Virginia Revenues Surge Despite Job Losses Amid Budget Standoff

Virginia’s economy is showing increasing signs of strain from slower job growth, rising inflation, and weakening consumer confidence, even as state revenues continue exceeding expectations and giving lawmakers more room to negotiate a stalled state budget, Virginia Secretary of Finance Mark Sickles said Tuesday.

Presenting the administration’s latest economic and revenue update to the Senate Finance & Appropriations Committee in Richmond, Sickles said Virginia has lost 41,900 jobs since the start of the fiscal year 2026, while General Fund revenues remain more than $850 million ahead of forecast.

“It would not be unprecedented for us to use some of this money to get past this impasse, if we needed to,” Sickles told lawmakers.

The presentation came one day after Gov. Abigail Spanberger directed state finance officials to prepare an updated revenue forecast as negotiations continue over Virginia’s next biennial spending plan.

“When making long-term budget commitments, it is important that policymakers have the most current and accurate information available,” Spanberger said in a statement Monday. “This updated forecast will help provide budget conferees and the public with greater confidence as negotiations continue on the commonwealth’s next two-year budget.”

The revised forecast will include updated projections through fiscal year 2031.

Spanberger, navigating a budget impasse between the Democratic-controlled Senate and House of Delegates during her first year as governor, declined to adopt a revised revenue forecast during the 2026 General Assembly session that ended March 14.

Revenues, however, have continued to outperform expectations despite mounting economic warning signs.

Lucas ties economic concerns to data center debate

At the center of the budget standoff is a dispute over whether Virginia should begin rolling back a sales and use tax exemption for data centers — a proposal pushed by Senate Finance Committee Chair Louise Lucas, D-Portsmouth.

Lucas has argued that the industry places growing pressure on Virginia’s electrical grid and natural resources while creating relatively few permanent jobs.

Spanberger and House Democrats have opposed the Senate-backed proposal, arguing the tax incentive remains important to Virginia’s economic competitiveness.

Lucas on Tuesday warned lawmakers against relying too heavily on the current revenue surplus while economic conditions remain uncertain.

“For most workers, the job market is stuck, and prices are rising from the conflict in Iran,” she said. “To keep up with inflation, consumers have dipped into savings, with a personal savings rate decreasing by more than a percentage point.”

She also questioned whether state officials should commit to a new revenue forecast before having a clearer picture of economic conditions later this year.

“In every revenue report since January, we have heard caution from the administration,” Lucas said. “The Senate understood this uncertainty.”

Lucas reiterated her opposition to continuing Virginia’s data center tax incentives without additional policy changes until it is set to expire in 2035.

“Data centers will employ very few permanent jobs for a sizable tax giveaway,” she said.

“This is imperative to encourage responsible growth in the commonwealth to protect our electric grid and natural resources, while also ensuring hard working Virginians are not asked to pick up higher utility costs to fund a higher share of our existing core services,.” she added.

Still, Lucas said she remains confident lawmakers will reach a budget agreement before the new fiscal year begins July 1.

“Virginia will have a budget by June 30,” she said. “We will have to get this right for Virginians.”

Warning signs emerge in national economy

The updated economic outlook points to growing uncertainty both nationally and in Virginia.

According to the report, the U.S. economy grew at a 2% annualized rate during the first quarter of 2026, with consumer spending contributing less than usual to overall growth. Private investment remained one of the economy’s stronger areas.

National employment growth, however, continued to slow. The country added 115,000 jobs in April, representing 0.2% year-over-year growth. The federal government, financial services and information-sector employment all posted losses.

“The trend of downward on national employment growth” has continued for months, Sickles told the committee, describing overall job growth as “anemic.”

The national unemployment rate remained at 4.3% in April, while labor force participation decreased for a fifth straight month to 61.8%.

“The direction of the speed of this is obviously worrisome,” Sickles said.

Inflation accelerated in April, driven largely by higher transportation and fuel costs.

The consumer price index rose 3.8% year over year, up from 2.4% two months earlier. Transportation costs alone increased 6.9% compared with a year ago.

“If you’ve been reading a newspaper or driving a car, you’ll understand this next chart,” Sickles said while discussing rising fuel prices.

He said the increase appeared tied in part to geopolitical instability following the outbreak of the war against Iran in late February.

Consumer confidence also continued sliding as Americans expressed growing concern about economic conditions. A University of Michigan survey found consumer sentiment fell again to one of its lowest levels in decades.

Businesses reported growing concerns as well. A survey by the National Association of Business Economists found 31% of respondents expect profit margins to decline in the coming months, compared with 13% who expect improvement.

Weak labor market contrasts with revenue growth

Virginia’s labor market reflected many of the same economic pressures.

Although the commonwealth added 6,900 jobs in March, overall employment remains down by nearly 42,000 jobs since the fiscal year began. Losses have been concentrated in higher-paying sectors, including the federal government and professional business services.

“We’ve only seen three sectors show actual growth this year — state government, local government, and health and human services,” Sickles said. “I think it goes without saying this is pretty worrisome.”

Virginia’s unemployment rate held steady at 3.8%, its highest level since the pandemic, while labor force participation dropped to 63.6%.

But despite the weaker labor market, tax collections have remained strong.

General Fund revenues grew 6.9% in April compared with the same month last year, driven largely by higher withholding and non-withholding income tax payments. Fiscal year-to-date revenues are now roughly $851 million ahead of forecast.

Sickles said stock market gains and retirement income withdrawals have helped support revenue collections despite slower employment growth.

However, finance officials said revenues could still decline by 11.2% over the final two months of the current fiscal year, and Virginia would still meet its official forecast for 3.7% annual revenue growth.

by Markus Schmidt, Virginia Mercury

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