Virginia, we finally have a Budget. With just days to spare before the Virginia State Government authority to spend money ran out, the House of Delegates and State Senate voted on a compromise budget Monday, June 22nd. The Governor now has seven days to offer amendments, which the General Assembly must act on before midnight June 30th.
So, what took us so long?
Typically, select members of the House Appropriations Committee and the Senate Finance Committee meet in a conference committee to hammer out the differences between the House and Senate budgets in March, with a final vote take on or about the last day of our 60-day regular session. Virginia's Constitution requires us to maintain a balanced budget. Unlike the federal government, we cannot simply borrow our way through difficult decisions. We must make choices about priorities, live within our means, and ensure that taxpayer dollars are spent responsibly.
This year was particularly challenging because we have to spend hundreds of millions of dollars backfilling essential services that were eliminated in HR1 – the big ugly bill. Unfortunately, reaching agreement on a budget took longer than anyone would have liked.
The delay, as you may have read or heard about, was about whether we should continue a tax incentive program voted on with broad bi-partisan support years ago to attract data center development to the Commonwealth. The Senate proposed ending those incentives immediately, even though they were scheduled to last until 2035. The House was uncomfortable going back on our commitment and cancelling these incentives some eight years early, worried about the impact on our ability to win the trust of potential partners in future economic development deals.
I’ll admit, the Senate position has a great deal of appeal, policy-wise and politically. We’ve reached a critical mass here in Virginia where we are an extremely attractive place to build a data center, with or without the added sweetener of a sales tax exemption. And the exemption has grown tremendously, with an estimated windfall of $2.8 billion annually available by simply cancelling it.
Politically, the simplicity of the Senate message – “No more tax breaks for billion-dollar businesses” is undeniable.
What we settled on, I think, is a better policy that takes a little bit longer to explain but better serves the people of the Commonwealth. This budget helps protect Virginia ratepayers, supports long-term energy affordability, and ensures data centers contribute their fair share while preserving Virginia's position as the nation's leading technology hub.
We protect ratepayers by establishing a new Data Center Energy Consumption Fee, ensuring that the industry's growing energy demands do not fall on residential customers and small businesses. The fee is expected to generate up to $600 million annually – or $1.2 billion over the biennium – helping Virginia address the infrastructure and energy demands associated with rapid growth.
This approach aligns the data center operators’ incentives with our public policy priorities. Rather than simply ending the sales tax exemption, this approach gives data centers a big reason to find ways to make their facilities as energy efficient as possible to reduce their tax liability.
The budget also directs state agencies to develop data center noise regulations, identify cooling water scarcity areas, and collect additional information on electric service agreements, water usage, and generator permitting so policymakers have the tools they need to make informed decisions as the industry continues to grow.
I also support legislation introduced by Delegate Rip Sullivan that would tie future eligibility for the sales tax exemption to environmental and performance standards. If Virginia is going to offer tax incentives, those incentives should advance public policy goals. Rewarding energy efficiency, sustainability, and responsible development is a smarter long-term approach than offering benefits without expectations.
The data center debate is far from over. The study included in this budget will help inform future decisions, and I expect the General Assembly will continue examining how best to balance economic development, energy policy, environmental concerns, and the interests of ratepayers. But this compromise represents a meaningful step forward.
While data centers received much of the attention during budget negotiations, the final agreement also includes significant investments in education, public employees, working families, and local communities.
The budget extends Virginia's refundable Earned Income Tax Credit (EITC) at 20% through 2030, continuing an important tool that helps working families. Beginning in 2027, the standard deduction will increase to $9,200 for individuals and $18,400 for married couples filing jointly, providing tax relief to millions of Virginians.
The budget also gives local communities a new tool to address aging school facilities, overcrowded classrooms, and growing enrollment by allowing localities to seek voter approval for a local sales tax of up to 1% dedicated to school construction and modernization. Importantly, any such tax must first be approved by local voters.
This budget takes an important step toward ensuring that major energy users contribute appropriately to the costs they create. And it demonstrates that even when disagreements arise, we can still come together to find common ground and move Virginia forward.