Virginia is in a financial position to cut taxes by another $1 billion and increase government spending, Gov. Glenn Youngkin said Thursday as he unveiled his proposed amendments to the state’s biennial budget.
The Republican governor is calling on lawmakers to lower the corporate tax rate and lower income taxes. Youngkin made the case in a speech in Richmond that his vision was fiscally responsible and would not only help families facing a bleak economic outlook, but also make Virginia more competitive in attracting new businesses.
“This budget represents the reality of the approaching economic storm. It also accounts for the need to accelerate results and the fact that our state government’s financial health has never been stronger,” Youngkin, a former private equity executive, told members of the House and Senate money committees.
The governor’s proposed changes to the 2022-2024 budget will serve as a starting point for negotiations when the politically divided General Assembly convenes in January. The spending plan usually goes through substantial changes before lawmakers send it to the governor for review and possible further changes.
Youngkin campaigned last year on a promise to cut taxes and previously signed nearly $4 billion in tax relief into law earlier this year.
This time, he’s asking lawmakers to raise the standard deduction again and lower the top bracket income tax rate, which starts at $17,001, from 5.75% to 5.5% if general fund revenue meets the forecast. His office estimates that his set of proposed changes would save the average family of four $578 a year.
His plan does not include a renewed push for a gas tax break or a complete elimination of the food tax, which was lowered earlier this year.
In addition to lowering the corporate tax rate from 6% to 5%, Youngkin also wants to create a statewide 10% business income tax credit for small businesses and “pass-through entities.”
Some Democrats raised concerns during Thursday’s meeting about those proposals. Finance Secretary Stephen Cummings defended the focus on the corporation tax rate, which he called a “headline number” and an important signal to businesses deciding where to set up shop.
The governor’s office made the case in a briefing document shared with reporters ahead of his speech Thursday that while there is growing concern about the effect of inflation, rising interest rates and the possibility of a recession next year, Virginia is still in a position to sustain another cut in tax revenue.
“As a result of a conservative budget and unprecedented balance sheet strength, the Governor is confident that the Commonwealth is in an excellent position to excel before, during and after periods of challenging economic conditions,” the document said.
He noted that the state’s rainy day fund balance is on track to reach $4.2 billion by the end of fiscal year 2024.
On the spending side, Youngkin is seeking $450 million to identify and acquire industrial properties. Youngkin has said he thinks the state needs to work harder to produce business-ready jobs that could attract a large manufacturing employer. That funding would be on top of the $150 million previously allocated to so-called “megasites” earlier this year, plus more than $100 million spent over the past decade on a series of sites with little to show for it, a summary previously of the Associated Press. found.
The governor proposed an additional $427.7 million for public education, which he said would combat learning loss caused by the pandemic and increase funding for his “lab schools” initiative.
It calls for a teacher retention bonus to be paid next August, as well as a pool of money for merit raises, proposals quickly floated by the Virginia Education Association.
Youngkin called for spending $674 million on “long-overdue Chesapeake Bay environmental projects and initiatives,” including efforts to clean up waterways that drain into the bay.
Under his proposal, the city of Richmond would receive $100 million to help solve outstanding problems with its aging combined sewer system, which carries waste and stormwater and often overflows, sending wastewater black on waterways including the James River.
The governor is also seeking an additional $230 million for initiatives to improve behavioral health services, a goal he outlined during an event Wednesday.
Republicans who control the House of Delegates praised Youngkin’s proposals.
House Appropriations Committee Chairman Barry Knight, a Virginia Beach Republican, said he thought the governor’s plan was “a great place to start.”
He said the budget was carefully crafted and the tax cuts sustainable, given that some of them come with triggers that mean they won’t take effect unless revenue projections are met.
“We know it’s a cost to the government. We know we have some excess revenue, but — you know — our crystal ball is not that far ahead,” he said.
Democrats who control the state Senate were less generous. Senate Finance and Appropriations Committee co-chair Janet Howell of Fairfax predicted Youngkin’s tax cuts would be “highly controversial.”
“We have a long list of unmet needs in the state, things that the General Assembly has been promising for years, but we haven’t delivered. So this is our opportunity to fulfill what we have already promised,” she said.
Youngkin — who has not publicly ruled out a possible presidential bid in 2024 — concluded his speech by urging lawmakers who all face elections in 2023 to work together.
“Over the coming weeks, will you be immersed in the partisan fury of an election year? Or will we all stand up together and demonstrate that, yes, we can do things?” he said.
