Following weeks of delay, on June 22 the Virginia General Assembly voted to approve a budget for the Commonwealth’s fiscal biennium beginning July 1, 2026. Governor Spanberger proposed 14 amendments following its passage by the General Assembly, all of which were accepted by the General Assembly. Because the legislature accepted the Governor’s proposed amendments, the budget became law without the Governor’s signature. The enacted budget appropriates more than $206 billion in general and non-general fund revenue over the biennium for state and local government services, capital investments, and other priorities. 

Passage of the budget was delayed in part due to disagreements between the House and Senate concerning potential amendments to existing law regarding the sales and use tax exemption for data center equipment. Ultimately, the approved budget makes no changes to current law regarding the exemption. It does, however, create a new tax on electricity consumed by data centers at a rate of $0.011 per kilowatt-hour. Of the revenue collected by the new tax, $600 million is to be deposited into the Commonwealth’s general fund and revenues collected in excess of $600 million are to be refunded on a pro-rated basis to qualified taxpayers. 

Key budget items of interest to Virginia’s business community are listed below, broken down by topic area. 

Paid Sick Leave 

The most impactful of the 14 amendments to the budget as originally passed by the General Assembly concerns legislation passed earlier this year requiring all employers in the Commonwealth to provide employees one hour of paid sick leave for every thirty hours worked. The amendments ensure that the definition of family member under paid sick leave is identical to the definition used under paid family and medical leave, and additionally provide that employers may require paid sick leave to be used in increments of up to four hours. These changes serve to eliminate unnecessary confusion in definitions for employers and will further improve the ability for employers to implement the requirements of the law as it becomes effective. 

Data Centers 

In addition to the new tax on data center electricity consumption, the enacted budget directs several other policy changes affecting data center operations in the Commonwealth. Item 366 directs the Department of Environmental Quality (DEQ) to amend water supply regulations by July 1, 2027, to establish criteria for determining “Cooling Water Scarcity Areas.” Prior to July 1, 2032, data centers within such areas must demonstrate to the satisfaction of DEQ that it has minimized the use of any type of water for cooling purposes. After January 1, 2027, data centers applying for air permits in the Eastern Virginia Groundwater Management Area are required to demonstrate to the satisfaction of DEQ that it has minimized the use of any type of water for cooling purposes. DEQ is further directed to conduct a study and to provide a plan on the retrofitting of existing data centers within the Eastern Virginia Groundwater Management Area to use air cooling, recycled water, or a closed-loop system. 

Separately, DEQ is further required to develop, effective no later than December 31, 2029, regulations for data center noise. Per the enacted budget, the initial promulgation of these regulations is exempted from the requirements of the Administrative Process Act. 

Third, the State Corporation Commission (SCC) is directed to collect aggregate information related to data center electric service agreements, water usage, and permitted generators. Such information is to be reported to the legislative appropriations committee chairs by October 1, 2026, and annually thereafter. 

Last, the budget directs the Joint Subcommittee on Tax Policy to study the data center sales and use tax exemption and other data center impacts through at least two meetings in 2026, with a report on identified recommendations to be delivered to the General Assembly by December 15, 2026. 

Regional Greenhouse Gas Initiative 

The enacted budget includes several amendments related to Virginia’s renewed participation in the Regional Greenhouse Gas Initiative (RGGI). The most significant of these amendments requires 45% of all revenue collected under RGGI to be remitted to customers in the residential, Small General Service, and church classes in a manner approved by the SCC. The remaining 55% of collected revenue is to be allocated, consistent with current law, to flood preparedness, energy efficiency, and weatherization programs. Virginia will officially rejoin RGGI on July 1, 2026. 

Economic Development 

The enacted budget made no amendments to the introduced budget regarding funding for the Virginia Business Ready Sites Program Fund, which will receive $50 million over the biennium. However, the budget effectively zeroes out the Virginia Business Ready Sites Acquisition Fund by directing the balance of that fund, more than $80 million, be transferred to the Commonwealth’s general fund. 

Separately, while the introduced budget sought to appropriate $35 million for design and development of an inland port in Washington County, the enacted budget reduces that funding to $10 million in FY2027. With that appropriation, approximately $20 million remains for continued development of the project. 

Labor and Employment 

The enacted budget includes two items of note regarding labor and employment issues in the Commonwealth. First, the budget appropriates $75,000 for the Commission on Unemployment Compensation to hire actuarial services for assessments including, but not limited to, impacts of annual adjustments to Virginia’s weekly unemployment benefit amount. This funding builds on legislation adopted last year which requires the Commission to study annual adjustments to the weekly benefit amount. 

Second, the enacted budget appropriates more than $10 million over the biennium to the Department of Labor and Industry to hire 25 additional employees for enforcement of the Commonwealth’s labor laws, including paid sick leave and prevailing wage. The amendment directing this funding further requires the development of an implementation plan that includes a reorganization of the labor law divisions’ current responsibilities and the identification of any additional resources needed for fiscal year 2028. 

Infrastructure 

The enacted budget appropriates substantial funding for new and ongoing infrastructure projects across the Commonwealth. This funding includes $153 million for Virginia’s share of additional operating assistance for the Washington Metropolitan Area Transit Authority (WMATA), $50 million for the Richmond combined sewer overflow control project, $50 million for grants to upgrade or replace drinking water infrastructure in localities, and nearly $190 million to the Water Quality Improvement Fund to provide matching grants for eligible wastewater treatment plant improvement projects.  

The budget further directs several studies, consultations, and analysis regarding infrastructure development of various kinds in the Commonwealth. This includes studying the feasibility and cost of aquifer recharge projects at wastewater treatment facilities in the Eastern Virginia Groundwater Management Area, studying options for large-scale improvements to the Interstate 81 corridor, and engagement with stakeholders, including members of the Blue Ridge Innovation Corridor, to discuss key priorities along the U.S. Route 220 corridor.  

Education and Workforce Development 

The enacted budget likewise includes significant funding for education, workforce development, and childcare initiatives and priorities. Specific funding items include: 

• $6.5 million in each fiscal year to support the InternshipsVA program, administered by the Virginia Economic Development Partnership (VEDP), which seeks to further the goal of providing all postsecondary students in Virginia with one or more paid internships during their undergraduate course of study. 

• More than $73 million over the biennium for the New Economy Workforce Credential Grant Program, alternatively known as FastForward, which funds non-credit workforce training that leads to a credential in a high-demand field. Other investments in workforce development made through the budget include $20 million for the expansion of career technical education programs across the Virginia Community College System, and several appropriations for workforce development facilities and programs in individual localities. 

• More than $233 million over the biennium for Tuition Assistance Grant (TAG) Program, including $6.75 million each year for grants to eligible students of TAG-eligible Historically Black Colleges and Universities.  

• Following the passage of legislation to establish the Employee Childcare Assistance Pilot Program, the budget appropriates $25 million in FY 2027 for the Program to allow employers, employees, and the Commonwealth to jointly contribute to the costs of employee childcare. 

Taxation 

Finally, the enacted budget reiterates changes previously made in the “caboose” budget for FY2025–FY2026 concerning the disallowed business interest deduction under Section 163(j) of the Internal Revenue Code which limit the deduction to 20% of such disallowed business interest for tax years 2025 and later. 

Separately, the budget authorizes all counties and cities in the Commonwealth to impose an additional local sales and use tax, at a rate not to exceed one percent, to generate revenue dedicated to capital costs associated with school construction and renovation. Counties and cities within Planning District 8 are further authorized to impose the same tax; however, revenues generated in those localities may be used for school construction and renovation capital costs and/or public transportation. In all localities, imposition of the tax requires approval by voters through a local referendum.