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Virginia budget compromise gives Gov. Glenn Youngkin partial win

Virginia Gov. Glenn Youngkin (R) leaves the House chambers in January. (Steve Helber/AP)
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Virginia teachers and state employees would receive a $1,000 bonus in the first year of the two-year state budget under a compromise bill unveiled Thursday. An earlier version of this article incorrectly reported that they would receive the bonus in both years. This version has been corrected.

RICHMOND — House and Senate negotiators working overtime on the state budget announced a deal Thursday that would provide $4 billion in tax cuts, boost salaries for teachers and state workers, and plow hefty sums into affordable housing, school construction, health and water quality.

Their proposed budget bill, which still needs approval from the full House and Senate and ultimately Gov. Glenn Youngkin (R), would give the governor a partial victory on the tax cuts he vowed to deliver on the campaign trail last year. It calls for eliminating the 1.5 percent state grocery tax, for instance, but leaves in place the 1 percent levy imposed by localities.

“The governor was briefed and looks forward to seeing the final language,” Youngkin spokeswoman Macaulay Porter said.

House Appropriations Chairman Barry D. Knight (R-Virginia Beach) and Senate Finance and Appropriations Committee Chairwoman Janet D. Howell (D-Fairfax) portrayed the deal as a true compromise — and hinted that they hoped Youngkin would not try to tinker with it too much when it gets to his desk.

“We’ve taken our time getting it right, and we think we’ve got it right,” Knight said in a late-afternoon briefing with reporters. “We think this is the best budget for the state, and we don’t think one side got over on the other side.”

Howell agreed, “We all gave.”

Knight and Howell have been trying to hash out differences in rival House and Senate spending plans since March, when the General Assembly gave up on reconciling them in its regular session and carried the legislation into a special session. The House and Senate spending plans were $3 billion apart at that point.

Virginia’s finances are in a state of unusual plenty, due in part to federal relief funding and tax revenue that has far exceeded estimates made in the darkest days of the pandemic. But tax policy presented a major stumbling block to an agreement.

Youngkin and the Republican-led House wanted to double the state’s standard deduction, eliminate the full 2.5 percent tax on groceries, exempt $40,000 of military pensions, suspend a scheduled increase in the gasoline tax for one year and grant a three-month gas-tax holiday.

The Senate, under narrow Democratic control, wanted to wait a year to allow for a comprehensive review of the tax system before adjusting the standard deduction, nix the state’s 1.5 percent portion of the grocery tax while still allowing localities to impose the remaining 1 percent, and leave the gas tax alone, arguing that oil companies are unlikely to pass any savings on to consumers.

Youngkin and the House got much of what they wanted on taxes, but not all. The compromise would substantially boost the standard deduction but not quite double it, increasing it from the current $4,500 for individuals and $9,000 for joint filers to $8,000 and $16,000 respectively.

The tax exemption for military veterans was included, and would be phased in over several years.

But there were no changes to the gas tax, and the Senate’s position on the grocery tax won out. The upper chamber also prevailed with a change, intended to help low-income people, to make the earned income tax credit refundable.

The two-year spending plan would give a 5 percent raise each year for teachers and state employees, as well as a $1,000 bonus for them in the first year. Law enforcement, corrections staff and mental health workers would get even larger boosts in pay, at a total cost to the state of $278 million.

It would plow hundreds of millions more into higher education, water quality programs and capital projects, such as a new state police training facility, which can be paid for with cash rather than financed.

The plan also includes:

$1.25 billion to support school construction and modernization through grants and loans;

increased funding for the state’s financial reserves to bring the total to more than $3.8 billion by the end of the two-year budget;

at least $750 million to the Virginia Retirement System to address unfunded liabilities, with an additional $250 million possible contingent on state revenue;

$159 million for the Virginia Business Ready Sites program, which is intended to lure economic development requiring “megasites”;

$150 million for the Virginia Housing Trust Fund to create or preserve affordable housing, and $255 million for a new housing tax credit program;

an additional $1.4 billion for health and human services, including nearly $700 million to increase Medicaid provider rates for dentists, personal care, nursing facilities and other services, and $217 million to expand community-based mental health services.

Knight and Howell laid out the broad outlines of the deal in a late-afternoon briefing with The Washington Post and the Richmond Times-Dispatch. The full bill is not expected to be available online until the weekend, days before the House and Senate are set to vote on it Wednesday.

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Legislators launched the special session in April to consider the budget on orders from Youngkin but promptly went home because there was no compromise to vote on.

Negotiators have said for some time that they were close to a deal but had given no public indication of whether they were leaning toward more tax cuts, more spending or somehow splitting the difference.

Although 14 legislators were named budget negotiators, most have been on the sidelines. Just three — Knight, Howell and Sen. George L. Barker (D-Fairfax) — have taken active roles in the negotiations.

The tighter-than-usual circle was a source of frustration for some legislators — and the subject of jokes in Richmond on Thursday at a political roast and annual fundraiser for the Virginia Public Access Project, a nonpartisan tracker of money in politics.

“I know that everyone in this room is wondering when we’re going to get to the budget,” Kelli Lemon, a local entrepreneur and Richmond Times-Dispatch video journalist who emceed the luncheon, said to hundreds of legislators and lobbyists. “Perhaps we should lock the doors and hold Barry Knight hostage until we get one.”