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Governor Unveils Biennium Budget Proposal

On December 20, Governor Youngkin presented his budget proposals for the upcoming 2024-2026 biennium, as well as amendments to the current biennium budget in the “caboose” budget bill.  The Governor described his proposal as the “Unleashing Opportunity” budget, making a case that tax reform and investments in business recruitment and workforce readiness are necessary to enable Virginia to compete with peer states for job and population growth.

Tax restructuring is a major component of the Governor’s proposal, which would include (1) reducing individual income tax rates in each tax bracket by 12 percent; (2) increasing the statewide sales tax rate by 0.9 percentage point; (3) capturing certain digital products and services, such as digital downloads, website hosting and design, and streaming music and video, in the sales tax base; and (4) expanding the Earned Income Tax Credit to 25 percent of the federal credit.

Of particular interest to local governments, the Governor challenged the legislature to work to eliminate the car tax and suggested that the lost revenue could be replaced with an increase in the local sales tax.  A specific proposal is not included in the budget submission, and the Governor gestured toward the complexity of finding an appropriate replacement in describing permanent elimination of the car tax as “a complicated, yet worthy aspiration” that will require collaboration among state and local leaders.  To date, VACo has not been included in discussions of this issue.

The Governor also outlined proposed investments in job creation, pointing to his recommended funding for Virginia Business Ready Sites; workforce development; development of a biotechnology, life sciences, and pharmaceutical manufacturing innovation network to create a “research triangle” in Virginia; and support for child care to ensure continued access after the expiration of federal funds.  Other priority areas include investments in behavioral health and water quality.

VACo staff are reviewing the introduced budget and will provide a detailed analysis soon.  Following is a preliminary overview of major items of interest:

Grocery tax reimbursement 

  • The Governor’s Budget fails to maintain the state’s commitment to replace lost revenue for K-12 associated with elimination of the state’s portion of the sales and use tax on food, which took effect January 1, 2023. Language in the budget proposes to override the statutory requirement to provide an amount equal to the revenue that would have been distributed for this purpose had the state portion of the “grocery tax” not been eliminated.  This action runs contrary to the understanding at the time the state portion of the grocery tax was eliminated that the revenue replacement would be ongoing – an understanding incorporated into statute.  When questioned by Senate Finance Co-Chairman George Barker about this proposal, DPB Director Michael Maul indicated that the Administration’s expectation is that the additional revenue generated by the expansion of the sales tax will make up for the elimination of this funding.

Compensation 

  • Provides the state’s share of a 1 percent bonus payment for funded SOQ instructional and support positions, effective July 1, 2024; these funds require a local match based on the LCI. Also provides the state’s share of a 2 percent salary increase, effective July 1, 2025, for funded SOQ instructional and support positions.
  • Provides for a 1 percent bonus payment for state employees and state-supported local employees on December 1, 2024. Provides for a 1 percent salary increase for state and state-supported local employees on July 1, 2025.  Provides for another 1 percent bonus payment for state and state-supported local employees on December 1, 2025.

K-12  

  • Includes $160.6 million over the biennium for rebenchmarking of the Standards of Quality.
  • Provides $40 million over the biennium for the new Diploma Plus program, which would provide grants to high school students to support attainment of high-demand industry-recognized credentials.
  • Deposits $115 million in General Funds and $235 million from the Literary Fund in FY 2025 to the VRS teacher retirement plan to address unfunded liabilities. Uses $150 million per year from the Literary Fund (rather than the General Fund) for school employee retirement contributions.
  • Provides $61.2 million over the biennium for the state share of one reading specialist position per 550 students in grades 4-5 and one reading specialist position per 1,100 students in grades 6-8, in accordance with legislation passed in 2023.
  • Appropriates $80 million per year from casino gambling proceeds deposited into the School Construction Fund for the School Construction Assistance Program.
  • Does not propose items recommended in the recent JLARC report on public education funding.

Office of Emergency Medical Services

  • Exempts the Office of Emergency Medical Services from making an otherwise required transfer of $12.5 million to the General Fund in FY 2024 or FY 2025. This is intended to address a shortfall in funding for local EMS needs.

Broadband

  • The Governor’s Budget reduces the appropriation for the Virginia Telecommunication Initiative by $29.7 million in FY 2025 and by $49.7 million in FY 2026, leaving an appropriation of $20 million in FY 2025. DPB Director Maul indicated that the large infusion of federal funding for broadband in recent years made additional state appropriations unnecessary at this time.

Human Services

  • Includes $36.4 million in the FY 2024 “caboose” budget for the state’s portion of spending for projected growth in services provided through the Children’s Services Act, as well as $97 million over the biennium for this purpose.
  • Proposes a series of investments in the Governor’s Right Help, Right Now behavioral health initiative, including:
    • Funding for an additional 1,720 developmental disability waiver slots in the Medicaid program in each year of the biennium.
    • $35.6 million over the biennium for additional crisis receiving centers or crisis stabilization units, enhancements to existing sites, and pharmacy improvements.
    • $20.8 million over the biennium for salary increases for clinical staff and $15.8 million over the biennium for salary increases for food and environmental services staff at state hospitals.
    • $10 million in FY 2025 for comprehensive psychiatric emergency programs or similar models of care in emergency departments.
    • $10 million over the biennium for the Virginia Behavioral Health Loan Repayment Program.
    • $10 million in FY 2025 for one-time costs of establishing additional mobile crisis services in underserved areas.
    • $9.5 million in additional funding for the alternative transportation and custody programs and expansion of the programs to serve individuals under involuntary commitment orders.

Natural resources

  • Deposits $138.1 million in FY 2025 into the Water Quality Improvement Fund for agricultural best management practices and nonpoint source pollution programs.
  • Deposits $100 million in FY 2025 into the Virginia Community Flood Preparedness Fund.
  • Deposits $25 million in FY 2025 into the Resilient Virginia Revolving Loan Fund.

VACo Contacts:  VACo Legislative Team

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