Virginia now has a budget.
We cut things close, but Virginia won’t face the prospect of a government shutdown when the new fiscal year begins July 1. We’ve been here before: When Democrat Tim Kaine was governor, the two Republican-controlled chambers couldn’t agree on a budget until June 30. Kaine planned to keep the government running until some court told him otherwise. We’ve avoided those kinds of scenarios
We can now answer the questions about “what will be in the budget?” — but just as some questions get answered, new ones are raised. Here are some of them.
1. Is the debate about data center taxation over or is this just a temporary truce?
Senate Finance Chair Louise Lucas, D-Portsmouth, had led a popular clamor to end the tax incentives for data centers eight years early. In the end, she backed off from that — and settled for a new tax on the electricity that data centers consume, which will collect about one-third of what the state forgoes through the tax incentive. The rising tide against data centers seems unlikely to subside anytime soon. When and how will this come up again? It’s easy to see this becoming an issue again next year when the entire General Assembly is up for reelection. The populist argument to end this “giveaway” now is easier to make than the more businesslike argument that these tax incentives are really an investment — that without it data centers would stop coming and the state would lose the tax revenues some are trying to get more of. Some, of course, would be just fine if data centers stopped coming. That brings us to this …
2. What will happen with data centers more generally?
We’re seeing a wave of localities pass restrictions on data centers — or, in the case of Front Royal, outright bans. Even in places where data centers are headed to business or industrial parks, there’s opposition. Curiously, much of this opposition is coming in rural, and therefore Republican, localities. Few have made this connection yet, but this is actually rising opposition to one of President Donald Trump’s top priorities. His administration has been an enthusiastic proponent of artificial intelligence. There is no artificial intelligence without data centers. This is akin to Republican communities rising up in opposition to Trump’s policies on immigration, although no one really sees it that way — yet.
In theory, Democrats could make some inroads in these rural communities with opposition to data centers — although there’s danger for Democrats, as well. The party likes to position itself as the party of working people, but the data center supply chain is also creating blue-collar jobs in many rural areas. The Munters plant in Botetourt that makes cooling equipment for data centers has seen its employment triple in the past few years; Hitachi Energy in Halifax County is growing to 1,500 jobs to make power-related equipment; the Jabil firm recently announced 350 jobs in Prince George County to make power equipment for data centers. Economically, it’s complicated. Will it be politically as well?
3. Is the Spanberger-Lucas fight over?
Historically speaking, it’s not unusual for governors to have conflicts with legislatures controlled by their own party. Gov. Douglas Wilder had famous run-ins with then-Senate Finance Chair Hunter Andrews. Those were also before some of today’s legislators were even born. In more modern times, we’re not accustomed to a Democratic Senate Finance chair mocking a Democratic governor, as Lucas did when she called Spanberger “data center diva” (and cross-town Speaker of the House Don Scott “Amazon Don.”) With this budget deal, is their fight over? Or has it just begun? We don’t know yet.
4. Who won the Spanberger-Lucas showdown?
Lucas’ social media account shows her in boxing gloves, so let’s use boxing analogies. There was not a knock-out here, so that means we have to score this as a “technical knock-out” where the boxing judges decide a winner after the bout is over. That’s tricky because I’m not sure that method works here. Spanberger got the solution she originally proposed — an electricity consumption tax for data centers — so can easily be called a winner. Lucas did not get what she wanted, but she did succeed in raising the issue and getting something — so I’m not sure she can be called a loser. On the other hand, she did not deep-six the data center tax incentives the way she did former Gov. Glenn Youngkin’s proposed sports arena in Alexandria.
Lucas showed she’s a power to be reckoned with. However, so did Spanberger. This fits into the larger context of disagreements between Spanberger and some General Assembly Democrats. The latter complained that the governor wasn’t communicating with them. They also learned that Spanberger means what she says when she vetoed one bill after another because she disagreed with the details while still supporting the underlying concept. Spanberger seems to have learned she needs to work better with the legislature, but legislators have also learned that there’s a new sheriff in town.
5. What damage, if any, did the long budget impasse do?
This is a question we won’t be able to answer for several years. One argument for keeping the data center tax incentives is that, by doing away with them eight years ahead of schedule, Virginia would show itself to be untrustworthy. What we don’t know is whether even just raising the question has spooked other business sectors. We may get some superficial clue next month when CNBC releases its annual “best state for business” rankings. Many of the things CNBC scores on are statistics, not impressions, but we’ll have to see what CNBC says. Otherwise, it may take years for this to play out. This is also a hard thing to measure because it involves things that don’t happen. Secretary of Finance Mark Sickles said that one data center company had scratched Greensville County off its site list because of the debate. If other companies, in other sectors, pass on Virginia, we may never know who — or why.
That’s the economic side; what about the political side? Next year all 140 legislative seats are on the ballot. Will Republicans be able to portray Democrats as incapable of governing because it took them so long to produce a budget? Or will voters by then have forgotten and not be impressed by advertisements talking about something a year prior? As with many things, we’ll see.
These are five political questions that come out of the budget debate. On Wednesday, I’ll look more broadly at questions that grow out of both that budget and other new laws about to take effect.
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