Budget Deal Sealed

As the saying goes, “April showers bring May flowers.” In Virginia, they also brought a new budget.

Nearly a month after Governor Youngkin and the General Assembly agreed to extend budget talks in hopes of reaching a compromise, those negotiations came to fruition as legislators returned to Richmond on Monday to vote on a new budget. Upon its passage, the Governor promptly approved it that same day.

With the Governor’s signature, the specter of an unprecedented government shutdown has been officially averted. However, the fate of skill games remains to be seen, as language regarding their legality was not addressed in the budget.

The new two-year budget, with its major initiatives and changes outlined below, will take effect on July 1.

New Budget Removes Both Tax Increases & Tax Cuts

The updated budget removes a controversial tax increase that would have instituted a new sales tax on digital goods and services. First unveiled in the Governor’s budget proposal last November alongside $1 billion in income tax cuts, the digital tax was the only component of the Governor’s tax plan included in the General Assembly’s budget deal last month.

In response, the Governor vowed that he would not sign a budget that netted a tax increase. This week, Democratic leadership agreed to remove the digital tax, acknowledging that the Commonwealth’s revenue streams can adequately fund existing budget priorities. In exchange, the Governor’s proposed income tax reductions remained excluded from the budget.

RGGI Mandate Removed from Budget

Last year, Governor Youngkin issued an executive order to withdraw the Commonwealth from the Regional Greenhouse Gas Initiative (RGGI), citing concerns over rising costs for customers and negligible environmental benefits. Democrats strongly opposed this decision, arguing that RGGI participation was essential for achieving long-term environmental goals. During this year’s legislative session, Democrats responded by including language in the budget that required Virginia to reenter RGGI as a prerequisite for state spending.

However, the budget compromise reached this week no longer includes the RGGI language. The contentious debate over rejoining RGGI underscores the broader political challenges of finalizing a comprehensive budget while addressing fundamental policy differences with a rapidly approaching budget deadline.

Historic Investments in K-12 Education & Mental Health Services

The budget allocates over $2 billion for K-12 schools, including over $370 million for at-risk add-on funding directed to school divisions with higher numbers of economically disadvantaged students. Meanwhile, the budget preserves a 3 percent salary increase for teachers in both 2025 and 2026.

Coinciding with Mental Health Awareness Month, the budget also addresses funding for behavioral health services. The budget allocates nearly $2 billion over the new biennium, including funding for crisis stabilization and resources centers and mental health programs in schools to enhance crisis response and early intervention efforts.

A Waiting Game for Skill Games

While the budget deal addressed various priorities, the fate of skill games in the Commonwealth remains uncertain. Language to regulate skill games in Virginia was omitted from the compromise budget, meaning legislators and the Governor will need to continue negotiations and return to Richmond for a vote for a regulatory framework to become a reality.

This comes at a time when hundreds of convenience stores have decided to halt Virginia Lottery ticket sales until there is a “path forward” for skill games. The Governor and various members of the General Assembly, including the bill’s sponsor, Senator Aaron Rouse, have expressed their commitment to continuing efforts toward a solution.

The bill to legalize and regulate skill games garnered bipartisan support from the General Assembly earlier this winter. However, the Governor put forward significant amendments last month that restricted the areas where skill games could operate. This led to the Senate overwhelmingly rejecting the amendments, resulting in the current stalemate.

Next Steps: Budget Takes Effect in July

The new biennial budget will take effect on July 1 and run through June 30, 2026. Next winter, the Governor and the General Assembly will have an opportunity to amend the budget. This will be a particularly key moment for the Governor, whose four-year term ends in January 2026, to make his final impact on the budget.