RICHMOND, Va. — Outgoing Democratic Virginia Gov. Ralph Northam laid out a proposal Thursday for a $158 billion two-year state budget that would boost Virginia’s reserves, give teachers and other state workers pay raises, and institute a variety of tax cuts.
The spending blueprint Northam outlined to members of the legislature’s money committees is possible thanks to record revenue growth that is projected to continue. The governor made the case that his budget plan was progressive, fiscally responsible and would set up incoming Republican Gov.-elect Glenn Youngkin for success.
“We will keep making the investments that Virginia needs, and we will keep putting resources into supporting Virginians who need it,” Northam said.
Northam, who like all Virginia governors was prohibited from serving a second consecutive term, will leave office in January.
It’s standard for even an outgoing governor to deliver a budget plan in December. Northam’s proposal for fiscal years 2022-2024 could serve as a starting point for negotiations at the General Assembly, which will be under split control between Republicans and Democrats come January. But there is virtually no chance the version lawmakers will send to Youngkin will hew exactly to what Northam is putting in.
Northam spokesperson Alena Yarmosky said Northam and Youngkin have met on a few occasions since the November election but did not discuss the specifics of the budget proposal, which contains some overlap with key campaign pledges of Youngkin’s.
Youngkin, who attended the presentation, told reporters afterward that he believed Northam’s plan showed a continuation of “basic philosophical agreement” in some areas, such as the need for raises for teachers and law enforcement officials. But he said he would seek to go farther on tax cuts.
The Democrat’s plan includes a 5% pay raise for teachers in both years of the budget. State employees would see the same pay increases.
It also spends $223 million on increased funding for pay for law enforcement, to address both starting salaries and pay compression over time, and another $164 million on raises for direct care workers in state mental health facilities, where staffing has been a longstanding challenge.
Northam’s proposal calls for $2.1 billion in tax policy adjustments, approximately $419 million of which would be ongoing.
He wants to eliminate the state’s 1.5% share of the sales tax on groceries. Northam campaigned on the issue in 2017 and told reporters Thursday that this year represents the first time Virginia has been in a financial position to consider rolling the tax back.
Ending the tax was a key campaign pledge from Youngkin, who has also called for cutting income taxes by doubling the standard deduction and cutting taxes on veterans’ retirement income.
Northam is also proposing that the state give one-time “economic growth” tax rebates of $250 for individuals and $500 for married couples; make up to 15% of the federal earned income-tax credit refundable for eligible families; and end the accelerated sales tax payments for retailers.
His administration said the tax relief proposals were intended to benefit lower-income workers who were disproportionately affected during the pandemic.
Northam’s proposal contains no significant new money for the beleaguered Virginia Employment Commission, Finance Secretary K. Joseph Flores told reporters in a briefing.
That’s despite the fact that the administration has long maintained that the agency’s struggles, which burst into public view amid a surge in pandemic-related applications, were due partly to underfunding. The agency has historically been funded almost entirely through federal money.
Flores said the administration thought previous rounds of state funding, including allocations from a special session earlier this year, were enough to resolve the issues.
Northam’s plan would set aside $1.7 billion for the Commonwealth’s revenue reserves, including a $564 million voluntary deposit beyond what is required. That would bring the reserves to more than $3.8 billion, 16.8% of state revenues, according to documents provided to reporters.
Northam and other state officials have some flexibility in crafting the new budget because Virginia closed out the 2021 fiscal year with $2.6 billion more in the general fund than what had been forecast. Northam’s administration says strong economic growth is projected to add another $13.4 billion in new general fund resources in fiscal years 2022, 2023 and 2024.
Northam’s plan would also: invest $297 million for capital improvements, student support and other needs at the state’s historically Black colleges and universities; dedicate $165 million to help Richmond, Alexandria and Lynchburg advance sewer improvement systems to keep wastewater out of streams and rivers; grant $500 million to localities for school construction and renovation; and allocate nearly $1 billion for the public employee retirement system.
It would also direct $150 million toward developing mid-sized and large sites for industrial development. A 2019 AP review found the state had already sunk more than $100 million into land acquisition and development at a handful of such “megasites” dotting Virginia’s struggling rural south and southwest with little to show for it. But economic development officials say without ready-to-go sites, the state will continue to miss out on transformational economic development opportunities.
Northam had already announced many of his spending priorities ahead of Thursday, during a “thank you” tour he kicked off earlier this month.
Several Republican lawmakers said Northam’s proposals reflected priorities the GOP had been championing for years, while House Speaker Eileen Filler-Corn said they highlighted the record of success Virginia experienced under two years of full Democratic control.
Filler-Corn is set to become the House minority leader in January; along with sweeping all three statewide offices in November, the GOP retook control of that chamber.
The leadership of the Democrat-controlled Senate did not issue a statement on the proposal.
The General Assembly will convene Jan. 12 and Youngkin will be sworn in three days later as Virginia’s 74th governor.