General Assembly budget leaders were poised on Tuesday to end a six-month political stalemate and agree on revisions to the $165 billion two-year budget the legislature adopted 14 months ago.

The tentative deal would rely on one-time taxpayer rebates instead of the package of permanent income tax cuts for corporations and individuals that Gov. Glenn Youngkin has advocated, but the total reduction in state revenues would approach $1 billion. The centerpiece of the deal is one-time payments of $200 for individual taxpayers and $400 for couples that the Senate pushed as an alternative to the proposed cuts in the corporate and top individual tax rates that Youngkin first pitched in December.

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Budget leaders were hopeful of reaching an agreement on Tuesday night, with the governor preparing to address the assembly money committees on Wednesday about varying estimates of state revenues available to pay for spending in the revised budget and the economic forecast for the next two-year spending plan that he will introduce in just four months.

“I’m very optimistic — I think we’re very close to a deal,” Senate Finance Co-Chair Janet Howell, D-Fairfax, said on Tuesday afternoon.

House Appropriations Chairman Barry Knight, R-Virginia Beach, also was optimistic on Tuesday, a day after face-to-face budget negotiations reconvened for the first time in more than six weeks. Talks broke down in late June, leaving Virginia without a revised spending plan for the second time in 50 years. Previously, talks had collapsed on Feb. 24, the day before the assembly adjourned with only a “skinny budget” allocating about $1 billion in essential spending for schools, financial reserves, capital projects and pension liabilities.

“Everything has been very amicable, very positive,” he said on Tuesday morning. “We’re trying to work through it. We all want a deal and we’re all working towards that goal.”

Despite the progress, Howell and Knight didn’t expect to reach agreement on Tuesday night as negotiators worked through funding proposals for K-12 public education and other issues.

“Senate hopes to re-engage after the Governor’s presentation tomorrow,” Howell said in a text.

2% raise for teachers, state employees on table

Knight met on Monday afternoon with Howell and Senate Finance Co-Chair George Barker, D-Fairfax, to address their differences on tax policies to determine how much revenue would be available for spending priorities, including an additional 2% raise for teachers and state employees that both sides have supported.

“We’ve got a framework of tax policy kind of settled,” he said.

The budget leaders would not provide details until the conference committee — nine senators and six delegates — complete their work on a final agreement. However, Howell said the framework is “along the lines of the latest proposal” that the Senate made on Aug. 10. The Senate proposed then to devote almost $907 million in one-time revenues to rebates for taxpayers this fall, similar to one-time payments made a year ago as part of a $4 billion tax cuts package that the assembly approved and Youngkin signed.

The tentative framework also included an increase in the standard deduction of at least $500 for individuals and $1,000 for couples, although the House wants to double that amount for taxpayers who don’t itemize deductions on their returns. It includes in an increase in the deduction for business interest expense, but the Senate balked at a House proposal to remove the age limit for an exemption of military retirement income, which was part of the last year’s budget agreement.

The House retreated from Youngkin’s proposals to reduce the corporate income tax rate by 1 percentage point and the top individual tax rate by a quarter-percentage point. The governor’s proposed package would have reduced state revenues by more than $1 billion over two years and cost more than $1.4 billion annually in future fiscal years, but the Senate insisted on limiting permanent cuts to protect future revenues in an uncertain economy. Howell and Barker said the Senate’s proposed package would add just $180 million in ongoing tax cuts in addition to $1.2 billion adopted last year.

Next step: Special session of General Assembly

If budget negotiators reach an agreement, the governor would call a special session of the General Assembly so the House of Delegates and Senate can vote on it. Youngkin would have an opportunity to propose amendments that the legislature would consider in another session or he could sign whatever they adopt to finally conclude the budget drama just before he introduces a new two-year spending plan. The budget that Youngkin presents in December will be the only one he controls from introduction to adoption because of Virginia’s unique system of limiting a governor to a single term.

The House Appropriations and Finance committees, and the Senate Finance and Appropriations Committee were to meet with Youngkin on Wednesday morning to get a clearer idea of revenues that Virginia collected in the last fiscal year and look ahead to a new revenue forecast to support the next two-year budget.

Details of fiscal year results have been scant, but Youngkin reported last month that the state collected $3 billion in excess revenues in the last fiscal year. He contends that, plus the $1.9 billion surplus collected a year ago and unspent appropriations, will give the state a total of $5.1 billion to spend on tax relief and shared priorities. That represents about $1.5 billion more than the $3.6 billion he estimated to pay for the budget changes proposed in December.

However, the Senate estimates that the state starts with this year’s surplus and almost $850 million that the assembly didn’t spend in the “skinny budget” it adopted in late February. It also subtracts at least $1 billion that the state expects to owe taxpayers who took advantage of a new “pass through entity tax” that the assembly adopted last year to avoid a federal cap on state and local tax deductions. The new tax increased revenues in the fiscal year that just ended, but the state will have to pay it back as individual refunds in the current fiscal year. Youngkin did not include the expected refund in his year-end estimate.

Earlier this month, Youngkin told the Governor’s Advisory Council on Revenue Estimates that he expects a “soft landing” for the state’s economy instead of the mild recession that he had predicted in the last fiscal year. A “soft landing” would allow the economy to slow and inflated prices to fall without causing the major job losses and big drop in economic activity that come with a recession.

From the Archives: The Virginia state Capitol building