A New Fiscal Year for the Old Dominion

Written By: Jordan Rodell, Legislative Issue Manager and John Foulkes, Senior Legislative Policy Analyst

After three months of negotiations, a 60-day legislative session that ended March 12, and two one-day special sessions in April, the Virginia General Assembly has still not passed its 2022-2024 budget. The Republican-controlled House of Delegates and Democratic-controlled Senate remain at loggerheads over a few key policy issues. Each chamber passed a proposed budget in February, but these budgets held a difference in $2.8 billion, due principally to differences on the tax policies proposed by Governor Glenn Youngkin (R) and proposed spending on the state’s behavioral health and education systems. Tracking the status of these potential outcomes and agreements will prove difficult due to the traditional budget-deal makings for which Richmond is known.

Senate and House lawmakers charged with leading budget negotiations, including Appropriations Committee Chairman Delegate Barry Knight (R-Virginia Beach) and Senate Finance Committee Chairwoman Senator Janet Howell (D-Fairfax), have been optimistic that they will reach a compromise before the current fiscal year ends on June 30. Senator Adam Ebbin (D-Alexandria) said the legislature has “plenty of time” to pass a two-year budget before the current fiscal year ends. However, there remains significant policy differences between House Republicans, Senate Democrats, and the Governor. 


Youngkin Tax Proposals Face Senate Democrats

Tax relief was at the center of Youngkin’s campaign for the Governorship and is now a focal point for the budget negotiations. The Governor’s proposals would double the standard deduction and repeal the 2.5% sales tax on groceries. Doubling the standard deduction has been rejected by the Senate, but the chamber did partially endorse a decrease of the grocery tax. The Governor’s plan to suspend the fuel tax for three months while capping future increases for inflation were also rejected by Senate Democrats. In addition, Governor Youngkin and the House are pushing for taxpayer rebates, which Senate Democrats have reportedly endorsed, albeit at a lower rate. In turn, the House and Governor do not support the Senate Democrats’ proposal to make a portion of the earned income tax credit refundable.


Virginia’s Spending Priorities 

Senate Democrats and House Republicans are conceptionally aligned with the need to lower taxes and increase funding for behavioral health and education systems. The differences come in a measure of degrees, as Democrats and Republicans differ on how much to tax and spend. Broadly, Democratic policy would favor providing a larger share of resources to the state’s mental health and education systems. In contrast, Republicans favor prioritizing these funds for tax relief. 

The state’s mental health institutions have experienced a mass flight of trained staff over the course of the past two years, leaving many public mental health hospitals unable to safely fill all their beds. The initial Executive Budget, proposed by outgoing Governor Ralph Northam (D) in December 2021, included more than $560 million in new spending on behavioral health, which would provide funding to raise the salary of front-line hospital staff to the 75th percentile of the labor market, to retain and recruit staff. The House reportedly supports policies to raise Medicaid reimbursements for private providers of community services, and higher compensation for mental health staff, though its proposed budget does not provide funding to provide front-line hospitals with the 75th percentile of pay, which members of Governor Youngkin’s administration have stated is necessary.

House Republicans’ initial budget would place front-line hospital staff within the 50th percentile of pay, and Governor Youngkin has campaigned on reforming the state’s behavioral health systems. The Governor’s spokesperson, Macaulay Porter, was reported by the Richmond Times-Dispatch as stating that the administration is looking, “to find long-term solutions to ensure that care is accessible and there are much-needed improvements to state hospital services and community mental health services." 

Fixing the state’s behavioral health infrastructure has been labeled a priority by both parties, and Senate Democrats entered the General Assembly’s 2022 session by explicitly advertising their priority to “support our public schools.” Reflecting that initiative, the Senate is proposing a 10% salary increase for teachers over the next 2 years and a $1,000 bonus for educators, state employees, and state-supported local employees. 

The House budget offers an 8% bonus to educators over the next two years. Governor Youngkin has also pushed for an expansion of k-12 “lab schools” in the state, which partners with, or are run by, colleges and universities to create new, innovative curriculums.

Governor Youngkin reportedly called for a “bigger investment” in early childhood education than what the House version offers. In comments to the media the Governor stated, “I’m committed to a bigger investment, and I do believe that’s what we’re going to see come out of the budget when it comes to me.” Quality of education in the state was a major theme of Governor Youngkin’s election, and his recent comments signal that the final budget might be closer to Democratic proposals than that of Republicans. 

As the political parties continue negotiating, it is a positive sign that neither side is categorically refusing to either cut taxes or increase spending, but instead are arguing over the degree of funding these policies will receive. These differences will be shepherded through Virginia’s budget process, a procedure that can be difficult to track due to instances of non-transparency.


New Budget Priorities Meets an Old Budget Process

Virginia—like 19 other states—operates under a two-year budget cycle. The budget is created in even-numbered years, with a supplemental budget being created in odd-numbered years. The process begins with the Governor preparing a proposed budget for introduction to the General Assembly. A series of public hearings are then scheduled around the state to discuss the proposed budget. 

Once the proposed budget has been officially introduced in January, the House Appropriations Committee and Senate Finance Committee start on their independent assessment of the document. The budget bill is considered on the House floor under the “one objection rule.” This rule requires the bill, with its proposed amendments, to be adopted as a block except for specific amendments that members object to and request to be considered separately. 

After the budget bill is approved by the House, it is transmitted to the Senate. By custom, the Senate rejects the House budget, which opens the door for a Committee of Conference to be appointed. Budget conferees, generally four senior members from the Senate Finance Committee and four from the House Appropriations Committee, are charged with resolving all the differences between the House and Senate budgets. Once a compromise budget is agreed upon, legislative rules require 48 hours to pass from the document’s presentation to the General Assembly and a final vote to allow a brief period of public review. 
Lawmakers must pass the budget before June 30 of every year to avoid a government shutdown. In 2014 the budget was not approved until June 23 as former Governor Terry McAuliffe (D) sparred with Republicans who opposed his push to expand Medicaid.

Historically, the budget has passed without a government shutdown. However, in the past five years, a special session to pass the budget has been called in 2018, 2020, 2021, and now in 2022. The increased number of special sessions appears to have come alongside growing partisan polarization in the state.  


More Special Sessions and Less Public Hearings

To avoid the rancor caused by partisan priorities gaining or losing funding, many legislators acting as negotiators have chosen to hold talks behind closed doors without calling an open meeting for the public or the media. “That’s what has always worked here at the legislative branch,” Delegate Knight told the Virginia Mercury of the backchannel negotiations through which budget deals are usually worked out. 

Delegate Knight’s Senate counterpart, Finance Committee Chairwoman Senator Howell agreed, also telling the Virginia Mercury, “Traditionally, the budget conferences are kept private…Otherwise, it’s almost impossible to make any progress.” Though state law necessitates meetings of legislative conference committees to be subject to open-meeting rules if enough members attend to make a quorum, budget conference committees operate differently. According to the executive director of the Virginia Coalition for Open Government, hearings featuring the budget negotiators neither provide public notice nor an agenda of what will be discussed. Statutory rules do not reflect practice in Richmond. Lawmakers can speak one-on-one with members of the opposing party to negotiate to try to get their priorities passed. As a result, late-breaking compromises on legislation are frequently made through informal conversations, either in the halls of the Capitol or via emails and text messages.


What Happens Next?

The negotiators could spend much of the coming weeks deciding upon funding for specific programs. Or the negotiators could come to a consensus as early as the first week of June. There is no magic 8-ball: when the compromised version of the budget can be expected for release is unknown to the public. When the budget is finally published, the timing will likely surprise outside observers as much as it does some members of the General Assembly.