Not surprisingly, Virginia legislators passed our annual budget – well before the July 1 deadline for providing continued functioning of the government. As best I can tell, there was never any real danger of the budget not passing in time – although the delay in passage allowed alarmists to criticize legislative leadership. But this was not a battle between opposing political parties paralyzing government – a regular occurrence in the federal legislature. Instead, the budget was delayed because thoughtful people needed time to wrestle with very difficult issues. In particular, the taxing of data centers, considering past promises that the centers would not be taxed, made it difficult to figure out what would be most fair, and helpful, to everyone.
The data center issue focused on the sales and use tax exception currently enjoyed by the centers – a feature provided to encourage their locating in Virginia. Would it be fair to end this tax break prematurely – breaking a promise? Would it be fair to let these businesses continue to go untaxed, and thus not pay their fair share? Decided was to keep the current tax break but create an energy consumption tax for these centers. This consumption tax should result in about $600 million annually going to Virginia, meaningfully less than these centers save by their exemption from sales and use taxes (perhaps around $1.6 billion annually). It provides for a way for Virginia to honor its agreement of no sales and use tax on data centers through 2035, while responding to the growing burden of generating sufficient electrical power. Many people may still complain about the agreement – it is after all a compromise so extremists on both sides will likely feel wronged. But the legislators, and governor, accepted the compromise as the best way to move Virginia forward.
Additional elements of the final agreement address other issues of concern to Virginians. For example, the Department of Environmental Quality (DEQ) will be creating regulations to limit data center water use in water scarce areas – hard to quibble about that. The DEQ also will be developing noise level standards -responding to a growing concern that data centers are simply too loud to be good neighbors.
A related budgetary issue is how the state will respond to rejoining the Regional Greenhouse Gas Initiative (RGGI). Virginia stopped participating in the RGGI in 2021 as then Governor Youngkin objected to its estimated increase of about $4 a month on the average household energy bill. That means that over the last four years there has been much less development of renewable energy locally than if we had remained part of the agreement. Without having made that investment then means that now investing costs more. The current budget addresses this by diverting 45% of the funds earned by RGGI back to those most in need of help with their energy bills.
As fossil fuel prices continue to rise – the entire world is turning to renewables – it is cheaper than anything else. In the United States, renewable energy now greatly surpasses coal for power production. This current budget helps Virginia move forward and should keep us from falling even further behind in developing modern, cost-effective systems for generating electricity. Of course, it is another issue that detractors will point to as increasing costs to Virginians. But more important is that it provides excellent example of how legislators must choose between immediate rewards and thoughtful planning for the future.
