FROM THE EDITOR: Dems Are Fretting, Republicans Are Cautioning, and Localities Are Caught in the Middle
As Spanberger prepares to begin her four-year term as governor, the challenges coming from Washington are taking center stage. But localities are being squeezed by Washington and by Richmond.
By Martin Davis
EDITOR-IN-CHIEF
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Whether Virginia’s economy is on solid ground or sinking into quicksand depends on whether one is reflecting on the past four years or preparing for the four years ahead.
Gov. Glenn Youngkin is going to hand over to Gov.-elect Spanberger a healthy state budget. In Fiscal Year 2025, revenues exceeded forecast by $572.0 million (1.9%) and were $1.78 billion (6.1%) higher compared to Fiscal Year 2024 collections. Youngkin said this summer: “The fiscal management of our administration has collectively led to four consecutive years of surplus revenues and unexpended balances of approximately $10 billion.”
Further, the state’s “Rainy Day and Revenue Reserve funds (our piggy banks) have grown to $4.8 billion from under $1.0 billion just six years ago,” wrote Del. Joe McNamara (R-HD 8) in Cardinal News this past week.
However, Youngkin did not have to contend with the federal headwinds that portend challenging times ahead for the Spanberger and the commonwealth.
Appearing two weeks ago on the Jon Stewart podcast with Gov.-elect Mikie Sherrill, Spanberger said: “you can’t hide from the numbers anymore…. how many dollars are not flowing into a state. And in … the Commonwealth of Virginia, … it’s millions upon millions upon millions of dollars pulled back from transportation projects, pulled back from research at our many, many public universities and private universities.”
This past week, Senate Majority Leader Scott Surovell (D- SD34) told WVTF: “Our fiscal situation is not healthy. The Trump administration is hurting the Virginia economy…. It’s undercutting our best jobs.”
He pointed to cuts in Affordable Care Act subsidies, and “about $900 million in K-12 benchmarking, over $3 billion in Medicaid benchmarking…. If we conform with federal tax law, it’s going to cost us over a billion dollars in state revenue losses.”
And the state’s Rainy Day funds are not the solution. In a text message exchange with the Advance, Surovell said that these funds could, “in theory,” backfill lost government dollars until the state’s economy gets back on track, “but the bond rating agencies want to see that your budgets are structurally balanced in order to maintain your AAA Bond ratings.”
Rainy Day funds exist to “stabilize revenue in the event of recession,” he continued, not to cover “federal tax or benchmarking surprises.”
Caught in the middle are the budgets of Virginia localities, which are balancing budget cuts coming out of Washington with the challenging ways their budgets are increasingly hampered by decision-making in Richmond.
‘Increasingly Frustrated with Richmond’
While the Gov.-elect rightly worries about the deep cuts coming from Washington, Stafford County Commissioner of the Revenue Scott Mayausky is more concerned about what is happening in Richmond.
The challenge for the county, he says, is that Richmond’s “unfunded mandates are growing at a rate that Stafford can’t afford. And the state seems unwilling to correct that.”
He notes, for example, that the county has realized a “49% real estate tax increase since 2021,” a figure that includes the current budget.
The budget the county is operating under, Mayausky told the Advance, “assumes a 10% tax increase in the spring.”
Unfunded mandates are one of the reasons. The biggest issue, Mayausky said, is “real estate and personal property relief for 100% disabled veterans.” That benefit is taking a significantly bigger bite of the county’s budget every year.
The program, he said, is “growing on average 30% per year…. That’s 400,000 tax dollars a month that we are forgiving. This is wiping out most of our new growth.”
With few tools for raising money — and an increasing wariness to welcoming data centers that would potentially generate hundreds of millions of dollars in new revenue with limited strain on the county’s school system and roads — raising taxes is the only option left the county.
The headwinds from Washington concern Mayausky, too, but his concern is more with a slowdown in consumer spending caused by federal policies than by the feds cutting dollars to the county.
“So little of our direct funding is federal,” he said. However, consumer confidence is plummeting. Last week the Conference Board reported that consumer confidence fell sharply in November.
“Consumer confidence tumbled in November to its lowest level since April after moving sideways for several months,” said Dana M Peterson, Chief Economist, The Conference Board. “All five components of the overall index flagged or remained weak.”
Should that confidence “cause the real estate market to slow down, or people aren’t spending as much,” Mayausky told the Advance, then that would also begin to drag on the economy’s budget.
Stable, but Concerned
The city of Fredericksburg faces a significantly different set of challenges from Stafford. Heavily dependent on tourism, and considerably smaller in terms of population than its neighboring counties, federal cuts are felt more directly.
City Council member Susanna Finn points to the social services component of the city’s budget. Reached by phone, Finn told the Advance: “As a component of the H.R. 1 ‘Big Beautiful Bill,’ there are the changes in who is eligible for services. Locally, I’m concerned about the significant reduction in the administrative share that the federal government supports for the administration of those programs.”
She notes that more-stringent requirements are put to people to prove they qualify for benefits like SNAP, but now there will be fewer dollars to support the staff who must process all this additional paperwork.
“We have the same people doing more work with fewer dollars,” she said. “We use to have 20% of our staff time covered by the federal budget, now it’s going to be 10%. Who’s going to pick up that balance?”
City Council member Will Mackintosh is modestly hopeful about how the local meals and sales taxes are holding up. “We saw year-over-year stability,” he told the Advance by phone. However, the city didn’t realize “growth the way it has in recent years.”
Like Finn, he is concerned about the social services budget, but he is also worried about how closing the Department of Education is going to affect area schools. The problem, he told the Advance, is at this point “it’s not clear what that looks like.”
Asked about new funding streams, Mackintosh said that revenue from data centers is not in the immediate future for the city, but that they are looking for additional revenue streams. “Sports tourism is a place where Fredericksburg could be strongly positioned,” Mackintosh said. “We are doing what we can on that front. But that’s on the margins.”
Between Funding Streams
In Spotsylvania County, the challenges are less about finding new monies should federal cuts and state-level unfunded mandates start cutting into local budgets than waiting for that new money to start arriving.
The upcoming budget cycle for the 2026-2027 year looks to be in a decent place, said Kevin Marshall, the outgoing representative for the Berkeley District on the Spotsylvania County Board of Supervisors. “I wouldn’t be anticipating a tax increase,” he told the Advance via phone, “as our numbers are coming in better than anticipated.”
But there are still challenges. Marshall describes the 2027 budget cycle as “a transition period between old income and new income.” During that time “new firehouses should be coming online.”
The challenge will be the following budget cycle. “The 2027-2028 cycle (which begins June 2027) is going to be difficult.” He noted that the data center money won’t be rolling at that time to offset any potential cuts or unfunded mandates, or to help offset the costs of the new firehouses that are planned. Further, revenues from Kalahari, which is scheduled to open in November 2026, will only just be beginning to materialize.
For Marshall, data centers are the key to Spotsylvania’s economic future.
Unlike Stafford, which has some data centers approved but nothing close to operational, in Spotsylvania Amazon has one data center building up, according to Marshall, and is “close to having the second one under roof.”
Once the Certificate of Occupancy is issued, he continued, “some money will begin to come in.” He estimates that the “first building should be paying taxes by the end of 3rd quarter of 2026.”
He said that “If we didn’t have data center construction, we’d be in a recession right now.”
Transitioning
Spanberger does look to inherit a state budget that has benefitted from four years of rising tax revenues and business development, but the headwinds out of Washington will be a challenge for the Gov.-elect.
With Rainy Day funds reserved for recessions, cuts to Medicaid threatening health care and hospitals across the Commonwealth, and moves to shrink federal jobs and federal dollars undermining a key element in the commonwealth’s economy, Virginia is going to be in a transitional state for the foreseeable future.
The challenges at the state level will be significant, as they manage lost federal revenues.
But the challenges on the local levels will be equally trying, not only because of Washington but because of unfunded mandates that are putting significant strains on localities like Stafford.
Whether Virginia’s financial picture is rosy or pallid really depends on where one stands. For the outgoing administration, the accomplishments of the past predict a strong future for the Gov.-elect. For the incoming administration, unprecedented challenges from Washington are likely to stymy many of Spanberger’s spending plans in the short-term.
Localities, however, are pinched between the two. Federal cuts to social services loom large and offer little way forward unless the state backfills lost funding. Unfunded mandates from Virginia are putting strains on localities that compound the federal challenges.
Whether the challenges come from Washington or Richmond, however, localities will be looking to economic development as the only sure path forward.
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