After three months of deadlock, the House Appropriations Committee isn't waiting on the Senate any longer for a budget deal to keep the Virginia government running on July 1.
The House committee unveiled its own version of a budget agreement on Friday morning, using $1.5 billion in additional revenues that Gov. Abigail Spanberger expects the state to collect in this fiscal year and the two-year budget cycle that begins on June 30. Also, the new House proposal includes 3% raises each year for teachers and state employees.
The House proposal, posted on the committee website at 10 a.m., would fund most of the priorities shared by the House and Senate budgets adopted in late February, but would not repeal the state sales and use tax exemption on data center equipment that the Senate has insisted upon. The House and the governor have warned that repealing the exemption entirely would threaten Virginia's business reputation and undermine its economy at a precarious time.
The House proposes creating a commission to examine all direct and indirect costs caused by data centers and to report the findings by Nov. 1 for the General Assembly to consider when it convenes in January.
"The package includes explicit direction for the establishment of a Commission to thoroughly evaluate the direct and indirect costs and benefits of the data center industry, with a report and recommendations for legislative bill and budgetary changes to address financial, energy, and air/water/noise impacts in time for consideration by the 2027 General Assembly," it states.
It won an enthusiastic endorsement from Spanberger.
“This budget was built in close coordination with my administration, and I am proud to support this budget for a couple reasons,” Spanberger said.
“The proposal is specific, it is substantive, it is balanced, it is purposeful, and that's reflected certainly in the funding priorities that exist within this budget, and it makes investments in public schools and infrastructure, affordable housing, our economy across Virginia,” she said.
Lucas responds
Senate Finance Chair Louise Lucas, D-Portsmouth, pushed back with a statement on Friday that called the House proposal "an unprecedented step."
"I am disappointed that the House conferees did not continue conversations with the Senate conferees," Lucas said.
The entire 11-member conference committee hasn't met since March 6, but the chair has been sparring with House Appropriations Chairman Luke Torian, D-Prince William, and Spanberger in private meetings to look for a compromise.
Lucas faulted the House and the governor for calling for another study of data centers, which the Joint Legislative Audit and Review Commission has studied. "Virginians are dealing with the negative consequences of data centers today," she said. "They expect action now rather than waiting another year and want us to protect their interests rather than those of wealthy corporations."
She also outlined a new Senate proposal to impose what she called "a tiered state impact fee" on data centers that would vary by their energy use and electric generator type, while generating $1.7 billion in revenue. She said the Senate also would establish a work group to study "the tax issue and other responsible protections over the course of the next year."
Spanberger commented that the Senate proposal came after months of hearing nothing specific from Lucas about paths to a compromise.
“We cannot govern just by tweets. We need a full budget,” Spanberger said.
Lucas said Friday that the governor's forecast relies mostly on one-time revenue, while the pending Senate proposal would "provide substantial ongoing revenues."
In response, Spanberger said, "her entire argument is predicated on the fact that you can summarily change the landscape for large businesses and assume that they will keep coming and keep paying … it is unwise, in my opinion, to assume that you can monumentally change the landscape and assume that they will keep coming, and assume that that is a long-term revenue stream."
Lucas also said the Senate proposal would increase raises for teachers to 4% a year and provide a one-time income tax rebate to eligible taxpayers, which the House proposal dropped.
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'It's time to deliver'
In a news conference on Friday morning, House Speaker Don Scott, D-Portsmouth, said Virginians are counting on the General Assembly to adopt a budget on time.
"I just passed by the Capitol Police Officer, and he said, 'Man, y'all don't get a budget. Virginia needs a budget. Families are waiting for a budget. Teachers are waiting on raises. Law enforcement is waiting on raises. Firefighters, state troopers, public safety workers across the Commonwealth — they are all waiting,'" Scott said.
"It's time to deliver," he said.
"But it's never a take it or leave it," Scott said. "We have too much respect for the Senate and their leadership to ever think that. ... It is an opportunity, we think, to continue the conversation. We put forth our best offer. This is a proposal for a conference report."
He said the aim is to end up with a conference report that both Senate and House budget negotiators agree on, and present it to the whole General Assembly by next Tuesday.
"This gives us an opportunity to have the ability to have a conference report by next Tuesday, but we can post it to meet our 48-hour requirement, so that (when) members come back on Thursday ... we'll be able to vote," Scott said.
The House is scheduled to convene on June 18 and the Senate on June 22 to act on a budget before the current appropriations bill expires at midnight on June 30.
'Reflects both House and Senate priorities'
The proposal doesn't reflect the position of the Senate's five members of the budget conference committee, but proposes big investments in shared priorities, such as K-12 schools, higher education, health insurance premium subsidies, Medicaid and food assistance to compensate for deep cuts in federal spending under legislation that President Donald Trump signed last summer. It also includes $225 million that the House had already proposed for a Federal Uncertainty Contingency Fund to address other funding gaps created for the state by Trump and the Republican-controlled Congress.
The proposal would leave an unspent balance of $582 million after two years, so the budget would be structurally balanced between projected revenues and spending obligations.
Torian said that the news conference that the House proposal "reflects a structurally sound, physically responsible budget that addresses our core focus on affordability and certainty. It accomplishes this within existing resources and still fully reflects both House and Senate priorities."
"Let me say that again," he emphasized. "It reflects both House and Senate priorities."
"Let me be very clear on this: We're not trying to force anything on anyone," Torian added. "We're not trying to stuff anything down anybody's throat. It's a document that we want to work on collectively together."
Del. Terry Austin, R-Botetourt, senior GOP member of the Appropriations Committee, said the proposal has bipartisan support.
"I think we have a good document. ... It's a great proposal. It's taken both sides into consideration, and a lot of work's gone into it," he said.
Spanberger issued a statement that endorsed what she called "a substantive, specific budget proposal to deliver on so many priorities Virginians share."
“This is a balanced and purposeful budget proposal that will be impactful in investing in our public schools, our infrastructure, our localities, and Virginia’s economic growth," she said. "It includes raises for teachers and public employees, funding to address the devastating impacts of the so-called ‘One Big Beautiful Bill,’ and priorities that will help make Virginia more affordable."
“Further, this proposal creates a clear roadmap for evaluating the impact of the data center industry in Virginia and for reassessing the state’s incentives into the future, with a focus on fairness to ratepayers and the needs of local communities," she said.
“Looking forward, I am confident that the General Assembly will send a budget to my desk that I can review and sign — on time," Spanberger concluded. "Because there is no other option.”
Talks broke down
The House decided to go its own way after discussions with Luca, Torian and Spanberger broke down on Friday. Torian and the governor had sought a compromise with Lucas that would protect existing state contracts with data centers that would guarantee the sales tax break through 2035 and longer for projects that Amazon Web Services is building under a deal that the General Assembly endorsed just three years ago.
Lucas has insisted on outright repeal of the exemption on Jan. 1 and is preparing to mount a public campaign for the proposal in the Richmond area, Hampton Roads and Northern Virginia, where the data center industry has aroused intense public opposition.
After the legislature met in special session in late April, Lucas and Torian had agreed to seek $1.6 billion in revenues from the data center industry over the next two years, but they didn't say how they would find the money. The data center industry had pitched two proposals to contribute an additional $1.1 billion in unspecified revenue to the state, but Lucas rejected both of them because they would have extended the life of the sales tax exemption.
The Senate Finance chair also had rejected a proposal by the governor and House to generate additional revenue from data centers with a tax on energy consumption. Lucas recently floated the idea of a franchise or registration tax, but Torian, Spanberger and the industry said it was too vague to consider, according to multiple sources close to the negotiations.
Marijuana marketplace, other issues included
The proposal includes a placeholder for language to create a legal retail market for marijuana.
Del. Paul Krizek, D-Fairfax, who sponsored vetoed legislation for the market, said he, the Senate sponsor, state Sen. Lashrecse Aird, D-Henrico, and Gov. Spanberger have all agreed on what the budget language would say.
"We have a deal, and it's just a matter of finishing the legal edits. The legal editing will be done. We should have the language, the whole compromise should be ready by Tuesday morning," Krizek said.
The proposal also includes $10.6 million for remediation work at the Shoosmith landfill in Chesterfield, which has been dumping untreated wastewater into the county's sewers, as well as funding for a new School of Dentistry at Virginia Commonwealth University and for the university to acquire Altria's downtown research building on Leigh Street.
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Read the stories from the Richmond Times-Dispatch's three-day series on data centers and the key issues they pose.
