Richmond – After a tense month of budget stalemate, cancelled convenings, public disagreements, and a growing concern that Virginia could face a government shut down, members of the General Assembly have approved a $205 billion budget proposal. It will now head to Governor Spanberger for a signature or amendments, which would have to be passed before the June 30 deadline.
The new budget has two principal revenue raisers: a new retail marijuana market, which includes a 6% excise tax that will gradually increase, and a new tax on data centers’ electricity consumption, capped at $600 million per year. The data center sales tax exemption, which the Senate had fought to end early, remains intact through its scheduled 2035 expiration, though a joint subcommittee will study the question and report back to lawmakers by December.
But the budget highlights a larger problem: Democratic leaders in Virginia continue to say that affordable child care, affordable housing, and strong public schools are top priorities while refusing to pursue the revenue needed to fully deliver on those promises.
“There’s a frustrating disconnect between what Virginia politicians say and what they’re willing to do,” said Ashleigh Crocker, Interim Executive Director at Progress Virginia. “Democrats agree we need more affordable housing, more affordable child care, and stronger public schools. But when it’s time to raise the revenue to pay for those things, too many of them go silent. Virginians didn’t elect a Democratic trifecta to spend months arguing over scraps. They elected one to solve problems. The money to do that exists. What’s been missing is the willingness to go get it. If lawmakers aren’t willing to ask millionaires and mega-wealthy corporations to pay more, they should stop pretending affordable housing, affordable child care, and fully funded public schools are serious priorities. “
During the regular session, lawmakers failed to advance a Fair Share Tax proposal which would have established a new income tax bracket taxing income over $1 million at 10%, compared to the 5.75% rate that nearly everyone in Virginia currently pays, whether they teach preschoolers or manage a hedge fund. Revenue from the Fair Share Tax would have been directed to public schools, the Child Care Subsidy Program, and the Virginia Housing Trust Fund. According to analysis from The Commonwealth Institute for Fiscal Analysis, a 10% rate on income over $1 million would raise over $5 billion over the upcoming two-year budget, more than three times what the data center consumption tax is projected to bring in.
Between that and leaving in the data center sales tax exemption, those decisions mean Virginia is leaving billions of dollars on the table while communities across the Commonwealth struggle with rising housing costs, childcare costs that eat up whole paychecks, overcrowded classrooms with overwhelmed teachers, and unmet public needs.
Background:
The budget passed the Senate 23-16 and passed the House 71-22.
Wins in the budget:
- New electricity consumption tax targeting data centers’ energy use (capped at $600 million per year), described by Governor Spanberger as a first-in-the-nation approach
- Study of data center water usage and noise impacts, with new regulations for data centers in some regions beginning after July 1, 2027
- 4% raises for teachers and 3.5% raises for other state employees in each of the next two fiscal years
- Establishment of a long-awaited retail marijuana market repeatedly vetoed by former Governor Youngkin (up to 350 stores statewide, opening July 1, 2027)
- Additional funding for ACA subsidies
- Funding for free clinics and community health centers
- Contingency funding to buffer SNAP recipients and social services against potential federal cuts
- Authority for localities to enact a 1% sales tax to fund school construction
- $60 million for housing initiatives, including $40 million for the Housing Trust Fund and $20 million for a mixed-income housing pilot
- $137.6 million to help families earning below the Virginia median income access child care
Other concerns with the budget:
- The data center electricity consumption tax will bring in roughly half the revenue that ending the full sales tax exemption would have generated, and does not come with comprehensive statewide environmental standards: different parts of Virginia will receive different levels of protection based on existing weak points.
- Significant increases in fines for public marijuana consumption. A Justice Forward VA analysis shows that since marijuana was decriminalized, this charge has been disproportionately used against Black Virginians, and higher fines risk deepening that disparity