RICHMOND, Va. — Virginia's top budget negotiators said talks are moving forward and "meaningful progress" is being made toward a final deal on the state's two-year budget — but lawmakers are set to wrap up the General Assembly's regular session Saturday without an agreement in place.
The central dispute is over a sales tax exemption for data centers.
The Senate has proposed eliminating the exemption entirely, arguing that the tax break has grown far beyond what was originally anticipated.
A fiscal impact statement from 2008 estimated the exemption would amount to $1.5 million. But a recent state report found data centers purchased over $33 billion worth of equipment in the last fiscal year — saving $1.9 billion in taxes.
But House leadership and Gov. Abigail Spanberger are opposed to the idea, saying Virginia should not go back on promises it made to businesses that chose to build in the Commonwealth. The exemption is set to expire in 2035.
"I think when you give your word, and you make a commitment, and you partner, you have a business partner, you honor your word. That's the integrity of the Commonwealth, and I think all of us can agree on that," said lead House budget negotiator Del. Luke Torian (D-Prince William) on Friday morning.
But on Friday afternoon, Torian and Sen. Louise Lucas (D-Portsmouth) held a news conference where they said they were making progress on the issue.
They would not say whether a compromise has been reached on the exemption, but both said they are committed to making sure data centers pay their fair share.
"I don't think that the exemption is the question. I think the question is that Madam President wants to see more revenue coming from the data center," said Torian.
"I want to make sure that the data centers pay their fair share of the tax. That's where we are and that's the end toward which we're working," added Lucas.
WATCH: Gov. Abigail Spanberger says Virginia data centers should 'pay their fair share'
Lucas was asked if that meant they were discussing a consumption tax, which is something Spanberger has suggested earlier in the week.
"I'm not sure what the mechanism is going to be, as long as we're able to get that money from the data centers. And I've had several conversations with them over the last few days and we've been making a lot of progress in terms of how we get there," Lucas said.
Torian echoed that sentiment, though stopped short of defining what a final number might look like.
"Fair share is going to be the number that they come back with to us that we feel comfortable agreeing with," Torian said.
Neither Lucas nor Torian said how long it would be until a final agreement is reached. If a deal cannot be reached in time, lawmakers would need to return to Richmond for a special session.
In response to Torian and Lucas' comments, the Data Center Coalition (DCC) said its members have served as a resource for lawmakers during the budget talks "for information and insight about digital infrastructure investment, economic impact, operations, and market competition".
“Over the last two years the data center industry has invested $80 billion in Virginia, generating more than $5 billion in tax revenue while supporting tens of thousands of jobs across the state. The state’s own studies say that data center investments, jobs, and tax revenues could stop, existing companies could leave, and the state and its localities could lose $1.3 billion in tax revenue with the elimination of Virginia’s tax exemption program," said DCC Director of Virginia Government Affairs Nicole Riley. "Three-quarters of states offer a similar program to Virginia’s because of its success, including all of our neighbors and competitor states. McKinsey anticipates that $6.7 trillion will be invested in data center infrastructure globally through 2030, with a substantial portion sited in the US. We are encouraging policymakers to adopt policies and budgets that ensure the Commonwealth will remain a competitive market for responsible investment, growth, and operations in the years ahead.”
While missing the end of the regular session is not unprecedented, lawmakers must pass a budget before the new fiscal year begins on July 1.
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