The House Appropriations and Senate Finance and Appropriations Committees met on “Budget Sunday,” February 22, to report their respective spending and revenue proposals for the upcoming biennium. Both committees provided preliminary information outlining key elements of their proposals. Further details on both budgets will be available later today, and VACo will be providing more analysis later this week. The full House and Senate will vote on their respective budgets on Thursday, and the budgets will be placed into conference by Wednesday, March 4. The “caboose” budget, containing amendments to FY 2026 appropriations, has already been signed by the Governor.
Key features of the committee budgets, based on information provided on February 22:
Major Tax Proposals
- House Appropriations:
- Requires data centers to meet certain environmental standards to qualify for the sales and use tax exemption for equipment, beginning July 1, 2027.
- Senate Finance and Appropriations:
- Increases the state standard deduction from $8,750 to $9,200 for single filers and from $17,500 to $18,400 for joint filers.
- Ends the sales and use tax exemption for data center computer equipment and software January 1, 2027.
- Provides a tax rebate of $100 for single filers and $200 for joint filers, which is planned to be implemented in October.
Compensation – SOQ Instructional and Support Positions
- House Appropriations: Retains the 2 percent salary increase in each year of the biennium included in the introduced budget (in addition to the $1500 bonus included in the caboose budget).
- Senate Finance and Appropriations: Boosts proposed salary increase to 3 percent per year.
Compensation – State Employees and State-Supported Local Employees
- House Appropriations: Retains proposed 2 percent salary increase in each year of the biennium for state employees and state-supported local employees. Caboose budget includes $1500 bonus payment for state employees and 2 percent bonus payment for state-supported local employees.
- Senate Finance and Appropriations: Enhances proposed salary increase to 3 percent each year for state employees. Retains 2 percent per year salary increase for state-supported local employees.
K-12
- House Appropriations: Provides $400.4 million in FY 2027 in flexible funding for school divisions to be used over the biennium to address unique local needs, to protect programming from the impacts of federal actions, to provide academic, physical health and mental health supports, and to supplement operating and infrastructure support. These funds would not require a local match but would only be available to school divisions that provide the full 2 percent compensation supplement in each year of the biennium. Also provides $148.4 million over the biennium to increase the special education add-on.
- Senate Finance and Appropriations: Provides $98.6 million in General Funds over the biennium and $20 million in assumed revenues from skill games in FY 2028 to increase the At-Risk Add-On. Provides $25.6 million over the biennium to increase the special education add-on by 1 percent for each level of services. Provides $60 million in assumed revenues from taxes on skill games in FY 2028 to increase the Infrastructure and Operations Per-Pupil amount.
Children’s Services Act
- House Appropriations: Retains provisions included in the introduced budget that cap state reimbursement to localities for private special education day placements and reduce the state match for community-based services. Includes $10 million in FY 2027 for the Support for Students with Intense Needs Application (SISNA) program and directs the Department of Education to expand the disability categories eligible for funding through this program, with consideration given to students with complex behavioral needs who may otherwise be served in private day school placements.
- Senate Finance and Appropriations: Retains provisions included in the introduced budget that cap state reimbursement to localities for private special education day placements and reduce the state match for community-based services.
Natural Resources
- House Appropriations: Removes $36.2 million in FY 2027 from the supplemental deposit to the Water Quality Improvement Fund included in the introduced budget (retains the mandatory $107.9 million deposit, plus $58 million from interest earnings and $83.9 million from Water Quality Improvement Reserve Fund balances, as proposed in the introduced budget). Adds $188.9 million in FY 2027 for wastewater treatment facility projects.
- Senate Finance and Appropriations: Retains the deposit to the Water Quality Improvement Fund included in the introduced budget and provides an additional $200 million for water quality improvements at wastewater treatment facilities.
Transportation
- House Appropriations: Provides $153 million in FY 2027 for the state share of additional operating assistance for the Washington Metropolitan Area Transit Authority.
- Senate Finance and Appropriations: Increases state funding by $205.7 million over the biennium to the Washington Metropolitan Area Transit Authority, including funding derived from the expansion of the sales tax base to include data center equipment and an increase in the regional transient occupancy tax by one percentage point. Reflects an additional $291.7 million over the biennium in sales tax revenue dedicated to the Commonwealth Transportation Fund as a result of the expiration of the sales tax exemption for data centers. Provides $19 million in FY 2028 for one-time transit capital investments.
VACo Contact: Katie Boyle