2025 Session — Week Five

We have now passed the traditional midpoint of the General Assembly Session. The crossover, when each side must finish work on its own legislation, occurred on Tuesday, February 4. Two days later, the House and Senate adopted their budget proposals. Some key features that they share in common relate to tax relief and federal uncertainty.

Tax Relief

• Both proposals reject the Governor’s plans for tax relief recognizing that the surplus is primarily one-time funding that cannot support a permanent tax cut. Both chambers adopted a one-time rebate of $200 for individuals and $400 for joint filers.
• The House and Senate not only leave in place the standard deductions we adopted two years ago for two additional years, but we also increased the amounts to $8,750 for single filers and $17,500 for married, filing jointly.
• The bottom line is that where the Governor had proposed tax cuts spread over three years, the budget proposals advanced by the legislature this week provide about $1.1 billion in tax relief right now. While some of the Governor’s proposals had been targeted at low-income earners, the bulk of proposals in both the House and the Senate is aimed at the same tax bracket, primarily working Virginians.

Federal Uncertainty

• Both budgets recognize the uncertainty the changes at the federal level have created. As has been discussed before, we have experienced the largest one-time shortfall in Medicaid funding since the program came into existence in the mid-1960s. We had to add over $632 million just to meet the forecast. The amount was adopted in both the House and Senate.
• In the Senate, we took a few other steps. First, we created a joint oversight committee, because we need to get a handle on Medicaid spending if the program is going to be sustainable. The language amendment will allow us to consider changes to the program based on what happens at the federal level.
• With all the talk of change, one thing is clear. The sort of spending cuts being discussed at the federal level cannot be achieved without making cuts to Social Security, Medicare, or Medicaid. The President has indicated he would not cut Social Security and Medicare, which leaves Medicaid as a possible target. Nearly 2 million Virginians receive health care through the Medicaid program. About a third of those people were made eligible after Virginia expanded Medicaid.

Other Key Components

• With respect to our public schools, the House and Senate provide funding for a bonus for teachers. The funding is allocated based on the number of SOQ funded positions, so the amount of the bonus may vary across school divisions. The exact timing of the bonus payment will need to be reconciled. Both the House and Senate provide over $222 million, which fully funds the current ratio of support positions. Funding is provided for school construction projects, and the Senate also includes language expanding the 1% local tax authority for such projects to every locality.
• Both the House and Senate included funding for bonuses for state employees.
• While the exact programs and amount of funding are different, both budgets infuse new funds into services to improve maternal health outcomes, access to services with individuals with traumatic brain injury and developmental disabilities, and to continue to bolster our behavioral health system.
• The challenge of affordable housing is also reflected in the House and Senate budget priorities. The Senate provides $15 million in funding for rent relief, while the House includes $15 million to help first-time homebuyers, expands the Virginia Housing Opportunity Tax Credit and provides $14 million for local housing trust funds and projects.

Data Centers

A key area of difference between the House and Senate budgets revolves around data centers. The House budget extends the tax exemption for data centers to 2050. The Senate budget includes language from a recommendation I made to require data centers to be more energy efficient. Both the Governor and the Speaker of the House are pushing an extension of the sales tax exemption for data centers that cost Virginia about $1 billion a year. That is a big price tag. If we are to extend that incentive, we must put in some stipulations. Data centers must be energy efficient. And, since the industry is driving the incredible increase in demand for electric power in Virginia, they should bear the burden of paying for that demand and the infrastructure to support that demand. If I can achieve that through an amendment, I am certainly willing to support an extension. But we have a lot of work to do on this in the next two weeks.

The subcommittee reports and amendments are all available on the state budget website.

Last Two Weeks

The General Assembly is scheduled to adjourn on February 22. From my standpoint, I do not see why we cannot complete our work on time. But I have begun to hear rumors in the past few days that a budget will not be agreed to by that time. The differences between the two chambers are not that monumental that we cannot reach agreement by February 22. I do not question the fact that the Governor will have disagreements, but that should be settled during the reconvened session in April.

We will spend the next two weeks ironing out differences between House and Senate bills and negotiating a final budget agreement. The committees will remain active, and we only have a few meetings to hear all the bills from the other chamber. And during the final week, conference committees will be formed when the House and Senate take different approaches to legislation, as a bill must pass each chamber in the same form before going to the Governor.

One bill that always goes into conference is the budget. It has been my honor the last few years to serve on the budget conference committee, the group that makes final tweaks to the state budget before it is sent to the Governor. I expect to be in that role again and am excited about the work ahead.

Serving in the Senate of Virginia and working on behalf of the people I represent remains such a humbling experience, and I hope you will continue to share with me your views. If you have any questions or would like to visit in the closing weeks of session, please do not hesitate to contact my office at senatordeeds@senate.virginia.gov or 804-698-7511.

Best,