With June 30 deadline looming, Virginia House conferees unveil new budget proposal as data center dispute continues to stall final agreement

Picture courtesy of Virginia House Democrats.

With less than three weeks remaining before the start of Virginia’s new fiscal year, conferees of the House of Delegate, who have been at loggerheads with the Senate controlled by the same political party, unveiled a revised state budget proposal that seeks to break the months-long stalemate over data center tax policy while preserving billions of dollars in spending on education, healthcare, childcare, housing, public safety, and infrastructure.

House Speaker Don Scott and House Appropriations Chairman Luke Torian described the proposal as a compromise package and urged the Senate to accept it. The revised spending plan comes as lawmakers face a June 30 deadline to approve a state budget and avoid disruptions to state services and employee pay.

As a conferee, Delegate Rob Bloxom was a part of Friday’s press conference.

The budget impasse has centered largely on Virginia’s treatment of data centers, a rapidly growing industry concentrated primarily in Northern Virginia. Under current law, qualifying data centers are exempt from Virginia’s 5.3% sales and use tax on computer equipment and other technology investments. State estimates indicate the exemption saves the industry approximately $1.6 billion annually.

The Senate has pushed to end the exemption, arguing the revenue could be redirected to help working families and address state priorities. Senate Finance Chair Louise Lucas has previously argued that the funds should be used to assist Virginians struggling with housing, food costs, transportation expenses, and other household needs.

The House, however, has continued to support maintaining the exemption, citing the industry’s economic impact, local tax revenue generation, and construction jobs. Governor Abigail Spanberger has also expressed support for honoring existing commitments made to companies that have invested in Virginia.

In an effort to bridge the divide, the revised House proposal removes environmental requirements that had been included in earlier House budgets. Those provisions would have required certain energy efficiency measures and imposed restrictions related to carbon-emitting power generation for data centers seeking to qualify for the tax exemption.

Instead, the new proposal creates a commission tasked with studying the data center industry’s impacts on Virginia’s economy, energy grid, environment, water resources, air quality, local communities, and utility customers. The commission would be required to submit recommendations to the General Assembly by Nov. 1, 2026.

House leaders said the commission would specifically examine ways to ensure that energy demands associated with data centers do not increase costs for residential electric customers and would evaluate whether additional revenue mechanisms should be considered in the future.

Aside from the data center issue, the proposed budget includes major spending increases across a number of areas. The package provides an additional $1.8 billion in K-12 education funding over the next biennium, including support for teacher raises, special education services, at-risk students, and school construction projects.

The proposal also includes increased funding for childcare assistance, Medicaid, developmental disability services, affordable housing initiatives, drinking water projects, wastewater improvements, public safety programs, and higher education. State employees and teachers would receive 3% pay raises in each year of the biennium under the plan.

House leaders said that the proposal does not include any new taxes and maintains what they describe as a structurally balanced budget. The package also includes a $225 million reserve fund intended to help offset potential federal funding reductions.

The revised budget received praise from Governor Spanberger, who said the proposal establishes a process for evaluating the future of data center incentives while protecting ratepayers and local communities.

The Senate has not yet released a revised budget proposal, and Senate leaders had not publicly responded to the House plan as of Friday afternoon.

The House is scheduled to return to Richmond on June 18 to consider the proposal, while the Senate is expected to reconvene June 22. If lawmakers fail to reach an agreement before the end of the month, state officials have warned that government operations and employee payroll could be affected when the new fiscal year begins July 1.