Virginia’s governing Democrats played “let’s make a deal” to pass a two-year budget that will take effect next week.
The state lawmakers opted to maintain a tax break that encourages companies to build data centers in the commonwealth. They offset that by imposing a new tax on the energy that those centers will use.
Gov. Abigail Spanberger is taking credit for the idea.
“Importantly, this budget positions the commonwealth to be a national leader on data centers,” she announced. “Virginia will institute a statewide energy consumption tax on data centers—an idea I first proposed this spring—to ensure this industry pays its fair share and does not drive up costs for Virginia families.”
Lawmakers hope the new policy can raise $1.2 trillion over the next two years. They promised to cap it at $600 million per year and refund any amount over that to companies at the end of the fiscal year.
“This compromise will bring hundreds of millions of dollars into our budget and at the same time make sure that they are paying their fair share,” Democrat Del. Sam Rasoul told WSLS after the proposal passed.
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However, there is no guarantee that the agreement will raise that much. “What happens when the Virginia spenders ‘only’ collect three-quarters of a billion dollars?” Joe Thomas wrote in the Daily Signal.
No matter how much revenue it brings in, the proposal comes with real costs.
“The conference report creates a web of new regulations for data centers, many on an expedited timeline. They will dictate water use and create a new state noise regulation, one targeted only at data centers but not other noisy industrial neighbors,” Steve Haner, an energy policy analyst at the Thomas Jefferson Institute, told the Daily Signal.
“The Assembly wants information on all utility agreements with data centers. The consumption tax adds to state revenue but will not end the push to eliminate the sales and use tax exemption that previous assemblies approved. The political battles over the industry are going to intensify,” he added.
As if to prove the point, the state’s leading Democrat took to the Senate floor to critique her own agreement. “I still believe that expiring the data center sales and use tax exemption would be the best plan forward,” President Pro Tempore L. Louise Lucas said. “However, this conference report provides an alternative path where data centers pay their fair share to support services for Virginia and ensure structural balance.”
Lucas vowed to resume her “listening tour,” which passed through the Richmond area last week to hear from opponents of data centers.
Top Republicans have also opposed maintaining the tax break. “I am somebody who thinks we need to get rid of the data center tax break, because I don’t think we need to be giving $2 billion a year to huge AI big tech firms,” state Sen. Glen Sturtevant told the Daily Signal.
The process itself was troubling to the GOP.
“The budget has finally passed, but not in a manner that should make any Virginian proud,” House Minority Leader Terry Kilgore told WSLS. “More than 100 days after the General Assembly adjourned, lawmakers were forced to consider a budget that was substantially rewritten at the last minute and loaded with policy provisions that should have been debated openly during the regular legislative session.”
The budget deal also includes $20 million to fund construction of an “inland port” in Washington County. A similar project near Front Royal takes in railroad shipments from the Port of Virginia and moves the freight out by truck.
Lawmakers also approved studying improvements to Interstate 81 and appropriated $7 million to upgrade U.S. 460 in Buchanan County.
The lawmakers decided to spend some taxpayer money to beautify the neighborhood near their workplace. The budget ponies up $15 million to tear down the Richmond Coliseum, which closed in 2019 and has been wasting away ever since, just blocks from the capital.
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