‘Buckle up’: Youngkin budget proposal includes another $1B in tax cuts

Governor proposes bonuses, merit pay for teachers and state employees

By: and - December 15, 2022 4:21 pm

Gov. Glenn Youngkin presents his budget proposal to the General Assembly’s money committees ahead of the 2023 legislative session. (Graham Moomaw/virginia Mercury)

Gov. Glenn Youngkin rolled out a budget plan Thursday that includes $1 billion in tax cuts for Virginia residents and businesses, telling the General Assembly to “buckle up” because his administration wants the state to “start going faster and getting more done.”

Building on roughly $4 billion in tax cuts included in a bipartisan budget deal earlier this year, Youngkin said he wants to lower the state’s top individual income tax rate from 5.75% to 5.5%, a change with a $333 million impact. Because the highest income bracket covers all taxable income over $17,000, the top rate applies to the vast majority of Virginia earners.

The governor also suggested cutting the state’s corporate income tax rate from 6% to 5%, which would lower revenues by roughly $362 million over the two-year budget cycle. Youngkin said he’d like to get the rate even lower, possibly to 4% by the end of his administration.

Making it cheaper for people and businesses to be in Virginia, Youngkin told the legislature’s money committees, will boost Virginia’s position as it competes with other states for talent and economic investment.

“We can grow our way to lower tax rates,” Youngkin said. “We can keep Virginians here, including our veterans. We can attract people from other states, and fuel the economic engine that will drive it all even faster. And we must get started now.”

Democrats called the budget plan a good starting point for negotiations that will begin in earnest next month when the General Assembly begins the 2023 legislative session. But Sen. Janet Howell, D-Fairfax, the co-chair of the Senate Finance Committee, said Youngkin’s tax cuts are sure to be “very controversial.”

“We have a long list of unmet needs in this state, things that the General Assembly has promised over many years that we haven’t delivered on,” Howell told reporters after the governor’s presentation.

Youngkin said his latest tax-cutting proposal can be funded by the $3.6 billion in excess revenue the state is forecasting for the current fiscal year. To hedge against the possibility of a recession, the Youngkin administration noted its plan includes safeguards to stop roughly $1 billion of budget items, including the proposed cut to the individual income tax rate, if the fiscal forecast worsens and it starts to look like the state can’t afford it.

Despite the current economic uncertainty, the commonwealth of Virginia is really in an extraordinary position,” said Finance Secretary Stephen Cummings, adding Virginia can do the “both/and” of lowering taxes and increasing spending on key priorities.

Other tax cuts in the proposal include $162.1 million in relief targeted to small businesses through the qualified business income deduction, $94.9 million for another increase in the state’s standard income tax deduction and $37.8 million to lift an age limit on tax-free military retirement benefits for veterans.

“Taxes are still too high in Virginia,” Youngkin said.

Democratic lawmakers, who secured some major tax concessions from Republicans earlier this year while voting for some of Youngkin’s tax proposals, seemed particularly skeptical of Youngkin’s call to cut the corporate income tax rate.

“We’re 27th in the nation. Square in the middle,” said Del. Vivian Watts, D-Fairfax, who said she hasn’t heard complaints that Virginia’s corporate tax rate is particularly high or burdensome.

In response to Watts, Cummings said the rate “does make a difference” to companies making location decisions.

“It does not feel like there’s a strategy and a message about what we’re trying to achieve with our tax structure,” Cummings said.

Youngkin’s proposal sets the stage for budget negotiations that will unfold when lawmakers return to Richmond on Jan. 11 for the start of the next session.

Here’s a few other major proposals in Youngkin’s plan: 

Bonuses for teachers and state employees

The proposal doesn’t include across-the-board raises for public workers, but teachers and state employees would get one-time bonuses.

Full-time state employees would receive $1,500 bonuses effective Dec. 1 of next year, and high performers would be eligible for extra bonus pay worth up to 10% of their salary. The merit bonuses would be based on employees’ most recent performance evaluations. Combined, the bonuses for state employees would cost roughly $200 million.

Similarly, the budget includes $50 million for merit-based bonuses for teachers. Eligibility for the $5,000 payments would be determined “by the Department of Education in conjunction with local school divisions,” according to budget documents.

Another $45 million would cover the state’s share of one-time retention bonuses for instructional and support staff.

Site readiness 

Virginia’s lack of large-scale building sites ripe and ready for industrial development has been a regular talking point of the administration, which says it’s one of the biggest factors leading the state to lose deals to competitors like Tennessee, North Carolina and Georgia. 

The biggest spending priority of the budget proposal, site development would receive an additional $450 million over the next two years to grow Virginia’s inventory of project-ready sites. The second-year allocation of $250 million would be contingent on state revenues meeting expectations, a mechanism intended to provide Virginia some flexibility in the event of a recession.

“The opportunity cost of inaction is clear, and it’s alarming,” Youngkin said. “Since 2016, Virginia was eliminated on projects that represented more than 55,000 direct jobs and $124 billion in capital investment for one reason: sites.” 

Among those were four major semiconductor and four major automotive projects that the Virginia Economic Development Partnership has said would have generated 33,200 direct jobs and over $1.9 billion in capital spending.

Resilient Virginia Revolving Loan Fund

The second-largest spending item in Youngkin’s budget proposal is the deposit of $200 million over the next two years into the state’s newly created Resilient Virginia Revolving Loan Fund. 

Set up by the General Assembly during the 2022 session, the revolving loan fund was envisioned as a more flexible tool for channeling money to Virginians facing flooding than the Community Flood Preparedness Fund, which issues grants for community resilience projects but not to individual private landowners. 

The revolving fund was seeded with $25 million this year, drawn from money Virginia took in from its participation in the Regional Greenhouse Gas Initiative, a 12-state carbon market. By law, 45% of Virginia’s RGGI proceeds flow to the Community Flood Preparedness Fund, which previously was the only dedicated source of state money for flood resilience. 

With Youngkin moving to withdraw Virginia from the market, however, local governments facing increasing pressures from flooding linked to climate change have worried about the loss of the revenue stream. Capitalized with an additional $200 million — half of which is contingent on the state meeting revenue forecasts — the revolving loan fund could provide an alternative source of flood preparedness dollars, albeit one reliant on loans rather than grants and with greater uncertainty about long-term cash flow. 

This $200 million appropriation will allow the Resilient Virginia Revolving Loan Fund to serve as a true revolving fund that is able to serve as a sustained source for resilience needs,” Youngkin spokeswoman Macaulay Porter said in an email. 

Youngkin proposes $230 million behavioral health overhaul

Education 

Besides teacher bonuses, new education spending will include an additional $50 million for laboratory schools, the K-12 academies developed in partnership with colleges and universities that are the closest Youngkin has gotten to fulfilling his pledge to foster school choice in Virginia. The budget signed by the governor this past June included $100 million for the schools

Pointing to steep learning losses among students during the COVID-19 pandemic, Youngkin is also proposing $7.2 million for K-8 math specialists in low-performing schools and $16.9 million to provide a reading specialist for every 550 students in grades four and five beginning in the 2023-24 school year. An additional $21 million would go to the Virginia Community College System to expand its dual enrollment program. 

“By the time I leave office, I want us to have a plan to graduate every single high school senior in the commonwealth of Virginia with an industry-recognized credential,” said Youngkin. 

And, with teacher shortages continuing to loom, the governor is floating $10 million in incentive payments for “teachers hired to fill instructional positions in hard-to-fill positions or hard-to-staff schools between July and September 2023.” 

Commanders

Oh, and by the way, there’s this: $500,000 for the Secretary of Finance to “evaluate potential economic incentives related to the potential relocation of the Washington Commanders to the Commonwealth of Virginia.”

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Graham Moomaw
Graham Moomaw

A veteran Virginia politics reporter, Graham grew up in Hillsville and Lynchburg, graduating from James Madison University and earning a master's degree in journalism from the University of Maryland. Before joining the Mercury in 2019, he spent six years at the Richmond Times-Dispatch, most of that time covering the governor's office, the General Assembly and state politics. He also covered city hall and politics at The Daily Progress in Charlottesville. Contact him at [email protected]

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Sarah Vogelsong
Sarah Vogelsong

Sarah is Editor-in-Chief of the Mercury and previously its environment and energy reporter. She has worked for multiple Virginia and regional publications, including Chesapeake Bay Journal, The Progress-Index and The Caroline Progress. Her reporting has won awards from groups such as the Society of Environmental Journalists and Virginia Press Association, and she is an alumna of the Columbia Energy Journalism Initiative and Metcalf Institute Science Immersion Workshop for Journalists. She is a graduate of the College of William and Mary. Contact her at [email protected]

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