, it’s impossible to forecast how much revenue the state will have available over the next two years — and no budget negotiations have happened yet. The clock continues to run down, though, toward the start of a new fiscal year on July 1 — a fiscal year that so far doesn’t have a budget.
The showdown comes amid other tensions in state government, some of which I wrote about in Wednesday’s column — Democratic legislators unhappy with the vigor with which Spanberger has wanted to revise some of their bills. At the most recent Senate Finance Committee meeting, Lucas assured everyone that Virginia will have a budget “by June 30” — the last day possible. Some saw that as more than rhetorical, but rather as a signal that she might delay delivering the budget until the last possible minute, so the governor doesn’t have time to make the extensive rewrites she did of some bills.
We’ve heard a lot from Lucas during the budget impasse, and we’ve heard from other legislators. The person we haven’t heard that much from is the one whose name must eventually be inked onto the document: Spanberger.
She’s previously indicated that she’s not in favor of advancing the expiration date of the tax incentive; during an interview that Spanberger granted last week, she went into more detail about her views on data center taxes — and the budget.
Here are the highlights.
On the prospect of the budget not getting passed until close to the deadline: ‘I hope it’s not the case that anyone would choose to put Virginia’s localities … in [a] bind … because they’re cranky with me.’
Spanberger warned that local governments also need to pass budgets by the end of June — and they all need to know how much money they’re getting from the state for various services.
“There are 8 million Virginians who depend on the collective us,” Spanberger said. “Do you do right by them? There are localities across Virginia that are trying to figure out what they’re going to do for funding for schools or police or fire or local services, who are waiting anxiously for us to get a budget. I hope it is not the case that anyone would choose to put Virginia’s localities, Virginia’s school students, Virginia’s first responders, Virginia’s communities in the bind of anxiously trying to figure out if they can make their own budgets work because they’re cranky with me, but I look forward to engaging aggressively on the budget and have been endeavoring to do so.”
On when Virginia might see a budget: ‘It’s always a great day to do the right thing.’
Virginia has always had a budget come July 1. Sometimes that budget has come later in June than anyone would like, but it has always come together — even when we’ve had a governor of one party and a legislature of another. What we have now is an unprecedented situation: a Democratic legislature that conceivably could spring a budget on a Democratic governor so late that we don’t wind up with any budget come the new fiscal year. I asked Spanberger about the prospects for that. Her answer was terse:
“It’s absolutely unacceptable if the General Assembly would allow for the state to go past July 1.”
I asked about the calendar. How much time would she and her administration need to go over the budget once it’s passed?
“I should have had it yesterday,” she said. “And I would have said yesterday all the way back to March. It’s always a great day to do the right thing.”
I asked the governor — who was quite expansive on other issues but not so chatty on the budget — if she wanted to elaborate. She did. “I was talking about the budget issue, and my sixth grade daughter heard me talking about the budget and said, ‘Why are you talking about the budget?’ And then she proceeds to tell me, in civics class, we were learning that the legislature prepares the budget, and she walks through the process. She’s like, so is the legislature preparing the budget? And I just said, working on it. So we’ll get there. There’s no other option.”
Here’s what we don’t know: We don’t know what’s happening behind the scenes. However, so far, there’s no indication that the governor has called the budget negotiators in and tried to mediate a deal. She seems to be taking the approach that this is, constitutionally, the legislature’s duty. Former Lt. Gov. Bill Bolling, a Republican, has chided the governor for being too passive — that she needs to knock a few heads. That may not be Spanberger’s style. One of the criticisms that legislators had of her non-budget amendments was that her office didn’t communicate with many of them, then sprang large rewrites on the General Assembly. I may be reading things completely wrong, but I did not come away from our interview with the impression that the governor would meekly accept whatever budget is handed to her. If she had the gumption to veto cannabis and collective bargaining — two issues she supported, but didn’t like the details of — it seems entirely possible she could call legislators’ bluff and line-item veto the parts of the budget she doesn’t like, no matter what the date on the calendar is. Lucas may think the governor will get the blame if there’s no budget come July 1, but who gets that blame could depend entirely on when the legislature gives Spanberger the budget. There seem to be political risks for both the governor and the Democratic majority in the legislature. That’s just me, though. Let’s return to what the governor herself actually said.
On data center taxes: “I’m not going to break a contract the state has signed”
Virginia’s tax break for data centers began back in 2008, when few people knew what data centers were, but the state was trying to attract an Apple facility to Mecklenburg County. As originally introduced, the bill applied only to that county, but, before it was passed, it was expanded to economically distressed localities statewide. Even then, the amount the state was expected to forgo in taxes was quite small: about $1.54 million. Apple went to North Carolina instead, but Microsoft wound up in Mecklenburg in its place (after a previous site Microsoft was eyeing in Montgomery County fell through, literally — it was prone to sinkholes).
Two years later, the General Assembly expanded the tax incentive statewide. The official fiscal impact statement at the time listed the long-term impact as “unknown.” That “unknown” is now known. Virginia, especially Northern Virginia, has become the world’s capital for data centers — and that tax break is now estimated at $1.9 billion a year. Some see that as a giveaway: That’s revenue Virginia could be collecting. Others see it as an investment: Without that, we wouldn’t have an industry whose annual gross domestic product in the state is now estimated at $29 billion. The way you see that likely determines how you see the next question: If Virginia does away with that tax incentive, does the state simply collect more revenue? Or does it risk seeing that industry gravitate to the other states?
Spanberger says she’s open to discussions about whether the tax break continues past 2035, but she draws the line on ending it early. “If Virginia were to take an adversarial stance towards any particular industry, it sends the wrong signal broadly, and we’re already seeing it with the decision to move away” from the tax abatement, she said. “It is the absolute prerogative of the General Assembly to look towards the future and to have conversations about incentives they do or do not want to give into the future.”
However, she said, “As governor, I’m not going to break a contract that the state has signed — one, because who’s going to fund those lawsuits when we have to defend ourselves from broken contracts? Totally foreseeable legal action, but also because it is terrible for our reputation as a place that we are trying to attract business and investment and grow jobs. And if we were to ever demonstrate that we as a commonwealth would be willing to just break contracts with data centers, what about other industry? OK, so it’s them today. What if it’s XYZ industry tomorrow or another one the day after? And so, it is essential that the commonwealth of Virginia not just keep its word, but actually abide [by] contracts.”
Some legislators have questioned whether the tax incentives truly constitute a “contract,” although if there are performance agreements with some data centers, changes to the state’s tax policy could arguably constitute a contract breach. That’s a matter for the lawyers to figure out.
On the data center company that scratched plans for Southside: ‘It’s not just data centers, it’s advanced manufacturing.’
Secretary of Finance Mark Sickles told the Senate Finance Committee last week that the uncertainty of the state’s future tax policy toward data centers had led one data center company — the Texas-based Compass — to scratch Virginia from its site list for two future data centers. Specifically, Greensville County, which has the third-highest unemployment rate in the state and is a county that very much wants data centers. I wrote about that in a column last week.
I asked the governor what more she could say about Greensville County getting dropped from the search list. She had no more details to offer, but repeated what local officials had said: “That hurts Greensville County. That hurts the local revenue. That hurts school kids. That hurts local services.”
The current Greensville County budget is about $26 million. Taxes from just a single, average-sized data center could conceivably double the county’s tax revenues.
The governor did elaborate on one aspect of data centers, though: The concentration of data centers in Virginia is spawning a supply chain. “It is not just data centers,” she said. “It is advanced manufacturing. I have met with some companies that want to come to Virginia” to be part of the supply chain. “They are looking to invest in Virginia and create manufacturing jobs in Virginia.” The implication: Those economic opportunities might be at risk if Virginia ends its tax abatement early.
Exploring the size of that data center supply chain in Virginia may be a question for another day. For now, though, the final part of my interview with Spanberger comes tomorrow, and it focuses on why she vetoed the cannabis bill.
Coming Friday: Spanberger on why she vetoed the cannabis bill.
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