Bridging a more than $1 billion state budget funding gap will be the first item on legislators’ to-do list when they return to Richmond next week.
The General Assembly’s 30-day session begins Wednesday, Jan. 11.
Just before Christmas, Gov. Terry McAuliffe (D) presented several proposed amendments to the state’s biennial budget to make up that deficit, created by revenues shortfalls. Among his ideas are a handful of tax reforms, including providing incentives for individuals to pay back taxes and making internet purchases subject to the same state sales taxes imposed on those made at brick-and-mortar retailers. The deficit will also mean that state employees will have to do without pay raises, which were contingent on a budget surplus.
All told, the governor’s proposals would bring the deficit down to about $625 million, according to Del. Thomas “Tag” Greason (R-32), who represents the Ashburn area. He is a state budget conferee, which means he is one of six delegates and seven senators who take the lead on negotiating the final budget.
“That’s still a lot of money, but it’s very, very manageable,” Greason said of the deficit. “We expect we’ll be able to cover it and protect the core services—education, mental health, public safety—without a lot of trouble.”
The best news out of McAuliffe’s proposals is that they leave funding for K-12 education whole, a decision that will be well received in the General Assembly, Greason said. “There’s agreement that we’re not going to do this on the back of any K-12 cuts.”
Higher education institutions will see a 5 percent funding cut. That is better than the 7.5 percent in savings most state agencies were required to find in their operating budgets for fiscal year 2018. Still, Greason said he and his colleagues want to keep tabs on whether that funding cut will trigger state colleges and universities to hike tuition fees. “Cost of higher education is important to me and so many others. I think that one needs a little more work,” said Greason, who has three kids.
One of the potential budget amendments that Greason and some of his Republican colleagues are less excited about is McAuliffe’s is a so-called sales tax nexus. It would require out-of-state businesses that use warehouses or fulfillment centers in Virginia to pay sales taxes on their internet sales into Virginia.
“I understand the theory behind it, but I’m worried about the long-term reaction in the market,” Greason said. “They are probably going to take those centers, that employ thousands of Virginians, and move them to a state that isn’t going to tax their distribution centers.”
Del. J. Randall Minchew (R-10), of Leesburg, has a couple of bills in mind that will likely be a part of the state budget discussion. One would drop the corporate income tax from 6 to 5 percent. Another would allow the dividends and interest income of shareholders of Virginia-based corporations to be tax deductible.
He noted that just three years ago, Virginia was ranked by Forbes as the best state for business. “But we’ve slipped since then,” Minchew said. His two tax reform bills follow similar legislation passed in North Carolina and Tennessee, which have earned them impressive ratings as business-friendly states.
“This would be for the big corporations—the big job creators. That’s who we want to attract,” the delegate said. “And hopefully, we’ll pick up a few points in the ‘best state for business’ ratings,” he said.
Minchew acknowledged that a push to cut taxes in the face of a hefty $1 billion deficit may be an uphill battle this year. But he is optimistic that the pending state income tax report will project that reducing the corporate tax rate will ultimately attract enough new corporations to offset the initial cost. “That would mean more will be paying in, and those corporations will grow and pay more dividends,” he said.
Eight public input sessions on the state budget are planned throughout Virginia. The closest to Loudoun County begins at 10 a.m. Wednesday, Jan. 4, in the Richard J. Ernst Cultural Center on Northern Virginia Community College’s Annandale campus. The address is 8333 Little River Turnpike.
Follow coverage throughout the General Assembly session at loudounnow.com/general_assembly.