March 2, 2022
Budget Conferees Should Take Opportunities for Generational Investments
Virginia’s House of Delegates and Senate have approved their proposed changes to Virginia’s budgets for the current year and upcoming two years. These proposals have some commonalities, yet take very different approaches on tax policy and investments in Virginia’s families and communities.
As a result of Virginia’s economic recovery, the commonwealth has available resources to more fully meet the needs of families and communities, while also making generational investments in our future. Yet if history is any guide, federal cut-backs are likely to follow the recovery, which would harm Virginia’s economy. In light of ongoing risks, making investments in priorities like education, health care, and other public services is a better approach to lifting up families and communities than enacting permanent, costly, and untargeted tax cuts.
Below is a deeper dive into some of the key differences that the House and Senate will need to resolve, particularly as they affect low-income families and communities of color.
- Standard deduction: This deduction is claimed by tax filers who claim the federal standard deduction rather than itemizing their deductions. During the 2019 General Assembly session, lawmakers increased the state standard deduction by 50% to $4,500 for an individual and $9,000 for a married couple filing jointly.
- The Senate budget doesn’t include any changes to the state standard deduction. Several bills to increase the standard deduction were “continued” to the 2023 session, with the intent of studying this issue over the next year.
- The House budget doubles the state standard deduction to $9,000 for an individual and $18,000 for a married couple filing jointly. This action would reduce state resources by about $2.1 billion over the next two-year budget as well as $1.3 billion in the subsequent two-year budget. Because many tax filers with lower incomes can reduce their state income taxes through existing tax provisions and credits, increasing the deduction would provide the most help to tax filers with incomes between about $24,000 and $76,000, as well as non-elderly and non-disabled individuals with somewhat lower incomes who do not claim dependents.
- Grocery tax: Households with low and moderate incomes pay a larger share of their income toward sales taxes because a larger portion of their income is spent on consumer goods, like food and personal hygiene products. At the same time, sales taxes are an important funding source for state and local budgets. Virginia’s 1.5% state sales tax on groceries is dedicated to K-12 education and transportation, while there is also a 1% local sales tax option that is available to local governments.
- Similar to the introduced budget, the Senate budget proposes to eliminate the 1.5% state sales tax that applies to groceries and personal hygiene products (eff. Jan. 1, 2023), while leaving in place the 1% local sales tax option that exists for localities. The Senate budget replaces revenue for local school divisions based on school-age population. The bill doesn’t backfill reduced transportation funds.
- The House budget proposes to eliminate both the 1.5% state sales tax on groceries and personal hygiene products and the 1% local sales tax that applies to those items. The House bill would replace revenues for school divisions and localities, partly using a formula based on local sales tax collections. Transportation funds would not be backfilled.
- Earned Income Tax Credit (EITC): Virginia provides a state EITC up to 20% of a family’s federal EITC. Unlike the federal EITC and nearly all state EITCs, Virginia has a nonrefundable state EITC, which caps the amount of the credit available to families. Refundability would help to increase incomes for working families across the state, particularly Black and Latinx families, and reduce long-standing wage gaps that persist for Black and Latinx working people.
- The Senate budget would address this issue by making the state EITC fully refundable at 20% of the federal EITC.
- The House budget removes language from the introduced budget that would have provided a partially refundable EITC equal to 15% of the federal EITC.
- One-time tax rebates:
- Similar to the introduced budget, the Senate budget includes one-time tax rebates of up to $250 per individual or up to $500 per married couple (estimated budget impact $1.0 billion).
- The House budget includes one-time tax rebates of up to $300 per individual or up to $600 per married couple (estimated budget impact $1.25 billion).
- These payments would be nonrefundable, which means they would exclude many families and individuals with lower incomes. Similar, though smaller, rebate checks were issued in 2019 and excluded over 1 million — about 3 in 10 — tax filers in the state. Although millionaires in the state would receive full rebate checks under the proposal, many other tax filers will receive much smaller amounts than the maximum amounts.
- Medicaid dental reimbursement rates: A robust oral health provider network is vital to ensure that families who access health care through Medicaid or FAMIS can make timely appointments with local dental providers. Black and Latinx people living in Virginia are less likely to have visited a dentist or dental clinic within the last year compared to the state average.
- To incentivize more dental providers to participate in Virginia’s Medicaid program, the introduced and House budget proposals include a 5% increase in dental service reimbursement starting in the budget year that begins July 1, 2023 (fiscal year, or FY, 2024) This has an estimated budget impact of $7.4 million.
- The Senate proposal includes a 30% increase in dental service reimbursement starting in FY 2023 (estimated budget impact $84.8 million).
- Medicaid enrollment as public health emergency unwinds: Upon the expiration of the federal Public Health Emergency, all adults and children enrolled in Virginia’s Medicaid program will need to undergo eligibility redetermination for the first time since the start of the pandemic. Many things have changed for families over the past two years, including mailing addresses and contact information. This undertaking should be well-planned, well-resourced, and informed by consumers and consumer advocates. Failure to do so could lead to a drastic, unnecessary loss of health coverage. Over 770,000 Black and Latinx individuals participate in Virginia’s Medicaid and FAMIS programs.
- The Senate budget proposal includes language to form a Secretary of Health and Human Resources-led task force to help plan and advise the Department of Medical Assistance Services on the unwinding process. The language also gives authority to the workgroup to use federal American Rescue Plan Act (ARPA) funds for these efforts.
- The House budget does not include any such proposal.
- Cover All Kids study: Families with undocumented children have few avenues to sign up for affordable and comprehensive health coverage. Federal law prohibits these families from accessing coverage through Medicaid, the Children’s Health Insurance Program (CHIP), and the Affordable Care Act (ACA) marketplace. These barriers to health coverage have led to troubling disparities in health coverage rates in Virginia. Children who are citizens have an uninsured rate of 4.1%. In comparison, non-citizen children with undocumented status in Virginia are estimated to have an uninsured rate of 48%.
- The Senate budget proposal includes language directing the Joint Subcommittee for Health and Human Resources Oversight to evaluate options to establish a state-funded health coverage program for children under 19 years of age who are uninsured and would qualify for Medicaid or FAMIS except for their immigration status. The study would also review policy options to expand coverage for all uninsured children.
- The House budget does not include any such proposal.
- Teacher and staff pay: Effective teachers are the most important school-based factor for student educational performance and teacher pay is an important tool for attracting and retaining teachers. Yet Virginia’s average teacher pay was more than 10% below the national average in 2020 despite Virginia being a top-10 state for median household income and a relatively high-cost state. And a recent national survey found 1 in 4 teachers were considering leaving their job by the end of the school year, with Black teachers particularly likely to be considering leaving.
- Similar to the introduced budget, the Senate calls for a 5% increase in pay each year for teachers and other school staff ($751.0 million over the biennium). The Senate’s budget would also use $137.4 million of ARPA funding to pay for a $1,000 bonus (no local match required) for teachers and staff this year.
- The House budget would provide a 4% salary increase and 1% bonus ($682.6 million over the biennium). Overall, the House approach reduces state funding for teacher and staff compensation by $68.4 million.
- At-Risk Add-On: School divisions that are located in rural areas, have a majority of students of color, or are in communities with a high share of poverty often have less resources to invest in schools, leading to less resources for students. Research shows that increased investments in schools have profound impacts on student outcomes, from graduation rates to academic improvements.
- The introduced and Senate budgets propose $268.5 million for the At-Risk Add-On, a state program that provides additional funding to divisions based on the share of their students living in poverty.
- Compared to these budgets, the House provides $210 million less for the program ($58.3 million over the biennium).
- English Learner teachers: Insufficient staffing and resources have clear consequences for students who are learning English (EL students), most of whom are Latinx, as seen in SOL pass rates and on-time graduation rates. Currently, the state funds 20 EL instructional positions for every 1,000 students.
- Like the introduced budget, the Senate’s proposal would increase the ratio to 22 positions for every 1,000 students (one teacher for every 45.5 students) with an investment of $22 million.
- The House budget maintains the current ratio of 20 positions for every 1,000 students.
- Support cap: This arbitrary cap was imposed to save money during the Great Recession, resulting in hundreds of millions of cuts to state funding for school support staff, which includes positions like social workers, custodians, and food service staff. Since then, support staff decreased by 1,700 positions across the state, while student enrollment increased by 63,000 students.
- The Senate’s budget would partially remove the cap, providing nearly $272 million to increase support staff positions.
- The House budget does not include any such proposal.
- Principals and assistant principals: Virginia’s Board of Education recently reaffirmed its 2016 recommendation that the Virginia Standards of Quality for K-12 schools include one full-time assistant principal for every 400 students and one full-time principal for every elementary school. When Virginia’s legislature and state budget do not fully recognize the Standards of Quality as prescribed by the Board of Education, it means less state funding to K-12 schools. Some school divisions can make up the difference, but school divisions in areas with fewer local resources, including low-income rural and urban school divisions, aren’t able to do so, resulting in fewer opportunities for students in high-poverty schools.
- The House budget provides $104 million to cover the state share of one full-time principal for every elementary school and one full-time assistant principal for every 500 students.
- The Senate and introduced budget do not increase funding for principals or assistant principals.
- HBCU investments: Virginia’s Historically Black Colleges and Universities (HBCUs) play an important role in helping low-income, first-generation students find new opportunities. Yet HBCUs are historically underfunded in Virginia.
- Like the introduced budget, the House and Senate propose $90.9 million across the biennium in additional operating support for Virginia’s public and private HBCUs. Each includes $20 million for Norfolk State University and $20 million for Virginia State University (VSU) in extra affordable access funds and an additional $31 million for programs and services at the universities.
- Both the House and Senate propose $20 million for scholarships at the private HBCUs, Virginia Union University and Hampton University, and the House also proposes a Tuition Assistance Grant supplement.
- The Senate provides $59.5 million in General Fund cash for facility upgrades at VSU, while the House provides $35 million.
- Tuition: For students who are Black, Latinx, and/or from families with low incomes, financial aid plays a crucial role in the ability to attend college. In 2018, the average net cost of attendance at a public four-year university in Virginia accounted for 36% of median household income for Black families and 27% for Latinx families, while it only accounted for about 23% of median household income for non-Hispanic white families and 17% for Asian American families.
- The House proposes $246 million in additional flexible affordable access funds and $24.8 million in need-based undergraduate financial aid.
- The Senate proposes $154 million for affordable access and $166.8 million for financial aid.
- Housing Trust Fund: A recent state study found that 300,000 renters in Virginia are cost-burdened, meaning they pay a higher share of their income toward housing costs than is generally considered affordable (30% of income), and that Black, Latinx, and senior households are more likely to be cost-burdened. Black and Latinx families are also most at risk of eviction and foreclosure. The Virginia Housing Trust Fund provides competitive, low-interest loans for the production and preservation of affordable rental and homebuyer housing and grants for reducing homelessness.
- The Senate budget proposes increasing funding by $70 million in the budget year that begins July 1, 2022 (fiscal year, or FY, 2023) and $120 million in FY 2024, for a total of $125 million in FY 2023 and $175 million in FY 2024. This is the same amount as in the introduced budget.
- The House budget proposes to keep funding at current-year levels, for a total of $55 million each year.
- Energy efficiency upgrades for low-income Virginians: Because families with low incomes and families of color often cannot afford to rent or buy energy-efficient homes, or pay to upgrade their existing homes to be more energy-efficient, many face high energy bills on top of already struggling to make ends meet. Data from before the pandemic showed that 2 out of every 3 low-income households faced a high energy burden, and Black, Latinx, Native American, and older adult households face particularly high energy costs compared to their incomes.
- The Senate budget proposal includes $190 million of special funds from the Regional Greenhouse Gas Initiative (RGGI) for the Housing Innovations in Energy Efficiency program, which funds upgrades to new and existing residential buildings to reduce bills for low-income Virginians. This is the same as in the introduced budget.
- The House budget eliminates funding for this energy efficiency program for low-income Virginians as a result of the revenue loss from the House proposal to withdraw from RGGI.
- Virginia Housing Stability Fund: Due to federal funding constraints, only 1 in 5 eligible households in Virginia actually receives a federal housing voucher to subsidize their rent. As a result, 85% of extremely low-income renters in Virginia are cost-burdened and 71% of them are severely cost-burdened, which increases the risk of eviction, adversely impacts children’s ability to perform in school, and can negatively impact parents’ mental and physical health.
- The Senate budget proposal creates a stakeholder workgroup to develop model guidelines for a program to provide long-term rental assistance. The stakeholder workgroup would issue a report with recommendations by November 30, 2022.
- The House budget proposal does not include this study.
- Housing tax credit: Last year, the General Assembly established the Virginia Housing Opportunity Tax Credit, which provides state tax credits for low-income building projects that receive federal Low-Income Housing Tax Credits (LIHTCs), with a $15 million annual cap on the state tax credits.
- The Senate budget includes $47 million in reduced revenue due to Senate legislation that would lift the $15 million annual cap on the Virginia Housing Opportunity Tax Credit. Should this legislation become law, the cost would grow over time, reaching $233 by FY 2027, and more in future years if the sunset is extended.
- The House budget does not include lifting the cap on the Housing Opportunity Tax Credit.
- Temporary Assistance for Needy Families (TANF): TANF program helps parents with low incomes afford basic needs such as rent, child care, and transportation. Prior to the last few years, legislators did not increase TANF cash assistance levels even though the cost of living kept rising, forcing families to make ends meet with less and less. Meanwhile, Virginia accumulated unspent funds in its TANF trust fund despite also transferring funds to other programs as a general fund cost-avoidance mechanism. Last year, the General Assembly set a goal of increasing TANF standards of assistance by 10% each year until the standard equals 50% of the federal poverty level. In addition to helping families access needed resources, research shows that increased incomes result in long-term improvements for children’s health, academic, and future earning outcomes.
- The Senate proposes increasing TANF standards of assistance by 10% on July 1, 2022 (the start of fiscal year 2023) using $2.3 million from the General Fund and $18.4 million in TANF funds.
- The House budget and introduced budget do not include an increase in TANF benefit levels.
- Language access: Public resources should be easily accessible to everyone who needs them, regardless of the language they speak. Roughly 212,000 people living in Virginia reported that they either do not speak English or speak English ‘not well’. A recent workgroup report found many Virginia agencies were not meeting federal guidelines on language accessibility.
- The introduced and Senate budgets provide nearly $12 million to improve language access across all state agencies. This funding would allow each state agency to designate a language access coordinator who will be responsible for making sure that agency materials and communications are accessible to everyone who calls Virginia home.
- The House budget reduces that funding to $6.1 million over the biennium.
- Office of New Americans Navigator program: For any family immigrating to the U.S., the initial months post-arrival can be some of the most stressful and difficult. Furthermore, a family’s “context of reception” is a critical determinant of their future success post-arrival. Virginia can play a key role in supporting families’ transition by connecting them to existing resources such as housing, legal aid, and community programs through a navigator program. Given that the commonwealth is one of the top three states for evacuated Afghans after the 2021 U.S. military withdrawal, this program is needed now more than ever. And since most immigrant Virginians are people of color, this program will help more families of color thrive in the commonwealth now and for years to come.
- Introduced and Senate budget proposals include $8 million to fund a pilot program in the Office of New Americans that would award grants to immigrant and refugee-serving organizations. The organizations would administer comprehensive case management services to individuals and families with limited English proficiency and those undergoing refugee resettlement.
- This program is not included in the House proposal.
Black and Indigenous Virginia History and Land
- Preserving and teaching history: Past choices by local, state, and federal policymakers and wealthy donors mean that some types of buildings and stories have been preserved, while others have been hidden from the public discourse. Today, policymakers have the opportunity to portray Virginia’s history more accurately — both the challenges people have faced and the resistance and resilience that bolstered Virginia communities, including Black and Indigenous communities whose stories and places have too often been relegated to sidebars or ignored altogether.
- The House and Senate both include $5 million across the upcoming two budget years for a Preservation Fund for the acquisition, protection, and rehabilitation of tribal lands and historic and archaeological sites of significance associated with Black, Indigenous, and People of Color. The introduced budget proposed $10 million for this Fund.
- The Senate provides $452,000 for the Department of Historic Resources to create an internship program and enter into an agreement with one or more Indigenous Virginia tribes to identify and protect their cultural properties. The Senate also includes $250,000 to the Virginia Museum of History and Culture to develop traveling exhibitions for K-12 students on the history of free Black Virginians prior to the Civil War.
- The House provides $300,000 for the Virginia Foundation for the Humanities to support Virginia Indian tribes with capacity-building initiatives as well as commonwealth-wide education programming. The House also directs the Virginia Tourism Authority to develop an educational website on sites in Virginia featured in the Green Book by Victor Hugo Green, but does not earmark funds for this effort.
- Preserving and returning Indigenous land: Virginia recognizes 11 Tribes and the federal government recognizes 7 Tribal Nations within Virginia, yet the history of colonization and displacement in Virginia means many of these Native communities have little land on which to build a physical community together and to preserve and tell their own history.
- The introduced budget included $12 million for federally-recognized Tribal Nations in Virginia to acquire and preserve ancestral lands of significance via the Virginia Outdoors Foundation.
- The Senate budget shifts these funds to the Virginia Land Conservation Foundation. A bill that has passed the Senate and a House subcommittee with strong support would authorize the Foundation to make competitive grants to Virginia Tribes.
- The House budget removes the proposed funding for land acquisition and preservation.
Budget & Revenue, Economic Opportunity, Education, Health Care, Immigration