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With a June 30 deadline looming before a state government shutdown, Virginia legislators , the latest actions in a long-simmering debate over the state spending plan that has deadlocked over whether data centers should keep being exempt from the state鈥檚 sales and use tax.
Virginia House of Delegates leaders presented their updated budget proposal Friday, revamping their $74 billion funding plan based on a new revenue forecast ordered by Gov. Abigail Spanberger last month. The House budget no longer includes environmental standards that data centers would have to meet to keep the exemption, which saves the industry nearly $2 billion annually.
Hours after the new House budget was unveiled, Sen. Louise Lucas, D-Portsmouth, divulged an updated Senate budget proposal, with scant details, on social media.
While Lucas didn鈥檛 outline the particulars of the plan, she said it included a 4% raise for teachers, $345 million for health and human services initiatives including food assistance for low-income Virginians and a $100 鈥渇air share鈥� rebate for individuals.
Here鈥檚 how each chamber plans to address key issues in the next two-year state budget.
Chambers still at odds over data centers
The data center sales and use tax exemption remains the biggest bottle neck on state budget negotiations.. The state currently forgoes an average of $1.6 billion annually by allowing the industry to not pay the 5.3% state tax on their computer equipment and server racks.
Lucas and some other lawmakers are pushing to end the exemption that began as an incentive to draw the industry to the commonwealth in 2008 and cost the state about $1.5 million at the time.
Lawmakers in the House of Delegates, including Speaker Don Scott, consider the exemption a strong driver for union electrical and construction jobs, whose workers build the facilities that make major investments on the local level. The House鈥檚 previous budget would keep the exemption in place and require data centers to use cleaner back up generators, improve their energy efficiency, and take other environmental steps to keep the tax break.
The House鈥檚 updated budget preserves the exemption through 2035 and eliminates the environmental standards. Instead, the House proposed creating a commission made up of legislators and stakeholders to examine data centers鈥� energy use and how the industry impacts the state and local tax revenues.
A similar report was released by the Joint Legislative Audit and Review Commission in 2024. But Spanberger, who supports the House鈥檚 plan, said the new commission would dig deeper and produce more in-depth reports that would help drive policy decisions in the next regular session of the General Assembly.
Concerning the proposed commission鈥檚 focus, Spanberger said Friday, 鈥淲e want a little bit more help in understanding if we鈥檙e making good choices for our communities. (Such as) rules of the road, best practices, whether it鈥檚 setbacks or noise reductions, limits on diesel generators, requirements for battery backup.鈥�
The Senate has not released the full context of their new updated budget proposal but it includes a 鈥渢iered state impact fee,鈥� Lucas said in her social media statement. The fee would be placed on the facilities according to their generator type and their energy capacity. Lucas said the system would generate an estimated $1.7 billion in tax revenue for the state but didn鈥檛 detail how. Her office did not have further details of the proposal available for clarification on Monday.
Lucas also said the new Senate budget includes funding for a work group to study the tax exemption and other potential protections for ratepayers and local communities, similar to the house鈥檚 proposed commission.
Cannabis market still hazy
After Spanberger vetoed bipartisan legislation to create a retail market for recreational cannabis, House lawmakers said Friday that the proposal has been added to their updated budget.
Few details were available Friday about the weed market plan, spearheaded by Del. Paul Krizek, D-Fairfax, but he confirmed 鈥渨e have a deal, and it鈥檚 just a matter of finishing the legal edits鈥� of the retail market framework. Krizek said more details would be released in a joint press conference with Spanberger on Tuesday.
House lawmakers also added 鈥�$865,000 each year from the general fund and four positions to support workload increases鈥� in the The Virginia Department of Agriculture and Consumer Services鈥� Office of Weights and Measures to their updated spending plan, 鈥渞elated to the establishment of an adult-use recreational cannabis market.鈥�
The overview of the new Senate budget shared by Lucas didn鈥檛 include the cannabis framework. However, the chamber passed SB 542, the companion measure to the House bill which would create the marketplace. And the Senate 鈥檚 two-year budget pitched before the end of this year鈥檚 legislative session includes over $12 million for the operation of the Virginia Cannabis Control Authority over two years.
Navigating healthcare hurdles
Because Virginia and other states are required to reduce their Supplemental Nutrition Assistance Program error rate to 6% by next year, House lawmakers earmarked $130 million to fund new cost share benefit allotments.
Sometimes errors in overpaying or underpaying households arise from paperwork mistakes by government staff or outdated information from beneficiaries. A federal law passed last summer mandates states drop their error rates.
That same law also entails verification changes to Medicaid, which is estimated to put thousands of Virginians at risk of losing coverage and add financial strains to hospitals.
These shifts are why the state budget proposals from both chambers include money to help streamline compliance for social service workers around the state and mitigate insurance drop offs.
The new proposal from the House maintains a $2.4 billion increase to fully fund Medicaid and Children鈥檚 Health Insurance Program forecasts. It would also add $39 million to partially restore proposed cuts to Medicaid and CHIP.
House lawmakers earmarked $3 million to support social service staff compliance with the new SNAP and Medicaid federal standards.
Where a previous version of the House budget entailed a $5 million increase in funding for the state鈥檚 free clinics, the new draft increased it to $13 million. An already 鈥渟trained safety net,鈥� free clinics are bracing for an influx in uninsured patients as people lose Medicaid or ACA and are a key partner for hospitals to reduce caseloads in emergency rooms.
A holdover from the chamber鈥檚 previous proposal, lawmakers would direct $79.1 million towards a state-level version of the expired Affordable Care Act subsidies that Congress let expire last year.
鈥淲e鈥檝e never had this much of an onus on the state before,鈥� Henrico Democratic Del. Rodney Willett, who chairs the House鈥檚 Health and Human Services Committee, said in a previous interview. 鈥淚t will take a lot of work with the people, processes and systems to go with that.鈥�
Over 33,000 Virginians and counting have dropped their ACA insurance so far this year amid rising premiums. Of Virginia鈥檚 roughly 400,000 ACA clients, about 100,000 have been estimated to have lost the subsidies.
Likewise, the Senate has its ideas for addressing the federal fallout too.
Its newest version still includes $200 million for a state-level ACA subsidy along with a special enrollment period for people who dropped off and want to sign back up for insurance.
Health and human services work in the state would receive $345 million and would address a range of programs, from Medicaid to SNAP to developmental disability waiver rates.
It鈥檚 unclear how that will be divided up as the Senate had not fully released its next proposed version of the budget by the time of this publication. Initially, the chamber had settled on $135 million for SNAP, with lawmakers assuming the state cannot drop below a 10% error rate.
More recently, the chamber suggested $190 million to offset future rate increases in state employee health insurance premiums.
Housing support boosted
As a flurry of housing bills passed the legislature and were signed into law by the governor, both budget proposals entail funding to help get them off the ground 鈥� but they differ in how that should happen.
The House鈥檚 new draft would invest an additional $20 million into the Virginia Housing Trust Fund. The program offers loans for low-income housing projects and provides grants to organizations that serve unhoused people. The additional boost brings the House鈥檚 earmark for the fund up to $195 million over the next two years.
The House also wants to add $14 million over the next two years to support organizations that work with unhoused populations or help people at risk of homelessness.
As state lawmakers have refined Virginia鈥檚 Eviction Reduction Program, the House proposes $11.5 million in new resources for it, bringing total support to $18.5 million over the biennium.
On housing, the preview of the Senate鈥檚 forthcoming new budget draft entails $110 million for housing-related initiatives 鈥渋ncluding eviction reduction, weatherization programs, and Housing Trust Fund deposits.鈥�
K-12, school construction funding reflects uncertainty
Local governments and school leaders are waiting on the budget to be finalized to decide how they will be able to cover teacher pay raises, and how much those raises will be. The legislature鈥檚 dueling spending plans also address another key concern: covering construction and modernization costs for the upcoming school year.
The House鈥檚 revised budget proposes a 3% raise for state and state-supported employees, including teachers, over the next two years, while the new Senate budget includes a 4% increase aimed at moving Virginia toward the national average teacher salary.
鈥淲ith inflation being over 4%, a 3% raise does not really end up being a raise, it鈥檚 a pay cut in practice, and the average teacher would lose money in buying power,鈥� Carol Bauer, president of the Virginia Education Association, said.
In the area of school construction, the House鈥檚 revised proposal includes an additional $299 million for school construction grants, bringing the biennial total to $519 million.
In contrast, Lucas鈥� overview of the updated Senate budget did not mention school construction grants. In February, the body approved a plan to allocate $172 million from the Literary Fund to the School Construction Fund for construction and renovation grants.
However, the Senate鈥檚 plans for the grants and the School Construction Fund remain uncertain, because its funding relied on expected casino tax revenues under the chamber鈥檚 previous budget.
Additionally, the House is now proposing to move the $172 million originally from the Literary Fund to cover teacher retirement costs, adding to the unpredictability.
Both chambers still proposed expanding a 1% sales tax to pay for construction costs; however, the House version goes further, permitting jurisdictions in Planning District 8, or Northern Virginia, to use these funds for transportation projects to address public transit needs in that region.
Among other notable budget moves, the House announced that the previously proposed $400 million one-time flexible funding was removed and replaced by a $98.4 million one-time supplement for at-risk student programs.
The amended House budget returned $10.1 million in unused laboratory school funds to the state鈥檚 main funding pool.
Both budget proposals are similar in that they fund the state鈥檚 special education line item: the House proposes $148.4 million, compared to the $150 million Lucas mentioned in her letter about the Senate鈥檚 revamped plan.
The delayed completion of the budget 鈥減uts hardship on school districts trying to get contracts out, puts a hardship on folks knowing what their actual compensation is going to be for the next year, and so we honestly would like things to get settled,鈥� Bauer said.
House meets this week, Senate the next
The House reconvenes Thursday and the Senate is scheduled to meet in Richmond June 22. The chambers must reconcile their spending plans and approve a new budget before the June 30 deadline, or a state government shutdown 鈥� the first in the state鈥檚 history 鈥� will ensue.
