What’s at Stake in Virginia’s Budget Negotiations: Revenue Choices and Affordability

When the Virginia General Assembly adjourned on March 14 without a negotiated budget between its two chambers, decisions about new revenues and community investments were left unresolved.

While the budgets align on many shared priorities, a key difference is clear: the Senate chose to ask some of the largest corporations in the world to pay their fair share by ending the sales and use tax break for data center equipment, allowing for greater investments in affordability for Virginia families. House leadership has indicated they do not agree with this policy change, and the chambers were unable to resolve their budget differences before the close of the legislative session. 

Lawmakers will meet on April 23 for a special session to vote on a negotiated budget to send to the governor. Over the next month, the chambers are working to resolve their differences and secure the revenue needed to make key investments, and advocates still have time to share their priorities.

Where the Budgets are Different

Both chambers rejected harmful tax policy proposals made by Governor Youngkin when they updated our current operating budget, known as the “caboose budget.” These changes are already law. By doing this, they were able to gain significant revenues for the upcoming two-year budget over the introduced budget.

Even so, the Senate budget has $685 million more in General Fund (GF) revenues than the House budget, which is the part of the budget where lawmakers have the most flexibility. While both assumed that different chamber legislation would impact revenue, the primary impact comes from the Senate’s effort to make one of the country’s largest industries pay its fair share by proposing to end the data center sales and use tax (SUT) exemption. With this change, the Senate budget raises over $1 billion dollars in new revenues that will go to health care, K-12 education, child care, and more. 

The Data Center Sales and Use Tax Exemption

The SUT exemption was designed to attract data centers to the state over a decade ago, and the data center industry has since exploded. Virginia is now home to 35% of the world’s hyperscale data centers. With the rapid growth in data centers, the cost of allowing qualifying data centers to exempt the purchase of their computer equipment has also grown beyond expectation. The exemption doesn’t just apply to the start-up costs of a center, but to every time a data center refreshes its equipment. What started as a $2.2 million incentive in the 2009 budget year has ballooned by over 80,000% to a $1.9 billion giveaway in 2025. That’s like a $220 bill going up to $190,000.

Investments in the Senate Budget

The Senate budget is able to make significant investments in affordability for Virginia families because of its choice to raise new revenues. These include:

• Investing in replacing expired federal ACA subsidies to make health coverage more affordable for more Virginia families as early as 2026 (+$200 million) 
• Providing support for school construction and modernization with Literary Fund money that is freed up by using GF for teacher retirement (+$222 million) 
• Increasing the standard deduction (+$159.4 million)
• Giving state employees a 3% raise and providing the state share of a 3% raise for teachers and state-supported employees (+$1.1 billion)
• Funding a public-private cost-sharing program to help lower childcare costs (+$50 million)

These investments show what becomes possible when new, fair revenues are on the table and why the revenue question at the center of Virginia’s budget negotiations matters so much for families.

New Revenues Mean a More Affordable Life

The choice is clear. When we take bold steps to generate new revenues, we can invest in what reduces the cost of day-to-day living for families across the commonwealth – access to more affordable health care, more take-home pay for teachers and other state employees, lower child care costs, lower tax bills for some families, and more. Without those revenues, many of these investments are at risk. 

Whether through eliminating the data center sales and use tax break or another revenue source, new revenues raised fairly means tangible change for families at a time when so many are struggling. Lawmakers should choose a final budget that raises new revenues and makes meaningful investments in our communities.

Categories:
Budget & Revenue, Economic Opportunity