On June 22, 2026, the General Assembly met in special session to approve a budget. Technically the budget was due at the end of the regular session, March 14. We were hung up over revenue, and it took some time to develop consensus and complete our work.
During the regular session, the Senate promoted a budget that relied on revenue from data centers. The data centers have enjoyed a sales and use tax exemption since 2008. When the tax exemption was first passed, it was limited and estimated to cost the Commonwealth about $1.45 million in exempted sales tax revenue. Later in 2016, the exemption was expanded statewide and the expiration date extended to 2035. At that time the estimated revenue impact was $54 million. The revenue impact of the exemption has grown to $1.9 billion annually.
The Biennial Budget
In Virginia we craft a budget every biennium, or every two years. One of the many improvements we saw during U.S. Senator Mark Warner’s time as Governor was the establishment of a requirement to provide a longer-term, six-year projected spending plan. When we craft a biennial budget, we essentially lay a blueprint for the next three biennia. This is critical because the markets want stability. We are the only state to maintain a AAA bond rating since 1938, the year the agencies began issuing ratings to the states. The rating has saved Virginians hundreds of millions of dollars when we have gone to the bond market to borrow money, primarily for capital projects.
In December 2025, the Youngkin Administration put forward a structurally imbalanced budget, which showed us about half a billion dollars short in the out years. In order to balance the budget, we had to address this. In the early conversations about how we could fill this hole, we identified the ever-expanding data center tax exemption. The Senate budget, which was released in mid-February, we proposed eliminating the sales tax exemption to balance the budget, both in the new biennium and the six-year look out period. Both Governor Spanberger and the House of Delegates disagreed with this approach.
Data Centers
Four months of discussion and debate passed between the release of the budget proposals in February and the adoption of a compromise yesterday. Honestly, the House and Senate conferees only met a few times during those months, as it was impossible to negotiate the other differences in funding between the two proposals without reaching a compromise on revenues. The Senate conferees had offered several compromises, including most recently establishing $1.7 billion as a threshold for some type of tax on data centers. This agreement set the table for the chair of the Senate Finance and Appropriations Committee, Senator Louise Lucas, to sit down with the chair of House Appropriations, Delegate Luke Torian, to develop a compromise proposal. The mechanism for achieving that revenue was a consumption tax on energy. The Governor has announced that she first proposed that in February. While she suggested that option at that time, the idea was first advanced by a lobbyist for data centers. It is something we considered during the regular session, but it was not our first option. Revenue from a consumption tax ought to be available for relief from higher rates. We can see already that data center consumption has increased the cost of participation in the Regional Greenhouse Gas Initiative because it raises the cost of energy auctions that have driven up the cost of the RGGI program.
The budget that was agreed upon by the House and Senate yesterday assumes that $1.2 billion of revenue from the data centers. In the long run, we will have to come up with a better solution. The budget compromise rejects the proposal of the House of Delegates to establish a new subcommittee to study the issue of data centers and instead refers the matter to an existing subcommittee on tax policy, of which I am a member. We must determine over the long haul how to best address the issue of data centers, including whether the exemption should continue and what to do about the increased energy costs that are accrued because of their proliferation. It is a huge issue that impacts most of our future budgeting and economic development plans. While there are many other considerations, including environmental and noise impacts, the focus of this work will be on the fiscal implications.
View from the Virginia Senate gallery, June 22, 2026
Key Budget Items
The two-year spending plan we adopted yesterday includes funding for many critical priorities such as:
- Funding for the state share of a four percent raise for teachers in each year of the biennium. This investment will get us closer to paying our teachers at or above the national average. It is true that teachers who begin their careers in Virginia earn more than the starting average national salary. But it bogs down as the teacher works through their career. I have said for many years that our goal should never be the national average. Our goal should be excellence. The national average is a speed bump along the way. We expect excellence from our schools, and we ought to be willing to pay for it.
- Pay increases for state employees and state-supported local employees of 3.5% in each year of the biennium.
For a full list of key features, see here.
The budget also provides $7 million for a homeless shelter in Charlottesville, $1.5 million to support the Biscuit Run Trail in Albemarle County, $1.5 million for the next phase of Bennett’s Village – our all abilities playground in Albemarle County, $10 million for the redevelopment of the Central Virginia Training Center property in Amherst County, funding for algal bloom remediation and buoy maintenance and hydrilla mitigation at Lake Anna, and many other things that are important to the people I represent.
More importantly, the budget addresses Virginia as a Commonwealth. We have worked very hard to lift up each region and ensure people can thrive throughout Virginia. The budget is not perfect; a budget never is, but it is a compromise. The budget passed the Senate by a 23-16 majority and a larger bipartisan vote of 71-22 in the House. The budget bill now goes to the Governor. Indications are that she will offer amendments that will be available by June 26. I expect the Senate will return to Richmond next week to vote on the amendments and ensure it is signed before July 1.
It is my pleasure to represent you in the Senate of Virginia. If I may be of assistance, please reach out to me at 434-296-5491, senatordeeds@senate.virginia.gov, or PO Box 5462, Charlottesville, VA 22905.
Sincerely,
