The new budget includes additional taxes on data centers and provides salary increases for both educators and state workers.
RICHMOND, Va. (WRIC) — Virginia’s legislators have unveiled a conclusive budget agreement, a crucial step that aims to prevent an unprecedented government shutdown in the state.
Achieving a finalized budget for Virginia’s 2026-28 financial plan has been a challenging process, marked by intense disputes among state officials. A major point of contention was the tax exemptions for data centers, which have traditionally saved developers billions.
Senate members aimed to eliminate these tax breaks, arguing that data centers should contribute fairly to maintain operations in Virginia, the global hub for data centers. In contrast, members of the House resisted, emphasizing the significant role data centers play in sustaining 74,000 jobs statewide and contributing over $2 million in local taxes.
The protracted negotiations extended to the point where the legislative session concluded without a budget, necessitating lawmakers to return to Richmond for its completion.
After further discussion, on Friday, June 19 — less than two weeks before Virginia’s budget deadline — Virginia lawmakers published their completed budget agreement.
What’s in this long-awaited budget?
This budget contains tens of billions of dollars in spending, including 4% raises for Virginia’s teachers and 3.5% raises for its state employees during each of the next two fiscal years.
It also includes an “energy consumption fee” for data centers. For the next two fiscal years, on a monthly basis, data center developers will need to pay $0.011 per kilowatt hour (kWh) of all electricity they consume at each of their data centers. These revenue collections are capped at $600 million per year.
Additionally, Virginia is raising the standard deduction for its taxpayers. Currently, when filing state taxes, single filers can take a standard deduction of $8,750, and joint filers can take a standard deduction of $17,500.
In 2027, those deductions will increase to $9,200 and $18,400, respectively. In 2028, they will increase to $9,300 and $18,600.
Under this new budget, localities would also be able to hold referendums regarding a possible 1% sales tax increase to fund school construction. Voters could see this issue on their ballots as soon as this November, should interested localities act quickly.
The budget also establishes a “regulated, adult-use retail cannabis market,” with sales to start on July 1, 2027. The number of stores statewide will be capped at 350.
In addition to state sales taxes, localities will also have the option to levy an additional 3.5% tax on marijuana sales. There will also be an excise tax rate of 6% for the next two years, which will increase to 8% in 2029.
Sen. L. Louise Lucas (D-Portsmouth) and Del. Luke Torian (D-Prince William), who both chair their chambers’ respective finance appropriations committees, released a joint statement regarding this budget agreement. It reads as follows:
“This budget agreement reflects our shared commitment to making Virginia more affordable for families. At a time when too many households are feeling squeezed by rising costs and economic uncertainty, this conference report makes historic investments to lower costs, strengthen our schools, protect access to healthcare, expand economic opportunity, and maintain the Commonwealth’s strong fiscal foundation.
We appreciate the hard work of the conferees, staff, and our colleagues in both chambers who helped make this agreement possible. We look forward to passing this conference report and sending it to Governor Spanberger’s desk.”
What happens next?
There are still multiple hurdles this budget has to clear.
First, it must pass both the House of Delegates and the Senate. Both legislative bodies should take up these votes on Monday, June 22.
It must then be signed into law by Gov. Abigail Spanberger (D).