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Northam proposes new taxes on tobacco and gasoline, leaves income-tax rates untouched

Virginia Gov. Ralph Northam (D) in February.
Virginia Gov. Ralph Northam (D) in February. (Katherine Frey/The Washington Post)

RICHMOND — Gov. Ralph Northam proposed new taxes on tobacco and gasoline, along with eliminating the state's requirement for a yearly vehicle inspection, in a two-year, roughly $135 billion spending plan unveiled Tuesday morning.

The budget that Northam (D) presented to the General Assembly's money committees makes sweeping investments in public education, protecting the environment and training the workforce. It would not alter the state's income tax to pay for them, but it would let lapse a refund mechanism that Republican leaders built into this year's budget, which gave Virginia taxpayers a $110 rebate to offset changes in federal tax law. That money would go back into the general fund.

Otherwise, Northam is counting on continued growth in tax revenue, banking on a strong state economy that he said was a credit to both political parties. He proposed putting historic amounts into the state’s reserve funds to guard against trouble and protect the state’s prized triple-A bond rating.

Northam said the spending plan gives voters what they demanded in November when they flipped the state House and Senate from red to blue, giving Democrats control of both the executive and legislative branches for the first time in a generation.

“They told us that they want jobs that they can support themselves and their families with,” he told reporters. “They said they wanted their children to have access to a world-class education. They want access to affordable and quality health care. They want us to move toward renewable energy. They want safe communities. And that’s what this budget addresses.”

At the same time, Northam and his staff defended the spending plan as fiscally responsible.

“It’s the most progressive budget that Virginia’s ever seen, but it preserves basic financial integrity,” Northam spokesman Grant Neely said. “Governor Northam has figured out a way to do both at the same time.”

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To sweeten the deal, Northam included $200 million in unallocated funds that lawmakers can use for priorities of their own — a sign of the excitement Democrats feel about the chance to consolidate power.

“This is the governor recognizing there is new leadership . . . and there may be different priorities than the old leadership had,” said Virginia Finance Secretary Aubrey Layne.

Northam can still veto anything lawmakers decide to do with that money. For their part, lawmakers could amend his whole budget into oblivion if they wanted to do so.

Republicans’ leader in the Senate, Thomas K. Norment Jr. (R-James City), described Northam’s plan as an “altruistic wish list” that is unlikely to fly even with Democrats in control of the legislature.

“Santa Claus Northam is going to have to get a second sleigh to carry all of these presents and goodies that he wants to extend to the citizens of the commonwealth of Virginia,” Norment told reporters. “The good news is, we have a separation of powers.”

Yet Norment said he was open to raising the cigarette tax, which he described as “potentially a positive thing.”

Republican House leader Todd Gilbert (R-Shenandoah) called Northam’s decision to scrap the taxpayer rebate “disappointing.” But he praised Northam’s emphasis on K-12 education as “laudable” and said Republicans “look forward to working together with the incoming majority.”

Democrats were predictably upbeat. Del. Eileen Filler-Corn (D-Fairfax), chosen by her caucus as the speaker-designee for the upcoming session, praised Northam for delivering “the progress Virginians voted for in November in a financially restrained fashion that preserves and strengthens Virginia’s economy.”

Northam has spent the past week previewing components of his spending plan. He proposed $22 million to fight racial disparity in the mortality rate among women during childbirth; $95 million for early-childhood education; $733 million for cleaning up the Chesapeake Bay and other environmental issues, although most of that spending would be bond-financed; and $145 million to make community college tuition-free for low- and middle-income people seeking skills for some professions.

He also is proposing that no locality would see a decrease in its funding for K-12 education, and he would commit $145.1 million for a 3 percent pay raise for teachers.

Some education advocates complained that Northam’s budget was stingy with public schools. “The majority of the Governor’s budget is just adjusting for enrollment and inflation, with the small amount of new dollars coming from taxing the working class. Not acceptable,” the organization Virginia Educators United tweeted on Tuesday morning.

Environmental groups — which are among Democrats’ most generous campaign contributors — were ebullient. The Virginia League of Conservation Voters called Northam’s plan “the strongest budget yet for conservation, climate action, environmental justice and clean energy in 2020.”

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Northam’s staff said the budget is based on conservative projections for economic growth, with tax revenue expected to be up 4.5 percent next year and 3.7 percent the following year.

The governor proposed putting $300 million into the state’s two reserve funds to get them up to $1.9 billion by the end of fiscal 2022, or about 8 percent of the state’s budget.

His budget proposes creating a state health insurance exchange and using tobacco taxes to lower premiums for residents who participate.

Northam would double the cigarette tax to 60 cents per pack from 30 cents, which would remain among the lowest in the nation. That plus a 20 percent jump in taxes on other tobacco products would generate more than $120 million a year toward decreasing insurance premiums.

Virginia would have to seek a federal waiver to set up a reinsurance program to deliver the lower premiums.

The budget also would increase the state’s gasoline tax by 4 cents per gallon for each of the next three years and then index it to inflation, generating money to offset annual debt service for the state’s transportation fund.

At the same time, Northam proposes eliminating the requirement for an annual vehicle safety inspection and cutting the state vehicle registration fee in half, which his staff said would save Virginians $280 million over the two-year budget. His office said there is no data showing a relationship between vehicle inspections and safety.

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