A recent meeting of the Senate Appropriations Committee showed Virginia continues to beat revenue expectations. But the good news comes as uncertainty, and the option of conforming state taxes to new federal cuts, looms on the horizon.
Let's start with the good news from Tuesday’s Senate money committee meeting. Revenues are up 7% year to year, about $287 million. In August alone, income tax withholdings were up 10.3%, a number so shocking Governor Glenn Youngkin’s staff had to double check the numbers. And consumer spending is growing at 2% year over year.
Impacts on state revenues from federal job cuts are so far, “not statistically significant from the previous year.”
And the bad news? Consumer sentiment is falling, almost 5 points in a month, down 21 points from last year. And Virginia’s usually below-average unemployment rate is increasing.
“So, while the macroeconomy is clearly slowing, the overall picture for Virginia continues to show resilience, customers still continue to spend, revenues are ahead of forecast and a data point toward a slower but continued growth,” Virginia’s Secretary of Finance Stephen Cummings told the committee.
All these numbers are extra important right now as Youngkin, in his final months in office, must submit an outgoing budget before leaving office. Buyouts that delayed federal employee terminations until October are expected to start showing up in the numbers by November. So far, only about 200 former federal employees are claiming unemployment in Virginia, there’s over 2,000 between DC and Maryland.
But questions about how the unemployment would be paid out, whether from Virginia or DC as place of employment, also remain.
Democratic Senator Jeremy McPike said he’s seen impacts in his neighborhoods already. He asked how confident Cummings would be in that December budgeting forecast.
“I think we’re gonna have really good data as we get into the meat of our budgeting process and having a sense of revenues," he responded. "I think these next few months are going to be really important.”
Youngkin’s budget is due in December, though the next governor will likely modify it with help from the legislature in early 2026.
The meeting also held a presentation on tax impacts from President Donald Trump’s One Big Beautiful Bill if the state chose to conform state tax law to some of the new federal cuts.
Virginia’s legislature must decide if they’ll conform to those changes; in the past language that would have forced conformity was in some state budgets, but it was removed during the last legislative session.
Legislative staff said conforming to federal cuts on things like ‘no tax on tips’ or business depreciation changes could cut Virginia’s budget by over $2 billion over the next three years.
Hanover Republican Senator Ryan McDougle made this comparison about the depreciation changes which would allow for claiming lost value ahead of previous limits.
“If a landscaping company bought a lawn mower and a truck, they’d depreciate that in year one as opposed to doing it over five years?” McDougle asked staff who responded in the affirmative. “So, they’d get the federal deduction, but they’d pay more in state tax if we don’t conform… Correct.”
The cost of the depreciation changes in the first year if Virginia conforms with the federal change? $400 million.
Legislators will consider conforming the state tax code during the 2026 legislative session.
This report, provided by Virginia Public Radio, was made possible with support from the Virginia Education Association.
