RICHMOND — At a time when legislative budget analysts warn of a looming downturn, Virginia Gov. Glenn Youngkin (R) had a contrary message Wednesday for the incoming administration of Gov.-elect Abigail Spanberger (D):
The state’s economy is “rip-roaring.” Don’t mess it up.
“Let’s hold the next administration accountable for keeping it going. That is what I am most worried about,” Youngkin told reporters Wednesday morning after presenting the final budget proposal of his time in office to the money committees of the General Assembly.
He urged Democratic lawmakers to continue his policies or risk crippling the state.
“My cautionary message is to stay with the program and don’t pass antibusiness legislation,” Youngkin told members of the budget-writing committees of the House of Delegates and state Senate. Both are controlled by Democrats, who won big in elections last month that saw Spanberger defeat Youngkin’s chosen successor, Lt. Gov. Winsome Earle-Sears (R), by 15 points on promises to improve the cost of living and access to health care.
Youngkin’s budget plan is predicated on continued growth in jobs and tax revenue, even though the legislature’s nonpartisan budget analysts have warned that slowdowns in hiring, the effects of inflation and Trump administration policies such as trade tariffs and cuts to the federal workforce will weaken the economic outlook. At the same time, big new expenses such as increases to the state’s obligation for Medicaid and the need to benchmark K-12 education funding will create massive additional costs, the legislative budget forecasters found.
Youngkin rejects that assessment, which he blamed Wednesday on Democrats and the media hoping for a downturn to undercut his achievements and those of President Donald Trump and Republicans in Congress.
“I know everybody wants to have doom and gloom, but I’m just telling you, it’s good,” Youngkin said.
The plan Youngkin put forward Wednesday emphasizes conforming Virginia’s income tax code to many of the changes to federal tax policy passed by Congress — including cuts in taxes on tips, overtime pay and car loan interest, moves that would decrease state revenue.
At the same time, Youngkin has proposed spending more on priorities such as education, law enforcement and health care, while still footing the bill for the major increase in Virginia’s share of Medicaid costs.
How would he pay for all that? Youngkin says he believes his efforts to diversify the state’s business base, in tandem with White House policies under Trump, are creating a healthy economy that will extend the growth and budget surpluses Virginia has enjoyed over the past several years.
“This high rate of revenue growth should continue as long as Virginia stays with the demonstrated winning formula,” Youngkin told lawmakers, adding that “many in this room” predicted a downturn in the current year but that “financial calamity has not happened and Virginia, again, is running a surplus.”
He said he had worked with the Trump administration to restore $2.3 billion worth of grants that had been paused under the White House’s efforts to slash the government, to bring the headquarters of the federal Department of Housing and Urban Development to Virginia, and to keep offices of the National Science Foundation in the state.
Trump’s cuts to the federal workforce, while hurtful to some individuals, “have been far less than the catastrophic predictions,” Youngkin said.
Virginia’s unemployment rate ticked upward for much of the year, though at 3.6 percent it’s still below the national average. Revenue collections for the first four months of fiscal year 2026 — July through October — have run some $500 million ahead of estimates, Youngkin said this month.
Virginia operates on two-year spending plans. The last major act of every outgoing governor is to prepare a budget package that his or her successor will work from in the next legislative session, which in this case begins Jan. 14. Spanberger will be sworn in on Jan. 17, and she and Democrats who control the General Assembly are likely to make significant changes to Youngkin’s proposal — though there are some areas of agreement.
Spanberger, who sat in the front row Wednesday for Youngkin’s presentation, issued a written statement later saying that she and her team were “digging through the details” of the proposal. “I look forward to working with the General Assembly to lower costs for Virginia families, invest in Virginia’s public schools, and protect access to critical healthcare services,” she said.
Here are some highlights of the Youngkin spending plan:
Tax cuts: Youngkin and the General Assembly have teamed up for some $9 billion in permanent or one-time tax cuts since he took office in 2022, and he keeps that trend going here. The proposed budget includes about $730 million more in tax cuts for individuals and businesses.
Almost all of that involves conforming Virginia’s income tax policy to changes passed this year by Congress, such as cutting taxes on tips, overtime and car loans. But Youngkin would limit those tax cuts; fully adopting the federal policy would cost Virginia more than $2 billion over the next three years, state Senate budget analysts found.
To reduce that cost, Youngkin would limit a corporate tax credit on research and development so it only looks forward, not backward. He would cap a manufacturing construction cost deduction so only 50 percent could be deducted. And he would delay the break for tips, overtime and car loan interest by a year, then limit the break to apply to 25 percent of someone’s tips the first year and 50 percent thereafter.
Medicaid: Youngkin would fund an expected increase in the state’s share of Medicaid expenses to the tune of $2.6 billion through the end of fiscal 2028. That’s less than the $3.2 billion cost forecast by legislative analysts; Youngkin said he would achieve savings by finding efficiencies in the system and eliminating “waste, fraud and abuse.”
Education: Youngkin’s plan provides a 2 percent bonus for teachers and other state employees for the second half of fiscal 2026, and then a 2 percent salary increase in each of the next two years. He would include an additional $544 million for the next two years toward K-12 re-benchmarking, which is the process by which the state evaluates funding levels needed for local school districts. Legislative analysts have projected the full cost of re-benchmarking could be more than $800 million.
Areas of agreement: Yes, there are some places on which Democrats have already said they agree with Youngkin on his basic proposal.
“The Governor’s introduced budget makes some essential investments that Senate Democrats support,” the Senate Democratic Caucus said in a written statement. “Protecting Medicaid, strengthening SNAP [food benefits for low-income families], and raising pay for our teachers and school staff are meaningful steps that reflect priorities we’ve long championed.”
The dollar amounts, of course, will be hashed out during the coming General Assembly session.
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