Friday, December 1, 2023

What’s in Virginia’s Long-Delayed 2023 Budget Deal

The Virginia Capitol under construction in March 2023. (Sarah Vogelsong / Virginia Mercury)

RICHMOND — Ahead of the General Assembly’s return to Richmond for a special session Wednesday, budget negotiators this weekend released full details of how they believe the state should spend billions in surplus funds over the remainder of the fiscal year.

The long-delayed deal was announced Aug. 25, but lawmakers at the time provided few specifics beyond key tax reduction proposals, saying they were still “completing the final touches.”

On Saturday, House Bill 6001 and Senate Bill 6001 filled in the blanks. The deal is reminiscent of the 2022 agreement, which provided one-time state tax rebates to Virginians, increased the standard deduction, issued raises for teachers and state employees and funneled COVID-era surpluses into a variety of programs. This year’s plan has many of the same features, although a House Appropriations Committee budget document notes that negotiators, “understanding that revenue growth may be subsiding, focused on funding one-time initiatives instead of building up ongoing programs to the extent possible.”

Altogether, the House calculates the proposed budget will route an additional $1.1 billion to ongoing programs, with roughly $1.5 billion going to new one-time funding.

While the 758-page document is chock-a-block with information, here are some of the key proposals to know.

Tax reductions: Mostly one-time rebates, more standard deduction adjustments 

The final deal includes $1.05 billion in tax reductions, most of which — $906 million — will come from one-time tax rebates. This year, individual Virginians will get up to $200 in tax rebates, and joint filers will get up to $400.

The second largest pot of reductions, $48 million, will come from a short-term change to Virginia’s standard deduction, the amount the government allows people to subtract from their taxable income every year to account for expenses and ease the tax burden without asking any questions. The higher the standard deduction is, the smaller the pool of income people have to pay taxes on — meaning that they end up paying less.

While Gov. Glenn Youngkin has so far been unable to achieve the major tax cuts he’s pushed for during his time in the governor’s office, during his administration Virginia has greatly increased its standard deduction. The 2022 budget deal raised the standard deduction from $4,500 to $8,000 for individuals and from $9,000 to $16,000 for married couples, albeit with some restrictions: The change was set to end in 2026, and the deductions would decrease slightly if state revenue growth didn’t hit certain targets.

This year’s deal will bump the standard deduction up to $8,500 for individuals and $17,000 for couples for the 2024 and 2025 tax years.

Teacher raises, more support jobs and learning loss dollars

The deal includes $645 million in additional state funding for public education. Of that, almost $55 million will go toward the state’s share of an additional 2% salary increase for public school teachers expected to go into effect Jan. 1. When combined with an already planned 5% salary increase, the newest funding will result in an overall 7% salary bump for teachers over the pst two years.

Over $152 million will go toward additional support and instructional positions. Almost $420 million will go toward “flexible one-time payments” to school divisions for learning loss recovery, operating and infrastructure support, and preparation for the rollout of the Virginia Literacy Act, which beginning in the 2024-25 school year will require stepped-up literacy instruction for Virginia students in kindergarten through fifth grade. Notably, the flexible payments will not require matching funds from districts, and each school division will receive at least $150,000.

Higher education

Virginia colleges and universities will get an additional $190 million, with $75 million earmarked to “support the growing need for student support services; address increased costs resulting from inflation; refine or create programs that meet current and future workforce needs; and minimize student costs.”

Of that, the biggest allocations will be an extra $14.6 million to the Virginia Community College System, $10.4 million to Virginia Commonwealth University in Richmond and $9.2 million to Virginia Tech.

Another $62.5 million will go toward need-based undergraduate financial aid at public colleges and universities, and almost $5.8 million will go toward increased compensation for faculty at nursing schools to help stem nursing shortages.

More enforcement of new hemp laws

With Virginia tightening up its rules about the contents and labeling of hemp products, lawmakers are again committing to funding new enforcement positions at the Virginia Department of Agriculture and Consumer Services.

Last December, the Youngkin administration proposed roughly $2.1 million in spending for a new hemp registration and inspection program staffed by 15 people. The current budget deal calls for $1.1 million and 15 positions for that purpose.

At the same time, the deal decreases funding for the Virginia Cannabis Control Authority for this fiscal year while allowing the Department of Planning and Budget to transfer it up to $2.5 million “to cover one-time costs of a seed-to-sale tracking system.”

Mental health investments 

The deal includes major investments in mental health infrastructure in line with Youngkin’s “Right Help, Right Now” plan to overhaul the state’s beleaguered behavioral health system. In particular, it calls for $58 million to expand and modernize Virginia’s crisis services system, including spending on stabilization units and receiving centers, facilities intended to offer people undergoing a crisis more rapid and accessible treatment to care than is available at hospital emergency departments. An additional $10 million would go toward establishing mobile crisis services in underserved areas.

Staff at community services boards, which provide local, community-based behavioral health and developmental disability services, will also get pay raises from an additional $18 million in spending. The expenditure is less than proposals made by both the House and the Senate earlier this year, which called for an extra $37 million and $50 million, respectively. 

Budget negotiators Sen. George Barker, D-Fairfax, Del. Barry Knight, R-Virginia Beach, and Sen. Janet Howell, D-Fairfax, in Richmond Aug. 23, 2023. (Sarah Vogelsong /Virginia Mercury)

More than $5 million is also being proposed on a one-time basis for the Department of Criminal Justice Services to contract with local law enforcement agencies to provide transportation for or assume custody of people in crisis who have been placed under a temporary detention or emergency custody order but haven’t yet been admitted to a hospital.

State employee raises 

Teachers aren’t the only ones poised to see bigger paychecks. The spending plan also includes $44 million in state employee raises that would go into effect Dec. 1 for state-supported local positions and Dec. 10 for state employees. Targeted increases would also be allocated for public defenders, deputy sheriffs, commonwealth’s attorneys, general district court clerks and others.

Pollution cleanup: Big dollars for agricultural assistance

Hundreds of millions of dollars are earmarked for the state’s Water Quality Improvement Fund, a permanent fund created in 1997 to provide grants to local governments, soil and water conservation districts, state agencies, colleges and universities and others for pollution control and cleanup efforts. State law requires that 10% of annual state general fund revenues that are above official estimates and 10% of unrestricted and uncommitted general fund balances at the end of the fiscal year be deposited in the fund.

An extra $286 million is designated for matching grants for farmers who engage in agricultural best management practices, actions like installing fences or forested buffers around waterways to reduce water pollution.

Virginia has tried to incentivize farmers to adopt such practices largely because of its commitments under the Chesapeake Bay Watershed Agreement. About three-quarters of the remaining pollution reductions the state has to achieve under that agreement are expected to come from the agriculture sector. In recognition of that, the General Assembly allotted record funding in 2022 to Virginia’s cost-share program. However, with state and federal officials acknowledging that the 2025 cleanup deadline isn’t likely to be met, the legislature last session also delayed state deadlines for farmers to voluntarily fence cattle out of streams until 2028 and tied that target to agricultural assistance funding.

Big money is also headed for Virginia’s Enhanced Nutrient Removal Certainty Program, which was created in 2021 to speed up remaining wastewater treatment plant improvements to reduce pollution. The budget deal would put an extra $151 million toward that program, as well as an extra $30 million to a fund that provides assistance to local governments to deal with stormwater, another major source of pollution. 

Cattle in Highland County. (Sarah Vogelsong/Virginia Mercury)

Community safety

Lawmakers are proposing a $10 million Safer Communities Program that would give Norfolk, Portsmouth and Richmond at least $2.5 million each to hire a full-time person to oversee community violence reduction strategies that “address the root causes and conditions” of community violence. A new Office of Safer Communities will also be created in the Department of Criminal Justice Services to serve as a hub for intervention efforts.

Additionally, the state’s Operation Ceasefire Grant Program, an initiative modeled after a Boston project from the 1990s that focused on deterring young people and gangs from engaging in firearm violence, will get an additional $15 million.

Climate change resilience

Another $100 million under the deal is slated for the Resilient Virginia Revolving Loan Fund, a pool of money that was created in 2022 to provide greater flexibility for the state to funnel assistance to both local governments and individual property owners impacted by flooding.

The Youngkin administration has been positioning the fund as an alternative to the Community Flood Preparedness Fund, which was created by Democrat-backed legislation in 2020 and funded with state revenues linked to Virginia’s participation in the Regional Greenhouse Gas Initiative, a multistate carbon reduction program. The Flood Fund became Virginia’s first dedicated source of large-scale flood assistance for local governments, but Youngkin’s push to withdraw Virginia from RGGI has jeopardized the revenue stream the state has relied on for the past three years.

In December, Youngkin proposed putting an additional $200 million over the next two years into the Revolving Loan Fund.

Grants for more data center development

Virginia is home to the largest concentration of data centers in the world, and the budget deal includes up to $140 million in grants for “a data center operator” from the newly created Cloud Computing Cluster Infrastructure Grant Fund. The budget notes that the operator was approved for grant funding by the state’s Major Economic Investment Project Approval Commission on Dec. 13, 2022. In January, the Youngkin administration announced that Amazon Web Services plans to invest $35 billion in Virginia by 2040 “to establish multiple data center campuses across Virginia.” The release noted AWS would be eligible to receive an MEI grant of up to $140 million subject to approval by the General Assembly.

Business-ready site spending

Youngkin has repeatedly emphasized the need for Virginia to increase the number and quality of sites it has available for major economic development projects. Officials have said Virginia’s lagging performance in the site readiness sphere have led to the loss of numerous big-ticket projects to other states.

This year’s budget deal would funnel an extra $125 million to the state’s Business Ready Sites Program Fund and $75 million to the new Business Ready Sites Acquisition Program and Fund “to expand Virginia’s portfolio of industrial properties for large-scale economic development projects.”

A study of sports team relocation

In what appears to be a nod to the General Assembly’s on-again, off-again interest in luring the Washington Commanders to Virginia, the budget includes $250,000 for the Secretary of Finance to “develop relevant capabilities, conduct planning, and evaluate potential economic incentives to attract sports teams to the state.”

The commonwealth, the budget continues, “is prepared to consider economic development proposals that are in the best interest of Virginia taxpayers to assist in relocating sports teams and their associated facilities to the state.”

Virginia Mercury is part of States Newsroom, a network of news bureaus supported by grants and a coalition of donors as a 501c(3) public charity. Virginia Mercury maintains editorial independence. Contact Editor Sarah Vogelsong for questions: Follow Virginia Mercury on Facebook and Twitter.

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