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Last Northam budget proposal includes tax relief, pay raises

Ralph Northam
Posted at 12:13 PM, Dec 16, 2021
and last updated 2021-12-16 12:42:42-05

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 growing. 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.

“The budget I propose to you today will leave a roadmap to continue the strong economic success that we are seeing. We will keep making the investments that Virginia needs, and we will keep putting resources into supporting Virginians who need it,” Northam said in prepared remarks.

Northam, who like all Virginia governors was prohibited from serving a second consecutive term, will leave office in January.

It's standard for even the 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 but did not discuss the specifics of the budget proposal, which contains several key campaign pledges of Youngkin's.

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 officials, to address both starting pay and pay compression over time.

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. While Northam campaigned on the issue in 2017, he has not prioritized it since. Ending the tax was a key campaign pledge of Youngkin's.

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, the full text of which was not immediately available for review, 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.

Flores said the administration thought previous rounds of 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.

Youngkin has said the record revenues are due to overtaxation and called for more expansive tax cuts than what Northam laid out.

The 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; and grant $500 million to localities for school construction and renovation.

It would also allocate $150 million to develop 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. 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.

The General Assembly will convene Jan. 12 and Youngkin will be sworn in three days later as Virginia’s 74th governor.