Dr. Shawnrell Blackwell reads her poem about becoming a homeowner and Southside Community Development and Housing Corporation
With many legislators facing primary elections in new districts this spring, the House of Delegates and Senate are not likely to waste much time in looming negotiations on how to bridge a $1 billion divide between tax cuts and new spending in the state budget.
Their differences will be clear when the House Appropriations Committee and the Senate Finance and Appropriations Committee unveil their proposed budgets on Sunday. Each chamber will debate and adopt its version of the budget next week.
House Republicans already have embraced a $1 billion package of tax cuts that Gov. Glenn Youngkin proposed in the $177.4 billion, two-year budget that he introduced on Dec. 15, but they face a tough sell to Senate Democrats who widened their narrow edge in the chamber to 22-18 with a special election victory last month in Virginia Beach. The package, if fully enacted, would lower the income tax rate that corporations pay below the top rate that 84% of Virginians pay, regardless of how much they earn.
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“I don’t know how much they’re going to be willing to give, but I don’t think it will be that much at the top,” Richmond political analyst Bob Holsworth said Friday.
Holsworth suggested that Democrats could be willing to deal on tax cuts that help low- and middle-income Virginians, such as increasing the standard deduction on income, making more of the earned income tax credit refundable for working families and creating a refundable child tax credit.
On the other hand, Holsworth added, “Youngkin has one great advantage in that he’s inherited a lot of money,” in state revenues.
A year ago, in his first assembly session as governor, Youngkin secured $4 billion in tax cuts, aided by record revenues from Virginia’s rapid economic rebound from the COVID-19 pandemic and unprecedented federal spending to help state and local governments in the emergency. This year, he predicts an additional $3.6 billion in revenues, including a $1.9 billion surplus in the last fiscal year, and proposes to spend $2.6 billion on state services, especially in education and behavioral health.
The House has adopted all of Youngkin’s proposals for an additional $1 billion in tax cuts, but the Senate has rejected them as budget negotiations loom.
The governor and his Republican allies have proposed to lower the corporate income tax rate from 6% to 5%, while reducing the top rate for individual income tax from 5.75% to 5.5%. He wants to increase the standard deduction to twice what it was when he took office, remove the age limit for veterans to exempt up to $40,000 of military retirement income from taxation, create a new tax credit for small businesses, and expand existing business tax breaks.
In a recent appearance at the Weinstein JCC, Youngkin said Virginians are overtaxed.
“We have ample resources in order to cut taxes and invest in our top priorities and we need to get this done for Virginians,” he said.
However, Senate Finance Co-Chair Janet Howell, D-Fairfax, said Friday, “At this point, I don’t see him getting any of the tax cuts. We’re pretty determined that he won’t.”
House Appropriations Chair Barry Knight, R-Virginia Beach, said some tax cuts benefit poorer Virginians more than rich ones. “Raising the standard deduction helps poor people more than anything else,” he said Friday.
Republicans and Democrats share priorities for boosting spending on public education, health and human services. In the Senate, Democrats are interested in turning the governor’s proposal of almost $200 million in bonuses for teachers and state employees into additional pay raises or a combination of the two.
“I think you’ll see more money for those salaries,” said Sen. Chap Petersen, D-Fairfax City, chair of the finance subcommittee on general government, who is concerned about a 21% vacancy rate in state jobs and lower labor participation across the state after the pandemic.
Knight said House Republicans also are interested in different ways to hire and retain state employees and teachers. “We all agree we need to add money to our employees. It’s just the mechanics of how we get it done.”
Youngkin has said tackling the state’s mental health crisis is a major priority, and his budget includes a $230 million boost to state spending on Virginia’s long underfunded public behavioral system.
Democrats say Youngkin’s increase, while welcome, does not go far enough.
State Sen. Creigh Deeds, D-Bath, chair of the General Assembly’s Behavioral Health Commission, has an amendment calling for an additional $162 million to try to fill the nearly 2,800 vacant posts at the state’s community services boards, or CSBs, the local or regional agencies that manage treatment and programs for people with mental illness as well as intellectual and developmental disabilities. The money is to fund bonuses to help retain and recruit CSB staff.
Deeds also proposes $38.7 million in additional state funds to raise provider rates for a wide range of services for people with mental health problems through Medicaid, the state-federal program for the elderly, disabled and poor. The federal government would match those funds with $76.7 million to pay for those services.
Other Democratic senators have proposed $127 million in additional state funding to boost rates for Medicaid services to people with developmental disabilities and serve 2,350 people on the state waiting list for nonmedical services to people with those disabilities. The federal government would provide $132 million to match the new state funds for those services and Medicaid waiver slots.
Democrats hope for help from Republicans to push back on the governor’s attempts to intrude on assembly authority — from control over use of transportation funds to support improvements for economic development projects, to ensuring that critical legislative agencies have space in the newly renovated Old City Hill next to Capitol Square.
“The legislature has its prerogatives and we hold them dear,” said Howell, who expects the Senate budget to ensure space for the divisions of Capitol Police and Legislative Automated Systems in the national historic landmark, eyed by the Youngkin administration for executive agencies instead.
Knight said House Republicans generally support Youngkin and his initiatives, but he added, “We are the legislative branch. We will continue to control the checks and balances on the money ... no matter what the governor’s party.”
The governor’s budget would divert $300 million in state transportation money — including funds that pay for highway construction and maintenance, rail and public transit — to the Transportation Partnership Opportunity Fund. The proposal aims for quicker decisions on transportation upgrades to attract major economic development projects, including a new FBI headquarters sought in Springfield, but it still makes legislators from traffic-clogged Northern Virginia uneasy about the diversion of money from other state-ranked priorities.
“I don’t want to have the governor moving around hundreds of millions of dollars in needed transportation funds,” said Sen. Adam Ebbin, D-Alexandria. He cast the sole “no” vote in Senate Finance on Senate Bill 1106, proposed by Sen. Steve Newman, R-Lynchburg, one of two submitted on behalf of the Youngkin administration for the transportation initiative.
Both the House and Senate have amended the administration bills to eliminate requirements for a specified amount of funding to be shifted into the fund, while restoring requirements that the governor report to the money committees on any grants he makes. However, Newman, one of the governor’s strongest legislative allies, has balked at a House proposal to require advance approval by the assembly’s economic project review commission of any grant of more than $35 million.
On higher education, Knight predicted that the House will push to use state aid to persuade colleges and universities to moderate tuition increases.
At the K-12 level, both sides want to add money, but Youngkin will start about $200 million in the hole after the Department of Education acknowledged that it had overstated the amount of basic aid that each local school division could expect in the state budget adopted in June. The error, first reported by the Richmond Times-Dispatch, was not part of the budget itself, but many localities relied on the inaccurate estimates in preparing their budgets for the current fiscal year and the one that will begin July 1. The lower estimates pose a particular challenge for small and rural school divisions that rely more on state aid for education.
“It doesn’t change the budget, but it puts pressure on Republicans,” Holsworth said. “These are jurisdictions they represent.”
Youngkin has urged the assembly to cover the gap with additional sales tax revenues and money he included in the proposed budget.
“Rest assured, the error from the Department of Education will not result in any budgetary cuts to our school divisions,” House Majority Leader Terry Kilgore, R-Scott, said Thursday.
10 states where inflation is hitting the hardest
10 states where inflation is hitting the hardest
Everyday expenses—including gasoline, groceries, rent, transportation and utility bills—are growing at a pace not seen in decades, and 2 in 5 Americans are having a hard time making ends meet, according to U.S. Census data.
Experian examined data from the Census Bureau's Household Pulse Survey to evaluate which states had the largest share of adults who had difficulty paying for typical household expenses at the start of November 2022. In the event of a tie, the state with the higher number of people struggling was ranked higher in this list.
The Household Pulse Survey has been used to measure the impact of the COVID-19 pandemic on U.S. households since April 2020. The survey asks Americans about a range of pandemic-related issues including vaccination status, physical and mental health, and their ability meet their financial obligations. As of the date this analysis was written, the survey's most recent collection period ended on Nov. 14, 2022.
An above-average percentage of Americans in 16 states, many where residents make below the U.S. per capita income, reported they struggled to afford their usual bills in November.
Though inflation has slowed, the Federal Reserve has indicated it will continue raising interest rates to combat it. By November, prices rose 7.1% over the same month in 2021, meaning the cost of all goods and services continues to increase at more than three times the speed it typically does. The main drivers of that inflation are energy and food costs, according to the Census Bureau.
And there's reason to believe it might remain difficult for some Americans to comfortably afford regular expenses.
In September, Federal Reserve Chair Jerome Powell indicated that by raising interest rates, the central bank hoped to halt inflation by creating an economic environment in which wage growth slows and Americans spend less. Policymakers believe consumer spending is a major factor contributing to the current rise in the prices of goods and services.
National outlook: Southern states are among those struggling the most
More Americans living in Southern states, including Mississippi, Alabama, Louisiana, and Texas, as well as Nevada and New Mexico, struggled to afford regular expenses the most, according to the Census Bureau's latest survey.
Consumers in the Washington, D.C., Oregon, Nebraska, and Minnesota showed the most resilience in their ability to afford rising costs than anywhere else.
#10. Connecticut
-Percent of adults struggling to pay household expenses: 43.3%
In Connecticut, 43.3% of adults reported experiencing difficulty paying for regular household expenses. Though the state's $85,198 per capita income in the state is 30% higher than the national figure, it stayed mostly flat between the third quarter (Q3) of 2021 and Q3 2022, according to the Bureau of Economic Analysis (BEA). Wages for Connecticut residents have not risen enough to keep up with the inflation rate for all goods and services, which has topped 6.4% for the region over the past year.
#9. Florida
-Percent of adults struggling to pay household expenses: 44.1%
In Florida, 44.1% of residents reported struggling to afford household expenses in August. The Miami-Fort Lauderdale-West Palm Beach area, the largest metropolitan area in the state, has seen inflation rates that exceed the national rate. In October, the Miami metro area saw the cost of all goods and services increase from the same period last year to 10.1%, while the overall country's rate dropped somewhat year over year.
#8. Arkansas
-Percent of adults struggling to pay household expenses: 44.8%
In Arkansas, where the per capita personal income is $51,240 per year, food banks and pantries are seeing an uptick in visitors seeking help. Inflation has pushed a contingent of Americans "over the edge," the CEO of one food bank in the state said.
In November, Arkansas had an average employment rate of 3.7%, or about 49.4 million residents who were not part of its labor force. And as the state population has grown, a housing shortage has driven prices up. Those higher prices have pushed residents into rental units, driving up the median monthly rent to more than $1,300—an increase of more than 20% year over year.
#7. Texas
-Percent of adults struggling to pay household expenses: 45.3%
Almost half of Texas adults reported at least some difficulty paying for typical household expenses in November as the state comes off of a period of increased consumer spending. Texas was one of the first states to lift occupancy restrictions and mask mandates for businesses and public gatherings during the pandemic.
Texans' purchasing power can be seen in the historical 26% surge in tax revenues collected by the state through August of this year, according to the state's comptroller. At the same time, residents are footing the bill for years of underinvestment in power grid reliability, which has translated into energy bills this summer that are more than 70% higher than the year before, the Dallas Morning News reported.
As one of the most populous states, it has received a large amount of government stimulus since 2020. The state used it to support historically massive public assistance programs to help residents afford housing and utilities. A number of its programs began running out of already-appropriated funds and closed earlier this year.
#6. New Mexico
-Percent of adults struggling to pay household expenses: 46.1%
New Mexico's per capita income is $52,227 per year, which falls behind the Southwest region's $60,324 per capita income. It's also lowest among its Southwestern neighbors. In November, the state had an unemployment rate of 4.1%, with more than 38 million people off payrolls.
Inflation in the Mountain West region was 8.3% in November, the highest compared to other areas of the country. To help residents combat rising prices in 2022, the state issued up to $1,500 through economic stimulus checks.
#5. Alabama
-Percent of adults struggling to pay household expenses: 46.3%
Increased living costs across the country create a pinch for workers whose wages aren't growing nearly as fast. Still, that pinch is likely more acute in states like Alabama, where individuals' incomes were already below the U.S. overall per capita income. In Alabama, the per capita personal income was $50,762 annually—$14,874 less compared with the overall U.S. per capita income.
#4. Nevada
-Percent of adults struggling to pay household expenses: 46.7%
Nevada's tourism and leisure industries were hit hard after the onset of the pandemic, with social distancing guidelines keeping visitors—and their spending dollars—away from casinos, hotels, and tourist attractions. However, by July 2022, Gov. Steve Sisolak announced that Nevada had added more jobs to its workforce than had disappeared with COVID-19. As of November, the state has since experienced a slowdown in job growth and clocks in with 4.8% unemployment rate, which is 1.1% above the national average.
In Q1 2021, the state per capita income was $62,321, which has since declined. It inched up to $61,506 in November, a per capita income still below the beginning of 2021—and a change that falls far behind the region's 8.3% inflation rate.
#3. Oklahoma
-Percent of adults struggling to pay household expenses: 47.5%
As with other states where residents struggle most to afford household expenses, the per capita income in Oklahoma—$55,260—falls below that of the overall U.S. workforce. The state also suffered increased costs of living due to a shortage of affordable housing and out-of-state investors. In 2022, Oklahomans saw a jump in energy prices of more than 30% and food costs of more than 9%—highs not seen in 40 years.
The Regional Food Bank of Oklahoma also reported an increase in demand for its services from residents across the state—an uptick it started seeing climb in the spring, the group told Oklahoma news station KFOR-TV.
#2. Louisiana
-Percent of adults struggling to pay household expenses: 49.1%
Nearly half of adults in Louisiana struggled to afford regular household expenses in August, per the latest Census Bureau data. While median home prices in the state started cooling in June, it seems like almost everything else is more expensive. In New Orleans, food bank Culture Aid NOLA reported that for the first time this summer, it had to turn people away and enforce food limits due to increasing demand and supply chain shortages. Wages have not kept up with rising prices, and even for those who received raises in the last 12 months, the region's 7.4% inflation rate has likely completely flattened out bumps in paychecks.
#1. Mississippi
-Percent of adults struggling to pay household expenses: 50.5%
Half of Mississippi residents struggled to afford usual household expenses in the current inflationary environment in November.
Residents here have increased banking activity in recent years, as evidenced by the surge in money flowing through banks in the form of direct deposits, wages, pandemic aid relief and other banking activity. The Mississippi Bankers Association reported that it had seen 15 years' worth of typical growth in money coming into the bank in just the past three years, thanks to pandemic-era stimulus funding.
There are groups in the state working to better understand why Mississippi has a below-average percentage of residents working or looking for work as businesses struggle to staff up.
This story originally appeared on Experian and was produced and distributed in partnership with Stacker Studio.
