Northam’s budget: More expensive cigarettes, cheaper health care, an end to ‘tax relief’ and a $200-million olive branch

Gov. Ralph Northam has already sketched out some of his biggest budget investments in a series of announcements over the past week. Among them, $1.2 billion for K-12 education, $733 million for environmental initiatives like cleaning up the Chesapeake Bay, $92 million for affordable housing and eviction prevention, and $22 million to lower maternal mortality rates.

On Tuesday, though, we got our first look at the whole picture when Northam released the entirety of his two-year, $135 billion spending plan, which he called “one of the most progressive budgets probably that’s ever been presented.”

Here’s a quick look at what stands out.

Doubling the tobacco tax to make health insurance cheaper

Northam proposes doubling the state’s cigarette tax to 60 cents a pack, which his administration estimates would bring in about $100 million a year in new revenue. Taxes on other tobacco products, like vape cartridges, would also double, from 10 percent of the manufacturer’s price to 20 percent, bringing in roughly $20 million a year in new revenue.

The budget proposes rolling that new money into an initiative to push down marketplace health insurance premiums 20 percent. (The reinsurance program, a tool employed in other states, delivers state money to private insurers to help subsidize the cost of health care for their most expensive customers.)

Northam’s administration reasons that smoking is a major driver of health care costs, so it only makes sense to link the two issues.

“Here in Virginia, we pride ourselves on being a low-tax state, but it makes no sense to cling to the bottom of the rankings for a product that costs us so much,” he told lawmakers.

Northam’s budget would also create a state-based health insurance marketplace, but that initiative would be covered by fees assessed on health care providers.

No more of those ‘tax relief refund’ checks

The budget proposes repealing the “tax payer relief fund” Republicans established this year, which was used to fund $110 refund checks ($220 for couples) that were mailed to many residents in October.

Republicans landed on the approach following a dispute with Northam about what to do with an increase in state taxes many residents ended up paying as a result of the tax plan President Donald Trump got passed in 2017.

Northam proposed spending it. Republicans, who ultimately won, wanted to give it back to taxpayers.

Secretary of Finance Aubrey Layne said that under the plan announced Monday, the money will go into the state’s general fund.

Taxing (or banning) so-called skill games

The budget anticipates taking some action on skill games, those slot-machine style terminals that have become ubiquitous in convenience stores and bars.

Layne said Northam is agnostic on the question of whether they be banned outright or regulated and taxed. If lawmakers go the latter route, the administration expects to collect $50 million from the industry next year, which would primarily offset revenue losses by the lottery, which has complained it is losing business to the devices.

Eliminating car inspections and juicing the gas tax

Northam threw drivers a curve ball with a proposal to end state-mandated vehicle safety inspections and cut vehicle registration fees in half, proposals his administration says would save Virginians $280 million per year.

His administration says studies show no correlation between safety and vehicle inspections.

Gas, however, would get more expensive under Northam’s plan, which would raise the gas tax 4 cents per-gallon each year for the next three years to roughly 34 cents per gallon. That rate, Northam officials have said, would put Virginia more in line with the rates in neighboring states. (More on that proposal here.)

Funding African American historical sites

Northam, who pledged to focus the remainder of his term on equity issues after a racist photo was discovered in his yearbook earlier this year, highlighted new spending for African American historical sites around the state, as well as money to pay for school children to visit them.

That includes $2.5 million for the Black History Museum and Cultural Center of Virginia in Richmond, $2 million “to provide students from across the Commonwealth the ability to visit the American Civil War Museum, to better tell the truth about the Civil War and Virginia’s role in it.” It also includes $300,000 for an expanded historical highway marker program and $1 million for a long-stalled slavery museum in Richmond.

“Black history is American history, but in the past, there has been little state support for the institutions that preserve and teach that history,” Northam said. “We aim to rectify that, and encourage our students to visit our historical sites to learn more about our shared history.”

Handing the General Assembly a $200 million olive branch

Northam’s budget includes $200 million in unbudgeted funds that he’s inviting the newly elected Democratic majorities in the House and Senate to use for whatever initiatives they believe are deserving.

It is likely an effort to head off any impulses by the General Assembly to cut programs proposed by Northam in favor of their own proposals.

“This is the governor recognizing that there is new leadership and giving them $100 million a year for their priorities,” Layne said. “It’s never been done before and, really, it’s just reaching out to say we want to work together.”

As Northam announced that element of his plan, incoming House Majority Leader Eileen Filler-Corn, D-Fairfax, appeared to mouth “thank you,” while outgoing House Appropriations Chairman Chris Jones, R-Suffolk, shook his head.

Paying for it

Northam’s budget represents a $14.5 billion increase in spending over the last two-year plan approved by lawmakers. His budget proposes covering the vast majority of that with with revenues generated by the state’s ongoing economic growth and his administration stressed that the budget includes no new major tax or fee increases outside the aforementioned gas and cigarette tax proposals.

“The economy is still trending very well, we’re still growing at 5 percent a year,” said Layne.

Republicans, however, seemed suspicious. “There’s an awful lot of new spending,” said incoming Senate Minority Leader Tommy Norment, R-James City. “And we’re just going to have to address it. Even Santa Claus sometimes goes home with an empty bag after Christmas.”