General Assembly passes a budget, consumption tax for data centers included

The General Assembly passed the biennial budget on Monday with a compromise regarding tax exemptions for data centers, which had been the main obstacle in negotiations. 

The roughly $75 billion biennial spending plan passed the Senate 23-16 and the House of Delegates 71-22. The bill will now be sent to Gov. Abigail Spanberger, who has line-item veto authority over the legislation. 

Data center tax exemptions will remain for the biennium, but the budget conferees negotiated to include a new energy consumption tax for data centers. 

That consumption tax will be charged at a rate of $0.011 per kilowatt hour on all electricity consumed at each center on a monthly basis. The consumption tax would be capped at $600 million in revenue to Virginia’s general fund per year, with the excess refunded to the technology companies on a pro rata basis. 

Also included in the data center compromise was budget language to:

• Direct the Joint Subcommittee on Tax Policy to review the sales and use tax exemption and other impacts from data centers and make recommendations; 
• Require the Department of Environmental Quality to establish criteria for determining “Cooling Water Scarcity Areas” to minimize data center impacts on water; 
• Require DEQ to adopt regulations to set noise standards for data centers; and
• Direct the State Corporation Commission to collect data on energy, water and generator usage of data centers.

The state Senate’s initial budget proposal, which was presented in February, included a clause to end data center tax exemptions in 2027, eight years earlier than their current expiration. The House’s initial budget proposal, which was also presented in February, included no such clause, creating a difference of more than $1 billion between the two proposals. 

The budget conferees reached an agreement on the budget late Friday. 

Senate President Pro Tempore Louise Lucas, D-Portsmouth, the biggest proponent of ending the data center tax exemptions early, said that the budget achieves balance between the Senate, House and governor on the Senate floor ahead of votes on Monday. 

Lucas, who chairs the Senate Finance Committee, said she’ll continue to look into data centers and will continue the data center listening tour she launched in early June. She added that she still believes that ending the tax exemptions early is the best path forward, but that the conference report is a strong compromise. 

“We have heard the people and we are responding,” she said. “This conference report prioritizes affordability and long term structural balance.”

In Virginia, data centers that meet certain requirements, including investing at least $150 million and creating at least 50 jobs — or, in economically distressed localities, $70 million and 10 jobs — are exempt from paying state retail sales and use tax on computers and other equipment.

“I think that the governor is going to be pleased with the budget,” said House Finance Committee Chair Del. Luke Torian, D-Prince William County, in an impromptu press conference after the House adjourned.

Spanberger will have seven days to sign or line-item veto the spending bill once it is sent to her desk. Line-item vetoes will need to be addressed by the General Assembly.

“This is a compromise proposal — one my administration helped craft — and it builds a strong foundation for further discussions about the future of [the data center] industry in Virginia on issues like environmental and community impact,” Spanberger said in a statement.

The governor’s office did not respond when asked if Spanberger expects that she will issue amendments to the spending bill.

Both pro- and anti-data center groups are unhappy

Lobbying groups on both sides of the data center issue appear unhappy with the compromise that budget conferees reached. 

“Nothing about this hastily assembled scheme will make life more affordable for Virginians or encourage job creation,” Josh Levi, president of the Data Center Coalition, said in a statement. 

He called the agreement a “sweeping package of regulations and tax hikes” that effectively breaks the commonwealth’s commitment to the data center industry. 

“The message to businesses in all industries is clear — Virginia is no longer a reliable partner,” Levi said. 

Clean Virginia, a lobbying group that advocates for renewable energy, said that the compromise “falls far short of ensuring that data centers pay their ‘fair share.’”

“The data center industry still received the better end of this deal,” said Brennan Gilmore, executive director of Clean Virginia, in a statement. “A two-year, capped consumption tax does not come close to offsetting a nearly $2 billion annual tax giveaway with no end in sight. Governors in Ohio, Texas, Illinois, and Washington have already moved further and faster than Virginia on this issue. Virginia’s elected leaders have more work to do.”

The Commonwealth Institute for Fiscal Analysis, a left-leaning policy group, called the budget agreement an “important first step toward ensuring data centers pay more of their fair share, even as the current sales and use tax exemption remains untouched.”

“It is critical that the legislature still pass a permanent solution to hold the data center industry accountable. Virginia families deserve lasting investments, which require ongoing revenue,” said Ashley Kenneth, president of TCI, in a statement. 

Rebates from greenhouse gas fund

Lawmakers’ conference report on the budget contains language setting up rebates to be paid out of the Regional Greenhouse Gas Initiative to residents and certain other small customers of Dominion Energy and Appalachian Power.

RGGI is a multistate program designed to reduce carbon emissions in part by requiring fossil-fuel-fired power plants to buy allowances at quarterly auctions based on how many tons of carbon dioxide they emit.

When the commonwealth previously participated in the program from 2021 to 2023, it put more than $780 million in revenue from those auctions toward energy-efficiency and flood-preparedness programs. Virginia is reentering RGGI this year. 

Virginia law allows utilities to pass their RGGI costs on to customers. Dominion Energy recently asked state regulators for permission to increase the average residential customer’s bill by up to $13 per month to recover RGGI costs.

[Disclosure: Dominion is one of our donors, but donors have no say in news decisions; see our policy.] 

At a meeting earlier this month of a state commission focused on energy issues, lawmakers suggested exploring options for rebates. 

The budget language calls for 45% of RGGI revenue to be credited to customers in the residential, small general service and church electric rate classes. Large commercial and industrial customers would not receive the credits.

While the budget language refers to both Dominion Energy and Appalachian Power, the measure likely will mostly impact Dominion customers. RGGI only applies to power plants within participating states, and most of Appalachian Power’s plants are in West Virginia, which does not participate in RGGI.

During Virginia’s last stint in RGGI, when the average Dominion customer saw $2.39 to $4.44 added to each monthly bill, Appalachian Power customers were charged only a few cents per month for RGGI costs. Appalachian has said it has not yet determined the financial impact of Virginia’s reentry into RGGI.

House of Delegates Minority Leader Terry Kilgore, R-Scott County, applauded the effort on the floor Monday. 

Undergrounding power lines, rate class choice

Dominion Energy’s program to move power lines underground would be capped at 3% of its distribution rate base and 4,000 miles overall. 

The Strategic Underground Program has been praised for reducing power outages by moving more vulnerable power lines underground, but it has been criticized for its cost and the fact that all Dominion ratepayers bear the expense even if the underground lines don’t directly serve them.

Separately, new or recently new large users of electricity, other than data centers, would be allowed to choose which of Dominion’s rate schedules to take. 

Last year, state regulators approved the creation of a new rate class, called GS-5, for Dominion’s largest customers, most of whom are data centers.

Lucas proposed, as part of a larger bill, allowing Dominion’s biggest new non-data center customers to choose whether to be part of that new rate class, but the General Assembly later agreed to an amendment from Gov. Abigail Spanberger to remove that part of the bill.