(The Center Square) – Virginia budget negotiations remained stalled Thursday as lawmakers clash over billions in tax breaks for data centers, a dispute now holding up progress on a final spending plan.
Lawmakers returned for a special session this week without reaching an agreement, with debate centered in part on whether to continue or scale back the state’s data center sales tax exemption.
One version of Virginia’s two-year budget totals about $212 billion, according to legislative budget documents, underscoring the scale of the spending plan lawmakers must finalize before the June 30 deadline.
Del. Terry Kilgore, speaking to reporters at a press gaggle, said the issue remains a major sticking point in negotiations.
“A lot of this comes down to what we’re doing with the tax credit for data centers,” Kilgore said.
Virginia is required to pass a balanced budget, meaning lawmakers must agree on expected revenue before finalizing spending decisions.
Without a deal, funding decisions remain uncertain for local governments, school systems and state agencies that rely on state allocations ahead of the deadline.
“It’s a big issue for our localities … school boards, counties,” Kilgore said. “They’ve got budgetary constraints also.”
Virginia created the data center sales tax exemption in 2008 under then-Gov. Tim Kaine to attract companies to the commonwealth. As the industry expanded, the cost of the incentive grew significantly.
State financial reports estimate the exemption reduced tax revenue by about $1.6 billion in fiscal year 2025, making it one of the largest tax preferences in Virginia.
Republicans also raised concerns on the Senate floor about the lack of progress on a budget, pointing to ongoing disagreements tied to data center policy.
Sen. Mark Peake said lawmakers had failed to meet their primary responsibility.
“Our only constitutional obligation as a body is to produce a budget,” Peake said. “We still don’t have a budget.”
Peake defended the role of data centers in Virginia’s economy, warning against efforts to scale back incentives.
“You’re trying to kill the golden goose,” he said. “Data centers have kept tax rates low in many of your localities.”
Democrats, however, say the issue is not whether data centers should operate in Virginia, but how much they should contribute.
Sen. Lamont Bagby said lawmakers want to keep the industry in the commonwealth while addressing rising costs tied to its growth.
“We want data centers here but we want them to pay their fair share,” Bagby said, pointing to concerns about affordability, energy demand and long-term sustainability.
The debate comes as public scrutiny of the policy increases.
A survey commissioned by Clean Virginia and conducted by Hart Research found that 65% of likely Virginia voters oppose the current data center tax exemption, while 67% support ending it. The poll surveyed 600 voters March 26-30 and has a margin of error of +/- plus 4%. The results were released by an advocacy group that supports ending the tax break and have not been independently verified.
A separate Washington Post-Schar School poll reported similar findings, with 67% of voters saying the state should end the incentives.
Supporters of ending the tax break say the policy diverts billions in potential revenue that could be used for tax relief, education or infrastructure.
Kilgore and other Republicans argue the incentives remain critical to maintaining Virginia’s position as a global data center hub and supporting economic growth.
“We’ve made promises to these data centers when they came here and we need to fulfill our promises,” Kilgore said.
Kilgore also signaled openness to alternative approaches, including requiring data centers to cover more of the costs tied to their energy use.
“Sure I would,” he said. “I just don’t think we can go back on our word.”
Lawmakers have begun exploring options this session to shift more energy and infrastructure costs onto large electricity users such as data centers, though no broad agreement has been reached.
The disagreement reflects a wider divide in the General Assembly, where the Senate has supported scaling back the tax break while the House has resisted changes.
Until lawmakers reach an agreement, negotiations are expected to continue ahead of the June 30 deadline.
