This story was reported and written by VPM News.
The Virginia Senate and House of Delegates split on one of the commonwealth's most controversial tax exemptions on Sunday, in a pair of votes on their state budget proposals.
The Senate is proposing a more active approach to lowering the cost of living than the House by allowing a billion-dollar data center tax exemption to expire and using it to fund tax rebates to be sent to Virginians this October.
As the Democrat-controlled House Appropriations and Senate Finance and Appropriations committees advanced their budget proposals for fiscal years 2027 and 2028, they also — as expected — dismissed Republican former Gov. Glenn Youngkin's spending strategy, which centered around additional tax cuts. This budget would run from July 1, 2026 to June 30, 2028.
The now-competing budgets come as Democrats are under pressure to deliver on their promises to raise wages and lower costs. Until Sunday, legislative leadership had avoided raising taxes or closing loopholes, even as massive federal tax cuts for the wealthy came at the expense of food assistance and public health care programs.
"I think we have the better approach, because we talked about affordability, and this is the way we get there," Senate Finance Chair L. Louise Lucas (D–Portsmouth) told reporters after her committee voted. Lucas said tax rebates — $100 for single and $200 for joint filers — would be sent on Oct. 15. It wasn't clear if Virginians with no tax liability would receive the rebate.
Lucas also said she was not worried that data centers, which have invested tens of billions of dollars in the commonwealth, would go elsewhere.
"A lot of folks are saying that they're going to be leaving," Lucas said. "I don't believe that's going to happen. I think they will continue to build in Virginia, but I think that they understand there's going to be a different playing field."
The Data Center Retail Sales & Use Tax Exemption ballooned to $1.6 billion in FY26, and allowing it to expire would give the state about $1 billion in additional funding, according to the Senate's budget staff.
The industry says the benefits outweigh the cost, pointing to an estimate by JLARC (cited by the state Department of Taxation) that 90% of the investment "by the companies that benefit from the DCRSUT exemption would not have occurred in Virginia without the exemption."
"The Senate's decision to end the data center tax exemption is a strong starting point," said Ashley Kenneth, president of The Commonwealth Institute for Fiscal Analysis.
The House Appropriations Committee put forth more modest spending for key items, using a billion-dollar budget surplus left over from past budget cycles and opting out of the tax cuts that Youngkin had proposed rather than finding new funding.
"Because we have the resources to address the needs, we're appropriating them very prudently," said House Appropriations Chair Luke Torian (D–Prince William). "We thought there was no need to have a big tax increase."
Both committees were faced with two large holes in Virginia's social safety net, for SNAP and Virginia's Insurance Marketplace. Lucas said Youngkin's approach had "significant structural deficiencies and refused to plan for the increased cost to Virginians from federal actions in HR1," otherwise known as The One Big Beautiful Bill Act.
The so-called "megabill" imposed requirements on states to more accurately pay out food assistance benefits, or be forced to pay for some of them. Virginia was facing an annual penalty of $270 million starting in FY28, but Youngkin had assumed the state would be able to more accurately pay out the benefits and did not provide funding in case it failed to do so. The House and Senate both provided funding to cover potential penalties.
And on health care, Congress let a set of tax credits that subsidized Affordable Care Act insurance plans expire in December. The full cost of filling that gap at the state level would have been about $500 million for the budget cycle.
The House of Delegates' budget proposed using $79.1 million to mitigate the effect of the expired subsidies that supported Affordable Care Act health insurance plans over two years. The State Senate proposed $200 million for the first year, possibly waiting for Congress to act or using unexpected revenues to be added into the budget next legislative session. Congressional efforts to fund the subsidies again have repeatedly stalled.
Republican delegates on the House Appropriations Committee all voted for that chamber's proposals, while three Republicans on the Senate Finance Committee abstained.
"This budget has a significant amount of additional revenues up and above the proposed budget," said Senate Minority Leader Ryan McDougle (R–Hanover). "I think we need to have a serious conversation about where those revenues come from, how they impact Virginians, and continue to discuss them as we go forward."
The budget is also shaping up to be a clearinghouse for proposals that the committees shelved during the regular legislative process, like universal school breakfast, a local option for a 1% sales tax for school construction tax, and an increase in the standard deduction.
Both chambers also proposed $50 million in funding for ongoing, state-mandated efforts to update Richmond's combined sewer overflow system, down from the $200 million the city requested.
Both spending proposals will now be considered by the full chambers, and likely lead to negotiations by a small group of legislators from both bodies.
Spokespeople for Democratic Gov. Abigail Spanberger had no comment on the budget proposals.
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