Governor Terry McAuliffe announced last week that state General Fund (GF) revenues turned in a strong performance in September, increasing 5.5 percent over the previous year. On a fiscal year-to-date basis, total GF revenues are running ahead of the annual forecast of 2.7 percent growth, with growth of 4.1 percent.
Individual income tax withholding collections, which comprise nearly two-thirds of GF revenues, continued to be a mainstay, growing 5 percent in September; on a fiscal year-to-date basis, withholding collections grew 4 percent, outpacing the annual estimate of 1.8 percent growth. Corporate income tax collections increased markedly in September, rising 20.8 percent; on a fiscal year-to-date basis, collections are up 27.9 percent, well ahead of the annual forecast of 1.6 percent. This revenue source is a small portion of overall GF collections and tends to be volatile, but in an article in the Richmond Times-Dispatch, Secretary of Finance Ric Brown cited its robust performance as one indicator of overall economic health.
Another encouraging sign in the monthly report was September’s healthy growth in sales tax revenues, which had failed to meet the forecast in FY 2017 and underperformed in August. In September, collections grew 5 percent, and increased 2.7 percent on a fiscal year-to-date basis, approaching the annual estimate of 2.8 percent.
During his presentation to the House Appropriations Committee on October 16, Secretary Brown noted that the fall revenue forecasting process is underway in preparation for the Governor’s presentation to the “money committees” in December. In discussion with committee members, he listed several large spending items that must be addressed in the biennial budget that will be introduced in December, including required rebenchmarking of Standards of Quality, growth in the Medicaid forecast, and potential loss of the enhanced federal match rate for the Children’s Health Insurance Program. He also noted the potential effects of other federal actions on Virginia’s budget, such as another round of federal spending reductions related to sequestration. Members discussed whether these claims on the budget would crowd out spending on other priorities; Secretary Brown suggested that continued economic growth and the resulting strength in state revenues could alleviate these budget pressures.
Secretary Brown also reported on recent discussions with bond rating agencies. In light of Standard and Poor’s decision to put a negative outlook on Virginia’s AAA bond rating earlier this year, both the Governor and General Assembly leadership have signaled that they will seek to place additional funds into a new cash reserve that was implemented in the budget in 2017. Secretary Brown told committee members that Standard and Poor’s retained the negative outlook in its October report, but is open to revising that position if Virginia bolsters its reserves and avoids making further withdrawals from the Revenue Stabilization Fund in the absence of an economic downturn. House Appropriations Chair Chris Jones said that he will introduce legislation in 2018 to put the state on a path to amassing a cash reserve of approximately $380 million over several years, the equivalent of 2 percent of the GF operating budget, in order to provide an additional cushion against future revenue shortfalls.
VACo Contact: Katie Boyle