(The Center Square) – Virginia revenues are running hundreds of millions of dollars ahead of forecast, but lawmakers warned Tuesday that slowing job growth, inflation and uncertainty tied to healthcare and federal funding are still creating pressure on Virginia’s budget talks.
During a Senate Finance and Appropriations Committee meeting, Secretary of Finance Mark Sickles said the commonwealth has lost roughly 41,900 jobs over the last 10 months even as revenues continue outperforming expectations.
“Virginia has a remarkable economy,” Sickles told lawmakers. "We lost 41,900 jobs in the last 10 months and still have revenues coming in like this."
According to the administration’s presentation, Virginia revenues are growing 7.3% year over year and could still decline 11.2% over the final two months of the fiscal year while still meeting the commonwealth’s 3.7% revenue forecast.
Sickles said much of the revenue growth has come from nonwithholding income tied to stock market gains and retirement withdrawals, while the number of traditional W-2 tax forms remained flat to negative.
Committee Chairwoman Louise Lucas opened the meeting by cautioning lawmakers against relying on temporary revenue growth to fund ongoing expenses. Budget negotiations are ongoing between the House, Senate and Gov. Abigail Spanberger’s administration.
“There is certainly revenue that exceeds the forecast in the bank today, however, I caution anyone who tries to tell us to use one-time money for ongoing budget expenses,” Lucas said.
Lucas also defended efforts to scale back tax incentives for large data center developments, saying residents should not bear infrastructure and utility costs tied to rapid expansion.
“I remain committed that data centers who employ very few permanent jobs for a sizable tax giveaway will pay sales tax on computer equipment,” Lucas said.
Lucas said the commonwealth must “protect our electric grid and natural resources” while ensuring Virginians are not forced “to pick up higher utility costs to fund a higher share of our existing core services.”
Spanberger has also directed state officials to reforecast fiscal years 2027 and 2028 revenues, prompting questions from lawmakers about how the updated projections will be developed and whether legislative stakeholders will be involved in the process.
Sen. Scott Surovell raised questions during the hearing about statutory requirements involving the Governor’s Advisory Committee on Revenue Estimates and legislative input into the forecasting process.
Sickles warned lawmakers that removing data center tax exemptions entirely could push future projects outside Virginia.
“They have said that they’re not going to go forward without this tax abatement,” Sickles said while discussing a proposed Southside Virginia data center project.
Sickles also told lawmakers that Compass Datacenters had sent the administration a written statement saying Virginia’s “current legislative and political environment” no longer reflected “the kind of partnership that makes these investments viable” and that the company had redirected “all further investment outside of Virginia.”
According to Sickles, the company abandoned projects tied to the Prince William Digital Gateway area as well as potential expansion sites in the Greensville County-Emporia region.
“I think we would just be taking ourselves out of the game if we went forward with this total removal,” Sickles said. “I think there’s room to compromise.”
Some lawmakers questioned whether the long-term infrastructure demands tied to additional data centers would outweigh the projected economic benefits.
Sen. Creigh Deeds questioned how many additional data centers would be needed to generate the proposed Southside project’s projected 2,500 jobs.
Lucas later clarified that the projections could require significantly more development and infrastructure.
“I think what needs to be clarified here is that in order to get those 2,500 jobs, you’re talking about 40 additional data centers,” Lucas said.
Lucas added that additional projects would also require expanded power, water and infrastructure capacity.
Lawmakers also raised concerns about rising healthcare pressures tied to federal policy changes and Medicaid funding.
Sen. Barbara Favola warned the Commonwealth may face additional administrative and healthcare costs tied to federal changes under House Resolution 1, including Medicaid eligibility checks and insurance losses.
“We have a lot to worry about,” Sickles responded.
This was Lucas’ first Senate Finance and Appropriations Committee meeting since federal agents earlier this month executed search warrants tied to businesses connected to the longtime Portsmouth lawmaker. Lucas has not been charged with a crime and has denied wrongdoing.
Despite the ongoing budget negotiations, Lucas said lawmakers still expect to finalize a state budget before the fiscal year deadline.
“Virginia will have a budget by June 30,” Lucas said. “I repeat, Virginia will have a budget by June 30.”
