Vetoes add wrinkles to budgeting Virginia Democrats spar with governor over money to pay looming bills

STATE FINANCES

Big bills are coming due in Virginia from steep federal cuts in funding for Medicaid and food assistance, as well as higher health insurance costs for state employees, but Senate Democrats and Gov. Abigail Spanberger are battling each other over how to pay for them.

Hours after Spanberger proposed hundreds of changes to legislation passed by her fellow Democrats, members of the Senate Finance & Appropriations Committee demanded on Tuesday that the governor explain how she intends to find revenue to pay for an estimated $1.8 billion to $2.6 billion in higher costs for Medicaid and the Supplemental Nutrition Assistance program under the massive federal tax cut package that President Donald Trump signed into law last summer, as well as ensure a public safety net for an estimated 100,000 to 300,000 Virginians expected to lose health care coverage under the law.

In addition, they heard that the state employee health plan faces a potential $115 million deficit under the budget proposed last year by then-Gov. Glenn Youngkin.

Legislators faulted Spanberger for opposing their budget proposal to repeal a sales tax exemption on purchases of data center equipment that could free $1.9 billion in state and local government revenue, while vetoing legislation for legalizing and taxing electronic skill games that the House of Delegates was counting on for $256 million in its version of the two-year budget.

"You've taken skill games off the table. What's on the table?" Sen. Creigh Deeds, D-Charlottesville, asked Secretary of Finance Mark Sickles, D-Fairfax, in a sometimes-testy hearing Tuesday morning.

Sickles, a former House budget negotiator, answered, "I think the administration might be open to new revenue sources, but we have no plan, no public plan, to raise taxes."

However, he also chided the Senate committee for failing to meet with its House counterpart for more than a month to hammer out a budget compromise, with a deal in doubt in time for a special session scheduled for April 23.

"If the (budget) conferees would meet and start working together, maybe we would find a compromise," he said. "I think we need to start doing our work."

The budget conference committee - six delegates and five senators from both political parties - has not met as a group since having breakfast with Spanberger on March 6, eight days before adjourning the 60-day assembly session without a budget to replace the one that will expire June 30.

House Appropriations Chairman Luke Torian, D-Prince William, acknowledged the challenge of replacing money from taxes on skill games in the House budget after the governor's veto of the legislation to legalize the industry.

"I don't know what the full impact of it is going to be until we start meeting," Torian said in an interview Tuesday.

The main obstacle has been the Senate's insistence on repealing the 16-year tax break for data centers, which the House and the governor oppose because of concern about its potential damage to Virginia's economy and its business reputation in a highly competitive market for economic development.

Senate Finance Chair Louise Lucas, D-Portsmouth, cited Sickles' own concerns about the Virginia economy - fewer jobs because of Trump's cuts to the federal workforce and spending, fewer Virginians in the labor force and rising costs for consumers - as reason to repeal a costly tax exemption for a wealthy industry.

Lucas said with the extra money, as well as more than $700 million in excess revenues the state has collected in the first nine months of the fiscal year, the proposed Senate budget would provide one-time income tax rebates and a larger standard deduction to taxpayers, as well as additional raises for teachers and state employees.

"Hard-working Virginians need tax relief, teachers and public safety officers need raises, Virginians need assistance with health care premiums, and data centers need to pay their fair share," she said in a statement at the outset of the meeting.

Bob Holsworth, a veteran political analyst and policy consultant in Richmond, said he has been surprised by Spanberger's attempt to fault the legislature for the budget impasse, while Lucas refuses to budge and Torian defers to the data center industry to reach a deal with the Senate.

"It seems to me that this is a generalized abdication of responsibility," Holsworth said.

Sickles, under questioning from Sen. Mark Obenshain, R-Rockingham, said the data center industry is the main business sector keeping Virginia's economy afloat, with an estimated $140 million a year in income tax revenues potentially disappearing because of more than 20,000 federal government jobs lost in Virginia under Trump and about 9,900 fewer jobs in professional and business services, a sector associated with federal contractors and the state's major source of income taxes withheld from paychecks.

He estimated that Virginia's data center industry - the largest in the world - represents about $9 billion in state domestic product and more than 80% of the new capital expenditures made in the state in the past four years.

"That's why we oppose making such an abrupt change," he said. "There's no question there needs to be reform (of the tax exemption) going forward."

Senate Majority Leader Scott Surovell, D-Fairfax, who reacted angrily last week after Spanberger vetoed his bill to allow a voter referendum on a proposed casino complex in Tysons Corner, estimated that the governor had proposed almost 200 amendments to bills that the assembly approved, including some that represent "new policy positions that were never discussed in committee." Some, such as the skill games veto and a proposed delay in the creation of the regulated cannabis market, would reduce revenues available for the pending budget.

"It's pretty hard to legislate when the governor doesn't ever let us know her position on anything," Surovell complained.

"We're trying to figure out a budget in a constrained time frame at this point, and it would be really helpful if the governor would let us know what her position is, so we don't find out after we've gone through all the work of putting it together," he said.

Sickles acknowledged the effect of unexpected vetoes and proposed amendments, but he said, "She did her part. Now, you can take what she offered up, and you can accept it or not accept it."

"I would encourage you to read it and look at it from a good government policy perspective, and maybe you'll find that it makes sense," he said.

Sen. Aaron Rouse, D-Virginia Beach, who sponsored one of the skill game bills that Spanberger vetoed, also pressed Secretary of Health and Human Resources Marvin Figueroa on how the governor proposes to find billions of dollars to offset the potential costs of administering the Medicaid and SNAP programs that Trump and the Republican-controlled Congress have shifted onto states from the federal government.

"If we're ... going to face a $1.8 billion to $2.6 billion in lost revenue, I'm just curious of how the administration wants to make up that loss ... if we take any revenue sources off the table, so to speak, while we're trying to figure out a budget," Rouse said.

He didn't expect an answer, for which Figueroa said he was grateful.

"Nobody wants to answer that question," Lucas said.

Michael Martz (804) [email protected]