Clock is ticking on new Virginia budget, but mum's the word (copy)
Virginia has less than six weeks to adopt a new, two-year state budget, but the members of the General Assembly appointed to negotiate an agreement haven't met as a group since March 6.
The leaders of the legislative money committees are no longer talking directly with each other about how to reach a deal before the budget expires June 30.
Gov. Abigail Spanberger faces her biggest test since taking office in January in weighing how to resolve the impasse with a growing gulf between her and leaders of her political party over her vetoes of their legislative priorities, some of which have implications for the budget.
The single biggest issue in the budget remains whether to repeal a 16-year-old state sales tax exemption for the purchase of computer equipment at data centers, upon which Senate Finance Chair Louise Lucas, D-Portsmouth, continues to insist. Spanberger and House Appropriations Chairman Luke Torian, D-Prince William, steadfastly oppose repealing the exemption because of the potential damage to the state's business reputation and its ability to attract new investment and jobs.
Va. Senate pushes back on governor as budget showdown looms
But the stakes are even higher for Virginians, who have never entered a new two-year budget cycle without an agreement in place to appropriate funds to operate state government and deliver services to its citizens.
If that happens, former Secretary of Finance Aubrey Layne warned, "I don't see how we keep our Triple-A credit rating."
"It doesn't give confidence in Virginia government that you can't deliver a budget on time," said Layne, a Hampton Roads healthcare executive who served as finance secretary under one Democratic governor and transportation secretary under another. "That is a governance issue with the rating agencies."
Two of the United States' three national credit rating agencies said this week that Virginia is nowhere near a budget crisis, but they are watching closely to see when and how state lawmakers approve an agreement.
"We are monitoring what's going on in Richmond," said Bryan Quevedo, a San Francisco-based director for Fitch Ratings who is responsible for Virginia's credit outlook. "We have not yet drawn a credit view on that, but we definitely do recognize that there is not a precedent at this point in the commonwealth's modern budgetary history to start a biennium without a budget."
Oscar Padilla, a Dallas-based director of S&P Global, said, "While this may be relatively new for the commonwealth, it's not something that takes us by surprise or rises to the level of concern on the credit rating front."
Virginia's next payment on S&P-rate debt comes due Aug. 1.
"It hasn't been tested for the commonwealth if it goes that far, I wouldn't want to speculate," Padilla said. "We'll take the administration's and the legislature's word that they will adopt a budget before the beginning of the fiscal year."
"Just like any state, we're watching the developments, trying to assess what key risks the administration and legislature is identifying," he said. "And we just take it at face value and weigh whether it is creditworthy or not, or just neutral."
The third bond rating agency, Moody's, was not available for comment this week.
"Virginia will have a budget by June 30," Lucas vowed at a Senate Finance & Appropriations Committee meeting Tuesday. "We will have to get this right for Virginia."
But Torian confirmed this week that the Senate budget leader is not talking to him about how to resolve the budget impasse.
"She's not communicating with me," he said Thursday. "Normally, if you want to get a budget, people should be talking to each other, and that is not happening."
They last reported progress April 23 after the assembly convened in special session to work on a budget agreement they had failed to reach by the end of the regular session March 14. Lucas and Torian said they had agreed on a target of an additional $1.6 billion in revenues for the two-year budget, but without details on how to generate the money.
Torian, who is talking with the governor, said this week, "The House is ready to meet when (Lucas) releases the (Senate Finance) staff to meet to talk about our similarities and our differences."
Lucas also is not communicating directly with Spanberger, instead criticizing her on social media for vetoing legislation that would have generated revenue that the state needs by creating a market for cannabis sales and legalizing electronic skill games, while levying taxes on both.
"So for those asking for an update on the budget — we are now further off than we have been throughout this entire process," she said in a post on X earlier this week. "We asked the Secretary of Finance at a recent meeting what revenues the Governor wanted us to use, and he wasn’t sure either."
"But here’s the good news," she added. "We are in special session so the Gov can send us bills at anytime to correct vetoes and restore the money to the budget."
Early last week, Spanberger directed her finance staff to conduct a new forecast of revenues to give more information to budget negotiators about how much excess revenue the state can expect to have available at the end of the fiscal year to carry forward into the next budget.
Secretary of Finance Mark Sickles, a former longtime budget negotiator for the House, said in an interview, "To solve the budget impasse, if we're going to use any of these funds, it has to be done after a reforecast."
Lucas pushed back on the governor and instead doubled down on repealing the data center tax exemption to free an estimated $1.9 billion in state, local and regional revenues over the next two years.
"I am now concerned that the governor and secretary will suggest a forecast without fully understanding our next year's budget pressures and economic conditions in the fall," she said at the outset of the committee meeting this week. "The administration is focused on a forecast, but we are faced and focused on the policies around who pays their fair share of taxes and how the businesses that we attract to Virginia treat our citizens and resources."
Virginia collected an estimated $851 million more in tax revenues than it previously had forecast through the first 10 months of the fiscal year. Sickles pointed out that the Senate, in its proposed budget, had taken the unusual step of appropriating much of the revenue surplus expected earlier this year.
"You took $500 million of the proposed surplus already in your budget," he said.
Sen. Creigh Deeds, D-Charlottesville, defended the proposed use of the surplus, which he said would pay for a one-time tax rebate of $100 to individual taxpayers and $200 to couples filing jointly, although they would get the money only if they owed at least that much in state taxes. The House budget does not include a tax rebate.
The other major differences, besides the data center tax exemption, are the size of proposed raises for teachers and state employees, and the amounts of additional state funding necessary to offset deep cuts in federal funding for social safety net programs and the loss of enhanced federal subsidies for health insurance purchased through the state-operated marketplace.
The absence of a budget agreement poses challenges for local governments and businesses that rely on state funding.
"The lack of any substantive progress on the two-year budget that begins on July 1 is disconcerting, to say the least," said Joe Flores, a former state finance secretary who now serves as director of fiscal policy at the Virginia Municipal League. "For months, local officials have waited patiently for the commonwealth to finalize its budget, so that we can do the same."
"Our hope is that the state's budget writers will complete their work sooner rather than later, so we can all move on to other pressing fiscal matters," Flores said in a statement.
Former Sen. Emmett Hanger, R-Augusta, who previously served as co-chair of the finance committee, said it also leaves unanswered questions about healthcare funding and state parks, which are interests he still lobbies on behalf of.
"When the budget hasn't been finalized, everything's at risk," Hanger said. "Without a final budget, no one knows exactly what they can count on."
Senate Majority Leader Scott Surovell, D-Fairfax, said everyone on the finance committee understands the deadline that Virginia faces for a new budget.
"In my experience, deadlines force action," Surovell said. "Deadlines force compromise."
But Richmond political analyst Bob Holsworth said the legislature could make compromise more difficult for Spanberger by including language in the budget she vetoed on cannabis, skill games or both.
"With the budget, the real question is whether the Senate attempts to put some of this legislation back into the budget," Holsworth said.
"Ultimately, I think they'll come to an agreement, but I think there's a lot of distrust of the governor right now," he said.
The budget crisis comes at a politically awkward time for Virginia Democrats, who had spent the past eight months — and an enormous amount of political capital — on amending the state constitution to allow congressional redistricting this year to give them an advantage in midterm elections in November. It was part of a national effort by Democrats to offset an aggressive push by President Donald Trump and Republican-controlled states to redraw their political maps to protect and potentially expand the slim GOP majority in the U.S. House of Representatives.
Voters approved the proposed amendment by almost 3 percentage points in a referendum April 21, but the Virginia Supreme Court overturned the amendment and the election results, requiring Democrats to run in much more politically challenging districts to try to unseat Republican incumbents. Early voting in congressional primaries begins June 18, with the primary election on Aug. 4.
"At some point, they have to get on to the campaigns," Holsworth said.
Sen. Lamont Bagby, D-Henrico, who is chairman of the state Democratic Party, said he is confident the General Assembly will produce a budget on time, although he acknowledged, "It has not been an ideal process."
"Getting folks the hell off of Twitter is my recommendation," Bagby said. "We speak with the budget."
In the end, he predicted, "The budget will be worth the wait."
Spanberger directs new revenue forecast to aid budget talks
Michael Martz (804) 649-6964
