The new fiscal year has started, and Virginia’s lawmakers have (so far) failed to reach an agreement on how to spend the commonwealth’s revenue surplus. 

Leaders in Virginia’s Republican-controlled House of Delegates and Democratic-majority state Senate failed to reach a budget agreement by July 1, which kicks off the state’s new fiscal year, and there’s no indication of when or how lawmakers and the governor might come to an agreement.

Gov. Glenn Youngkin and his allies in the House have insisted that amendments to the state’s budget include roughly $1 billion dollars in permanent tax cuts; these would be in addition to the $4 billion in tax cuts that Republicans and Democrats agreed to last year. Democrats in the Senate want to instead spend that money on chronically underfunded K-12 education, higher education, and mental health. 

Lawmakers have been in this budget stalemate since the end of the General Assembly session in February, when budget conferees from the House and Senate were unable to reach an agreement on how to amend the state’s two-year budget to spend Virginia’s revenue surplus. According to state Sen. Creigh Deeds, the Senate conferees wanted to give taxpayers a one-time tax rebate totaling $500 million, but this suggestion was rejected by the House conferees. 

Negotiations slogged on from the end of February through June, but issues like the now-resolved federal debt ceiling stalemate and legislative primaries prevented lawmakers from making meaningful progress until very recently.  

But with the primaries finished, lawmakers returned to in-person negotiations during the last week of June. Senate negotiators upped their tax rebate proposal to $670 million in their quest to reach an agreement with House Republicans, but the GOP rejected this proposal, too.

The Senate then reportedly gave even more ground to House Republicans’ demands, essentially agreeing to the tax cut amount the House and the governor wanted. The Senate refused, however, to make those tax cuts permanent. The House conferees rejected this Senate proposal, too, and ended deliberations. Deeds described it as “a disappointing end to some of the most critical work of the legislature.”

Deeds and Republican Del. Terry Austin both told WDBJ that they remain optimistic that the sides will reach an agreement. The governor is rumored to be planning to call the legislature into a special session during the week of July 11, essentially forcing lawmakers to return to the table.

The unresolved state budget is creating fiscal uncertainty at the local government and school board levels, which are scrambling to set budgets for the coming year without knowing how much money they can count on receiving from the state.