The Virginia Capitol. The Virginia General Assembly is back in town to finally vote on a budget deal, the product of negotiations between Senate Democrats and House Republicans. (Ned Oliver/ Virginia Mercury)
Lawmakers, lobbyists, activists and other Virginia Capitol watchers were scrambling Tuesday to speed-read a 370-page budget deal that was quietly released over a long holiday weekend, the product of months’ worth of secretive negotiations between a select few legislators from the Republican House of Delegates and the Democratic Senate.
Gov. Glenn Youngkin, who has repeatedly pressed the General Assembly to send him the long-overdue budget, didn’t have much to say on the topic at a bill-signing ceremony Tuesday afternoon.
“We’ve still got work to do,” Youngkin said. “But my early review is I’m pleased with the framework and will have more to say, of course, as we finalize our review.”
Lawmakers will return to Richmond today to vote on a budget flush with revenue due to a stronger-than-expected rebound from the COVID-19 pandemic and the infusion of federal relief dollars to state and local governments.
The two-year budget, with a general fund estimated at $59.7 billion, provides a 10 percent raise for state employees and teachers (spread out over two years), as well as targeted raises for particular groups of employees such as staffers in mental health facilities, parole/probation officers and prison guards.
Other budget highlights include:
Youngkin’s proposal for a gas-tax holiday remains dead on arrival with Senate Democrats, but the two sides reached a deal on several other big-ticket tax cuts the governor championed.
The proposed budget will lower state income tax burdens for some filers by nearly doubling the standard tax deduction, with new guardrails added to minimize any unforeseen damage to the state coffers. The compromise would increase the standard deduction for single filers from $4,500 to $8,000. For married couples filing jointly, it would rise from $9,000 to $16,000. The new provision includes a sunset clause setting it to expire in 2026. It also includes revenue targets that would slightly scale back the amount of relief offered to taxpayers if the state’s budget picture worsens heading into new budget years in 2022 and 2023.
The budget deal also includes more direct tax relief, authorizing rebate checks of up to $250 per single filer and $500 per married couple. That’s slightly lower than what Republicans wanted, and matches the amounts former Gov. Ralph Northam suggested in his final budget proposal.
Lawmakers negotiated a partial repeal of the state grocery tax, eliminating the 1.5 percent state portion of the tax but preserving the 1 percent option for local governments.
Tax relief for military retirees also made it into the budget proposal, as did the Democratic priority of boosting the state’s earned-income tax credit, which will provide tax relief to lower-income workers.
Gun violence prevention
The budget deal includes $13 million meant to help cut down on shootings in cities hit hardest by everyday gun violence.
Republicans and Democrats had both proposed funding for new anti-violence initiatives, but the parties disagreed on size, scope and who should oversee the program.
The compromise puts the Department of Criminal Justice Services in charge of the money, which would go into two separate but similar funds.
The Firearm Violence Intervention and Prevention Fund, which would get $4 million in each of the two years, would make grant funding available to local governments, community groups and hospitals for “evidence-informed” gun violence reduction efforts. Those funds could also be used to support suicide prevention and “safe firearm removal practices” to get guns away from people who aren’t allowed to have them, such as Virginians subjected to red flag orders.
The Operation Ceasefire Grant Fund, which would get $2.5 million per year, would have more of a law enforcement focus, with funding available for anti-crime strategies targeting the small number of people, often gang members, most likely to shoot someone or become a shooting victim.
Splitting the funding into two separate pots, said Sen. Jennifer McClellan, D-Richmond, was the compromise between the Democrats’ more holistic proposal and the Republicans’ push to get tough on gun crime. Though the end result falls short of the state gun violence prevention center Democrats envisioned, McClellan said it’s “better than nothing.” The recent mass shooting at a Texas elementary school, she said, only reinforced the need to address the “underlying root causes of gun violence.”
“My son is now old enough to understand what happened in Texas and was quite affected by it,” McClellan said. “And all I could do was tell him I am doing everything I possibly can to make sure that doesn’t happen here and you are safe. And this is part of that.”
House and Senate lawmakers also reached a deal on money for Youngkin’s proposal to establish “lab schools,” K-12 start-ups housed within colleges and universities and intended to foster innovation. House Republicans had budgeted $150 million for the initiative while Senate Democrats did not include funding in their version of budget.
The conference report allocates $100 million to the College Partnership Laboratory Schools Fund, which the Virginia Board of Education will administer after establishing guidelines for disbursing the money by the end of the year..
The conference budget language defines lab schools as “a public, nonsectarian, nonreligious school in the commonwealth established by a baccalaureate public institution of higher education.” But separate legislation laying out the criteria for establishing the schools was also put into conference committee to resolve disputes between the House and Senate versions and the report on that legislation wasn’t available Tuesday, said Laura Goren, research director at the Commonwealth Institute for Fiscal Analysis, a public policy nonprofit that focuses on racial and economic justice.
The budget deal also includes a breakthrough to increase the cap on the number of school support positions, such as administrative assistants and custodians, the state will help fund.
In the first year of the two year budget, which begins July 1, the budget includes an additional $109.4 million, increasing the ratio of funded support positions from 17.75 per 1,000 students to 20 per 1,000 students. In the second year of the budget, that goes to 21 support positions per 1,000 students, an increase of $162.3 million. The increase in funding will allow Virginia schools to hire an additional 2,700 support staff in the first year of the budget. By the second year the total number of additional staff would be 4,000, Goren said.
Overall on education, the budget compromise includes “really good investments in places where it’s needed,” Goren said, including $1.25 billion for school construction and boosting money for schools with high concentrations of students from low-income households. But a lack of additional money for instructors for English language learners, who fell behind their peers during the pandemic was a disappointment, Goren noted.
“That will be work for another year,” Goren said.
Policymakers are trying to salvage a cannabis regulation bill that failed unexpectedly at the end of the regular session by reinserting some of it into the budget, including controversial new criminal penalties for marijuana possession.
The penalty would make it a misdemeanor offense to possess more than four ounces of marijuana, adding a lower-level offense before the felony charge that can come with possession of a pound or more. The language specifies the possession limits don’t apply to marijuana stored at home, clearing up some of the confusion created by the state legalizing home marijuana grows of up to four plants, enough to potentially put someone over the possession limits depending on how much the plants produce and how the law is interpreted.
A state marijuana study conducted in 2020 said two homegrown plants can produce eight to 16 ounces of marijuana flower per year, enough for a “moderately heavy user.”
The same study, conducted by the Joint Legislative Audit and Review Commission, suggested a gradual escalation in punishment for possessing large quantities of marijuana. Under the limits set in the 2020 decriminalization law, anyone possessing more than an ounce of marijuana in public could be hit by a $25 civil penalty. Punishment jumps straight to a felony for anyone caught with a pound or more, skipping the slower escalation for possession seen in many other states that have decriminalized or legalized marijuana.
But marijuana reform advocates are adamantly opposed to adding new criminal penalties. State Sen. Louise Lucas, D-Portsmouth, said on Twitter the proposed penalties are “targeted at Black and brown people who have been overcharged with these ‘crimes’ in the past.”
Virginia NORML also opposed the new criminal penalty scale, while pointing out some budget provisions it supports, such as clarifying the law on home possession and clamping down on the type of largely unregulated, cannabis-derived products already showing up in many Virginia stores.
Salary increases for state mental health staff
Direct care staff at the state’s struggling mental health treatment centers will see salary increases of 37 percent on average under the compromise reached by House and Senate negotiators.
Virginia’s publicly funded mental health facilities have in recent years been plagued with staffing shortfalls exacerbated by the COVID-19 pandemic. This July, the state was forced to temporarily close five of its mental hospital to new admissions because officials said workforce shortages had resulted in a “dangerous environment where staff and patients are at increasing risk for physical harm.”
The budget increases are in line with a $58.5 million proposal by the Republican-controlled House that will boost staff pay to the 50th percentile of the market. An alternative proposal by the Democrat-controlled Senate would have boosted pay to the 75th percentile at a cost of $84 million. Negotiators decided to use federal American Rescue Plan Act dollars rather than money from the general fund to pay for the increases in fiscal year 2023.
Despite initial proposals from both the House and Senate, no pay increases are included in the budget for staff at community services boards, the local bodies charged with delivering community-based services to people with behavioral health issues and developmental disabilities. Instead, the state will collect compensation information for possible use in crafting legislation in 2023.
The proposed budget would close what some lawmakers see as a gambling tax loophole by preventing sports betting companies from writing off money they spend on bonuses and promotions from their taxable revenues. Earlier this month, the Richmond Times-Dispatch reported that only five of Virginia’s current sports betting operators had paid taxes, because the free bets they were offering to lure new customers were wiping out millions in tax revenues.
Language in the budget would end the promotional tax incentive 12 months after a sports betting platform’s launch in Virginia. The change could potentially mean fewer bonus offers from the betting apps and slower user growth in Virginia. But according to the budget report, it’s expected to boost the money the state gets from sports betting.
Del. Mark Sickles, D-Fairfax, had pushed to close the tax break in the regular session, but his bill was never docketed for a hearing. In an interview, Sickles said he didn’t think the state should effectively be partnering with the apps to help drive more Virginians into sports betting. Initial tax revenue from sports betting, he said, is below what state analysts predicted.
“Primarily because they are losing money on purpose,” Sickles said. “I consider this a technical correction.”
The change has drawn some pushback from the sports betting industry, which sees it as an abrupt, largely unvetted change to their business model that muddies the distinction between actual revenue and the house money offered to players via free promos.
The budget also seems to tighten Virginia’s ban on so-called skill games, the slots-like machines that have rapidly spread through Virginia bars and gas stations. The state’s newly enacted ban on the machines is currently being challenged in court, and the budget language shores up that ban with a more comprehensive definition of what skill games are and an effort to more clearly delineate them from claw machines, coin pushers or other arcade games that let players win something of value based on skill.
The compromise prohibits the city of Richmond from holding another legally enforceable casino referendum until 2023, a nod to the argument made by Sen. Joe Morrissey, D-Richmond, that casino backers shouldn’t be allowed to immediately push the project again after voters rejected it in 2021. The budget also calls for a study of the moneymaking potential of a casino in Petersburg.
One-time rerouting of RGGI money
The compromise budget directs roughly $36 million of Virginia’s revenues from its participation in a regional carbon market to set up the new Resilient Virginia Revolving Loan Fund and provide flood relief to Hurley, a town in Buchanan County devastated by flooding last summer.
Since it joined the Regional Greenhouse Gas Initiative in 2021, Virginia has taken in roughly $302 million in revenue from quarterly auctions of carbon allowances. RGGI participation was a top environmental priority for Democrats in 2020, but Youngkin has pledged to withdraw Virginia from the market, saying it doesn’t reduce carbon emissions while imposing costs on utility customers (a contention vigorously disputed by environmental groups).
The 2020 law authorizing Virginia’s participation in RGGI specifies that 50 percent of revenues must go to low-income energy efficiency programs and 45 percent must go to the Community Flood Preparedness Fund, a repository of money earmarked for community flood protection work.
The most recent budget, however, would divert unspent portions of RGGI money to other uses. $25 million would be drawn from the Flood Fund to set up the Resilient Virginia Revolving Loan Fund, a new program that would give the state more flexibility in channeling money to individuals dealing with flooding problems. An additional $11.4 million would be diverted from the RGGI funds earmarked for low-income energy efficiency programs to support flood relief efforts in Hurley.
Polystyrene ban delay
Under the compromise budget, Virginia’s planned phaseout of food containers made from a plastic foam called polystyrene will be delayed five years. A 2021 law would have banned use of the containers by large restaurants (defined as those with 20 or more locations in Virginia) starting July 2023 and by all restaurants starting July 2025. The new budget would push those dates back to 2028 and 2030, respectively.
The ban had been a key point of debate during the 2021 session when both chambers were controlled by Democrats and was eventually passed by the Senate in exchange for the House’s approval of legislation designed to encourage the development of an “advanced recycling” industry in Virginia. After the proposal to delay the polystyrene phaseouts by five years showed up in the House and Senate budgets this February, Del. Mark Keam, D-Fairfax, called the change “a showing of some bad faith by some parties.”
Del. Betsy Carr, D-Richmond, who championed the polystyrene bans in earlier sessions, said Tuesday that she was “very disappointed” in the budget provision.
Virginia Mercury Editor Robert Zullo contributed reporting.
This story has been corrected to reflect that the budget calls for ARPA funds to be used for mental health staff salary increases in FY23, not FY24.
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