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As Gov. Glenn Youngkin unveiled his 2024-26 budget proposal Dec. 20, he also paid tribute to a local lawmaker who recently announced his retirement from the state senate.

Youngkin recognized Sen. Frank Ruff, R-Clarksville, who recently won re-election to another four-year term, but is leaving the legislature to focus on his battle with cancer and his family. The governor’s remarks came in a joint session of the House Finance and Appropriations committees and the state Senate Finance and Appropriations Committee.

“When I last spoke to this group in August, we had seriously hoped that one of our most valued leaders would return for another four-year term,” Youngkin said. “I’m speaking, of course, about Senator Frank Ruff. While our commonwealth is losing a true, faithful public servant, it’s richer for the fact that he has served, and led, on so many important issues, whether that was pioneering Virginia’s Department of Workforce Development and Advancement or establishing the Center for Rural Virginia. 

The governor said that as part of his administration’s Unleashing Opportunity Budget that he is proposing an additional $350,000 per year to support the Center for Rural Virginia’s efforts. 

“I’d also ask you to join me in naming this center the ‘Frank Ruff Center for Rural Virginia’ in his name,” Youngkin said. “Sen. Ruff, we thank you.”

BREAKING DOWN THE BUDGET 

The budget item honoring Ruff is part of a budget focused on tax restructuring, reducing personal income tax, increasing sales taxes and eliminating the local car tax. 

Youngkin told legislators Virginia isn’t seeing the growth of its southern neighbors in North Carolina, South Carolina, Tennessee, Georgia, and Florida. Additionally, he said Virginia continues to see a net loss of residents to other states, while these neighbors are seeing a net increase in migration.

Virginia must compete even harder to reverse its nine straight years of net domestic population outflow, Youngkin said, putting it in the bottom third in the nation in job growth. 

“This past year, while the number of Virginians moving away versus moving here from the other 49 states has dropped dramatically at less than 7,000 for the past 12 months versus the 14,000 average over the previous nine years we are still exporting Virginians,” he said. “In stark contrast, North Carolina has net gained nearly 70,000 people per year for 10 years.” 

He pointed to the tarheel state’s reduction in its income tax as a major reason people are moving there, adding that the same is happening for many other states.

Youngkin said his plan has two components, first reducing tax burdens for all Virginians, and second, modernizing tax code, specifically our sales and use tax structure.

The governor called for reducing income taxes by 12% across the board.

“This cut reduces the personal income tax burden on Virginians by $1.1 billion in fiscal year 2025 and $2.3 billion in 2026, and is a major first step towards competing,” Youngkin told lawmakers.

THE CATCH FOR CENTRAL AND SOUTHSIDE

But there is a catch to all that. In order to drop income taxes and still pay for schools and other needs, other taxes would have to increase. 

Youngkin’s plan calls for both increasing and expanding the sales and use taxes, while eliminating local personal property taxes on cars.

He pointed out that the state is “underweighted” on its sales tax and called for changes that would levy it on a broader set of goods and services. 

“Virginia has always taxed goods, and over the last decade, the definition of goods has evolved into new economy goods like software packages, digital downloads, streaming music and videos, cloud storage and other electronic media, on which, today, Virginia collects nothing,” Youngkin said. “To be clear, we will continue to not tax “traditional services” like barbers, lawncare services, or other professional services.”

Secretary of Finance Stephen Cummings told lawmakers that the state used to receive sales tax when consumers went and bought it in a box. But now computer programs are purchased as downloads and the state has “lost all that used to tax that is now delivered online.”

He said closing this loop-hole is much like the change to tax purchases shipped to residents from other states, such as Amazon purchases.

Similar to taxing all purchases that are delivered to state even if ordered elsewhere.

As part of this change, he called for raising the state’s sales tax 0.9%, from 4.3% to 5.2%. 

Cummings told legislators the governor’s proposed changes are important because sales tax offers a reliable and sustainable tax base.

“Sales taxes are the most reliable income stream,” the secretary explained, noting this is another reason making these changes are important to the state.

Youngkin said the sales tax changes would offset the 12% reduction in personal income tax rates. An added plus the governor noted is a Longwood International visitor spending analysis that estimates tourism spending comprises 12.5% of Virginia’s sales tax collections, meaning non-residents will partially fund the income tax reductions. 

“And for low-income Virginians, eligible filers will be able to claim an enhanced Virginia Earned Income Tax Credit, equal to 25% of the federal EITC, on top of the 12% individual rate cut,” Youngkin noted.

The governor said his plan would provide $400 million in tax relief in 2025 and close to $600 million in 2026.

“And most importantly, gets Virginia moving to compete to win jobs, win people, and win opportunity,” he said.

Youngkin then called on lawmakers to join him in eliminating what he called the state’s most hated tax — the locally-imposed personal car tax.

“The Car Tax belongs in the trash can not in your mailbox,” he said in challenging lawmakers to work together to begin the complicated process of permanently eliminating it, while allowing localities to make up the revenue with an increase in the local sales tax.

CREATING JOBS

Youngkin told lawmakers that a second pillar of his biennial budget is job creation by attracting more companies to locate and expand here.

“I propose investing an additional $200 million over the biennium in the Virginia Business Ready Sites Program so that we can attract the next transformative business,” he said. “Our initial $100 million was deployed last year, and the next $150 million in our last budget amendments is well over-subscribed. This is working.”

Youngkin called on lawmakers to support increased funding for the state’s workforce programs. 

“To attract and train the best talent, my Unleashing Opportunity budget includes $15 million for our workforce recruitment program in one-time spending, $8 million over both years to ensure that students have pathways to success through the community colleges, another $4 million for Virginia’s innovative Earn to Learn nursing education program and finally $20 million total in the biennium to support internships,” he said.

INCREASED EDUCATION SPENDING

Youngkin also proposed about $530 million in additional direct aid for education over the next two years, which would then put the state spending over the biennium at $18.4 billion.

“This marks the largest education spending in any biennium in the commonwealth’s history,” he said.

The governor proposed a $53 million teacher bonus, on top of the 2% early raise in teacher salaries, starting next month that carries into 2025, and another $122 million supporting a 2% raise in 2026. 

“We also enhance flexible pathways by investing $40 million in the biennium for students to earn an industry recognized credential with their high school diploma, creating our Diploma Plus program,” Youngkin said.

He said the budget would continue to fund $75 million each year for higher education to maintain affordable access but requiring goals and accountability in year two, along with continuing investment of $37.5 million in financial aid for Pell-eligible students. 

The governor proposed spending $100 million so the state can create a “research triangle” to support the biotechnology, life sciences and pharmaceutical manufacturing innovation network, with $100 million in support. 

Michael Maul, the state’s director of planning and budget, also encouraged lawmakers to work on the way public school funding is allocated, mentioning issues raised in a recent Joint Legislative Audit and Review Committee report. 

“I do think this is a joint thing that needs to be hammered out by everybody about the way to go,” Maul said in explaining this was not addressed in the budget because the administration “didn’t want to get ahead of everyone on this.”

But he said he looks forward to working with lawmakers on doing this fairly and minimizing the number of localities that would end up losing revenue.

CHILD CARE EXPANSION

Youngkin said there are more than 27,000 children at risk of losing access to quality childcare as a result of an unsustainable model built with one-time federal pandemic funds.

“One thing that we know is that coming out of the pandemic, working parents, particularly mothers, struggled to remain in the workforce because of a lack of childcare options,” he said, noting this is an important element in attracting more jobs.

“That’s why earlier this month we unveiled the Building Blocks for Virginia Families initiative,” he said. “The Unleashing Opportunity budget includes an incremental $412 million over the biennium, so every low-income working family currently supported continues to have access, and $25 million for start-up investment to build capacity in childcare deserts.”

ADDRESSING MENTAL HEALTH

The governor’s budget calls for allocating $19.7 billion over the biennium, a 17.8 percent increase over the prior