This story was reported and written by VPM News.
Republican Governor Glenn Youngkin said a group of corporate executives that advise him on how much tax revenue Virginia's economy can expect are "cautiously optimistic" about the coming budget cycle.
The regularly scheduled Governor's Advisory Council on Revenue Estimates meeting comes days after the Virginia House and Senate's money committees heard that the commonwealth could need to dip into a one-time surplus to cover projected expenses.
GACRE forecasts the amount of taxes the commonwealth will take in after deciding how well the council expects the economy to perform. It is the one of the final pieces of information Youngkin will consider as he crafts a budget he will propose to the General Assembly next month.
"We will be prudent, and I do believe that will leave some upside for the next administration, which I think is appropriate," Youngkin told reporters after the GACRE meeting on Monday. "The scenarios that were being discussed at both the House and the Senate retreats were overly negative from a revenue standpoint."
The "overly negative" presentations were given at annual gatherings of the state legislators who ultimately draw up the commonwealth's two-year budget — and said the General Assembly needed to be cautious.
Slashed federal funding, increasing behavioral health bills for Medicaid and updates to the cost of K-12 education are tightening Virginia's financial situation, which has leeway due to a surplus and previous additional balances of about $1.8 billion. (Virginia's fiscal 2025–26 state budget was passed at roughly $188 billion.)
A House of Delegates presentation said that "needs beyond mandatory spending will only be met because of the availability of carry-forward balances."
And the Senate Finance and Appropriations Committee said, "Mandatory budget pressures outpace revenue growth and will require attention to achieve structural balance," and that "large one-time balances can temporarily bridge the gap but should not be relied upon long-term."
Generally, structural balance is paying for ongoing expenses with ongoing revenues, and using one-time money for one-time expenses.
It is common for the General Assembly to account for excess funds and surpluses from previous years in its future spending plans — Virginia has had large such amounts at its disposal in recent years.
Both the House and the Senate committees are forecasting that the commonwealth's next budget will have about $4 billion in more resources than the current budget's $65 billion general fund.
However, the Virginia Senate's outlook anticipates another $200 million for the upcoming budget cycle, which runs from July 1, 2026 to June 30, 2028.
While Democrats expanded their majority in the House of Delegates in the recent elections, it looks as though portions of the party's agenda will have to compete for funding. It raises the question about whether Governor-elect Abigail Spanberger will be able to put forward an affordability agenda without raising additional revenue through new or adjusted taxes.
The governor-elect declined to speak to VPM News after the GACRE meeting; a member of her staff cited scheduling concerns.
In an interview Thursday, Senate Finance Chair Louise Lucas (D–Portsmouth) said Virginia Democrats might not be able to fund all the legislation they passed before Youngkin vetoed hundreds of bills. Among the bills were legislation that would have legalized a retail cannabis market, allowed for public sector collective bargaining and raised Virginia's minimum wage.
"Over the years, it always seems to turn out this way. At a time when we can probably get them passed, we probably won't have the money to fund a lot of them," she said at Radford University, on the sidelines of an annual retreat for the Senate's money committee. "That's gonna be the big part of it, is trying to find the funding for a lot of the initiatives that got vetoed that we want to get past this cycle."
During her September candidate interview, Spanberger told VPM News that she was trying to determine which revenue sources might add to the commonwealth's finances, but also if any taxes could be eliminated.
General Assembly Democrats passed a budget that closed a sales tax loophole on digital services that would have raised $1 billion over the two-year budget. After a long standoff, Youngkin and legislators agreed in 2024 to not adjust that tax.
Many debates have floated around Capitol Square when it comes to taxes, including changing Virginia's tax brackets, issuing a wealth tax, and allowing localities to raise funds with greater flexibility.
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