Governor Youngkin presented his proposed amendments to the 2024-2026 biennium budget to the “money committees” on December 18, telling legislators that “Virginia is roaring,” with a healthy economy that supports an upward adjustment to the revenue forecast. The Governor touted a series of achievements, thanked the legislature for its partnership, and encouraged members to build on recent efforts to reduce taxes and invest in critical needs. The Governor’s “Keep Virginia Winning” budget expects $2.1 billion in additional revenue in FY 2025 and $1.1 billion in FY 2026, relative to revenues assumed in the current biennium budget, which was built around a December 2023 forecast that expected a mild recession. The revised forecast presented on Wednesday projects 4.1 percent General Fund revenue growth in FY 2025 and 2.5 percent growth in FY 2026.
Tax relief is again a key focus of the Governor’s proposed budget, as the Governor encouraged legislators to continue to work to lower the cost of living, with a proposal to establish a car tax credit (discussed further below) as the centerpiece of his tax reform package. Additional tax policy proposals include exempting cash tips (cash payments and electronic tips) from state income taxes; making current levels of Virginia’s standard deduction for income taxes permanent (the increases enacted in recent years are scheduled to expire on January 1, 2026, absent legislative action); and allowing market-based sourcing for the attribution of income for purposes of corporate income taxes for service sector companies that operate in multiple states.
VACo staff are reviewing the introduced budget and will provide a detailed analysis soon. Following is a preliminary, high-level overview of major items of interest:
Car tax credit
- Deposits $1.1 billion in FY 2025 to fund a new Car Tax Credit, a refundable income tax credit for taxable years beginning January 1, 2025. The credit would be available to an individual whose federal adjusted gross income does not exceed $50,000, or to married persons filing a joint return whose federal adjusted gross income does not exceed $100,000. The credit is capped at $150 for single filers and $300 for married persons, or the amount actually paid in personal property tax on qualifying vehicles, whichever is less. If a locality increases its personal property tax rate on qualifying vehicles by more than 2.5 percent above the rate it imposed the prior year, taxpayers in that locality do not qualify for the credit. The $1.1 billion deposit would fund the credits for taxable years beginning January 1, 2025 and before January 1, 2028.
School capital
- Increases funding for the School Construction Assistance Program by $290 million over the biennium ($140 million over the biennium from expected gaming revenues and $150 million in FY 2025 from the Literary Fund).
K-12
- Does not include additional funding for recommendations from JLARC’s 2023 study of K-12 funding.
- Includes a series of technical amendments to capture updates in average daily membership, categorical and incentive program costs, English language learner data, Lottery proceeds, participation in certain programs, and sales tax distribution.
- Provides $61 million in FY 2025 and $5 million in FY 2026 for a new student assessment contract, pending a report on the planned cost.
- Provides $50 million in FY 2025 for infrastructure, technical training, and evidence-based supports for schools identified as “needing intensive support” or “off track” under the Board of Education’s School Performance and Support Framework. Also provides $250,000 in FY 2025 and $1 million in FY 2026 for regional support specialists focused on math, literacy, and science to assist schools so identified.
- Establishes the Virginia Opportunity Scholarship Program with $50 million in FY 2026; the Program will provide grant awards for qualified students to support certain expenses of attending an accredited private school in the Commonwealth.
- Deposits $25 million in FY 2025 to the College Partnership Laboratory School Fund for the design, launch, and operation of college partnership laboratory schools established by a Historically Black College or University in Virginia.
Compensation
- Retains across-the-board compensation actions in the 2024 Appropriation Act (3 percent salary increases in each year of the biennium for state employees, state-supported local employees, and SOQ-recognized instructional and support staff).
- Provides additional funding of $130,716 in FY 2026 for salary increases due to population increases in certain Constitutional offices.
- Provides $1.4 million in FY 2026 for an additional 9.3 percent salary increase for all Sheriff’s dispatch positions, effective July 1, 2025.
Early Childhood
- Eliminates the current cap on the Local Composite Index of 0.5 for the Virginia Preschool Initiative, effective July 1, 2025. This proposal, which was also proposed in the Governor’s introduced budget in December 2023, but not adopted by the legislature, would mean that the local share would increase for this program for localities with LCIs above 0.5.
- Provides $15 million in FY 2025 to establish an early learning capital supply-building fund to make competitive grants to increase the supply of quality early learning spaces in childcare and early learning deserts; eliminates the $1 million included in the 2024 Appropriation Act for a Memorandum of Understanding with Reynolds Community College to establish a child care facility near Richmond for the benefit of state employees and appears to redirect this funding to the new building fund.
Commerce and Trade
- Provides an additional $50 million for the Virginia Business Ready Sites Program Fund in FY 2026.
- Establishes the Disaster Assistance Fund, to be used to address life, safety, and housing costs not covered by federal assistance, private donations, or insurance, and deposits $25 million from the General Fund in FY 2025 for this purpose; directs the deposit of proceeds from the December 2023 Regional Greenhouse Gas Initiative auction into the Fund (the Governor indicated in his remarks that this action would provide an additional $100 million).
- Moves $10 million in Virginia Telecommunication Initiative funding from FY 2026 to FY 2025.
- Moves $69.1 million provided for biotechnology research initiatives in the 2024 Appropriation Act from FY 2026 to FY 2025, and provides an additional $35 million in FY 2025 for investments in identified regional innovation clusters. Directs the Virginia Innovation Partnership Authority to convene a task force to review and recommend investments in regional initiatives.
Children’s Services Act
- Provides $37 million in FY 2025 and $68.3 million in FY 2026 to fund program growth. Includes language capping the state’s contribution to the program by stipulating that the rate of state reimbursement to localities for private day educational services for services provided on or after July 1, 2025, may not increase more than 2.5 percent over the rates for such services provided the previous year.
Other Human Services
- Provides $632.2 million over the biennium for forecasted growth in Medicaid.
- Includes funding and authorization for the Department of Medical Assistance Services to add coverage for services provided to Medicaid beneficiaries during short-term stays for acute care in psychiatric hospitals or residential treatment settings that qualify as Institutes of Mental Disease (such as crisis stabilization units) through a Medicaid waiver.
- Provides $35.2 million in FY 2026 for contracts with private hospitals or other qualified agencies to hire Special Conservators of the Peace to maintain custody of individuals under emergency custody orders or temporary detention orders until the individual is ready for transportation to the bed of temporary detention or is released.
- Provides $3.5 million in FY 2026 to reimburse local law enforcement agencies for time spent transporting an individual under an emergency custody order or temporary detention order. Stipulates priority for reimbursement for agencies within specified Virginia State Police divisions and agencies who must travel substantial distances to state facilities.
Natural and Historic Resources
- Deposits $26.3 million in FY 2025 from FY 2024 surplus revenues to the Water Quality Improvement Fund and the Virginia Natural Resources Commitment Fund.
- Deposits $17.4 million in FY 2025 from FY 2024 surplus revenues to the Water Quality Improvement Fund to support the Enhanced Nutrient Removal Certainty Program.
Public Safety and Homeland Security
- Includes $2.5 million in FY 2025 for competitive grants to localities for the purchase of public safety radio and communications infrastructure equipment. Grants are to be prioritized for localities with above average or high fiscal stress and that are double-distressed according to the Virginia Economic Development Partnership, and that demonstrate need.
- Provides an additional $6.8 million in FY 2025 for the School Resource Officer Incentive Grants Fund.
- Provides $5 million in FY 2026 for grants to localities to purchase protective equipment for firefighters. Grants are to be prioritized for localities with above average or high fiscal stress and that are double-distressed according to the Virginia Economic Development Partnership, and that demonstrate need.
- Includes language providing for withholding of HB 599 funding or jail per diem payments from a locality if an official in charge of a jail does not comply with lawful U.S. Immigration and Customs Enforcement (ICE) detainers and does not provide at least 48 hour pre-release notification to ICE, or if an official in charge of a jail or local law enforcement agency or sheriff’s office prohibits or impedes communication or cooperation with ICE pursuant to adoption of a local ordinance, procedure, policy, or custom.
Transportation
- Appropriates $175 million in FY 2025 in FY 2024 surplus revenues to the I-81 Corridor Improvement Program, as required by the 2024 Appropriation Act.
- Moves $84.5 million in support for the Washington Metropolitan Area Transit Authority from FY 2026 to FY 2025; reduces funding in FY 2025 by $11.1 million.
VACo Contact: Katie Boyle