Divisions over tax cuts derail Virginia budget talks

RICHMOND, Va. (WRIC) – Virginia’s budget talks fell apart Tuesday, prolonging an ongoing impasse between lawmakers over Gov. Glenn Youngkin’s proposal for $1 billion in tax cuts and keeping a $3.6 billion surplus on the sidelines.

After lawmakers passed a so-called “skinny” budget deal, Republican and Democratic budget negotiators resumed talks on revisions to the state’s two-year budget plan Monday to iron out key details.

Del. Barry Knight (R-Virginia Beach), chairman of the Virginia House Appropriations Committee and top GOP budget negotiator, said he outlined a deal in February that his Democratic counterparts in the state Senate backed before pulling support Tuesday.

“We had a deal from my perspective,” Del. Knight told 8News in an interview Wednesday. “They walked it back.”

Knight said he got rid of Youngkin’s proposal to cut the corporate tax rate by 1% – a plan that state Sen. George L. Barker (D-Fairfax), co-chair of the Senate Finance Committee, told 8News was “clearly off the table” in April.

According to Knight, the informal deal was a $900 million plan including tax cuts, one-time tax rebate checks, increasing the standard deduction for income taxes and updating Virginia’s income tax brackets along the lines of recommendations from the state’s legislative watchdog agency last October.

Knight said he held off on sharing details about the deal due to a tough primary challenge Barker was facing, telling 8News that he told Barker that he would wait until after the June 20 primaries to move forward with the talks and that the Democratic state senator said he would “really appreciate” it if they could.

Sen. Barker did not respond to multiple calls and messages from 8News, but The Washington Post reported that he acknowledged that his primary — which he lost — played a part in the delayed talks.

Budget negotiators have been adamant that they are in no rush to find a deal, pointing out that Virginia operates on a two-year budget plan and that the state’s spending plan is in place until the end of next June unless changes are made so there’s no threat of a government shutdown when the next fiscal year begins on July 1.

But with $3.6 billion in surplus funds still unallocated, the budget impasse has led to concerns for school districts that need a clear financial picture to properly finalize their budgets.

During the 2023 legislative session, House Republicans backed Youngkin’s proposals to cut the corporate income tax rate from 6% to 5% — a move his administration said would help entice companies to Virginia — and reduce the top income tax rate from 5.75% to 5.5%.

Senate Democrats haven’t dismissed all of the proposed tax cuts but have been clear about their opposition to the corporate tax cut — the reason why that proposal was scrapped. They believe the $3.6 billion surplus Youngkin has touted as a way to pay for both tax cuts and make investments in education and mental health should fund other initiatives.

Knight said the parameters of the deal he proposed didn’t change in four separate meetings he had with Barker and state Sen. Janet D. Howell (D-Fairfax), co-chair of the Senate Finance and Appropriations Committee.

Barker and Howell both agreed to the terms of the compromise before Barker said he never agreed to any deal Monday, Knight claimed Wednesday.

“I know he did. Janet [Sen. Howell] will confirm he did,” Knight told 8News. “The staff will confirm he did, but that’s fine.”

Howell’s office did not respond to a request for comment Wednesday. Knight told 8News that Howell — who decided to retire and not seek re-election — is in Japan.

Knight said he tried to present his proposed deal to Senate budget conferees but was told he couldn’t, claiming that Barker “wanted to be the gatekeeper.” Barker told the Virginia Mercury that he didn’t think it was appropriate to have Knight “come in and try to say things that are not necessarily completely true.”

Democrats’ proposal, Knight said, included investments in public schools and the state’s behavioral health system, doubling the one-time rebate checks from $100 to $200 for individual filers and from $200 to $400 for joint filers.

Knight claimed that he later learned that Barker “didn’t have the authority” to agree on a deal without approval from the conferees and Virginia Senate Democratic Caucus. “That’s not the way we operate in the House,” Knight told 8News.

Virginia Democrats shared statements on the budget negotiations Thursday, criticizing Republicans for their proposal and touting their own.

“Senate Democrats believe in passing a budget that will invest in our schools, grow our economy, and ensure the wealthiest citizens of our Commonwealth pay their fair share in taxes,” Senate Democratic Caucus Chair Mamie Locke (Hampton). “It’s disappointing that Republicans favor tax cuts for their wealthy donors over financial stability, and would walk away from the table in the middle of ongoing negotiations.”

Youngkin voiced frustration when asked about the budget talks breaking down and the possibility of calling a special session for lawmakers to work on a deal.  

“I am so disappointed that I do not have a budget on my desk, and I candidly believe that this is a massive failing from the leadership in the Democrat party in the Senate,” Youngkin told reporters in Richmond on Tuesday, according to a transcript from a spokeswoman. “We have been ready. We’ve been waiting.”

Youngkin, who added that the surplus will allow Virginia to provide tax cuts and make needed investments, is “currently evaluating next steps” on a special session, according to a spokeswoman.

While the two sides appear far apart amid the public dispute, Democrats and Republicans both said they are prepared to get back to the drawing board and reach a deal.

“Senate Democrats are ready to get to work on a budget that serves the people of Virginia,” state Sen. Creigh Deeds (D-Charlottesville), a Senate budget conferee, said in a statement Thursday.

“I really do think we would be better served if we waited for Janet Howell to get back from Japan to have her in because I’ve always found Janet to be an extremely truthful and honorable person and I would just rather she got back,” Knight told 8News. “But I’ll meet any time.”