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January 21, 2025

What’s In and Who’s Left Out of the Governor’s Budget

Budgets show what and who we value, and Virginia’s families deserve a budget that values them by providing broad and holistic support — investing in economic support, quality public education, and more. Rather than cleaning up our tax code, addressing continued underfunding in education, investing in affordable and comprehensive health coverage, or ensuring Virginia’s criminal legal system is a just one, the governor’s budget proposal falls short — with a billion dollars going toward tax cuts that prioritize people with cars rather than families with children and fails to meaningfully invest in our communities. House and Senate money committees are currently considering the governor’s budget amendment proposals and are expected to present their own proposals on February 2. Together, we can voice our priorities to lawmakers to make sure future budget proposals are more in line with what our families and communities need. 

TCI previously shared an analysis of key choices in the budget, which you can find here. Below is a closer look at these key choices in the areas of:

Tax and Revenue

Our tax code can be a tool for transformative investment and economic justice. In order to make transformative investments in our shared goals, we need to raise new and sustainable revenues. All the while, our tax code is upside down, asking those with the lowest incomes to pay more in state and local taxes as a share of their income than those with the highest incomes. While the governor’s budget attempts to address the needs of working families, it misses the mark at every turn. He fails to continue a critical tax credit for families with the lowest incomes, leaves out families with no cars, and excludes many low-paid workers from a tax benefit that would also open up a loophole for the wealthy to take advantage of.

There are more proven ways to help working families. The state could extend and improve its Earned Income Tax Credit (EITC) or establish a Commonwealth Kids Credit (a state-level child tax credit) to help get cash to families who need it most. In addition, lawmakers could choose to support lower-wage workers by raising the minimum wage.

  • Standard deduction
    • The governor proposes to make a recent increase in the state standard deduction permanent. The change in the state standard deduction was ultimately raised to $8,500 for single filers and $17,000 for married filers, up from $3,000 and $6,000, respectively. Increases in the standard deduction leave out many families with low incomes, making the 2022 choice to pair the increase with a new refundable option for the state Earned Income Tax Credit (EITC) a much-needed one. The EITC improvement allows many low-income families to see more cash back at tax time. Together, the 2022 tax changes were credited by JLARC, Virginia’s state research agency, as making the state’s tax code more fair. Both the refundable EITC and standard deduction changes were set to expire in 2026. The governor’s budget amendments extend the standard deduction increase, but not the refundable EITC.
  • Car tax credit and car tax credit fund
    • As part of his budget amendments, Governor Youngkin proposed a new refundable tax credit for personal property tax paid on personal-use vehicles. This credit is up to $150 for families making up to $50,000 if filing single, and up to $300 for families making up to $100,000 if married filing jointly.
    • This is not a reduction in car tax and will not impact how much car tax is paid by individuals and families. This credit counts toward Virginia’s individual income tax. People who are eligible for the credit will have to continue to pay their car tax as normal, and then claim this credit months later when they file their income tax return.
    • This ongoing policy is initially paid for with one-time funding. Without a new source of revenue, establishing a policy with a large price tag on top of other ongoing costs could lead to structural imbalance. The governor’s budget prepays the car tax credit for three years by allocating $1.103 billion to the ‘Car Tax Credit Fund’ from an anticipated “surplus” for the budget year that ends on June 30 (fiscal year 2025). These funds are considered one-time. The car tax credit is assumed in future revenue projections and will decrease our shared resources by $376.9 million in FY29.
  • No tax on tips
    • This amendment allows cash tips to be deducted from taxable income in Virginia.
    • Not all tipped workers will benefit. Not everyone is required to pay federal and state income tax. Some tipped workers fall below the federal and state filing thresholds, and others have their gross income fully offset by the standard deduction resulting in no taxable income. Working people with no taxable income will not benefit from exempting tips from the income tax, as they cannot further reduce their taxable income. 
    • This policy prioritizes some workers over others without a clear rationale. In Virginia, the average restaurant server makes $37,580 in annual wages and could benefit if some of their income comes from tips. However, someone in another equal or lower-paid profession who makes un-tipped wages — a childcare worker making the average Virginia salary of $32,050, for example — will not see a boost from this proposal.
    • Higher incomes could take advantage. Without strong protections like capping the amount of tax-exempt tipped income, this measure could have harmful unintended consequences. For example, high-income professionals like hedge fund managers and lawyers could exploit this change and shift some of their compensation to tax-free tips. Since they have more income, and if the amount of tax-free tipped income has no limit, they could see much greater tax cuts than lower-wage tipped workers. 

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Education

K-12 funding

High-quality public schools are the pathway to economic mobility and the bedrock of communities and of a functioning democracy. Unfortunately, Virginia has never had high-quality schools in every community, whether by neglect or design. In recent years, legislators have started to make progress on reversing that situation, investing in meeting the needs of students in low-income communities and English language learners. The state’s research agency, JLARC, has created a blueprint for further improvements.

A young, male student smiles and works with science equipment as other students smile and work with other equipment

Unfortunately, despite available surplus revenues, the governor’s proposed budget amendments make very few substantive improvements in our public schools. Instead, most of the proposals are technical adjustments required by new data, the allocation to school construction of funds that are already set aside for that purpose or for public education in general, and some one-time funding for new tests. The governor also diverts public funds to private schools, despite their lack of accountability, non-discrimination, or transparency measures and research showing mixed to negative outcomes from vouchers on student achievement.

  • “Virginia Opportunity Scholarship Program”
    • The governor proposes $50 million in the budget year that begins on July 1 (fiscal year 2026) to create the Virginia Opportunity Scholarship Program. This program would provide $5,000 per academic year for approximately 10,000 eligible students and could be used toward the qualified expenses of attending a private school. 
    • Diverting public funding to private schools will exacerbate financial challenges for public schools. Using state dollars – whether in the form of tax credits or opportunity scholarships — for private schools leaves fewer resources available for public school students. And research shows that private school vouchers do not improve – and often harm – student outcomes. This $50 million could instead go toward addressing the decades-long underfunding of the public school system.
  • School Performance and Support Framework Resource Hub
    • The governor’s budget allocates $51 million to establish the School Performance and Support Framework Resource Hub. This initiative provides funding for support infrastructure, technical training, and evidence-based supports for schools and school divisions identified as “Needs Intensive Support” or “Off Track,” as well as funding for regional support specialists in math, literacy, and science.

Early Childhood Education

Investments in high-quality childcare and early childhood education boost lifelong success while helping parents get to work. Virginia made significant progress last year in backfilling expiring federal pandemic relief for childcare and early childhood education. This progress was a positive example of bipartisan cooperation and policymaking, with the initial proposal evolving through the legislative process. Unfortunately, despite a long waiting list for child care, the governor doesn’t propose increasing state funding for the early childhood education system beyond one-time capital funding. Instead, his budget proposes shifting some funds without addressing the scale of needed investment, and seeks to impose new time limits on parents who are searching for jobs.

  • Child Care Subsidy Program
    • The governor’s proposed amendments transfer $8 million from the Virginia Preschool Initiative and $5 million from federal pandemic-related funding (ARPA) to the Child Care Subsidy Program; it also includes program language that increases copays, imposes harmful time limits for parents seeking a job, disqualifies enrollment of most school-age children, and directs revision of attendance requirements.
  • Mixed-Delivery Child Care
    • This amendment includes language that increases copays, imposes harmful time limits for parents seeking a job, and directs revision of attendance requirements.
  • Virginia Preschool Initiative (VPI)
    • The governor’s budget reduces VPI’s state funding by $13 million, shifting $8 million of the funding to the Child Care Subsidy Program. It also shifts costs to some localities by removing the local composite index cap and directs revision of attendance requirements.
  • Early Learning Capital
    • The governor proposes $15 million to fund grants that increase the supply of quality early learning spaces in childcare and early learning deserts. The proposal also shifts $1 million for a state employee childcare facility to this grant fund.

Higher education

Virginia students should have the opportunity to pursue their dreams and reach their full potential, whether that’s joining an apprenticeship program or going to a college or university. And they shouldn’t face crushing debt to do so. For too many years, eroding state funding led to rapidly rising costs for students at Virginia’s public colleges and universities. That’s started to change in recent years as state investments in affordable access and financial aid have grown. But beyond backfilling the costs of military waivers for colleges, the governor’s budget stalls in terms of significant progress, as in so many other policy areas.

  • Virginia Military Survivors and Dependents Education Program (VMSDEP) Waivers
    • The governor includes $90 million in one-time funding along with $120 million in non-general funds transferred from the Defined Benefit 529 Program to pay for the ongoing impact of the VMSDEP waiver program. An additional $9.4 million is provided to maintain VMSDEP stipends based on current projections.
  • Nursing grants
    • The governor includes a $12 million grant proposal to nursing students and a  $1.5 million proposal to provide tuition assistance to nursing students at Hispanic-Serving Institutions (HSI). Unfortunately, DACA students or others who are ineligible for federal financial aid are specifically excluded from the HSI nursing tuition program, despite being eligible for other state financial aid and tuition assistance (TAG) grants for Virginians attending private colleges.

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Health Care

We all want to live in a state where everyone has access to affordable and comprehensive health coverage. We know that health coverage supports individuals and families while they learn, work, and achieve their goals. Medicaid and FAMIS — Virginia’s child health insurance program (CHIP) — are two major health coverage programs that are state and federally funded and currently cover nearly 2 million individuals across Virginia. However, there are still some groups in Virginia that lack access to health coverage. Further investments are needed to make sure every family who calls Virginia home has the resources to thrive.

A Black family of four sit together. An infant is in the mom's arms while a toddler is in the forefront of the image. The father looks toward the mother and both are smiling

  • Funding Medicaid/FAMIS
    • Governor Youngkin’s proposal funds the $687 million cost of funding the revised forecast for Medicaid/FAMIS after accounting for the impact of the increased Healthcare Fund. Fully funding the forecast ensures that people who currently access health care through Medicaid maintain health coverage without a reduction of services.
  • Medicaid Reserve Fund
    • The governor’s proposal creates a new “Medicaid Reserve Fund.” This fund and accompanying language would require any new Medicaid initiatives to set aside additional funding on top of the two-year budget costs. Implementation of initiatives without the additional reserve amount would be delayed. The amendment would allow the governor to access this fund to offset any Medicaid shortfalls and could create a barrier to investing in new and needed initiatives.
  • Maternal Health
    • There is $4 million included in the governor’s amended budget for maternal health initiatives. This includes $2.5 million in one-time funding for two-year grants to community-based providers to reduce maternal and infant mortality and another $500,000 in one-time funding toward an awareness campaign of the warning signs of maternal health concerns. The remaining $1 million is dedicated to community health workers and doulas at local health departments with the highest rates of maternal mortality.

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Decriminalization of Poverty

The state budget should reflect our commitment to a fair and just criminal legal system that prioritizes rehabilitation, second chances, and equitable access to legal representation for all individuals. Unfortunately, the governor’s proposed budget includes amendments that would break trust in the system by undermining progress and implementing a proposal that threatens some local and regional funding. Here’s a quick breakdown of two key proposals:

  • Earned Sentence Credits:
    • The governor proposes capping earned sentence credits at 4.5 days per 30 days served for people convicted of certain offenses and serving consecutive or concurrent sentences. This could undo years of hard-won progress, reducing incentives for good behavior and participation in rehabilitation programs.
  • Detention for immigration purposes:
    • The budget proposal also includes an amendment requiring local and regional jails to notify U.S. Immigration and Customs Enforcement (ICE) 48 hours before releasing certain individuals, with state funding cuts for noncompliance. The governor’s proposal has caused great concern for immigrant rights advocates and within immigrant communities. However, Senate leadership has made it clear that they are not moving forward with this proposal.

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Categories:
Budget & Revenue, Decriminalizing Poverty, Economic Opportunity, Education, Health Care

Megan Davis

megan@thecommonwealthinstitute.org

Levi Goren

levi@thecommonwealthinstitute.org

Freddy Mejia

freddy@thecommonwealthinstitute.org

Kami Blatt

kami@thecommonwealthinstitute.org

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